PNC 10-K diff: FY 2023-12-31 → FY 2024-12-31
Paragraph-level diff of Risk Factors (Item 1A) and Management's Discussion & Analysis (Item 7).
Item 1A · Risk Factors
+84 paragraphs −97 paragraphs ~84 changed
FY 2023-12-31 (earlier)
ITEM 1A – RISK FACTORSWe are subject to a number of risks potentially impacting our business, financial condition, results of operations and cash flows. As a financial services company, certain elements of risk are inherent in what we do and the business decisions we make. Thus, we encounter risk as part of the normal course of our business, and we design risk management processes to help manage these risks. For more information about how we manage risks, see the Risk Management section of this Report.The following are the material risk factors that affect us of which we are currently aware. Any one or more of these risk factors could have a material adverse impact on our business, financial condition, results of operations or cash flows. In addition, these risks present other possible adverse consequences, including those described below. These risk factors and other risks we face are also discussed further in other sections of this Report. Thus, the risk factors below should not be considered a complete list of potential risks that we may face.
Risks Related to the Economy and Other External Factors, Including Regulation
Our business and financial performance are vulnerable to the impact of adverse economic conditions.Given the nature of our business, our business and overall financial performance are affected to a significant extent by economic conditions, primarily in the U.S. Declining or adverse economic conditions and adverse changes in investor, consumer and business sentiment generally result in reduced business activity, which may decrease the demand for our products and services or reduce the number of creditworthy borrowers. The ability of borrowers to repay loans is often weakened as a result of economic downturns, higher inflation and unemployment. This may be further exacerbated by a deterioration in households’ finances, particularly if consumers also continue to face high inflation. In addition, adverse economic conditions, including periods of inflation, may limit the availability of, or increase the costs of, capital and labor, erode consumer and customer purchasing power, confidence and spending and may also reduce our tolerance for extending credit. Increases in costs or expenses impacting our customers’ operations and financial performance, such as the interest rates payable on their debt obligations, could increase our credit risk or decrease the demand for our products and services.
We operate in an uncertain economic environment due to structural and secular changes triggered by the pandemic for certain sectors of the economy combined with increased interest rates, inflation and geopolitical tensions. These conditions may not abate in the near term, and their continuation could materially adversely affect our operations and financial performance. Such economic conditions also have led and may continue to lead to turmoil and volatility in financial markets, often with at least some financial asset categories losing value. Any of these effects would likely have an adverse impact on our operations and financial performance, with the significance of the impact generally depending on the nature and severity of the adverse economic conditions.
Even when economic conditions are relatively good or stable, specific economic factors can negatively affect our business and performance. This can be especially true when the factors relate to particular segments of the economy. For example, as remote work continues to be a feasible alternative to pre-pandemic in-office work arrangements, notable portions of available commercial real estate space remain underutilized. This likely decreases demand for financial services in that sector and harms the creditworthiness of some of our office commercial real estate customers, as well as businesses whose customers have historically been office workers.
Given the geographic scope of our business and operations, we are most exposed to issues within the U.S. economy and financial markets. Our foreign business activities continue to be a relatively small part of our overall business. As a result, the direct impact on our business and financial performance from economic conditions outside the U.S. is not likely to be significant, although the impact would increase if we expanded our foreign business more than nominally. We are, however, susceptible to the risk that foreign economic conditions and geopolitical tensions could negatively affect our business and financial performance. Primarily, this risk results from the possibility that poor economic conditions or financial market disruptions affecting other major economies would also affect the U.S.
Throughout the remainder of this Risk Factors section, we address specific ways in which economic issues could create risk for us and result in adverse impacts on our business and financial performance.The impact of government legislation, regulation and policy and other political factors on the economy could have an adverse effect on our business and financial performance.Changes in law or governmental policy affecting the economy, business activity, or personal spending, investing or saving activities may cause consumers and businesses to alter their behavior in ways that impact demand for our products and services. Such changes may also alter the profitability of the transactions in which we engage or result in increased regulatory burden and associated costs. PNC may alter the types or terms of the products and services we offer to reflect such changes. Uncertainty regarding future law or policy may have similar impacts. In addition, the application of some laws may be uncertain, require significant judgment and be
16 The PNC Financial Services Group, Inc. – 2023 Form 10-K
subject to differing interpretations. Congress and the agencies that regulate us have changed and may continue to change the laws and policies that are applicable to us, including their interpretations of rules and guidelines, which has subjected and may continue to subject financial institutions like us to heightened levels of regulation and supervision and more stringent enforcement and potentially severe penalties. For example, the increased time frames and difficulty in obtaining regulatory approvals for acquisitions and other activities could affect our ability to make acquisitions or introduce new products and services. As another example, tax laws and tax rates may be subject to significant change and an increase in our effective tax rates could adversely affect our business, results of operation and financial condition. In addition, these changes may adversely impact our operations or financial condition as discussed in more detail in the Risk Factor headed “As a regulated financial services firm, we are subject to numerous governmental regulations and comprehensive oversight by a variety of regulatory agencies and enforcement authorities. These regulations and their implementation can have a significant impact on our businesses and operations and our ability to grow and expand.”
Concern regarding the ability of Congress and the President collectively to reach agreement on federal budgetary matters (including the debt ceiling), or prolonged stalemates leading to total or partial governmental shutdowns, also can have adverse economic consequences and create the risk of economic instability or market volatility, with potential adverse consequences to our business and financial performance. Divided control of the U.S. government increases concern over the inability of Congress and the President to reach necessary agreements and make government shutdowns or defaults in government obligations more likely.The policies of the Federal Reserve and other governmental agencies have a significant impact on interest rates and overall financial market performance, which are important to our business and financial performance.The monetary policies of the Federal Reserve, including changes in the federal funds rate, open market operations and balance sheet management, have a significant impact on interest rates, the value of financial instruments and other assets and liabilities, and overall financial market performance and volatility. These policies can thus affect the activities and results of operations of financial companies such as PNC. An important function of the Federal Reserve is to monitor the national supply of bank credit and set certain interest rates. The actions of the Federal Reserve influence the rates of interest that we charge on loans and that we pay on borrowings and interest-bearing deposits. Rates of interest can also affect the value of our on-balance sheet and off-balance sheet financial instruments. Since 2022, the Federal Reserve’s quantitative tightening and increases in benchmark rates to reduce high rates of inflation has and may continue to adversely affect the value of financial instruments and other assets and liabilities, including securities and interest-bearing deposits, impact borrowers, increase market volatility and result in a flattening or inversion of the yield curve. In addition, actions by governmental authorities in other countries, including with respect to monetary policy, could impact financial markets and global interest rates, which could affect rates in the U.S. as well as rates on instruments denominated in currencies other than the U.S. dollar, any of which could have potential effects on us as described above.
Some of the potential impacts on our business and results of governmental monetary policy are described in Risk Factors under the heading “Risks Related to the Business of Banking.”As a regulated financial services firm, we are subject to numerous governmental regulations and comprehensive oversight by a variety of regulatory agencies and enforcement authorities. These regulations and their implementation can have a significant impact on our businesses and operations and our ability to grow and expand.The PNC Financial Services Group, Inc. is a BHC and a financial holding company, with the Federal Reserve as its primary regulator. PNC Bank is a federally chartered bank, with the OCC as its primary regulator. In addition, our businesses are subject to regulation by multiple other banking, consumer protection, securities and derivatives regulatory bodies. We are also subject to the jurisdiction of criminal and civil enforcement authorities. As a result, we are subject to numerous laws and regulations, with multiple regulators or agencies having supervisory or enforcement oversight over aspects of our business activities. These laws, regulations and supervisory activities are intended to promote the safety and soundness of financial institutions, financial market stability, the transparency and liquidity of financial markets, consumer protection and to prevent money laundering and terrorist financing and are not primarily intended to protect PNC security holders. In addition to regulation in the U.S., we are also subject to foreign regulation to a limited extent as a result of our business activities outside the U.S.
Applicable laws and regulations restrict our permissible activities and investments and require compliance with provisions designed to protect loan, deposit, brokerage, fiduciary, and other customers, and for the protection of customer information, among other things. We also are subject to laws and regulations designed to combat money laundering, terrorist financing, and transactions with persons, companies or foreign governments designated by U.S. authorities. Over time, the scope of the laws and regulations affecting our businesses, as well as the number of requirements or limitations imposed by legislative or regulatory actions, has increased, and we expect to continue to face substantial regulatory oversight and new or revised regulatory requirements or initiatives. Legislative or regulatory actions have resulted and will likely continue to result in increased compliance costs, reduced business opportunities, or requirements and limitations on how we conduct our business. In particular, the financial services industry continues to face heightened scrutiny, including with respect to BSA and AML compliance requirements, consumer compliance and protection matters (such as with respect to overdraft and other fees), and capital, liquidity and resolution planning in response to turmoil in the banking
The PNC Financial Services Group, Inc. – 2023 Form 10-K 17
industry in early 2023. In addition, heightened standards under proposed and recently finalized rules, such as those implementing the Community Reinvestment Act, may result in increased obligations and compliance costs, and may factor into our ability to expand and engage in new actions.
The Federal Reserve requires a BHC to act as a source of financial and managerial strength for its subsidiary banks. The Federal Reserve could require PNC to commit resources to PNC Bank when doing so is not otherwise in the interests of PNC or its shareholders or creditors.
Federal law grants substantial supervisory and enforcement powers to federal banking regulators, and they have assumed an active oversight, examination and enforcement role across the financial services industry. The results of supervisory or examination activities by our regulators, including actual or perceived compliance failures, could result in limitations on our ability to enter into certain transactions, engage in new activities, expand geographically, make acquisitions or obtain necessary regulatory approvals in connection therewith, or otherwise require us to modify our businesses practices in a manner that materially impacts our financial condition or results of operations. These activities also could result in significant fines, penalties or required corrective actions, some of which could be expensive and difficult to implement. In addition, another financial institution’s violation of law or regulation may give rise to an investigation of the same or similar activities of PNC.
As we expand our product and service offerings into additional markets, domestic or foreign, either through organic growth or acquisition, we have faced and will continue to face increases in state or foreign regulation affecting our operations. Different approaches to regulation by different jurisdictions, including potentially conflicting state-level regulation, could materially increase our compliance costs or risks of non-compliance.
A failure to comply, or to have adequate policies and procedures designed to comply, with regulatory requirements and expectations exposes us to the risk of damages, fines and regulatory penalties and other regulatory or enforcement actions or consequences, such as limitations on activities otherwise permissible for us or additional requirements for engaging in new activities and could also injure our reputation with customers and others with whom we do business. We also rely on third parties who may expose us to compliance risk. A failure to comply with regulatory requirements or deficiencies in risk management practices could be incorporated in our confidential supervisory ratings, which could limit PNC’s ability to expand or require additional approvals before engaging in certain business activities.
See the immediately following Risk Factor for a discussion of risks associated with capital and liquidity regulation. Also see the Supervision and Regulation section of this Report and Note 19 Regulatory Matters for more information concerning the regulation of PNC, including those areas that have been receiving a high level of regulatory focus.We are subject to regulatory capital and liquidity standards that affect our business, operations and ability to pay dividends or otherwise return capital to shareholders.
PNC and PNC Bank are subject to regulatory capital and liquidity requirements established by the Federal Reserve and the OCC, respectively. These regulatory capital and liquidity requirements are typically developed at an international level by the Basel Committee and then applied, with adjustments, in each country by the appropriate domestic regulatory bodies. Domestic regulatory agencies can apply stricter capital and liquidity standards than those developed by the Basel Committee. In several instances, the U.S. banking agencies have done so with respect to U.S. banking organizations.Requirements to maintain specified levels of capital and liquidity, and regulatory expectations as to the quality of our capital and liquidity, impact our business activities and may prevent us from taking advantage of opportunities in the best interest of shareholders or force us to take actions contrary to their interests. For example, PNC’s ability to pay or increase dividends or otherwise return capital to shareholders is subject to PNC’s compliance with its SCB, which is determined at least annually through the Federal Reserve’s CCAR process. The Federal Reserve can also impose additional limitations on capital distributions, such as the limitations on distributions imposed in response to the COVID-19 pandemic and the 2007-2008 financial crisis. In addition, dividends from PNC Bank and, to a lesser extent, non-bank subsidiaries are PNC’s principal source of funds to, among other things, pay dividends on and make repurchases of its capital stock. Many of our subsidiaries are subject to laws that restrict dividend payments or authorize regulatory bodies to prohibit or limit dividends to PNC. Limitations on PNC’s ability to receive dividends from its subsidiaries, including PNC Bank, could have a material adverse effect on its liquidity and ability to pay dividends on and make repurchases of its capital stock, especially to the extent that PNC must first service any outstanding debt obligations.
Capital and liquidity requirements may also impact the amount and type of loans we make. We may be constrained in our ability to expand, either organically or through acquisitions. We may be forced to sell or refrain from acquiring assets where the capital requirements appear inconsistent with the assets’ underlying risks. In addition, liquidity standards require us to maintain holdings of highly liquid short-term investments, thereby reducing our ability to invest in longer-term or less liquid assets, even if more desirable from an earnings, balance sheet or interest rate risk management perspective.
18 The PNC Financial Services Group, Inc. – 2023 Form 10-K
Regulatory capital and liquidity requirements are subject to regular review and revision by the Basel Committee and the U.S. banking agencies. In July 2023, the Federal Reserve, OCC, and FDIC proposed for public comment a rule to implement the final components of the Basel III framework that would significantly revise the capital requirements for large banking organizations, including PNC and PNC Bank. We expect the proposal, if finalized in its current form, would result in lower regulatory capital ratios for PNC and PNC Bank, which would likely increase the risk of some of the potential adverse effects described above.
The regulatory capital and liquidity frameworks, as well as certain other prudential requirements and standards that are applicable to PNC, including related proposed rules, are discussed in the Supervision and Regulation section of this Report and the Liquidity and Capital Management portion of the Risk Management section of this Report.Our ability to operate our business could be impaired if our liquidity is unexpectedly constrained.Our liquidity could be impaired as a result of unanticipated outflows of cash or collateral, unexpected loss of consumer deposits or higher than anticipated draws on lending-related commitments, an inability to sell assets (or to sell assets at favorable times or prices), a default by a counterparty or other market participant, our inability to access other sources of liquidity, including through the capital markets due to unforeseen market dislocations or interruptions, or a lack of market or customer confidence in PNC or financial institutions in general. Many of the above conditions and factors may be caused by events over which we have little or no control. The increased speed with which information is disseminated, through official or social media, could increase the speed or severity of liquidity pressures caused by, for example, negative news about PNC’s or other financial institutions’ financial prospects or safety and soundness. A negative impact on our liquidity would likely limit our ability to support our operations and fund outstanding liabilities as well as meet regulatory expectations, which would adversely affect our financial condition and results of operations. For information on our liquidity management, see the Liquidity and Capital Management portion of the Risk Management section of this Report.A downgrade in our credit ratings could significantly impact our liquidity, funding costs and access to the capital markets.Our credit ratings are based on a number of factors, including the financial strength of PNC and PNC Bank, and factors outside of our control, such as conditions affecting the financial services industry generally. Reductions in one or more of our credit ratings could adversely affect our ability to borrow funds and increase our cost of capital and limit the number of investors or counterparties willing to do business with or lend to us. For example, downgrades could negatively impact our right to continue to service mortgages and hold related escrows and reserves. Downgrades could also adversely affect our ability to attract or retain customers, including deposits. In addition, a downgrade in our credit ratings could trigger obligations to make cash or collateral payments under derivative contracts with certain counterparties. There can be no assurance that we will maintain our current ratings and outlooks. For information on our credit ratings, see the Liquidity and Capital Management portion of the Risk Management section of this Report.Privacy and consumer data rights initiatives have imposed and will continue to impose additional operational burdens on PNC, and they may limit our ability to pursue desirable business initiatives and increase the risks associated with any future use of personal data.Over time, there has been an increase in legislative and regulatory efforts to protect the privacy and enhance the portability of personal data, including enhanced data privacy laws regulating the use of health and biometric data. Individuals whose personal information may be protected by law may include our customers, prospective customers, job applicants, employees and third parties. These initiatives, among other things, limit how companies can use personal data and impose obligations on companies in their management of such data, including requiring companies like PNC to make available to consumers and authorized third parties certain data relating to transactions and accounts and establishing obligations for accessing such data. Financial services companies such as PNC necessarily gather, maintain and use a significant amount of personal data. These types of initiatives increase compliance complexity and related costs, may result in significant financial penalties for compliance failures, and may limit our ability to develop new products or respond to technological changes. This is particularly true as we continue to expand our business into new markets. We are, or may become, subject to regularly evolving and developing data privacy and data security laws and regulations in other jurisdictions, including certain foreign jurisdictions even where our presence in such jurisdictions is minimal. Such legal requirements also could heighten the reputational impact of perceived misuses of personal data by us, our vendors or others who gain unauthorized access to our personal data. Other jurisdictions may adopt similar requirements that impose different and potentially inconsistent compliance burdens. The impacts will be greater to the extent requirements vary across jurisdictions.Climate change-related risks could adversely affect our business and performance, including indirectly through impacts on our customers.There continues to be concern, including on the part of our regulators, regarding climate change and its impacts over the short-, medium- and long-term horizons. These concerns over the anticipated and unanticipated impacts of climate change (including physical risk and transition risk) have led and will continue to lead to governmental efforts to mitigate those impacts. We and our customers
The PNC Financial Services Group, Inc. – 2023 Form 10-K 19
may face cost increases, asset value reductions, the reduced availability of insurance, operations disruptions and changes and the like because of climate change (including because of the increased frequency or severity of acute weather events and long-term shifts in the climate) and governmental actions or societal responses to climate change. The impact on our customers will likely vary depending on their specific attributes, including their reliance on or role in carbon intensive activities and their transition plans, as well as their exposure to the effects of climate change. Consumers and businesses are also changing their behaviors because of these concerns. Changed consumer and business behavior because of climate change concerns creates transition risk for PNC arising from the process of adjusting to these concerns. PNC and its customers will need to respond to new laws and regulations as well as consumer and business preferences as a result. Among the impacts to PNC could be a drop in demand for our products and services, particularly in certain sectors if our products or services do not support the environmental goals of our customers, or increased losses due to the impact of climate change on the collateral that secures customer borrowings. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans.
We are currently subject to climate-related regulatory expectations and could be subject to additional regulatory restrictions or costs associated with providing products or services to certain companies or sectors. Environmental regulations or changes in the supply, demand or available sources of energy or other resources may affect the availability or cost of goods and services necessary to run our business. Our efforts to take these risks into account in making lending and other decisions may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior, including those resulting from activist pressure. Our risk management needs to continue to evolve, or it may not be effective in identifying, measuring, monitoring and controlling climate risk exposure, particularly given that the timing, nature and severity of the impacts of climate change may not be predictable.
We also have been and may continue to be subject to conflicting pressure from individuals, groups and/or governmental entities to cease doing business, or to maintain business, with certain companies or sectors, in particular those involved with fossil fuels, because of concerns related to climate change. Further, there is increased scrutiny of climate change-related policies, goals and disclosures, which could result in litigation and regulatory investigations and actions. Our stakeholders may disagree with these policies and goals or, conversely, believe that these policies and goals are, and our related progress in accomplishing such goals and implementing such policies is, insufficient. This may lead to a decrease in demand for our products and services or damage to our reputation. We may also incur additional costs and require additional resources as we evolve our strategy, practices and related disclosures with respect to these matters. In addition, there are and will continue to be challenges related to capturing, verifying, analyzing and disclosing climate-related data that is subject to measurement uncertainties. The Risk Factor headed “We are at risk for an adverse impact on our business due to damage to our reputation” further discusses risks associated with our management of these matters, including related activist pressure.Risks Related to the Use of Technology
The use of technology is critical to our ability to maintain or enhance the competitiveness of our businesses.As a large financial services company, we handle a substantial volume of customer and other financial transactions. As a result, we rely heavily on information systems to conduct our business and to process, record, monitor and report on our transactions and those of our customers. Over time, we have seen more customer usage of technological solutions for financial needs as well as higher expectations of customers and regulators regarding effective and safe systems operation. In many cases, the effective use of technology increases efficiency and enables financial institutions to better serve customers. As a result of these factors, the financial services industry continues to undergo rapid technological change with frequent introductions of new technology-driven products and services. Examples include expanded use of cloud computing, artificial intelligence and machine learning, biometric authentication, voice and natural language, data protection enhancements and increased online and mobile device interaction with customers, including innovative ways that customers can view, access and aggregate financial data, make payments or manage their accounts.
In response to actual and anticipated customer behavior and expectations, as well as competitive pressures, we have been investing in technology and connectivity. We are seeking to automate functions previously performed manually, facilitate the ability of customers to engage in financial transactions and otherwise enhance the customer experience with respect to our products and services. This effort has involved and is likely to continue to involve the expenditure of considerable amounts of funds and other resources, which could be constrained to the extent that sustained adverse economic conditions and other factors described elsewhere in these Risk Factors negatively impact our business or financial performance. A failure to maintain or enhance our competitive position with respect to technology, whether because we fail to anticipate customer expectations, because our technological developments fail to perform as desired or are not rolled out in a timely manner, or because we fail to keep pace with our competitors, would likely cause us to lose market share or incur additional expense. Our ability to maintain or enhance our relative technological position is in part dependent on our ability to attract and retain talented employees in these fields, which, due to overall demand, is increasingly difficult.
20 The PNC Financial Services Group, Inc. – 2023 Form 10-KOur use of technology is dependent on having the right to use its underlying intellectual property.In some cases, we develop internally the intellectual property embedded in the technology we use. In others, we or our vendors license the use of intellectual property from others. Where we rely on access to third-party intellectual property, it may not be available to us on commercially reasonably terms or at all. Regardless of the source of the intellectual property, if another person or entity were deemed to own intellectual property rights infringed by our activities, we could be responsible for significant damages covering past activities and substantial fees to continue to engage in these types of activities. It also is possible that we could be prevented from using technology important to our business for at least some period of time. In such circumstances, there may be no alternative technology for us to use or an appropriate alternative technology might be expensive to obtain. Protections offered by those from whom we license technology against these risks may be inadequate to cover any losses in full. Over time, there have been and continue to be instances where technology used by PNC has been alleged to have infringed patents held by others, and, in some cases, we have suffered related losses.We could suffer a material adverse impact from interruptions in the effective operation of our information systems and other technology.The need to ensure proper functioning and resiliency of our information systems and other technology has become more important and more challenging, and the costs involved in that effort continue to be high. Our ability to create, obtain, maintain and report on information in an accurate, timely and secure manner is a foundational component of our business. Effective management of our expanded digital products and services, geographic footprint and continued remote work environment heightens our need for secure, reliable and adequate information systems and technology. The risks of operational failures in the use of these systems result from a variety of factors. We are vulnerable to the impact of failures of our systems to operate as needed or intended. Failures leading to materially adverse impacts could include those resulting from human error, unexpected transaction volumes, or overall security, design or performance issues. In addition, our ability to use our technology effectively could be impacted due to electrical or telecommunications outages, bad weather, disasters, bad actors, terrorism and the like. Such events could affect our systems directly or limit our ability to use our technology due to effects on key underlying infrastructure. Although we regularly update and replace systems that we depend on as our needs evolve and technology improves, we continue to utilize some older systems that may not be as reliable as newer ones. In addition, the implementation of and transition to new or updated systems creates risks related to associated timing and costs, disruptions in functionality for customers and longer-term failures to achieve desired improvements. In some cases, the risk results from the potential for bad acts on the part of others, discussed in more detail in the Risk Factor headed “We are vulnerable to the risk of breaches of data security affecting the functioning of systems or the confidentiality of information that could adversely affect our customers and our business.”
We also rely on information systems maintained by other companies. We use other companies both to provide products and services directly to us and to assist us in providing products and services to our customers. Others provide the infrastructure that supports, for example, communications, payment, clearing and settlement systems, or information processing and storage. These companies range from those providing highly sophisticated information processing to those that provide fundamental services, such as electric power and telecommunications. In some cases, these other companies themselves utilize third parties to support their delivery of products and services to us and our customers. Systems maintained by or for these other companies are generally subject to many of the same risks we face with respect to our systems and thus their issues could have a negative impact on PNC. We necessarily have less ability to provide oversight over other companies’ information systems.
The occurrence of any failure, interruption or security breach of any of our information or communications systems, or the systems of other companies on which we rely, could result in a wide variety of adverse consequences to us. This risk is greater if the issue is widespread, extends for a significant period of time, or results in financial losses to our customers. The consequences of failures to operate systems properly can result in disruptions to our critical business operations, including our ability to use our accounting, deposit, loan, payment and other systems. Such events could also cause errors in transactions or impair system functionality with customers, vendors or other parties. Possible adverse consequences also include damage to our reputation or a loss of customer business, which could occur even if the negative impact on customers was de minimis. We also could face litigation or additional regulatory scrutiny. This in turn could lead to liability or other sanctions, including fines and penalties or reimbursement of adversely affected customers. Even if we do not suffer any material adverse consequences as a result of events affecting us directly, information systems issues at other financial institutions could lead to a general loss of customer confidence in financial institutions, including us. Also, system problems, including those resulting from third-party attacks, whether at PNC or at our competitors, may broadly increase legislative, regulatory and customer concerns regarding the functioning, safety and security of such systems. In that case, we would expect to incur even higher levels of costs with respect to prevention and mitigation of these risks.
The PNC Financial Services Group, Inc. – 2023 Form 10-K 21We are vulnerable to the risk of breaches of data security affecting the functioning of systems or the confidentiality of information that could adversely affect our customers and our business.
Most corporate and commercial financial transactions are now handled electronically, and our commercial and retail customers increasingly use online access as well as mobile and cloud technologies to bank with us. The ability to conduct business with us in this manner depends on the transmission and storage of confidential information in electronic form. As a result, in the ordinary course of business, we maintain and process vast amounts of digital information about us, our customers and our employees. This information tends to be confidential or proprietary and much of it is highly sensitive. Such highly sensitive information includes information sufficient to support identity theft and personal health information, as well as information regarding business plans and financial performance that has not been made public. As a result, efforts by bad actors to engage in various types of cyber attacks pose serious risks to our business and reputation.We are faced with ongoing, nearly continual, efforts by others to breach data security at financial institutions or with respect to financial transactions. These efforts may be to obtain access to confidential or proprietary information, often with the intent of stealing from or defrauding us or our customers, or to disrupt our ability to conduct our business, including by destroying or impairing access to information maintained by us. Some of these involve efforts to enter our systems directly by going through or around our security protections. Others involve the use of social engineering schemes to gain access to confidential information from our employees, customers or vendors. Our risk and exposure to data security breaches is heightened because of our expanded digital products and services, geographic footprint and continued remote work environment, which results in more access points to our network.
The same risks are presented by attacks potentially affecting information held by third parties on our behalf or accessed by third parties, including those offering financial applications, on behalf of our customers. These risks also arise to the extent that third parties with whom we do business, or their vendors or other entities with whom they do business, are themselves subject to breaches and attacks, which may impact our systems or operations. Our ability to protect confidential or proprietary information is even more limited with respect to information held by these parties. For example, we are likely to be limited in our ability to identify and quickly resolve breaches and attacks that may impact our business the further removed an entity is from our business, such as when a breach or attack occurs at vendors of our vendors. We may suffer reputational damage or legal liability for unauthorized access to customer information held by other parties, even if we were not responsible for preventing such access and had no reasonable way of preventing it.
Our customers often use their own devices, such as computers, smartphones and tablets, to do business with us and may provide their PNC customer information (including passwords) to a third party in connection with obtaining services from that third party, including those offering financial applications. Although we take steps to provide safety and security for our customers’ transactions with us and their customer information, to the extent they utilize their own devices or provide third parties access to their accounts, our ability to assure such safety and security is necessarily limited. These risks are heightened as we and others continue to expand mobile applications, cloud solutions, and other internet-based financial product offerings. For example, a number of our customers choose to use financial applications that allow them to view, access and aggregate banking and other financial account information, often held at different financial institutions, on a single platform, to monitor the performance of their investments, to compare financial and investment products, to make payments or transfer funds, and otherwise to help manage their finances and investments. Financial applications often ask users to provide their secure banking log-in information and credentials so the applications can link to users’ accounts at financial institutions. Companies offering these applications frequently use third-party data aggregators, which are behind-the-scenes technology companies that serve as data-gathering service providers, to deliver customer financial data that is then used by the financial applications. To do this, data aggregators frequently are provided with customers’ log-in information and credentials, which allow the aggregators to access the customers’ online accounts and “scrape” the customers’ data, often on a daily or even more frequent basis. That same information has the potential to facilitate fraud if it is not properly protected. This has resulted in incidences of fraud, including automated clearing house fraud, credit card fraud, and wire fraud, enabled through the use of synthetic identities and through account takeovers via these platforms. In addition, transactions by customers on financial applications that facilitate payments and fund transfers have also been fraudulently induced. These transactions occur when a customer authorizes payment to a recipient that fraudulently induced the customer into transferring a payment to such recipient. PNC has and may continue to face increased financial exposure due to activity associated with the increased use of these applications and data aggregators. Even where PNC does not have financial exposure for losses, PNC could suffer increased reputational harm when such losses occur.
As our customers regularly use PNC-issued credit and debit cards to pay for transactions with retailers and other businesses, there is also the risk of data security breaches at those other businesses covering PNC account information. When our customers use PNC-issued cards to make purchases from those businesses, card account information often is provided to such businesses. If a business’s systems that process or store card account information are subject to a data security breach, holders of our cards who have made purchases from that business may experience fraud on their card accounts. We can be responsible for reimbursing our customers for such fraudulent transactions on customers’ card accounts, as well as for other costs related to data security compromise events, such as replacing cards associated with compromised card accounts. In addition, we provide card transaction processing services to some merchant customers under agreements we have with payment networks such as Visa and Mastercard. Under these agreements, we may
22 The PNC Financial Services Group, Inc. – 2023 Form 10-K
be responsible for certain losses and penalties if one of our merchant customers suffers a data security breach. Moreover, to the extent more consumer confidential information becomes available to bad actors through the cumulative effect of data breaches at companies generally, bad actors may find it easier to use such information to gain access to our customer accounts.
Other cyber attacks are not focused on gaining access to credit card or user credential information, but instead seek access to a range of other types of confidential information, such as internal emails and other forms of customer financial information, and this information may be used to support a ransomware attack. Ransomware attacks have sought to deny access to data and possibly shut down systems and devices maintained by target companies. In a ransomware attack, system data is encrypted, stolen or extorted, or access is otherwise denied, accompanied by a demand for ransom to restore access to the data or to prevent public disclosure of confidential information. Attacks have also been conducted through business email compromise scams that involve using social engineering to cause employees to wire funds to the perpetrators in the mistaken belief that the requests were made by a company executive or established vendor. These types of phishing attacks have increased over time, and they have evolved to include other types of attacks like vishing (through voice messages) and smishing (through SMS text). Other attacks have included distributed denial of service cyber attacks, in which individuals or organizations flood commercial websites with extraordinarily high volumes of traffic with the goal of disrupting the ability of commercial enterprises to process transactions and possibly making their websites unavailable to customers for extended periods of time. Similarly, attacks have been conducted through application program interfaces where cyber attackers seek to exploit the interfaces between mobile or web applications. We (as well as other financial services companies) have been subject to such attacks. Recent cyber attacks have also included the insertion of malware into software updates and the infection of software while it is under assembly, known as a “supply chain attack.” Attacks on our customers may put these relationships at risk, particularly if customers’ ability to continue operations is impaired due to the losses suffered.
The techniques used in cyber attacks change rapidly and are increasingly sophisticated, including through the use of generative artificial intelligence and deepfakes, and we expect in the future through the use of quantum computing, and we may not be able to anticipate cyber attacks or data security breaches.
In addition to threats from external sources, insider threats represent a significant risk to us. Insiders, including those having legitimate access to our systems and the information contained in them, have the easiest opportunity to make inappropriate use of the systems and information. Addressing that risk requires understanding not only how to protect us from unauthorized use and disclosure of data, but also how to engage behavioral analytics and other tools to identify potential internal threats before any damage is done. In addition, due to the increase in the number of employees who work remotely, the opportunity for insiders to grant access to third parties or to disclose confidential information of PNC or its customers has increased. As more work is conducted outside of PNC’s facilities, the risk of improper access to PNC’s network or confidential information has increased, including for reasons such as a failure by an employee or contractor to secure a device with PNC access.We have been and expect to continue to be the target of some of these types of cyber attacks. To date, none of these types of cyber attacks has had a material impact on us. Nonetheless, we cannot entirely block efforts by bad actors to harm us, and there can be no assurance that future cyber attacks will not be material. While we maintain insurance coverage that may cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. As a result, we could suffer material financial and reputational losses in the future from any of these or other types of attacks or the public perception that such an attack on our systems has been successful, whether or not this perception is correct. Attacks on others, some of which have led to serious adverse consequences, demonstrate the risks posed by new and evolving types of cyber attacks.
We need effective programs to limit the risk of failures or breaches occurring in our information systems and to mitigate the impact when they do.
We have policies, procedures and systems (including cybersecurity and business continuity programs) designed to prevent or limit the effect of possible failures, interruptions or breaches in security of information systems. We continue to devote appropriate resources toward improving the reliability of our systems and their security against external and internal threats and expect to continue to do so in the future. We design our business continuity and other information and technology risk management programs to allow us to provide services in the case of an event resulting in material disruptions of business activities affecting our employees, facilities, technology or suppliers. We cannot guarantee the effectiveness of our policies, procedures and systems to protect us in any future situation, nor the effectiveness of our oversight of risk at third parties. Although we have policies, procedures and systems designed to mitigate third-party risk, our ability to implement policies, procedures and systems designed to prevent or limit the effect of possible failures, interruptions or breaches in security of information systems with respect to third-party systems and the financial services industry infrastructure is necessarily limited. Should an adverse event affecting another company’s systems occur, we may not have financial protection from the other company sufficient to compensate us or otherwise protect us from the consequences.Methods used by others to attack information systems change frequently (with generally increasing sophistication). A new method of attack often is not recognized until launched against a target. Attacks in some cases appear to be supported by foreign governments or other well-financed entities and often originate from less regulated and remote areas around the world. We have seen a higher volume
The PNC Financial Services Group, Inc. – 2023 Form 10-K 23
and complexity of attacks during times of increased geopolitical tensions. As a result, we may be unable to implement adequate preventive measures to address these methods in advance of attacks.
Even with our proactive and defensive measures in place, adverse events are likely to occur, and there remains the risk that one or more such events would be material to PNC. Our ability to mitigate the adverse consequences of such occurrences is in part dependent on the quality of our business continuity planning, our ability to identify and understand threats to us from a holistic perspective, our ability to anticipate the timing and nature of any such event that occurs, with novel or unusual events posing a greater risk, and our ability to identify and quickly resolve vulnerabilities in our information systems and those of third parties upon which we rely. It is also the case that a vulnerability or an adverse event may go undetected for a period of time, with the adverse consequences likely greater the longer it takes to discover the problem. In many cases, it also depends on the preparedness and responses of national or regional governments, including emergency responders, or on the part of other organizations and businesses with which we deal. Additionally, our failure to communicate cyber incidents appropriately to relevant parties could result in regulatory, legal, operational and reputational risk.Risks Related to the Business of Banking
Our business and financial results are subject to risks associated with the creditworthiness of our customers and counterparties.
Credit risk is inherent in the financial services business. It results from, among other things, 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, particularly given the high percentage of our assets represented directly or indirectly by loans and securities and the importance of lending activity to our overall business. We manage credit risk by assessing and monitoring the creditworthiness of our customers and counterparties, by diversifying our loan portfolio, by obtaining and monitoring collateral for certain exposures and by investing primarily in high quality securities.A borrower’s ability to repay a loan can be adversely affected by many factors. Individual borrowers can be affected, for example, by declines in income, job losses, health issues or family issues. For example, the recent resumption in federal student loan payments could impact a borrower’s ability to repay a loan, such as a mortgage, because of the financial pressure from student loan payments. Commercial borrowers can be affected, for example, by poor business performance, changes in customer behavior or catastrophic losses. Weakness in the economy or in financial markets typically adversely impact the ability of our borrowers to repay outstanding loans. We are exposed to increased credit risk if we fail to evaluate properly at origination the likely ability of a borrower to repay a loan. Properly estimating the current and potential value of any collateral pledged to support the loan also is critical to effectively managing credit risk. A failure to identify declining creditworthiness of a borrower or declining collateral value at a time when remedial actions could reduce our exposure also increases credit risk. Any decrease in our borrowers’ ability to repay loans likely would result in higher levels of nonperforming loans, net charge-offs, provision for credit losses and valuation adjustments on loans held for sale. Managing credit risk effectively also relies on forecasts of future overall economic conditions, which are inherently imperfect.
In addition to credit risk associated with our lending activities, we have credit risk arising from many other types of business relationships. Routine transactions give us credit exposure to brokers and dealers, commercial banks, investment banks, mutual and hedge funds, other institutional clients, as well as vendors and other non-financial entities.Our credit risk may be exacerbated when the value of collateral held by us to secure obligations to us cannot be realized, including because of legal or regulatory changes, or is liquidated at prices that are not sufficient to recover the full amount of the loan or derivative exposure due to us. In addition, credit risk may be exacerbated when counterparties are unable to post collateral, whether for operational or other reasons.We reserve for credit losses on our loan and lease portfolio through our ACL estimated under CECL. Under CECL, the ACL reflects expected lifetime losses, which has led and could continue to lead to volatility in the allowance and the provision for credit losses as economic forecasts, actual credit performance and other factors used in the loss estimating process change. We also have reserves for unfunded loan commitments and letters of credit. Changes to expected losses are reflected in net income through provision for credit losses. A worsening of economic conditions or our economic outlook or an increase in credit risk, particularly following a period of good economic conditions, would likely lead to an increase in provision for credit losses with a resulting reduction in our net income and an increase to our allowance. Conversely, an improvement of economic conditions or our economic outlook, particularly following a period of poor economic conditions, could result in a recapture of provision for credit losses for a period of time with a resulting increase in our net income and decrease in our allowance. Either set of conditions is not likely to be sustained and may obscure actual current operations and financial performance. The Risk Factor headed “There are risks resulting from the extensive use of models, some of which use artificial intelligence (AI), in our business” further discusses risks associated with estimating expected losses under CECL.
24 The PNC Financial Services Group, Inc. – 2023 Form 10-KThe concentration and mix of our assets could increase the potential for significant credit losses.In the ordinary course of business, we often have heightened credit exposure to a particular industry, geography, asset class or financial market. As an example, loans secured by commercial and residential real estate typically represent a significant percentage of our overall credit portfolio. They also represent a portion of the assets underlying our investment securities. While there are limitations on the extent of total exposure to an individual consumer or business borrower, events adversely affecting some of our clients or counterparties, based on individual factors or the nature or location of their business, or asset classes or financial markets in which we are involved, could materially and adversely affect us. For example, any downturn in the condition of the U.S. housing market could result in significant write-downs of asset values tied to residential real estate. Declining economic conditions also may impact commercial borrowers more than consumer borrowers, or vice versa. In addition, we execute transactions with counterparties in the financial services industries. Financial services institutions are interrelated because of trading, funding, clearing or other relationships. As a result, uncertainty about the stability of other financial services institutions could lead to market-wide losses and defaults. Thus, the concentration and mix of our assets may affect the severity of the impact of recessions or other economic downturns on us.Our business and financial performance are impacted significantly by market interest rates and movements in those rates.
As a result of the high percentage of our assets and liabilities that are in the form of interest-bearing or interest-related instruments, changes in interest rates, in the shape of the yield curve, or in spreads between different market interest rates can have a material effect on our business, our profitability and the value of our financial assets and liabilities. For example:
• Changes in interest rates or interest rate spreads affect the difference between the interest that we earn on assets such as loans and investment securities and the interest that we pay on liabilities such as deposits and borrowings, which impacts our overall net interest income and margin as well as our profitability.
• Such changes can affect the ability of borrowers to meet obligations under variable or adjustable rate loans and other debt instruments and can, in turn, increase our credit losses on those assets.
• Such changes can decrease the demand for interest rate-based products and services, including loans and deposit accounts.
• Such changes affect our hedging of various forms of market and interest rate risk and may decrease the effectiveness of those hedges in helping to manage such risks.
• Movements in interest rates also affect loan prepayment speeds and could result in impairments of mortgage servicing assets or otherwise affect the profitability of such assets.
• Increases in interest rates likely lower the price we would receive on fixed-rate customer obligations if we were to sell them.The rates on some interest-bearing instruments adjust promptly in accordance with changes in market rates, while others adjust only periodically or are fixed throughout a defined term. As a result, the impact of changes in interest rates can be either increased or diluted due to differences in the relative variability of the rates paid on our liabilities in relation to the rates received on our assets. The extent to which we have elected to hedge interest rate risk through interest rate swaps also affects the impact of rate changes. We attempt to manage the balance sheet to increase our benefit or reduce negative impacts from future movements in interest rates, but failures to anticipate actual movements may have the opposite result. In addition, we do not generally hedge all of our risk and the fact that we attempt to hedge any risk does not mean we will be successful.
While higher interest rates generally enhance our ability to grow our net interest income, there are risks associated with a rising interest rate environment. As a general matter, increasing rates tend to decrease the value of fixed-rate financial instruments held on our balance sheet, as discussed in the Risk Factor headed “Our business and financial performance are vulnerable to the impact of changes in the values of financial assets.” Also, customers have and may continue to be less willing or able overall to borrow at higher rates. Higher interest rates also have hindered and may continue to hinder the ability of borrowers to support interest payments on variable rate loans. Higher interest rates have and may continue to indirectly affect the value of asset classes such as real estate typically financed through secured loans, with a resulting negative effect on collateral securing such loans. As another example, there are increased competitive pressures as rates on deposit products rise. The benefits of higher interest rates are best achieved if we can increase the rates on loans and other assets faster than the rates on deposits and other liabilities increase. We may not be able to achieve this result in a rising rate environment, especially if central banks introduce rate increases more quickly than anticipated. On the other hand, lower interest rates tend to have a negative impact on our net interest margin, and, unless offset by higher earning assets, on our net interest income.
We discuss the impact of governmental monetary policy on interest rates in the Risk Factor headed “The policies of the Federal Reserve and other governmental agencies have a significant impact on interest rates and overall financial market performance, which are important to our business and financial performance.”Our business and financial performance are vulnerable to the impact of changes in the values of financial assets.As a financial institution, a substantial majority of our assets and liabilities are financial in nature. Examples include loans, securities, servicing rights, deposits and borrowings. Such assets and liabilities will fluctuate in value, often significantly, due to movements in
The PNC Financial Services Group, Inc. – 2023 Form 10-K 25
the financial markets or market volatility as well as developments specific to the asset or liability in question. The underlying value of assets under lease or securing an obligation generally decreases due to increases in supply or decreases in demand for the asset or deterioration in the condition of the asset. This could negatively impact the ability to collect fully on the secured obligation. Credit-based assets and liabilities will fluctuate in value due to changes in the perceived creditworthiness of borrowers or other counterparties and due to changes in market interest rates.
In many cases, we mark our assets and liabilities to market and recognize such changes either through net income or OCI. Thus, gains or losses on these assets and liabilities can have a direct impact on our results of operations and financial performance, unless we have effectively hedged our exposures. We may need to record losses in the value of financial assets even where our expectation of realizing the face value of the underlying instrument has not changed. Our remaining assets and liabilities are not marked to market. As a result, our balance sheet does not precisely represent the fair market value of our financial assets and liabilities.
In addition, asset management revenue is earned primarily based on a percentage of the value of the assets being managed and thus is impacted by general changes in market valuations. Thus, although we are not directly impacted by changes in the value of such assets, decreases in the value of those assets would affect related noninterest income.Risks Related to Estimates and Assumptions
Our asset and liability valuations and the determination of the amount of loss allowances and impairments taken on our assets are highly subjective. Our estimates could materially impact our results of operations or financial position.
Our accounting policies are key to how we report our financial condition and results of operations. We must exercise judgment in selecting and applying many of these policies and methods to comply with GAAP and reflect management’s judgment regarding the most appropriate manner to report PNC’s financial condition and results of operations. Management’s selection of a particular accounting policy to apply, while reasonable and appropriate, could result in PNC reporting different results than would have been reported under a different alternative. In addition, the Financial Accounting Standards Board, SEC and other regulatory agencies may issue new or amend existing accounting and reporting standards or change existing interpretations of those standards that could materially affect our financial statements. In some cases, PNC may be required to retrospectively apply a new or amended standard resulting in changes to previously reported financial results.
Certain accounting policies require that we use estimates, assumptions and judgments in preparing our financial statements, including in determining credit loss reserves, reserves related to legal proceedings and the fair value of certain assets and liabilities, among other items. These policies require management to make difficult, subjective and complex judgments about matters that are inherently uncertain, and different amounts could be reported under different conditions or using different assumptions. For example, CECL requires us to make difficult, subjective and complex judgments about future economic and market conditions in determining the ACL.
Some of our financial instruments, including certain derivatives, debt securities, loans, MSRs and private equity investments, among other items, require a determination of their fair value for our financial statements. Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. Changes in underlying factors or assumptions in any of the areas underlying our estimates could materially impact our future financial condition and results of operations. During periods of market disruption, it would be difficult to value certain assets if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were historically traded in active markets with significant observable data that rapidly become illiquid due to market volatility, a loss in market confidence or other factors. In addition, we have assets and liabilities carried at fair value that are estimated using unobservable inputs that are significant to the fair value of the assets or liabilities. The valuation of any asset or liability substantially based on unobservable inputs is necessarily less reliable than those based on active trading markets. Further, rapidly changing and unprecedented market conditions could materially impact the valuation of assets as reported within our consolidated financial statements. Our ability to hedge exposure is in part dependent on our ability to value the related assets or liabilities.The determination of the amount of loss allowances and asset impairments varies by asset type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Management updates its evaluations regularly and reflects changes in allowances and impairments in operations as such evaluations are revised. Although we have policies and procedures in place to determine loss allowance and asset impairments, due to the subjective nature of this area, the level of impairments taken, and allowances reflected in our financial statements may not accurately reflect the actual level of risk and the amount of future losses.
26 The PNC Financial Services Group, Inc. – 2023 Form 10-K
There are risks resulting from the extensive use of models, some of which use artificial intelligence (AI), in our business.
We use financial and statistical models throughout many areas of our business, relying on them to inform decision making, automate processes, and estimate many financial values. We increasingly use models related to how we do business with customers and for internal process automation that leverage AI/machine learning algorithms. These models can be more predictive, but because of the complex way in which the many variables in AI/machine learning models interact, the results of these models are often less interpretable than traditional statistical models. Examples of model uses include determining the pricing of various products, identifying potentially fraudulent or suspicious transactions, marketing to potential customers, grading loans and extending credit, measuring interest rate and other market risks, predicting or estimating losses, and assessing capital adequacy. We depend significantly on models for credit loss accounting under CECL, capital stress testing and estimating the value of items in our financial statements.
Models generally predict or infer certain financial outcomes, leveraging historical data and assumptions as to the future, often with respect to macroeconomic conditions. Development and implementation of some of these models, such as the models for credit loss accounting under CECL, require us to make difficult, subjective and complex judgments. Other models are used to support decisions made regarding how we do business with customers. Poorly designed or implemented models present the risk that our business decisions based on information incorporating model output will be adversely affected due to the inadequacy of that information. For example, our models may not be effective if historical data does not accurately represent future events or environments or if our models rely on erroneous data, formulas, algorithms or assumptions and our internal model review processes fail to detect and address these flaws. Models, if flawed, could cause information we provide to the public or to our regulators to be inaccurate or misleading. Some of the decisions that our regulators make, including those related to capital distribution to our shareholders, would likely be affected adversely if they perceive that the quality of the relevant models we use is insufficient. Finally, flaws in our models that negatively impact our customers or our ability to comply with applicable laws and regulations could negatively affect our reputation or result in fines and penalties from our regulators.Risks Related to Our Need for Customers
Our success depends on our ability to attract and retain customers for our products and services.Our performance is subject to risks associated with declines in customer demand for our products and services. As a result of the nature of those products and services, we are particularly at risk for losses of economic confidence or customer trust in us or, more broadly, in financial services institutions like us.
Economic and market developments may affect consumer and business confidence levels. If customers lose confidence due to concerns regarding the economy, the demand for our products and services could suffer. If we fail to attract and retain customers, demand for our loans and other financial products and services could decrease, and we could experience adverse changes in payment patterns. We could lose interest income from a decline in credit usage and noninterest income from a decline in product sales, investments and other transactions. Demand for our products and services could also suffer as many of the risks to PNC related to the economy and other external factors, including regulation, such as changes to tax laws and tax rates, could negatively impact consumers and businesses and their interest in or ability to use our products and services.
Our ability to attract and retain customer deposits is impacted by the levels of interest rates, as customers balance the benefits of bank accounts with deposit insurance and some of the convenience associated with more traditional banking products against the possibility of higher yields from other investments. In general, if the spread between the rates we offer and those offered by alternatives to bank accounts widens, customers are often willing to forego the benefits of bank accounts (such as FDIC insurance) for higher returns elsewhere. Our customers have removed and could continue to remove money from checking, savings or other types of deposit accounts with us in favor of other banks or other types of cash management products. In such circumstances, we need to increase rates to levels that are seen as competitive or lose customers, in either case with a negative impact to net interest income. In addition, deposits are a low-cost source of funds for us. Therefore, losing deposits could increase our funding costs and reduce our net interest income. Loss of customers could also harm noninterest income by decreasing fee-bearing transaction volume. In addition, when rates are higher, customers tend to shift deposits from noninterest-bearing accounts to interest-bearing ones, thereby negatively impacting net interest income.Our customers increasingly use third-party financial applications that are expected to interface with their PNC accounts. This use leads to the risk that issues with respect to the effective functioning of that interface, regardless of cause, could result in a loss of customers as they seek banking relationships that work better with these other applications.News or other publicity that harms our reputation, or harms the reputation of our industry generally, also could cause a loss of customers or a reduction in the extent to which customers do business with us. This is described further in the Risk Factor headed “We are at risk for an adverse impact on our business due to damage to our reputation.”
The PNC Financial Services Group, Inc. – 2023 Form 10-K 27In our asset management business, investment performance is an important factor influencing the level of assets that we manage. Poor investment advice or performance could hurt revenue and growth as existing clients might withdraw funds in favor of better performing products. Additionally, the ability to attract funds from existing and new clients might diminish. Overall economic conditions may limit the amount that customers are able or willing to invest as well as the value of the assets they do invest. The failure or negative performance of products of other financial institutions could lead to a loss of confidence in similar products offered by us without regard to the performance of our products. Such a negative contagion could lead to withdrawals, redemptions and liquidity issues in such products and have an adverse impact on our assets under management and asset management revenues and earnings.
We are at risk for an adverse impact on our business due to damage to our reputation.
Our ability to compete effectively, to attract and retain customers and employees, and to grow our business is dependent on maintaining our reputation and having the trust of our customers, employees, the communities that we serve and other stakeholders. Many types of developments, if publicized, can negatively impact a company’s reputation with adverse consequences to its business.Financial services companies are highly vulnerable to reputational damage when they are found to have harmed customers, particularly retail customers, through conduct that is seen as illegal, unfair, deceptive, abusive, manipulative or otherwise wrongful. There also may be reputational damage from human error or systems failures viewed as having harmed customers without involving misconduct, including service disruptions or negative perceptions regarding our ability to maintain the security of our technology systems and protect client data. For example, we may suffer reputational harm to the extent that we are unable to successfully detect, prevent and remedy fraud that harms our clients. Our reputation may also be harmed by failing to deliver products and services of the quality expected by our customers and support the communities that we serve. In addition, our reputation may be harmed as a result of our participation in certain programs, such as those supporting diversity and inclusion, that may expose us to increased scrutiny and criticism. Significant acquisitions by large banks also often attract public scrutiny, which may result in negative publicity that adversely affects our reputation if we engage in such a transaction. We are also subject to the risk of reputational harm resulting from conduct of persons identified as our employees but acting outside of the scope of their employment, including through their misconduct, unethical behavior, or activities on personal social media. The reputational impact is likely greater to the extent that the bad conduct, errors or failures are pervasive, long-standing or affect a significant number of customers, particularly retail consumers. The negative impact of such reputational damage on our business may be disproportionate to the actual harm caused to customers. It may be severe even if we fully remediate any harm suffered by our customers. Furthermore, because we conduct most of our businesses under the “PNC” brand, negative public opinion about one business could also affect our other businesses. In addition, we could suffer reputational harm and a loss of customer trust as a result of the conduct of others in our industry even if we have not engaged in such conduct. We use third parties to help in many aspects of our business, with the risk that their conduct can affect our reputation regardless of the degree to which we are responsible for it.
To an increasing extent, financial services companies, including PNC, are facing criticism with accompanying reputational risk from activists, investors and stakeholders who believe companies should be focusing more or less on environmental, social and governance matters. Companies in our industry, including PNC, are targeted for engaging in business with specific customers or with customers in particular industries, where the customers’ activities, even if legal, are perceived as having harmful impacts on matters such as the environment, consumer health and safety, or society at large. In addition, some activists, investors and other stakeholders are seeking increased transparency and action from financial services companies with respect to environmental, social and governance activities, political activities and activities that are or may be perceived to be politically partisan in nature. Criticism has come in many forms, including protests at PNC facilities and social media campaigns. In some circumstances, our stakeholders have held and continue to hold conflicting views on the role PNC and other financial services companies should play in continuing to or refraining from financing certain sectors. In some cases, we are subject to potentially conflicting proposed and enacted state and local laws affecting our industry that regulate the manner in which or whether we may finance or service certain clients, industries or sectors. Many of these issues are divisive without broad agreement as to the appropriate steps a company such as PNC should take. As a result, however we respond to such criticism, we expose ourselves to the risks that current or potential customers decline to do business with us or current or potential employees refuse to work for us. This can be true regardless of whether we are perceived by some as not having done enough to address these concerns or by others as having inappropriately yielded to these pressures. These pressures can also be a factor in decisions as to which business opportunities and customers we pursue, potentially resulting in foregone profit opportunities.
The speed with which information moves through social media and other news sources on the internet means that negative information about PNC can rapidly have a broadly adverse impact on our reputation. This is true whether or not the information is accurate. False information can also be spread from unaffiliated or parody social media accounts pretending to be official company communications channels. Once information has gone viral, it can be difficult to counter it effectively, either by correcting inaccuracies or communicating remedial steps taken for actual issues. The potential impact of negative information going viral means that material reputational harm can result from a single discrete or isolated incident.
28 The PNC Financial Services Group, Inc. – 2023 Form 10-KWe operate in a highly competitive environment in terms of the products and services we offer and the geographic markets in which we conduct business.We are subject to intense competition both from other financial institutions and from non-bank entities, including financial technology companies (often referred to as “FinTech”). In many cases, non-bank entities can engage in many activities similar to ours or offer products and services desirable to our customers without being subject to the same types of regulation, supervision and restrictions that are applicable to banks, which could place us at a competitive disadvantage. Emerging financial technologies, including with respect to payment services and systems, lending, digital wallets, non-fungible tokens and digital currencies and cryptocurrencies, may affect our customers’ needs and expectations for products and services. We may fail to attract or retain customers if we are unable to develop and market products and services that meet evolving customer needs or demands or if we are unable to deliver them effectively and securely to our customers. We may also fail to attract or retain customers if we are unwilling to provide products or services that we deem to be speculative or risky. The competition we face is described in Item 1 of this Report under “Competition.”
Consolidation in our industry, including among smaller banks combining to form more competitive larger ones and between banks and non-bank entities, could result in PNC facing more intense competition, particularly in impacted regions or with respect to particular products. As we expand into new markets, we may face competitors with more experience and established relationships in these markets, which could adversely affect our ability to compete.
A failure to adequately address the competitive pressures we face could make it harder for us to attract and retain customers across our businesses. On the other hand, meeting these competitive pressures could require us to incur significant additional expense or to accept risk beyond what we would otherwise view as desirable under the circumstances. In addition, in our interest rate sensitive businesses, competitive pressures to increase rates on deposits or decrease rates on loans could reduce our net interest margin, negatively impacting our net interest income.We depend on skilled labor, and employee attrition, competition for talented employees and labor shortages may have a material adverse effect on our business and operations.Our performance is dependent on attracting and retaining talented and diverse employees. We face significant competition for these employees across many of our businesses and support areas. This presents greater risk as we expand into new markets, develop new product lines, or enhance staffing in certain areas, particularly technology. This competition leads to increased expenses in affected business areas. Differences in demands, expectations and priorities of the workforce (such as remote work expectations) may require us to modify our recruiting and retention strategies to attract and retain employees. Limitations on the way regulated financial institutions can compensate their officers and employees, including those contained in pending rule proposals implementing requirements of Dodd-Frank, may make it more difficult for regulated financial institutions, including PNC, to compete with other companies for talent.Risks Related to Other Operational Issues
We depend on the effectiveness and integrity of employees, and the systems and controls for which they are responsible, to manage operational risks.
We are a large company that offers a wide variety of products and services to a broad and diverse group of customers. We rely on our employees to design, manage and operate our systems and controls to assure that we properly enter into, record and manage processes, transactions and other relationships with customers, suppliers and other parties with whom we do business. In some cases, we rely on employees of third parties to perform these tasks. We also depend on employees and the systems and controls for which they are responsible to assure that we identify and mitigate the risks that are inherent in our relationships and activities. These concerns are increased when we change processes or procedures, introduce new products or services, acquire or invest in a business or implement new technologies, as we may fail to adequately identify or manage operational risks resulting from such changes. These concerns may be further exacerbated by employee turnover and labor shortages.
As a large financial services firm, we are faced with ongoing attempts by individuals or organizations to defraud us or our customers for financial gain. We depend on systems, processes and personnel, either at PNC or from third parties, to identify and prevent potentially fraudulent transactions, but those systems may not be adequate and fraudulent actors regularly change tactics to improve their chance of success. Even if PNC is not financially responsible for reimbursing a customer for its fraud losses, such losses may damage PNC’s reputation or ability to attract and retain customers.As a result of our necessary reliance on employees, whether ours or those of third parties, to perform these tasks and manage resulting risks, we are thus subject to human vulnerabilities. These range from innocent human error to misconduct or malfeasance, potentially leading to operational breakdowns or other failures. Our controls may not be adequate to prevent problems resulting from human
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involvement in our business, including risks associated with the design, operation and monitoring of automated systems. We may also fail to adequately maintain a culture of risk management among our employees.
Errors by our employees or others responsible for systems and controls on which we depend and any resulting failures of those systems and controls to prevent unethical, fraudulent, improper or illegal conduct could result in significant harm to PNC. This harm could include customer remediation costs, regulatory fines or penalties, litigation or enforcement actions or limitations on our business activities. We could also suffer damage to our reputation, as described under “We are at risk for an adverse impact on our business due to damage to our reputation.”
We use automation, machine learning, artificial intelligence and robotic process automation tools to help reduce some risks of human error. Nonetheless, we continue to rely on many manual processes to conduct our business and manage our risks. In addition, use of automation tools does not eliminate the need for effective design and monitoring of their operation to make sure they operate as intended. Enhanced use of automation may present its own risks. Automated systems may themselves experience outages or problems. Some tools are dependent on the quality of the data used by the tool to learn and enhance the process for which it is responsible. Bad, missing or anomalous data can adversely affect the functioning of such tools. It is possible that humans in some cases are better able than highly automated tools to identify that anomalous data is being used or that results are themselves anomalous.We rely on third-party vendors, service providers and other counterparties to help support many aspects of our business. When we do so, our direct control of activities related to our business is reduced, which introduces risk.
Our use of third parties to support our business needs typically means that we do not directly control the activities we are having them perform. Any disruption in services provided by these third parties could adversely affect our ability to conduct our business. Replacing third parties could also entail significant delay and expense. Risks can arise through inadequate performance by a third party (including by its downstream service providers), specifically where that performance could affect us or our customers, and even when the result of factors or events are beyond such third party’s control. Many of the kinds of risks presented by activities performed by third parties are described elsewhere in these Risk Factors. Enhanced regulatory and other standards for the oversight of our use of third-party vendors and other service providers can result in higher costs and other potential exposures. We are also vulnerable, including to regulatory penalties, if an outside company fails to comply with legal requirements relevant to its work on our behalf. We may in any such circumstance suffer financial losses, legal consequences and injury to our reputation. Even if the other company makes us whole for financial losses, which is not necessarily the case, it is unlikely that it would be able to restore any injury to our reputation. As a result, the use of third parties to assist in our business activities heightens the risks to us inherent in those activities.
Other Key Risks
We are at risk for the impact of adverse results in legal proceedings.Many aspects of our business involve substantial risk of legal liability. We have been named or threatened to be named as defendants in various lawsuits arising from our business activities. In addition, we are regularly the subject of governmental investigations and other forms of regulatory inquiry. We also are at risk when we have agreed to indemnify others for losses related to legal proceedings they face, such as in connection with the sale of a business or assets by us. The results of these legal proceedings could lead to significant monetary damages or penalties, restrictions on the way in which we conduct our business or reputational harm.Although we establish accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated, we do not have accruals for all legal proceedings where we face a risk of loss. In addition, due to the inherent subjectivity of the assessments and unpredictability of the outcome of legal proceedings, amounts accrued often do not represent the ultimate loss to us from the legal proceedings in question. Thus, our ultimate future losses may be higher, and possibly significantly so, than the amounts accrued for legal loss contingencies. We discuss further the unpredictability of legal proceedings and describe certain of our pending legal proceedings in Note 20 Legal Proceedings.We grow our business in part by acquiring other financial services businesses from time to time. Sometimes these are businesses with technologies or other assets valuable to us even if they do not themselves provide financial services to customers. Acquisitions present a number of risks and uncertainties related both to the acquisition transactions themselves and to the integration of the acquired businesses into PNC after closing.
Acquisitions of other companies or of financial assets and deposits and other liabilities present risks and uncertainties to us in addition to those presented by the nature of the business acquired, which may materially and adversely affect our results of operations. Many of the same risks arise when we engage in strategic partnerships. Our ability to analyze the risks presented by prospective acquisitions, as well as our ability to prepare in advance of closing for integration, may be limited to the extent that we cannot gather necessary or desirable information with respect to the business we are acquiring. We may also make certain assumptions related to an acquisition that may prove to be inaccurate that limit the anticipated benefits (such as cost savings from synergies or strategic gains from being
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able to offer enhanced product sets) or make the acquisition more expensive or take longer to complete and integrate than anticipated. Prior to closing an acquisition, prospective acquisition targets are also subject to their own risks that we cannot manage or control. Our ability to complete an acquisition may be dependent on regulatory agencies with responsibilities for reviewing or approving the transaction, which could delay, restrictively condition or result in denial of an acquisition, or otherwise limit the benefits of the acquisition. Changes in regulatory rules or standards or the application of those rules or standards, or future regulatory initiatives designed to promote competition or limit systemic risk and the potential for a financial institution to become “too big to fail,” may also limit our ability to complete an acquisition.Acquisition targets have their own risks specific to their businesses that could impact the success of an acquisition and its integration into PNC, such as:
• If a significant aspect of the value of transaction is intellectual property, the extent to which the intellectual property may be utilized or protected and commercialized by PNC.
• If the acquisition includes loan portfolios, the extent of actual credit losses and the required allowance for credit losses following completion of the acquisition.
• If the acquisition involves entering into new businesses or geographic or other markets, potential limitations on our ability to take advantage of these opportunities because of our inexperience with respect to them.
• The results of litigation and governmental investigations that may be pending at the time of the acquisition or that may be filed or commenced thereafter, because of an acquisition or otherwise, which are often hard to predict.
• Operational or compliance issues at the acquisition target may not be fully identified or remediated until after the acquisition closes, potentially resulting in increased costs or penalties.
• Models used by an acquisition target, such as for capital planning and credit loss accounting, may be designed or implemented in a manner different than at PNC, and our necessary reliance on these for a period of time, could materially impact our financial condition or results of operations to the extent that our estimates based on these models are inaccurate.
• Enterprise risk management systems, policies and procedures may be different and less mature than those of PNC, and our necessary reliance on these for a period of time, could limit PNC’s ability to identify, monitor, manage and report risks or subject us to heightened regulatory, legal, operational or reputational risk.
After closing, the success of an acquisition is likely partially dependent on our ability to retain and expand upon the acquired company’s customer base. It is also frequently subject to risks related to human capital, including, risks related to integrating the corporate culture of the acquired company and, to the extent being retained, the quality of leadership of the acquired company.
Our business and financial performance could be adversely affected, directly or indirectly, by disasters, natural or otherwise, by terrorist activities, by international hostilities or by domestic civil unrest.Neither the occurrence nor the potential impact of natural and other disasters (including severe weather events), health emergencies, dislocations, geopolitical instabilities, terrorist activities, international hostilities or other extraordinary events beyond PNC’s control can be predicted. However, these occurrences could adversely impact us, for example, by causing significant damage to our facilities or preventing us from conducting our business in the ordinary course. Also, their impact on our borrowers, depositors, other customers, suppliers or other counterparties could result in indirect adverse effects on us. Other indirect adverse consequences from these occurrences could result from impacts to the financial markets, the economy in general or in any region, or key parts of the infrastructure (such as the power grid) on which we and our customers rely. These types of indirect effects, whether specific to our counterparties or more generally applicable, could lead, for example, to an increase in delinquencies, bankruptcies or defaults that could result in PNC experiencing higher levels of nonperforming assets, net charge-offs and provisions for credit losses. They could also cause a reduction in demand for lending or other services that we provide.Our ability to mitigate the adverse consequences of such occurrences is in part dependent on the quality of our resiliency planning. This includes our ability to anticipate the nature of any such event that might occur. The adverse impact of these occurrences also could be increased to the extent that there is a lack of preparedness on the part of national or regional emergency responders or on the part of other organizations and businesses that we deal with, many of which we depend on but have limited or no control over.
FY 2024-12-31 (later)
ITEM 1A – RISK FACTORSWe are subject to a number of risks potentially impacting our business, financial condition, results of operations and cash flows. As a financial services company, certain elements of risk are inherent in what we do and the business decisions we make. Thus, we encounter risk as part of the normal course of our business, and we design risk management processes to help manage these risks. For more information about how we manage risks, see the Risk Management section in Item 7 of this Report.The following are the material risk factors that affect us of which we are currently aware. Any one or more of these risk factors could have a material adverse impact on our business, financial condition, results of operations or cash flows. In addition, these risks present other possible adverse consequences, including those described below. These risk factors and other risks we face are also discussed further in other sections of this Report. Thus, the risk factors below should not be considered a complete list of potential risks that we may face.
Risks Related to the Economy and Other External Factors, Including Regulation
Our business and financial performance are vulnerable to the impact of adverse economic conditions.Our business and overall financial performance are affected to a significant extent by economic conditions, primarily in the U.S. Declining or adverse economic conditions and adverse changes in investor, consumer and business sentiment generally result in reduced business activity, which may decrease the demand for our products and services or reduce the number of creditworthy borrowers. The ability of borrowers to repay loans is often weakened as a result of economic downturns, higher inflation and unemployment. In addition, adverse economic conditions may limit the availability of, or increase the costs of, capital and labor, erode consumer and customer purchasing power, confidence and spending and may also reduce our tolerance for extending credit. Increases in costs or expenses impacting our customers’ operations and financial performance, such as the interest rates payable on their debt obligations, could increase our credit risk or decrease the demand for our products and services.
We operate in an uncertain economic environment due to sustained inflationary pressures, including higher prices and lower housing affordability, and structural and secular changes arising from the pandemic for certain sectors of the economy combined with geopolitical tensions. These conditions have led and may continue to lead to turmoil and volatility in financial markets, often with at least some financial asset categories losing value. Financial market volatility could also result from uncertainty about the timing and extent of rate cuts by the Federal Reserve. Any of these effects would likely have an adverse impact on our operations and financial performance, with the significance of the impact generally depending on the nature and severity of the adverse economic conditions. Even when economic conditions are relatively good or stable, specific economic factors can negatively affect our business and performance. This can be especially true when the factors relate to particular segments of the economy and impact our customers whose operations or financial conditions are directly or indirectly dependent on good or stable conditions in those segments. For example, given the fundamental change in office demand driven by the acceptance of remote work, commercial real estate space remains underutilized. This, combined with higher interest rates, likely decreases demand for financial services in that sector and may make it more difficult for borrowers to refinance maturing loans, contributes to decreased property values and harms the creditworthiness of some of our office commercial real estate customers, as well as businesses whose customers have historically been office workers.
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Our foreign business activities and operations continue to be a relatively small part of our overall business. As a result, the direct impact on our business and financial performance from economic conditions outside the U.S. is not likely to be significant, although the impact would increase if we expanded our foreign business and operations more than nominally. We are, however, susceptible to the risk that foreign economic conditions and geopolitical tensions could negatively affect our business and financial performance. Primarily, this risk results from the possibility that poor economic conditions or financial market disruptions affecting other major economies would also affect the U.S. Throughout the remainder of this Risk Factors section, we address specific ways in which economic issues could create risk for us and result in adverse impacts on our business and financial performance.The impact of government legislation, regulation and policy and other political factors on the economy could have an adverse effect on our business and financial performance.Changes in law or governmental policy affecting the economy, business activity, or personal spending, investing or saving activities may cause consumers and businesses to alter their behavior in ways that impact demand for our products and services. Such changes may also alter the profitability of the transactions in which we engage or result in increased regulatory burden and associated costs. PNC may alter the types or terms of the products and services we offer to reflect such changes. Uncertainty regarding future law or policy may have similar impacts.
The election of a new President together with changes in the membership of Congress, including change in control of the Senate, will likely lead to changes in the laws or policies applicable to us and the agencies that regulate us, including their interpretations of rules and guidelines. These changes may subject financial institutions like us to changes in regulation, supervision and enforcement that are difficult to predict and uncertain for a period of time and may create the possibility of significant impacts on business activity in the U.S. and globally, including impacts relating to the trade policies (including tariffs) of the U.S. or other countries. In addition, the application of some laws may require significant judgment and be subject to differing interpretations. Further, some of the laws and regulations finalized in the prior administration that are applicable to financial institutions are subject to ongoing litigation creating further uncertainty.
The impact that these changes may have on our operations or financial condition are discussed in more detail in the Risk Factor headed “As a regulated financial services firm, we are subject to numerous governmental regulations and comprehensive oversight by a variety of regulatory agencies and enforcement authorities. These regulations and their implementation can have a significant impact on our businesses and operations and our ability to grow and expand.”
Concern regarding high and rising federal debt levels and federal budgetary matters (including the debt ceiling) also can have adverse economic consequences and create the risk of economic instability or market volatility, with potential adverse consequences to our business and financial performance.The policies of the Federal Reserve and other governmental agencies have a significant impact on interest rates and overall financial market performance, which are important to our business and financial performance.The monetary policies of the Federal Reserve, including changes in the federal funds rate, open market operations and balance sheet management, have a significant impact on interest rates, the value of financial instruments and other assets and liabilities, and overall financial market performance and volatility. These policies, including any resulting changes in economic conditions or in investor sentiment or perceptions, can thus affect the activities and results of operations of financial services companies such as PNC.
An important function of the Federal Reserve is to monitor the national supply of bank credit and set certain interest rates. The actions of the Federal Reserve influence the rates of interest that we charge on loans and that we pay on borrowings and interest-bearing deposits. Rates of interest can also affect the value of our on-balance sheet and off-balance sheet financial instruments. Although we may not accurately predict the nature or timing of future changes in monetary policies or the precise effects that they may have on our activities and financial results, we anticipate that the FOMC will cut the federal funds rate 25 basis points twice in 2025, once in May and once in July. In addition, actions by governmental authorities in other countries, including with respect to monetary policy, could impact financial markets and global interest rates, which could affect rates in the U.S. as well as rates on instruments denominated in currencies other than the U.S. dollar, any of which could have potential effects on us as described above. Some of the potential impacts on our business and results of governmental monetary policy are described in Risk Factors under the heading “Risks Related to the Business of Banking.”As a regulated financial services firm, we are subject to numerous governmental regulations and comprehensive oversight by a variety of regulatory agencies and enforcement authorities. These regulations and their implementation can have a significant impact on our businesses and operations and our ability to grow and expand.The PNC Financial Services Group, Inc. is a BHC and a financial holding company, with the Federal Reserve as its primary regulator. PNC Bank is a federally chartered bank, with the OCC as its primary regulator. In addition, our businesses are subject to regulation by multiple other banking, consumer protection, securities and derivatives regulatory bodies. We are also subject to the jurisdiction of criminal and civil enforcement authorities. As a result, we are subject to numerous laws and regulations, with multiple regulators or agencies having supervisory or enforcement oversight over aspects of our business activities. These laws, regulations and supervisory activities are intended to promote the safety and soundness of financial institutions, financial market stability, the transparency and liquidity of financial markets, consumer protection and to prevent money laundering and terrorist financing and are not primarily
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intended to protect PNC security holders. In addition to regulation in the U.S., we are also subject to foreign regulation to a limited extent as a result of our business activities outside the U.S.
Applicable laws and regulations restrict our permissible activities and require compliance with provisions designed to protect loan, deposit, brokerage, fiduciary, and other customers, and for the protection of customer information, among other things. We also are subject to laws and regulations designed to combat money laundering, terrorist financing, and transactions with persons, companies or foreign governments designated by U.S. authorities. Over time, the scope of the laws and regulations affecting our businesses, as well as the number of requirements or limitations imposed by legislative or regulatory actions, has increased, and we expect to continue to face substantial regulatory oversight and new or revised regulatory requirements or initiatives, including those related to requirements for the orderly resolution of financial institutions. As we expand our product and service offerings into additional markets, domestic or foreign, either through organic growth or acquisition, we have faced and will continue to face increases in state or foreign regulation affecting our operations. Different approaches to regulation by different jurisdictions, including potentially conflicting state-level regulation, could materially increase our compliance costs or risks of non-compliance. Legislative or regulatory actions can result in increased compliance costs, reduced business opportunities, or requirements and limitations on how we conduct our business. In particular, the financial services industry continues to face heightened scrutiny, including with respect to BSA/AML, know-your-customer and export and sanctions compliance requirements, consumer compliance and protection matters (such as with respect to overdraft and other fees), and capital, liquidity and resolution planning in response to systemic events in the banking industry. In addition, heightened standards under proposed and recently finalized rules, such as those implementing the Community Reinvestment Act, may result in increased obligations and compliance costs, and may factor into our ability to expand and engage in new actions. Although the new presidential administration has indicated an intent to pursue the regulation of the financial services industry differently than was the case under the previous administration, there is significant uncertainty regarding the direction this administration will take and its ability to implement its policies and objectives, as well as the ultimate impact on potential new regulatory initiatives and the enforcement of existing laws and regulations.
Federal law grants substantial supervisory and enforcement powers to federal banking regulators, and they have assumed an active oversight, examination and enforcement role across the financial services industry. The results of supervisory or examination activities by our regulators, including actual or perceived compliance failures, could result in limitations on our ability to enter into certain transactions, engage in new activities, expand geographically, make acquisitions or obtain necessary regulatory approvals in connection therewith, or otherwise require us to modify our businesses practices in a manner that materially impacts our financial condition or results of operations. These activities also could result in significant fines, penalties or required corrective actions, some of which could be expensive, difficult to implement or materially impact our business or financial condition. In addition, another financial institution’s violation of law or regulation may give rise to an investigation of the same or similar activities of PNC. Further, the Federal Reserve requires a BHC to act as a source of financial and managerial strength for its subsidiary banks. The Federal Reserve could require PNC to commit resources to PNC Bank when doing so is not otherwise in the interests of PNC or its shareholders or creditors.
A failure to comply, or to have adequate policies and procedures designed to comply, with regulatory requirements and expectations exposes us to the risk of damages, fines and regulatory penalties and other regulatory or enforcement actions or consequences, such as limitations on activities otherwise permissible for us or additional requirements for engaging in new activities and could also injure our reputation with customers and others with whom we do business. We also rely on third parties who may expose us to compliance risk. A failure to comply with regulatory requirements or deficiencies in risk management practices could be incorporated in our confidential supervisory ratings, which could limit PNC’s ability to expand or require additional approvals before engaging in certain business activities. See the immediately following Risk Factor for a discussion of risks associated with capital and liquidity regulation. Also see the Supervision and Regulation section in Item 1 of this Report and Note 19 Regulatory Matters for more information concerning the regulation of PNC, including those areas that have been receiving a high level of regulatory focus.We are subject to regulatory capital and liquidity standards that affect our business, operations and ability to pay dividends or otherwise return capital to shareholders.
PNC and PNC Bank are subject to regulatory capital and liquidity requirements established by the Federal Reserve and the OCC, respectively. These regulatory capital and liquidity requirements are typically developed at an international level by the Basel Committee and then applied, with adjustments, in each country by the appropriate domestic regulatory bodies. Domestic regulatory agencies can apply stricter capital and liquidity standards than those developed by the Basel Committee. In several instances, the U.S. banking agencies have done so with respect to U.S. banking organizations.Requirements to maintain specified levels of capital and liquidity, and regulatory expectations as to the quality of our capital and liquidity, impact our business activities and may prevent us from taking advantage of opportunities in the best interest of shareholders or force us to take actions contrary to their interests. For example, PNC’s ability to pay or increase dividends or otherwise return capital to shareholders is subject to PNC’s compliance with its SCB, which is determined at least annually through the Federal Reserve’s CCAR process. The Federal Reserve can also impose additional limitations on capital distributions, such as limitations on distributions during times of economic stress. In addition, dividends or other capital distributions from PNC Bank and, to a lesser extent, non-bank subsidiaries are PNC’s principal source of funds to, among other things, pay dividends on and make repurchases of its capital stock. Many of our subsidiaries are subject to laws that restrict dividend payments or authorize regulatory bodies to prohibit
The PNC Financial Services Group, Inc. – 2024 Form 10-K 17
or limit dividends to PNC. Limitations on PNC’s ability to receive dividends from its subsidiaries, including PNC Bank, could have a material adverse effect on its liquidity and ability to pay dividends on and make repurchases of its capital stock, especially to the extent that PNC must first service any outstanding debt obligations. Capital and liquidity requirements may also impact the amount and type of loans we make. We may be constrained in our ability to expand, either organically or through acquisitions. We may be forced to sell or refrain from acquiring assets where the capital requirements appear inconsistent with the assets’ underlying risks. In addition, liquidity standards require us to maintain holdings of highly liquid short-term investments, thereby reducing our ability to invest in longer-term or less liquid assets, even if more desirable from an earnings, balance sheet or interest rate risk management perspective.
Regulatory capital and liquidity requirements are subject to regular review and revision by the Basel Committee and the U.S. banking agencies. Although the federal banking agencies issued a proposed rule in July 2023 to implement the final components of the Basel III framework, the status of this rule, and potential revisions to the rule, remain uncertain. The regulatory capital and liquidity frameworks, as well as certain other prudential requirements and standards that are applicable to PNC, including related proposed rules, are discussed in the Supervision and Regulation section in Item 1 of this Report and the Liquidity and Capital Management portion of the Risk Management section in Item 7 of this Report.Our ability to operate our business could be impaired if our liquidity is unexpectedly constrained.Our liquidity could be impaired as a result of unanticipated outflows of cash or collateral, unexpected loss of consumer deposits or higher than anticipated draws on lending-related commitments, an inability to sell assets (or to sell assets at favorable times or prices), a default by a counterparty or other market participant, our inability to access other sources of liquidity, including from sources that have historically been available or through the capital markets due to unforeseen market dislocations or interruptions, or a lack of market or customer confidence in PNC or financial institutions in general. Many of the above conditions and factors may be caused by events over which we have little or no control. In addition, if access to stable and lower-cost sources of funding is reduced, alternative sources of funding could be more expensive and limited in availability. The increased speed with which information is disseminated, through official or social media, could increase the speed or severity of liquidity pressures caused by, for example, negative news about PNC’s or other financial institutions’ financial prospects or safety and soundness. A negative impact on our liquidity would likely limit our ability to support our operations and fund outstanding liabilities as well as meet regulatory expectations, which would adversely affect our financial condition and results of operations. For information on our liquidity management, see the Liquidity and Capital Management portion of the Risk Management section in Item 7 of this Report.A downgrade in our credit ratings could significantly impact our liquidity, funding costs and access to the capital markets.Our credit ratings are based on a number of factors, including the financial strength of PNC and PNC Bank, and factors outside of our control, such as conditions affecting the financial services industry generally. Reductions in one or more of our credit ratings could adversely affect our ability to borrow funds, increase our cost of capital and limit the number of investors or counterparties willing to do business with or lend to us. For example, downgrades could negatively impact our right to continue to service mortgages and hold related escrows and reserves. Downgrades could also adversely affect our ability to attract or retain customers, including deposits. In addition, a downgrade in our credit ratings could trigger obligations to make cash or collateral payments under derivative contracts with certain counterparties. There can be no assurance that we will maintain our current ratings and outlooks. For information on our credit ratings and outlooks, see the Liquidity and Capital Management portion of the Risk Management section in Item 7 of this Report.Privacy and consumer data rights initiatives have imposed and will continue to impose additional operational burdens on PNC, and they may limit our ability to pursue desirable business initiatives and increase the risks associated with any future use of personal data.Over time, there has been an increase in legislative and regulatory efforts to protect the privacy and enhance the portability of personal data. Individuals whose personal information may be protected by law may include our customers, prospective customers, job applicants, employees and third parties. These initiatives, among other things, limit how companies can use personal data and impose obligations on companies in their management of such data, including requiring companies like PNC to make available to consumers and authorized third parties certain data relating to transactions and accounts and establishing obligations for accessing such data. Financial services companies such as PNC necessarily gather, maintain and use a significant amount of personal data. These types of initiatives increase compliance complexity and related costs, may result in significant financial penalties for compliance failures, and may limit our ability to develop new products or respond to technological changes. This is particularly true as we expand our business and operations into new markets. We are, or may become, subject to regularly evolving and developing data privacy and security laws and regulations in other jurisdictions, including foreign jurisdictions even where our presence in such jurisdictions is minimal. Such legal requirements also could heighten the reputational impact of perceived misuses of personal data by us, our vendors or others who gain unauthorized access to our personal data. Other jurisdictions may adopt similar requirements that impose different and potentially inconsistent compliance burdens. The impacts will be greater to the extent requirements vary across jurisdictions.
18 The PNC Financial Services Group, Inc. – 2024 Form 10-KClimate change-related risks could adversely affect our business and performance, including indirectly through impacts on our customers.There continues to be concern, including on the part of certain regulators and in certain jurisdictions where we do business or have operations, regarding climate change and its impacts over the short-, medium- and long-term horizons. These concerns over the impacts of climate change (including physical risk and transition risk) have led and may continue to lead to efforts to mitigate those impacts. We and our customers may face cost increases, asset value reductions, the reduced availability of insurance or sufficient insurance to cover losses, operations disruptions and changes and other impacts because of climate change (including because of the increased frequency or severity of acute weather events and long-term shifts in the climate) and governmental actions or societal responses to climate change. The impact on our customers will likely vary depending on their specific attributes, including their reliance on or role in carbon intensive activities and their transition plans, as well as their exposure to the effects of climate change. Consumers and businesses may also change their behaviors because of these concerns. Changed consumer and business behavior because of climate change concerns creates transition risk for PNC arising from the process of adjusting to these concerns. PNC and its customers will need to respond to any new laws and regulations as well as any changes in consumer and business preferences related to climate change. Among the impacts to PNC could be a drop in demand for our products and services, particularly in certain sectors if our products or services do not support the environmental goals of our customers, or increased losses due to the impact of climate change on the collateral that secures customer borrowings. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans.
We are currently subject to climate-related regulatory expectations and could be subject to additional regulatory restrictions or costs associated with providing products or services to certain companies or sectors. Additionally, the federal government may alter climate policies or requirements in a way that significantly conflicts with certain state-level policies or investor expectations. Such changes may present risk to PNC due to inconsistent expectations, requirements or costs. Environmental regulations or changes in the supply, demand or available sources of energy or other resources may affect the availability or cost of goods and services necessary to run our business. Our efforts to take these risks into account in making lending and other decisions may not be effective in protecting us from the negative impact of any new laws and regulations or any changes in consumer or business behavior, including those resulting from activist pressure. Our risk management needs to continue to evolve, or it may not be effective in identifying, measuring, monitoring and controlling climate risk exposure, particularly given that the timing, nature and severity of the impacts of climate change may not be predictable.
We have been and may continue to be subject to conflicting pressure from individuals, groups and governmental entities to cease doing business, or to maintain business, with certain companies or sectors, in particular those involved with fossil fuels, because of concerns related to climate change. Further, there is increased scrutiny of climate change-related policies, goals and disclosures, including with regard to inaccurate or misleading statements regarding these practices (often referred to as “greenwashing”), which could result in litigation and regulatory investigations and actions. Our stakeholders may disagree with these policies and goals or, conversely, believe that these policies and goals are, and our related progress in accomplishing such goals and implementing such policies is, insufficient. This may lead to a decrease in demand for our products and services or damage to our reputation. We may also incur additional costs and require additional resources as we evolve our strategy, practices and related disclosures with respect to these matters. In addition, there are and will continue to be challenges related to capturing, verifying, analyzing and disclosing climate-related data that is subject to measurement uncertainties. The Risk Factor headed “We are at risk for an adverse impact on our business due to damage to our reputation” further discusses risks associated with our management of these matters, including related activist pressure.Risks Related to the Use of Technology
The use of technology is critical to our ability to maintain or enhance the competitiveness of our businesses.As a large financial services company, we handle a substantial volume of customer and other financial transactions. As a result, we rely heavily on information systems to conduct our business and to process, record, monitor and report on our transactions and those of our customers. Over time, we have seen more customer usage of technological solutions for financial needs as well as higher expectations of customers and requirements of regulators regarding effective and safe systems operation. In many cases, the effective use of technology increases efficiency and enables financial institutions to better serve customers. As a result of these factors, the financial services industry continues to undergo rapid technological change with frequent introductions of new technology-driven products and services. Examples include expanded use of cloud computing, artificial intelligence (AI) and machine learning, biometric authentication, voice and natural language, data protection enhancements and increased online and mobile device interaction with customers, including innovative ways that customers can manage their accounts.
In response to actual and anticipated customer behavior and expectations, as well as competitive pressures, we continue to invest in technology and connectivity. We are seeking to automate functions previously performed manually, facilitate the ability of customers to engage in financial transactions and otherwise enhance the customer experience with respect to our products and services. This effort has involved and is likely to continue to involve the expenditure of considerable amounts of funds and other resources, which could be constrained to the extent that sustained adverse economic conditions and other factors described elsewhere in these Risk Factors negatively impact our business or financial performance. A failure to maintain or enhance our competitive position with
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respect to technology, whether because we fail to anticipate customer expectations, because our technological developments fail to perform as desired or are not rolled out in a timely manner, or because we fail to keep pace with our competitors, would likely cause us to lose market share or incur additional expense. Our ability to maintain or enhance our relative technological position is in part dependent on our ability to attract and retain talented employees in these fields.Our use of technology is dependent on having the right to use its underlying intellectual property.In some cases, we develop internally the intellectual property embedded in the technology we use. In others, we or our vendors license the use of intellectual property from others. Where we rely on access to third-party intellectual property, it may not be available to us on commercially reasonably terms or at all. Regardless of the source of the intellectual property, if another person or entity were deemed to own intellectual property rights infringed by our activities, we could be responsible for significant damages covering past activities and substantial fees to continue to engage in these types of activities. It also is possible that we could be prevented from using technology important to our business for at least some period of time. In such circumstances, there may be no alternative technology for us to use or an appropriate alternative technology might be expensive to obtain. We could also suffer significant reputational damage in these circumstances. Protections offered by those from whom we license technology against these risks may be inadequate to cover any losses in full. Over time, there have been and continue to be instances where technology used by PNC has been alleged to have infringed patents held by others, and, in some cases, we have suffered related losses.We could suffer a material adverse impact from interruptions in the effective operation of our information systems and other technology.The need to ensure proper functioning and resiliency of our information systems and other technology has become more important and challenging, and the costs involved in that effort continue to be high. Our ability to create, obtain, maintain and report on information in an accurate, timely and secure manner is a foundational component of our business. Effective management of our expanded digital products and services, geographic footprint and continued remote work environment heightens our need for secure, reliable and adequate information systems and technology. The risks of operational failures in the use of these systems result from a variety of factors. We are vulnerable to the impact of failures of our systems to operate as needed or intended. Failures leading to materially adverse impacts could include those resulting from human error, unexpected transaction volumes, or overall security, design or performance issues. In addition, our ability to use our technology effectively could be impacted due to outages, bad weather, disasters, bad actors, terrorism and the like. Such events could affect our systems directly or limit our ability to use our technology due to effects on key underlying infrastructure. Although we regularly update and replace systems that we depend on as our needs evolve and technology improves, we continue to utilize some older systems that may not be as reliable as newer ones. In addition, the implementation of and transition to new or updated systems creates risks related to associated timing and costs, disruptions in functionality for us or for customers, including the ability to perform functions critical to our business and operations, and longer-term failures to achieve desired improvements. Our ability to maintain, timely update and replace systems can become more challenging as the speed, frequency, volume, interconnectivity and complexity of information on these systems increases. In some cases, the risk results from the potential for bad acts on the part of others, discussed in more detail in the Risk Factor headed “We are vulnerable to the risk of breaches of data security affecting the functioning of systems or the confidentiality of information that could adversely affect our customers and our business.”
We rely on information systems maintained by other companies. We use other companies both to provide products and services directly to us and to assist us in providing products and services to our customers. Others provide the infrastructure that supports, for example, communications, payment, clearing and settlement systems, or information processing and storage. These companies range from those providing highly sophisticated information processing to those that provide fundamental services, such as electric power and telecommunications. In some cases, these other companies themselves utilize third parties to support their delivery of products and services to us and our customers. Systems maintained by or for these other companies are generally subject to many of the same risks we face with respect to our systems and thus their issues could have a negative impact on PNC. We necessarily have less ability to provide oversight over other companies’ information systems.
The occurrence of any failure, interruption or security breach of any of our information or communications systems, or the systems of other companies on which we rely, including those where there is not a reasonably available alternative, could result in a wide variety of adverse consequences to us. This risk is greater if the issue is widespread, extends for a significant period of time, or results in financial losses to our customers. The consequences of failures to operate systems properly can result in disruptions to our critical business operations, including our ability to use our accounting, deposit, loan, payment and other systems. Such events could also cause errors in transactions or impair system functionality with customers, vendors or other parties. Possible adverse consequences also include damage to our reputation or a loss of customer business, which could occur even if the negative impact on customers was de minimis. We also could face litigation or additional regulatory scrutiny relating to such events. This in turn could lead to liability or other sanctions, including fines and penalties or reimbursement of adversely affected customers. Even if we do not suffer any material adverse consequences as a result of events affecting us directly, information systems issues at other financial institutions could lead to a general loss of customer confidence in financial institutions, including us. Also, system problems, including those resulting from third-party attacks, whether at PNC or at our competitors, may broadly increase legislative, regulatory and customer concerns regarding the functioning, safety and security of such systems. In that case, we would expect to incur even higher levels of costs with respect to prevention and mitigation of these risks.
20 The PNC Financial Services Group, Inc. – 2024 Form 10-KWe are vulnerable to the risk of breaches of data security affecting the functioning of systems or the confidentiality of information that could adversely affect our customers and our business.
Most corporate and commercial financial transactions are now handled electronically, and our commercial and retail customers increasingly use online access as well as mobile and cloud technologies to bank with us. The ability to conduct business with us in this manner depends on the transmission and storage of confidential information in electronic form. As a result, in the ordinary course of business, we maintain and process vast amounts of digital information about us, our customers and our employees. This information tends to be confidential or proprietary and much of it is highly sensitive. Such highly sensitive information includes information sufficient to support identity theft and personal health information, as well as information regarding business plans and financial performance that has not been made public. As a result, efforts by bad actors to engage in various types of cyber attacks pose serious risks to our business and reputation.We are faced with ongoing, nearly continual, efforts by others to breach data security at financial institutions or with respect to financial transactions. The effectiveness of these efforts may be enhanced using AI. These efforts may be to obtain access to confidential or proprietary information, often with the intent of stealing from or defrauding us or our customers, or to disrupt our ability to conduct our business, including by destroying or impairing access to information maintained by us. Some of these involve efforts to enter our systems directly by going through or around our security protections. Others involve the use of social engineering schemes to gain access to confidential information from our employees, customers or vendors. Our risk and exposure to data security breaches is heightened because of our expanded digital products and services, geographic footprint and continued remote work environment, which results in more access points to our network. The same risks are presented by attacks potentially affecting information held by third parties on our behalf or accessed by third parties, including those offering financial applications, on behalf of our customers. These risks also arise when third parties with whom we do business, or their vendors or other entities with whom they do business, are themselves subject to breaches and attacks, which has impacted our business and may do so in the future. Our ability to protect confidential or proprietary information is even more limited with respect to information held by these parties. For example, we are likely to be limited in our ability to identify and quickly resolve breaches and attacks that may impact our business the further removed an entity is from our business, such as when a breach or attack occurs at vendors of our vendors. We may suffer reputational damage or legal liability for unauthorized access to customer information held by other parties, even if we were not responsible for preventing such access and had no reasonable way of preventing it.
Our customers often use their own devices, such as computers, smartphones and tablets, to do business with us and may provide their PNC customer information (including passwords) to a third party in connection with obtaining services from that third party, including those offering financial applications. Although we take steps to provide safety and security for our customers’ transactions with us and their customer information, to the extent they utilize their own devices or provide third parties access to their accounts, our ability to assure such safety and security is necessarily limited. These risks are heightened as we and others continue to expand mobile applications, cloud solutions, and other internet-based financial product offerings. For example, a number of our customers choose to use financial applications that allow them to view, access and aggregate banking and other financial account information on a single platform, to monitor the performance of their investments, to compare financial and investment products, to make payments or transfer funds, and otherwise to help manage their finances and investments. Some financial applications ask users to provide their secure banking log-in information, credentials or other account-identifying information so the applications can link to users’ accounts at financial institutions. Companies offering these applications frequently use third-party data aggregators, which are behind-the-scenes technology companies that serve as data-gathering service providers, to deliver customer financial data that is then used by the financial applications. To do this, data aggregators may be obtaining customers’ log-in information, credentials or other account-identifying information, which allow the aggregators to access the customers’ account information and “scrape” or obtain the customers’ data, often on a daily or even more frequent basis. That same information has the potential to facilitate fraud if it is not properly protected. This has resulted in incidences of fraud, including automated clearing house fraud, credit card fraud, and wire fraud, enabled through the use of synthetic identities and through account takeovers via these platforms. In addition, transactions by customers on financial applications that facilitate payments and fund transfers have also been fraudulently induced. These transactions occur when a customer authorizes payment to a recipient that fraudulently induced the customer into transferring a payment to such recipient. PNC has and may continue to face increased financial exposure due to activity associated with the increased use of these applications and data aggregators. Even where PNC does not have financial exposure for losses, PNC and the third parties with whom we do business could suffer increased reputational harm or regulatory scrutiny when such losses occur.
As our customers regularly use PNC-issued credit and debit cards to pay for transactions with retailers and other businesses, there is also the risk of data security breaches at those other businesses covering PNC account information. When our customers use PNC-issued cards to make purchases from those businesses, card account information often is provided to such businesses. If a business’s systems that process or store card account information are subject to a data security breach, holders of our cards who have made purchases from that business may experience fraud on their card accounts. We can be responsible for reimbursing our customers for such fraudulent transactions on customers’ card accounts, as well as for other costs related to data security compromise events, such as replacing cards associated with compromised card accounts. In addition, we provide card transaction processing services to some merchant customers under agreements we have with payment networks such as Visa and Mastercard. Under these agreements, we may be responsible for certain losses and penalties if one of our merchant customers suffers a data security breach. Moreover, to the extent
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more consumer confidential information becomes available to bad actors through the cumulative effect of data breaches at companies generally, bad actors may find it easier to use such information to gain access to our customer accounts.
Other cyber attacks are not focused on gaining access to credit card or user credential information, but instead seek access to a range of other types of confidential information, such as internal emails and other forms of customer financial information, and this information may be used to support a ransomware attack. Ransomware attacks have sought to deny access to data and possibly shut down systems and devices maintained by target companies. In a ransomware attack, system data is encrypted, stolen or extorted, or access is otherwise denied, accompanied by a demand for ransom to restore access to the data or to prevent public disclosure of confidential information. Attacks have also been conducted through business email compromise scams that involve using social engineering to cause employees to wire funds to the perpetrators in the mistaken belief that the requests were made by a company executive or established vendor. These types of phishing attacks have increased over time, and they have evolved to include other types of attacks like vishing (through voice messages) and smishing (through SMS text). Other attacks have included distributed denial of service cyber attacks, in which individuals or organizations flood commercial websites with extraordinarily high volumes of traffic with the goal of disrupting the ability of commercial enterprises to process transactions and possibly making their websites unavailable to customers for extended periods of time. Similarly, attacks have been conducted through application program interfaces where cyber attackers seek to exploit the interfaces between mobile or web applications. We (as well as other financial services companies) have been subject to such attacks. Recent cyber attacks have also included the insertion of malware into software updates and the infection of software while it is under assembly, known as a “supply chain attack.” Attacks on our customers may put these relationships at risk, particularly if customers’ ability to continue operations is impaired due to the losses suffered. The techniques used in cyber attacks change rapidly and are increasingly sophisticated, including through the use of generative AI and deepfakes, and we expect in the future through the use of quantum computing, and we may not be able to anticipate cyber attacks or data security breaches.
In addition to threats from external sources, insider threats represent a significant risk to us. Insiders, including those having legitimate access to our systems and the information contained in them, have the easiest opportunity to make inappropriate use of the systems and information. Addressing that risk requires understanding not only how to protect us from unauthorized use and disclosure of data, but also how to engage behavioral analytics and other tools to identify potential internal threats before any damage is done. In addition, due to the number of employees who work remotely, the opportunity for insiders to grant access to third parties or to disclose confidential information of PNC or its customers has increased. As more work is conducted outside of PNC’s facilities, the risk of improper access to PNC’s network or confidential information has increased, including for reasons such as a failure by an employee or contractor to secure a device with PNC access.We have been and expect to continue to be the target of some of these types of cyber attacks. To date, none of these types of cyber attacks has had a material impact on us. Nonetheless, we cannot entirely block efforts by bad actors to harm us, and there can be no assurance that future cyber attacks will not be material. While we maintain insurance coverage that may cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. As a result, we could suffer material financial and reputational losses in the future from any of these or other types of attacks or the public perception that such an attack on our systems has been successful, whether or not this perception is correct. Attacks on others, some of which have led to serious adverse consequences, demonstrate the risks posed by new and evolving types of cyber attacks.
We need effective programs to limit the risk of failures or breaches occurring in our information systems and to mitigate the impact when they do.
We have policies, procedures and systems (including cybersecurity and business continuity programs) designed to prevent or limit the effect of possible failures, interruptions or breaches in security of information systems. We continue to devote appropriate resources toward improving the reliability of our systems and their security against external and internal threats and expect to continue to do so in the future. We design our business continuity and other information and technology risk management programs to allow us to provide services in the case of an event resulting in material disruptions of business activities affecting our employees, facilities, technology or suppliers. We cannot guarantee the effectiveness of our policies, procedures and systems to protect us in any future situation, nor the effectiveness of our oversight of risk at third parties. Although we have policies, procedures and systems designed to mitigate third-party risk, our ability to implement policies, procedures and systems designed to prevent or limit the effect of possible failures, interruptions or breaches in security of information systems with respect to third-party systems and the financial services industry infrastructure is necessarily limited. Should an adverse event affecting another company’s systems occur, we may not have financial protection from the other company sufficient to compensate us or otherwise protect us from the consequences.Methods used by others to attack information systems change frequently (with generally increasing sophistication). A new method of attack often is not recognized until launched against a target. Attacks in some cases appear to be supported by foreign governments or other well-financed entities and often originate from less regulated and remote areas around the world. We have seen a higher volume and complexity of attacks during times of increased geopolitical tensions. As a result, we may be unable to implement adequate preventive measures to address these methods in advance of attacks. Even with our proactive and defensive measures in place, adverse events are likely to occur, and there remains the risk that one or more such events would be material to PNC. Our ability to mitigate the adverse consequences of such occurrences is in part dependent on the quality of our business continuity planning, our ability to identify and understand threats to us from a holistic perspective, our ability to anticipate the timing and nature of any such event that
22 The PNC Financial Services Group, Inc. – 2024 Form 10-K
occurs, with novel or unusual events posing a greater risk, and our ability to identify and quickly resolve vulnerabilities in our information systems and those of third parties upon which we rely. It is also the case that a vulnerability or an adverse event may go undetected for a period of time, with the adverse consequences likely greater the longer it takes to discover the problem. In many cases, it also depends on the preparedness and responses of national or regional governments, including emergency responders, or on the part of other organizations and businesses with which we deal. Additionally, our failure to communicate cyber incidents appropriately to relevant parties could result in regulatory, legal, operational and reputational risk.Risks Related to the Business of Banking
Our business and financial results are subject to risks associated with the creditworthiness of our customers and counterparties.
Credit risk is inherent in the financial services business. It results from, among other things, 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, particularly given the high percentage of our assets represented directly or indirectly by loans and securities and the importance of lending activity to our overall business. We manage credit risk by assessing and monitoring the creditworthiness of our customers and counterparties, by diversifying our loan portfolio, by obtaining and monitoring collateral for certain exposures and by investing primarily in high quality securities.A borrower’s ability to repay a loan can be adversely affected by many factors. Individual borrowers can be affected, for example, by declines in income, job losses, health issues or family issues. Commercial borrowers can be affected, for example, by poor business performance, changes in customer behavior or catastrophic losses. Weakness in the economy or in financial markets typically adversely impacts the ability of our borrowers to repay outstanding loans. We are exposed to increased credit risk if we fail to evaluate properly at origination the likely ability of a borrower to repay a loan. Properly estimating the current and potential value of any collateral pledged to support the loan also is critical to effectively managing credit risk. A failure to identify declining creditworthiness of a borrower or declining collateral value at a time when remedial actions could reduce our exposure increases credit risk. Any decrease in our borrowers’ ability to repay loans likely would result in higher levels of nonperforming loans, net charge-offs, provision for credit losses and valuation adjustments on loans held for sale. Managing credit risk effectively also relies on forecasts of future overall economic conditions, which are inherently imperfect. We also have credit risk arising from many other types of business relationships. Routine transactions give us credit exposure to brokers and dealers, commercial banks, investment banks, mutual and hedge funds, other institutional clients, as well as vendors and other non-financial entities.Our credit risk may be exacerbated when the value of collateral held by us to secure obligations to us cannot be realized, including because of legal or regulatory changes, or is liquidated at prices that are not sufficient to recover the full amount of the loan or derivative exposure due to us. In addition, credit risk may be exacerbated when counterparties are unable to post collateral, whether for operational or other reasons.We reserve for credit losses on our loan and lease portfolio through our ACL estimated under CECL. Under CECL, the ACL reflects expected lifetime losses, which has led and could continue to lead to volatility in the allowance and the provision for credit losses as economic forecasts, actual credit performance and other factors used in the loss estimating process change. We also have reserves for unfunded loan commitments and letters of credit. Changes to expected losses are reflected in net income through provision for credit losses. A worsening of economic conditions or our economic outlook or an increase in credit risk, particularly following a period of good economic conditions, would likely lead to an increase in provision for credit losses with a resulting reduction in our net income and an increase to our allowance. Conversely, an improvement of economic conditions or our economic outlook, particularly following a period of poor economic conditions, could result in a recapture of provision for credit losses for a period of time with a resulting increase in our net income and decrease in our allowance. Either set of conditions is not likely to be sustained and may obscure actual current operations and financial performance. The section headed “Risks Related to Estimates and Assumptions” further discusses risks associated with estimating expected losses under CECL.The concentration and mix of our assets could increase the potential for significant credit losses.In the ordinary course of business, we often have heightened credit exposure to a particular industry, geography, asset class or financial market. As an example, loans secured by real estate typically represent a significant percentage of our overall credit portfolio. It also represents a portion of the assets underlying our investment securities. While there are limitations on the extent of total exposure to an individual consumer or business borrower, events adversely affecting some of our clients or counterparties, based on individual factors or the nature or location of their business, or asset classes or financial markets in which we are involved, could materially and adversely affect us. As described elsewhere in these Risk Factors, the fundamental shift in office demand combined with higher interest rates contributes to decreased property values and harms the creditworthiness of some of our office commercial real estate customers. Declining economic conditions also may impact commercial borrowers more than consumer borrowers, or vice versa. In addition, we execute transactions with counterparties in the financial services industries. Financial services institutions are interrelated because of trading, funding, clearing or other relationships. As a result, uncertainty about the stability of other financial services institutions could lead to market-wide losses and defaults. Thus, the concentration and mix of our assets may affect the severity of the impact of recessions or other economic downturns on us.
The PNC Financial Services Group, Inc. – 2024 Form 10-K 23Our business and financial performance are impacted significantly by market interest rates and movements in those rates.
As a result of the high percentage of our assets and liabilities that are in the form of interest-bearing or interest-related instruments, changes in interest rates, in the shape of the yield curve, or in spreads between different market interest rates can have a material effect on our business, our profitability and the value of our financial assets and liabilities. For example:
• Changes in interest rates or interest rate spreads affect the difference between the interest that we earn on assets such as loans and investment securities and the interest that we pay on liabilities such as deposits and borrowings, which impacts our overall net interest income and margin as well as our profitability.
• Such changes can affect the ability of borrowers to meet obligations under variable or adjustable rate loans and other debt instruments and can, in turn, increase our credit losses on those assets.
• Such changes can decrease the demand for interest rate-based products and services, including loans and deposit accounts.
• Such changes affect our hedging of various forms of market and interest rate risk and may decrease the effectiveness of those hedges in helping to manage such risks.
• Movements in interest rates also affect loan prepayment speeds and could result in impairments of mortgage servicing assets or otherwise affect the profitability of such assets.
• Increases in interest rates likely lower the price we would receive on fixed-rate customer obligations if we were to sell them.The rates on some interest-bearing instruments adjust promptly in accordance with changes in market rates, while others adjust only periodically or are fixed throughout a defined term. As a result, the impact of changes in interest rates can be either increased or diluted due to differences in the relative variability of the rates paid on our liabilities in relation to the rates received on our assets. The extent to which we have elected to hedge interest rate risk through interest rate swaps also affects the impact of rate changes. We attempt to manage the balance sheet to increase our benefit or reduce negative impacts from future movements in interest rates, but failures to anticipate actual movements may have the opposite result. In addition, we do not generally hedge all of our risk and our attempt to hedge any risk does not mean we will be successful.
While higher interest rates generally enhance our ability to grow our net interest income, there are risks associated with a rising interest rate environment. As a general matter, increasing rates tend to decrease the value of fixed-rate financial instruments held on our balance sheet, as discussed in the Risk Factor headed “Our business and financial performance are vulnerable to the impact of changes in the values of financial assets.” Also, customers have and may continue to be less willing or able to borrow at higher rates. Higher interest rates also have hindered and may continue to hinder the ability of borrowers to support interest payments on variable rate loans. Higher interest rates have and may continue to indirectly affect the value of asset classes such as real estate typically financed through secured loans, with a resulting negative effect on collateral securing such loans. As another example, there are increased competitive pressures as rates on deposit products rise. The benefits of higher interest rates are best achieved if we can increase the rates on loans and other assets faster than the rates on deposits and other liabilities increase. We may not be able to achieve this result in a rising rate environment, especially if central banks introduce rate increases more quickly than anticipated. On the other hand, lower interest rates tend to have a negative impact on our net interest margin, and, unless offset by higher earning assets, on our net interest income. We discuss the impact of governmental monetary policy on interest rates in the Risk Factor headed “The policies of the Federal Reserve and other governmental agencies have a significant impact on interest rates and overall financial market performance, which are important to our business and financial performance.”Our business and financial performance are vulnerable to the impact of changes in the values of financial assets.As a financial institution, a substantial majority of our assets and liabilities are financial in nature. Examples include loans, securities, servicing rights, deposits and borrowings. Such assets and liabilities will fluctuate in value, often significantly, due to movements in the financial markets or market volatility as well as developments specific to the asset or liability in question. The underlying value of assets under lease or securing an obligation generally decreases due to increases in supply or decreases in demand for the asset or deterioration in the condition of the asset. This could negatively impact the ability to collect fully on the secured obligation. Credit-based assets and liabilities will fluctuate in value due to changes in the perceived creditworthiness of borrowers or other counterparties and due to changes in market interest rates.
In many cases, we mark our assets and liabilities to market and recognize such changes either through net income or OCI. Thus, gains or losses on these assets and liabilities can have a direct impact on our results of operations and financial performance, unless we have effectively hedged our exposures. We may need to record losses in the value of financial assets even where our expectation of realizing the face value of the underlying instrument has not changed. Our remaining assets and liabilities are not marked to market. As a result, our balance sheet does not precisely represent the fair market value of our financial assets and liabilities. In addition, asset management revenue is earned primarily based on a percentage of the value of the assets being managed and thus is impacted by general changes in market valuations. Thus, although we are not directly impacted by changes in the value of such assets, decreases in the value of those assets would affect related noninterest income.
24 The PNC Financial Services Group, Inc. – 2024 Form 10-KRisks Related to Estimates and Assumptions
Our asset and liability valuations and the determination of the amount of loss allowances and impairments taken on our assets are highly subjective. Our estimates could materially impact our results of operations or financial position.
Our accounting policies are key to how we report our financial condition and results of operations. We must exercise judgment in selecting and applying many of these policies and methods to comply with GAAP and reflect management’s judgment regarding the most appropriate manner to report PNC’s financial condition and results of operations. Management’s selection of a particular accounting policy to apply, while reasonable and appropriate, could result in PNC reporting different results than would have been reported under a different alternative. In addition, the Financial Accounting Standards Board, SEC and other regulatory agencies may issue new or amend existing accounting and reporting standards or change existing interpretations of those standards that could materially affect our financial statements. In some cases, PNC may be required to retrospectively apply a new or amended standard resulting in changes to previously reported financial results.
Certain accounting policies require that we use estimates, assumptions and judgments in preparing our financial statements, including in determining credit loss reserves, reserves related to legal proceedings and the fair value of certain assets and liabilities, among other items. These policies require management to make difficult, subjective and complex judgments about matters that are inherently uncertain, and different amounts could be reported under different conditions or using different assumptions. For example, CECL requires us to make difficult, subjective and complex judgments about future economic and market conditions in determining the ACL.
Some of our financial instruments, including certain derivatives, debt securities, loans, MSRs and private equity investments, among other items, require a determination of their fair value for our financial statements. Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. Changes in underlying factors or assumptions in any of the areas underlying our estimates could materially impact our future financial condition and results of operations. During periods of market disruption, it would be difficult to value certain assets if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were historically traded in active markets with significant observable data that rapidly become illiquid due to market volatility, a loss in market confidence or other factors. In addition, we have assets and liabilities carried at fair value that are estimated using unobservable inputs that are significant to the fair value of the assets or liabilities. The valuation of any asset or liability substantially based on unobservable inputs is necessarily less reliable than those based on active trading markets. Further, rapidly changing and unprecedented market conditions could materially impact the valuation of assets as reported within our consolidated financial statements. Our ability to hedge exposure is in part dependent on our ability to value the related assets or liabilities.The determination of the amount of loss allowances and asset impairments varies by asset type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Management updates its evaluations regularly and reflects changes in allowances and impairments in operations as such evaluations are revised. Although we have policies and procedures in place to determine loss allowances and asset impairments, due to the subjective nature of this area, the level of impairments taken, and allowances reflected in our financial statements may not accurately reflect the actual level of risk and the amount of future losses.
There are risks resulting from the extensive use of models, some of which use AI, in our business.
We use financial and statistical models throughout many areas of our business, relying on them to inform decision making, automate processes, and estimate many financial values. Although it currently impacts a minority of the overall number of models that we use, we increasingly use models related to how we do business with customers and for internal process automation that leverage AI/machine learning algorithms. These models can be more predictive, but because of the complex way in which the many variables in AI/machine learning models interact, the results of these models are often less interpretable than traditional statistical models. Examples of model uses include determining the pricing of various products, identifying potentially fraudulent or suspicious transactions, marketing to potential customers, grading loans and extending credit, measuring interest rate and other market risks, predicting or estimating losses, and assessing capital adequacy. We depend significantly on models for credit loss accounting under CECL, capital stress testing and estimating the value of items in our financial statements.
Models generally predict or infer certain financial outcomes, leveraging historical data and assumptions as to the future, often with respect to macroeconomic conditions. Development and implementation of some of these models, such as the models for credit loss accounting under CECL, require us to make difficult, subjective and complex judgments. Other models are used to support decisions made regarding how we do business with customers. Poorly designed or implemented models present the risk that our business decisions based on information incorporating model output will be adversely affected due to the inadequacy of that information. For example, our models may not be effective if historical data does not accurately represent future events or environments or if our models rely on erroneous data, formulas, algorithms or assumptions and our internal model review processes fail to detect and address these flaws. Models, if flawed, could cause information we provide to the public or to our regulators to be inaccurate or misleading. Some of the decisions that our regulators make, including those related to capital distribution to our shareholders, would likely be affected adversely if they perceive that the quality of the relevant models we use is insufficient. Finally, flaws in our models that
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negatively impact our customers or our ability to comply with applicable laws and regulations could negatively affect our reputation or result in fines and penalties from our regulators.Risks Related to Our Need for Customers
Our success depends on our ability to attract and retain customers for our products and services.Our performance is subject to risks associated with declines in customer demand for our products and services. As a result of the nature of those products and services, we are particularly at risk for losses of economic confidence or customer trust in us or, more broadly, in financial services institutions like us. Economic and market developments may affect consumer and business confidence levels. If customers lose confidence due to concerns regarding the economy, the demand for our products and services could suffer. If we fail to attract and retain customers, demand for our loans and other financial products and services could decrease, and we could experience adverse changes in payment patterns. We could lose interest income from a decline in credit usage and noninterest income from a decline in product sales, investments and other transactions. Demand for our products and services could also suffer as many of the risks to PNC related to the economy and other external factors, including regulation, such as changes to tax laws and tax rates, could negatively impact consumers and businesses and their interest in or ability to use our products and services.
Our ability to attract and retain customer deposits is impacted by the levels of interest rates, as customers balance the benefits of bank accounts with deposit insurance and some of the convenience associated with more traditional banking products against the possibility of higher yields from other investments. In general, if the spread between the rates we offer and those offered by alternatives to bank accounts widens, customers are often willing to forego the benefits of bank accounts (such as FDIC insurance) for higher returns elsewhere. Our customers have removed and could continue to remove money from deposit accounts with us in favor of other banks or other types of cash management products, such as emerging financial technologies, including digital wallets, non-fungible tokens and digital currencies and cryptocurrencies. In such circumstances, we need to increase rates to levels that are seen as competitive or lose customers, in either case with a negative impact to net interest income. In addition, deposits are a low-cost source of funds for us. Therefore, losing deposits could increase our funding costs and reduce our net interest income. Loss of customers could also harm noninterest income by decreasing fee-bearing transaction volume. In addition, when rates are higher, customers tend to shift deposits from noninterest-bearing accounts to interest-bearing ones, thereby negatively impacting net interest income.Our customers increasingly use third-party financial applications that are expected to interface with their PNC accounts. This use leads to the risk that issues with respect to the effective functioning of that interface, regardless of cause, could result in a loss of customers as they seek banking relationships that work better with these other applications.News or other publicity that harms our reputation, or harms the reputation of our industry generally, could cause a loss of customers or a reduction in the extent to which customers do business with us. This is described further in the Risk Factor headed “We are at risk for an adverse impact on our business due to damage to our reputation.”In our asset management business, investment performance is an important factor influencing the level of assets that we manage. Poor investment advice or performance could hurt revenue and growth as existing clients might withdraw funds in favor of better performing products. Additionally, the ability to attract funds from existing and new clients might diminish. Overall economic conditions may limit the amount that customers are able or willing to invest as well as the value of the assets they do invest. The failure or negative performance of products of other financial institutions could lead to a loss of confidence in similar products offered by us without regard to the performance of our products. Such a negative contagion could lead to withdrawals, redemptions and liquidity issues in such products and have an adverse impact on our assets under management and asset management revenues and earnings.
We are at risk for an adverse impact on our business due to damage to our reputation.
Our ability to compete effectively, to attract and retain customers and employees, and to grow our business is dependent on maintaining our reputation and having the trust of our customers, employees, the communities that we serve and other stakeholders. Many types of developments, if publicized, can negatively impact a company’s reputation with adverse consequences to its business.Financial services companies are highly vulnerable to reputational damage when they are found to have harmed customers, particularly retail customers, through conduct that is seen as illegal, unfair, deceptive, abusive, manipulative or otherwise wrongful. There also may be reputational damage from human error or systems failures viewed as having harmed customers without involving misconduct, including service disruptions or negative perceptions regarding our ability to maintain the security of our technology systems and protect client data. For example, we may suffer reputational harm to the extent that we are unable to successfully detect, prevent and remedy fraud that harms our clients. Our reputation may also be harmed by failing to deliver products and services of the quality expected by our customers and support the communities that we serve. In addition, our reputation may be harmed as a result of our participation in certain programs, such as those perceived to be supporting environmental, social or governance matters, that may expose us to increased scrutiny and criticism. Significant acquisitions by large banks also often attract public scrutiny, which may result in negative publicity that adversely affects our reputation if we engage in such a transaction. We are also subject to the risk of reputational harm resulting from conduct of persons identified as our employees but acting outside of the scope of their employment, including through their misconduct, unethical behavior, or activities on personal social media. The reputational impact is likely greater to the extent that the bad conduct, errors or failures are pervasive, long-standing or affect a significant number of customers,
26 The PNC Financial Services Group, Inc. – 2024 Form 10-K
particularly retail consumers. The negative impact of such reputational damage on our business may be disproportionate to the actual harm caused to customers. It may be severe even if we fully remediate any harm suffered by our customers. Furthermore, because we conduct most of our businesses under the “PNC” brand, negative public opinion about one business could also affect our other businesses. In addition, we could suffer reputational harm and a loss of customer trust as a result of the conduct of others in our industry even if we have not engaged in such conduct. We use third parties to help in many aspects of our business, with the risk that their conduct can affect our reputation regardless of the degree to which we are responsible for it. The speed with which information moves through social media and other news sources on the internet means that negative information about PNC can rapidly have a broadly adverse impact on our reputation. This is true whether or not the information is accurate. False information can also be spread from unaffiliated or parody social media accounts pretending to be official company communications channels. Once information has gone viral, it can be difficult to counter it effectively, either by correcting inaccuracies or communicating remedial steps taken for actual issues. The potential impact of negative information going viral means that material reputational harm can result from a single discrete or isolated incident.
To an increasing extent, financial services companies, including PNC, are facing criticism with accompanying reputational risk from activists, investors and stakeholders who believe companies should be focusing more or less on environmental, social and governance matters. Companies in our industry, including PNC, are targeted for engaging in business with specific customers or with customers in particular industries, where the customers’ activities, even if legal, are perceived as having harmful impacts on matters such as the environment, consumer health and safety, or society at large. At the same time, financial services firms may face criticism and reputational harm if they are perceived as declining to provide, or ceasing to provide, banking and other services to businesses engaged in lawful activities or individuals due to their political or social viewpoints. In addition, some activists, investors and other stakeholders are seeking increased transparency and action from financial services companies with respect to environmental, social and governance activities, political activities and activities that are or may be perceived to be politically partisan in nature. Criticism has come in many forms, including protests at PNC facilities and social media campaigns. In some circumstances, our stakeholders have held and continue to hold conflicting views on the role PNC and other financial services companies should play in continuing to or refraining from financing certain sectors. In some cases, we are subject to potentially conflicting proposed and enacted state and local laws affecting our industry that regulate the manner in which or whether we may finance or service certain clients, industries or sectors. The potential for conflict may increase in instances where federal law is silent or is found not to preempt state law. Many of these issues are divisive without broad agreement as to the appropriate steps a company such as PNC should take. As a result, however we respond to such criticism, we expose ourselves to the risks that current or potential customers decline to do business with us (or encourage others to do so) or current or potential employees refuse to work for us. This can be true regardless of whether we are perceived by some as not having done enough to address these concerns or by others as having inappropriately yielded to these pressures. These pressures can also be a factor in decisions as to which business opportunities and customers we pursue, potentially resulting in foregone profit opportunities.We operate in a highly competitive environment in terms of the products and services we offer and the geographic markets in which we conduct business.We are subject to intense competition both from other financial institutions and from non-bank entities, including financial technology companies (often referred to as “FinTech”). In many cases, non-bank entities can engage in many activities similar to ours or offer products and services desirable to our customers without being subject to the same types of regulation, supervision and restrictions that are applicable to banks, which could place us at a competitive disadvantage. Emerging financial technologies, including with respect to payment services and systems, lending, digital wallets, non-fungible tokens and digital currencies and cryptocurrencies, may affect our customers’ needs and expectations for products and services. We may fail to attract or retain customers if we are unable to develop and market products and services that meet evolving customer needs or demands or if we are unable to deliver them effectively and securely to our customers. We may also fail to attract or retain customers if we are unwilling to provide products or services that we deem to be speculative or risky. The competition we face is described in Item 1 of this Report under “ Competition .”
Consolidation in our industry, including among smaller banks combining to form more competitive larger ones and between banks and non-bank entities, could result in PNC facing more intense competition, particularly in impacted regions or with respect to particular products. As we expand into new markets, we may face competitors with more experience and established relationships in these markets, which could adversely affect our ability to compete. A failure to adequately address the competitive pressures we face could make it harder for us to attract and retain customers across our businesses. On the other hand, meeting these competitive pressures could require us to incur significant additional expense or to accept risk beyond what we would otherwise view as desirable under the circumstances. In addition, in our interest rate sensitive businesses, competitive pressures to increase rates on deposits or decrease rates on loans could reduce our net interest margin, negatively impacting our net interest income.We depend on skilled labor, and employee attrition, competition for talented employees and labor shortages may have a material adverse effect on our business and operations.Part of our ability to compete effectively depends on our ability to attract new employees and retain and develop our existing employees. We face significant competition for these employees across many of our businesses and support areas. This presents greater risk as we expand into new markets, develop new product lines, or enhance staffing in certain areas, particularly technology. This competition leads to increased expenses in affected business areas. Differences in demands, expectations and priorities of the
The PNC Financial Services Group, Inc. – 2024 Form 10-K 27
workforce (such as remote work expectations) may require us to modify our recruiting and retention strategies to attract and retain employees. Limitations on the way regulated financial institutions can compensate their officers and employees may make it more difficult for regulated financial institutions, including PNC, to compete with other companies for talent.Risks Related to Other Operational Issues
We depend on the effectiveness and integrity of employees, and the systems and controls for which they are responsible, to manage operational risks.
We are a large company that offers a wide variety of products and services to a broad and diverse group of customers. We rely on our employees to design, manage and operate our systems and controls to assure that we properly enter into, record and manage processes, transactions and other relationships with customers, suppliers and other parties with whom we do business. In some cases, we rely on employees of third parties to perform these tasks. We also depend on employees and the systems and controls for which they are responsible to assure that we identify and mitigate the risks that are inherent in our relationships and activities. These concerns are increased when we change processes or procedures, introduce new products or services, acquire or invest in a business or implement new technologies, as we may fail to adequately identify or manage operational risks resulting from such changes. These concerns may be further exacerbated by employee turnover and labor shortages.
As a large financial services firm, we are faced with ongoing attempts by individuals or organizations to defraud us or our customers for financial gain. We depend on systems, processes and personnel, either at PNC or from third parties, to identify and prevent potentially fraudulent transactions, but those systems may not be adequate and fraudulent actors regularly change tactics to improve their chance of success. Even if PNC is not financially responsible for reimbursing a customer for its fraud losses, such losses may damage PNC’s reputation or ability to attract and retain customers.As a result of our necessary reliance on employees, whether ours or those of third parties, to perform these tasks and manage resulting risks, we are thus subject to human vulnerabilities. These range from innocent human error to misconduct or malfeasance, potentially leading to operational breakdowns or other failures. Our controls may not be adequate to prevent problems resulting from human involvement in our business, including risks associated with the design, operation and monitoring of automated systems. We may also fail to adequately maintain a culture of risk management among our employees. Errors by our employees or others responsible for systems and controls on which we depend and any resulting failures of those systems and controls to prevent unethical, fraudulent, improper or illegal conduct could result in significant harm to PNC. This harm could include customer remediation costs, regulatory fines or penalties, litigation or enforcement actions or limitations on our business activities. We could also suffer damage to our reputation, as described under “We are at risk for an adverse impact on our business due to damage to our reputation.”
We use automation, machine learning, AI and robotic process automation tools to help reduce some risks of human error. Nonetheless, we continue to rely on many manual processes to conduct our business and manage our risks. In addition, use of automation tools does not eliminate the need for effective design and monitoring of their operation to make sure they operate as intended. Enhanced use of automation may present its own risks. Automated systems may themselves experience outages or problems. Some tools are dependent on the quality of the data used by the tool to learn and enhance the process for which it is responsible. Bad, missing or anomalous data can adversely affect the functioning of such tools. It is possible that humans in some cases are better able than highly automated tools to identify that anomalous data is being used or that results are themselves anomalous.We rely on third-party vendors, service providers and other counterparties to help support many aspects of our business. When we do so, our direct control of activities related to our business is reduced, which introduces risk.
Our use of third parties to support our business needs typically means that we do not directly control the activities we are having them perform. Any disruption in services provided by these third parties could adversely affect our ability to conduct our business. Replacing third parties could also entail significant delay and expense. Risks can arise through inadequate performance by a third party (including by its downstream service providers), specifically where that performance could affect us or our customers, and even when the result of factors or events are beyond such third party’s control. Many of the kinds of risks presented by activities performed by third parties are described elsewhere in these Risk Factors. Enhanced regulatory and other standards for the oversight of our use of third-party vendors and other service providers can result in higher costs and other potential exposures. We are also vulnerable, including to regulatory penalties, if an outside company fails to comply with legal requirements relevant to its work on our behalf. We may in any such circumstance suffer financial losses, legal consequences and injury to our reputation. Even if the other company makes us whole for financial losses, which is not necessarily the case, it is unlikely that it would be able to restore any injury to our reputation. As a result, the use of third parties to assist in our business activities heightens the risks to us inherent in those activities.
Other Key Risks
We are at risk for the impact of adverse results in legal proceedings.Many aspects of our business involve substantial risk of legal liability. We have been named or threatened to be named as defendants in various lawsuits arising from our business activities. In addition, we are regularly the subject of governmental investigations and other forms of regulatory inquiry. We also are at risk when we have agreed to indemnify others for losses related to legal proceedings
28 The PNC Financial Services Group, Inc. – 2024 Form 10-K
they face, such as in connection with the sale of a business or assets by us. The results of these legal proceedings could lead to significant monetary damages or penalties, restrictions on the way in which we conduct our business or reputational harm.Although we establish accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated, we do not have accruals for all legal proceedings where we face a risk of loss. In addition, due to the inherent subjectivity of the assessments and unpredictability of the outcome of legal proceedings, amounts accrued often do not represent the ultimate loss to us from the legal proceedings in question. Thus, our ultimate future losses may be higher, and possibly significantly so, than the amounts accrued for legal loss contingencies. We discuss further the unpredictability of legal proceedings and describe certain of our pending legal proceedings in Note 20 Legal Proceedings.We grow our business in part by acquiring other financial services businesses and businesses with technologies or other assets valuable to us from time to time. Acquisitions present several risks and uncertainties related both to the acquisition transactions themselves and to the integration of the acquired businesses into PNC after closing.
Acquisitions of other companies or of financial assets and deposits and other liabilities present risks and uncertainties to us in addition to those presented by the nature of the business acquired, which may materially and adversely affect our results of operations. Many of the same risks arise when we engage in strategic partnerships. Our ability to analyze the risks presented by prospective acquisitions, as well as our ability to prepare in advance of closing for integration, may be limited to the extent that we cannot gather necessary or desirable information with respect to the business we are acquiring. We may also make certain assumptions related to an acquisition that may prove to be inaccurate that limit the anticipated benefits (such as cost savings from synergies or strategic gains from being able to offer enhanced product sets) or make the acquisition more expensive or take longer to complete and integrate than anticipated. Prior to closing an acquisition, prospective acquisition targets are also subject to their own risks that we cannot manage or control. Our ability to complete an acquisition may be dependent on regulatory agencies with responsibilities for reviewing or approving the transaction, which could delay, restrictively condition or result in denial of an acquisition, or otherwise limit the benefits of the acquisition. Changes in regulatory rules or standards or the application of those rules or standards, or future regulatory initiatives designed to promote competition or limit systemic risk and the potential for a financial institution to become “too big to fail,” may also limit our ability to complete an acquisition.Acquisition targets have their own risks specific to their businesses that could impact the success of an acquisition and its integration into PNC, such as:
• If a significant aspect of the value of transaction is intellectual property, the extent to which the intellectual property may be utilized or protected and commercialized by PNC.
• If the acquisition includes loan portfolios, the extent of actual credit losses and the required allowance for credit losses following completion of the acquisition.
• If the acquisition involves entering into new businesses or geographic or other markets, potential limitations on our ability to take advantage of these opportunities because of our inexperience with respect to them.
• The results of litigation and governmental investigations that may be pending at the time of the acquisition or that may be filed or commenced thereafter, because of an acquisition or otherwise, which are often hard to predict.
• Operational or compliance issues at the acquisition target may not be fully identified or remediated until after the acquisition closes, potentially resulting in increased costs or penalties.
• Models used by an acquisition target, such as for capital planning and credit loss accounting, may be designed or implemented in a manner different than at PNC, and our necessary reliance on these for a period of time, could materially impact our financial condition or results of operations to the extent that our estimates based on these models are inaccurate.
• Enterprise risk management systems, policies and procedures may be different and less mature than those of PNC, and our necessary reliance on these for a period of time, could limit PNC’s ability to identify, monitor, manage and report risks or subject us to heightened regulatory, legal, operational or reputational risk.
After closing, the success of an acquisition is likely partially dependent on our ability to retain and expand upon the acquired company’s customer base. It is also frequently subject to risks related to human capital, including, risks related to integrating the corporate culture of the acquired company and, to the extent being retained, the quality of leadership of the acquired company.
Our business and financial performance could be adversely affected, directly or indirectly, by disasters, natural or otherwise, by terrorist activities, by international hostilities or by domestic civil unrest.Neither the occurrence nor the potential impact of natural and other disasters (including severe weather events), health emergencies, dislocations, geopolitical instabilities, terrorist activities, international hostilities or other extraordinary events beyond PNC’s control can be predicted. However, these occurrences could adversely impact us, for example, by causing significant damage to our facilities or preventing us from conducting our business in the ordinary course. Also, their impact on our borrowers, depositors, other customers, suppliers or other counterparties could result in indirect adverse effects on us. Other indirect adverse consequences from these occurrences could result from impacts to the financial markets, the economy in general or in any region, or key parts of the infrastructure (such as the power grid) on which we and our customers rely. These types of indirect effects, whether specific to our counterparties or more generally applicable, could lead, for example, to an increase in delinquencies, bankruptcies or defaults that
The PNC Financial Services Group, Inc. – 2024 Form 10-K 29
could result in PNC experiencing higher levels of nonperforming assets, net charge-offs and provisions for credit losses. They could also cause a reduction in demand for lending or other services that we provide.Our ability to mitigate the adverse consequences of such occurrences is in part dependent on the quality of our resiliency planning. This includes our ability to anticipate the nature of any such event that might occur. The adverse impact of these occurrences also could be increased to the extent that there is a lack of preparedness on the part of national or regional emergency responders or on the part of other organizations and businesses that we deal with, many of which we depend on but have limited or no control over.
Item 7 · Management's Discussion & Analysis
+966 paragraphs −791 paragraphs ~791 changed
FY 2023-12-31 (earlier)
ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
E XECUTIVE S UMMARY
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 and liquidity 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, andThe PNC Financial Services Group, Inc. – 2023 Form 10-K 37• 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,
• 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,
• 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,• The effect of climate change on our business and performance, including indirectly through impacts on our customers,• 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.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.
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.Signature Bank Portfolio Acquisition
On October 2, 2023, PNC acquired a portfolio of capital commitments facilities from Signature Bridge Bank, N.A. through an agreement with the FDIC as receiver of the former Signature Bank, New York. The acquired portfolio represented approximately $16.0 billion in total commitments, including approximately $9.0 billion of funded loans, at the time of acquisition.
Workforce ReductionDuring the fourth quarter of 2023, PNC implemented a workforce reduction that is expected to reduce 2024 personnel expense by approximately $325 million annually, on a pre-tax basis. PNC incurred expenses of $150 million in the fourth quarter of 2023 in connection with this workforce reduction.FDIC Special AssessmentIn November 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to the Deposit Insurance Fund associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank. PNC
38 The PNC Financial Services Group, Inc. – 2023 Form 10-K
incurred an expense on a pre-tax basis of $515 million during the fourth quarter of 2023 representing the total estimated cost of the assessment.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
Year ended December 31Dollars in millions, except per share data 2023 2022 2021Summary of OperationsNet interest income $ 13,916 $ 13,014 $ 10,647
Noninterest income 7,574 8,106 8,564
Total revenue 21,490 21,120 19,211
Provision for (recapture of) credit losses 742 477 (779)
Noninterest expense 14,012 13,170 13,002
Income before income taxes and noncontrolling interests 6,736 7,473 6,988
Income taxes 1,089 1,360 1,263
Net income $ 5,647 $ 6,113 $ 5,725
Net income attributable to common shareholders $ 5,153 $ 5,735 $ 5,436Per Common ShareDiluted earnings $ 12.79 $ 13.85 $ 12.70
Book value per common share $ 112.72 $ 99.93 $ 120.61
Tangible book value per common share (non-GAAP) (a) $ 85.08 $ 72.12 $ 94.11Performance RatiosNet interest margin (non-GAAP) (b) 2.76 % 2.65 % 2.29 %
Noninterest income to total revenue 35 % 38 % 45 %
Efficiency 65 % 62 % 68 %Return on:Average common shareholders’ equity 12.35 % 13.52 % 10.78 %
Average assets 1.01 % 1.11 % 1.09 %
(a) See explanation and reconciliation of this non-GAAP measure in the 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 the 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 RatiosYear ended December 31
Dollars in millions, except as noted 2023 2022Balance Sheet HighlightsAssets $ 561,580 $ 557,263
Loans $ 321,508 $ 326,025
Allowance for loan and lease losses $ 4,791 $ 4,741
Interest-earning deposits with banks $ 43,804 $ 27,320
Investment securities $ 132,569 $ 139,334
Total deposits $ 421,418 $ 436,282
Borrowed funds $ 72,737 $ 58,713
Total shareholders’ equity $ 51,105 $ 45,774
Common shareholders’ equity $ 44,864 $ 40,028Other Selected RatiosCommon equity Tier 1 9.9 % 9.1 %
Dividend payout 47.8 % 41.7 %
Loans to deposits 76 % 75 %
Common shareholders’ equity to total assets 8.0 % 7.2 %
Average common shareholders’ equity to average assets 7.5 % 7.7 %
The PNC Financial Services Group, Inc. – 2023 Form 10-K 39Income Statement HighlightsNet income for 2023 was $5.6 billion or $12.79 per diluted common share, a decrease of $0.5 billion, or 8%, compared to net income of $6.1 billion, or $13.85 per diluted common share, for 2022. The decrease was driven by higher expenses, which included the impact of the FDIC special assessment and workforce reduction charges, as well as lower noninterest income and a higher provision for credit losses, partially offset by higher net interest income.
• Total revenue increased $0.4 billion, or 2%, to $21.5 billion.
• Net interest income increased $0.9 billion, or 7%, to $13.9 billion, primarily due to higher interest-earning asset yields and balances, partially offset by higher funding costs.
• Net interest margin increased to 2.76% for 2023 compared to 2.65% for 2022, reflecting higher yields on interest-earning assets, partially offset by increased funding costs.
• Noninterest income decreased $0.5 billion, or 7%, to $7.6 billion, primarily due to lower capital markets and advisory income and a decline in private equity revenue. The decrease also included negative Visa Class B derivative fair value adjustments of $279 million for 2023 compared to $40 million of negative adjustments for 2022.
• Provision for credit losses was $742 million in 2023, primarily driven by portfolio activity, including changes in credit quality related to the commercial real estate portfolio. Provision for credit losses was $477 million in 2022.
• Noninterest expense increased $842 million, or 6%, to $14.0 billion, and included $515 million pertaining to the FDIC special assessment for the recovery of losses related to the closures of Silicon Valley Bank and Signature Bank as well as $150 million of workforce reduction charges.For additional detail, see the Consolidated Income Statement Review section of this Item 7.
Balance Sheet HighlightsOur balance sheet was strong and well positioned at December 31, 2023. In comparison to December 31, 2022:
• Total assets increased modestly due to higher balances held with the Federal Reserve Bank, partially offset by lower securities and loan balances.
• Total loans decreased $4.5 billion, to $321.5 billion.
• Total commercial loans decreased $5.5 billion, or 2%, to $219.6 billion, driven by lower utilization of loan commitments and paydowns outpacing new production, partially offset by the acquisition of capital commitment facilities from Signature Bridge Bank, N.A. on October 2, 2023.
• Total consumer loans increased $1.0 billion, to $102.0 billion, due to growth in residential mortgages, home equity, credit card and automobile loans, partially offset by declines in the remaining portfolios as paydowns outpaced new originations and draws on existing accounts.
• Investment securities decreased $6.8 billion, or 5%, to $132.6 billion, as limited purchase activity was more than offset by portfolio paydowns and maturities.
• Interest earning deposits with banks, primarily with the Federal Reserve Bank, increased $16.5 billion, or 60%, to $43.8 billion, primarily due to higher borrowed funds and lower securities and loan balances, partially offset by lower deposits.
• Total deposits decreased $14.9 billion, or 3%, to $421.4 billion, as a result of lower consumer and commercial deposits, reflecting the impact of competitive pricing dynamics and inflationary pressures.
• Borrowed funds of $72.7 billion increased $14.0 billion, or 24%, due to parent company senior debt issuances and higher FHLB borrowings.For additional detail, see the Consolidated Balance Sheet Review section of this Item 7.
Credit Quality Highlights2023 reflected strong credit quality performance.
• At December 31, 2023 compared to December 31, 2022:
• Overall loan delinquencies of $1.4 billion decreased $106 million, or 7%, driven by lower commercial and consumer delinquencies.
• The ACL related to loans, which consists of the ALLL and the allowance for unfunded lending related commitments, totaled $5.5 billion, or 1.70% of total loans at December 31, 2023, and was relatively stable in comparison to reserves at December 31, 2022. The slight increase in reserves was primarily driven by portfolio activity, including changes in credit quality related to the commercial real estate portfolio, partially offset by an updated economic outlook.
• Nonperforming assets of $2.2 billion increased $197 million, or 10%, due to higher commercial nonperforming loans, partially offset by lower consumer nonperforming loans.
• Net charge-offs of $710 million or 0.22% of average loans in 2023 increased $147 million compared to net charge-offs of $563 million or 0.18% of average loans for 2022, reflecting higher commercial and consumer net loan charge-offs.
40 The PNC Financial Services Group, Inc. – 2023 Form 10-KFor additional detail, see the Credit Risk Management portion of the Risk Management section of this Item 7.Capital and Liquidity HighlightsWe maintained strong capital and liquidity positions during 2023.
• Common shareholders’ equity increased $4.9 billion to $44.9 billion at December 31, 2023, due to the benefit of net income and an improvement in AOCI, partially offset by common dividends paid and common share repurchases.
• In 2023, we returned $3.1 billion of capital to shareholders through dividends on common shares of $2.5 billion and repurchases of 4.0 million common shares for $0.6 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 previously approved repurchase program of up to 100 million common shares, of which approximately 45% were still available for repurchase at December 31, 2023. In light of the Federal banking agencies proposed rules to adjust the Basel III capital framework, share repurchase activity is expected to remain modest during the first quarter of 2024. PNC continues to evaluate the potential impact of the proposed rules and may adjust share repurchase activity depending on market and economic conditions, as well as other factors. PNC’s SCB for the four-quarter period beginning October 1, 2023 is the regulatory minimum of 2.5%.
• On January 4, 2024, the PNC Board of Directors declared a quarterly cash dividend on common stock of $1.55 per share paid on February 5, 2024.
• The Basel III CET1 capital ratio increased to 9.9% at December 31, 2023 from 9.1% at December 31, 2022.
• PNC elected a five-year transition provision effective March 31, 2020 to delay until December 31, 2021 the full impact of the CECL standard on regulatory capital, followed by a three-year transition period. 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 estimated fully implemented ratios reflect the full impact of CECL and exclude the benefits of this transition provision. The estimated CET1 fully implemented ratio was 9.8% at December 31, 2023 compared to 8.9% at December 31, 2022.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. 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 2023 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, among other things, 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:• PNC’s baseline forecast is for slower economic growth in 2024 as consumer spending growth slows and higher interest rates remain a drag on the economy. The ongoing strength of the labor market will continue to support consumer spending. Slowing inflation will allow for federal funds rate cuts starting in the late spring or early summer; this will support economic growth in the second half of 2024.
• GDP growth this year will be below trend at slightly above 1%, and the unemployment rate will increase modestly to somewhat above 4% by the end of 2024. Inflation will continue to slow as wage pressures abate, moving back to the Federal Reserve’s 2% long-term objective by the end of the year.
• PNC expects the federal funds rate to remain unchanged in the first part of 2024, between 5.25% and 5.50%, with federal funds rate cuts starting in May 2024 as inflation slows further. PNC expects the federal funds rate to end 2024 between 4.25% and 4.50%.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.For the full year 2024, compared to full year 2023, we expect:
• Spot loans to be up 3% to 4%,
• Average loans to be up approximately 1%,
• Net interest income to be down 4% to 5%,
• Noninterest income, excluding net securities gains and Visa activity, to be up 4% to 6%,
• Revenue to be stable to down 2%,
The PNC Financial Services Group, Inc. – 2023 Form 10-K 41
• Core noninterest expense to be stable, and
• The effective tax rate to be approximately 18.5%.
For the first quarter of 2024, compared to the fourth quarter of 2023, we expect:• Average loans to be down approximately 1%,• Net interest income to be down 3% to 5%,
• Fee income to be down 6% to 8%,
• Other noninterest income, excluding net securities gains and Visa activity, to be between $150 million and $200 million,
• Total revenue to be down 3% to 4%,
• Core noninterest expense to be down 3% to 4%, and
• Net loan charge-offs to be between $200 million and $250 million.
Core noninterest expense guidance excludes the $515 million pre-tax impact of the FDIC’s special assessment related to the closures of Silicon Valley Bank and Signature Bank as well as $150 million of pre-tax workforce reduction charges incurred in the fourth quarter of 2023. See the Statistical Information (Unaudited) – Reconciliation of Core Noninterest Expense Guidance (non-GAAP) section of this Report.
We are unable to provide a meaningful or accurate reconciliation of forward-looking non-GAAP measures, without unreasonable effort, to their most directly comparable GAAP financial measures except for the impact of charges related to the FDIC special assessment and the workforce reduction to noninterest expense. 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 unavailable information.C ONSOLIDATED I NCOME S TATEMENT R EVIEWOur Consolidated Income Statement is presented in Item 8 of this Report. For the comparison of 2022 over 2021, see the Consolidated Income Statement Review section in our 2022 Form 10-K.
Net income for 2023 was $5.6 billion, or $12.79 per diluted common share, a decrease of $0.5 billion, or 8%, compared to net income of $6.1 billion, or $13.85 per diluted common share, for 2022. The decrease was driven by higher expenses, which included the impact of the FDIC special assessment and workforce reduction charges, as well as lower noninterest income and a higher provision for credit losses, partially offset by higher net interest income.Net Interest Income
Table 3: Summarized Average Balances and Net Interest Income (a)2023 2022Year 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 assetsInvestment securities $ 140,351 2.54 % $ 3,568 $ 137,149 2.00 % $ 2,747
Loans 323,520 5.69 % 18,423 307,699 3.86 % 11,886
Interest-earning deposits with banks 36,645 5.19 % 1,902 41,050 1.41 % 578
Other 8,884 6.33 % 562 9,651 3.50 % 337
Total interest-earning assets/interest income $ 509,400 4.80 % 24,455 $ 495,549 3.14 % 15,548Liabilities
Interest-bearing liabilitiesInterest-bearing deposits $ 315,393 2.10 % 6,609 $ 299,042 0.42 % 1,267
Borrowed funds 67,282 5.62 % 3,783 42,450 2.72 % 1,155
Total interest-bearing liabilities/interest expense $ 382,675 2.72 % 10,392 $ 341,492 0.71 % 2,422
Net interest margin/income (non-GAAP) 2.76 % 14,063 2.65 % 13,126
Taxable-equivalent adjustments (147) (112)
Net interest income (GAAP) $ 13,916 $ 13,014
(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.
42 The PNC Financial Services Group, Inc. – 2023 Form 10-K
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 for additional information.
Net interest income increased $0.9 billion, or 7% in 2023 compared with 2022. The increase was due to higher interest-earning asset yields and balances, partially offset by higher funding costs. Net interest margin increased 11 basis points, reflecting higher yields on interest-earning assets, partially offset by increased funding costs.
Average investment securities increased $3.2 billion, or 2%, primarily reflecting an increase in agency residential mortgage-backed securities. Average investment securities represented 28% of average interest-earning assets in both 2023 and 2022.
Average loans increased $15.8 billion, or 5%, reflecting growth in both commercial and consumer loans. Average loans represented 64% of average interest-earning assets in 2023 compared to 62% in 2022.
Average interest-earning deposits with banks decreased $4.4 billion, or 11%, primarily due to lower deposits and higher loan balances, partially offset by higher borrowed funds.
Average interest-bearing deposits increased $16.4 billion, or 5%, reflecting a continued shift from noninterest-bearing to interest-bearing deposits as deposit rates have risen. In total, average interest-bearing deposits represented 82% of average interest-bearing liabilities in 2023 compared to 88% in 2022.
Average borrowed funds increased $24.8 billion, or 58%, primarily due to higher FHLB borrowings and parent company senior debt issuances.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
Year ended December 31 ChangeDollars in millions 2023 2022 $ %Noninterest incomeAsset management and brokerage $ 1,412 $ 1,444 $ (32) (2) %
Capital markets and advisory 952 1,296 (344) (27) %
Card and cash management 2,733 2,633 100 4 %
Lending and deposit services 1,233 1,134 99 9 %
Residential and commercial mortgage 625 647 (22) (3) %
Other 619 952 (333) (35) %
Total noninterest income $ 7,574 $ 8,106 $ (532) (7) %
Noninterest income as a percentage of total revenue was 35% for 2023 and 38% for 2022.
Asset management and brokerage fees decreased reflecting lower client activity. PNC’s discretionary client assets under management increased to $189 billion at December 31, 2023, compared to $173 billion at December 31, 2022, driven by higher spot equity markets, partially offset by client activity.
Capital markets and advisory fees decreased primarily due to lower merger and acquisition advisory fees and trading revenue.
Card and cash management revenue growth was primarily due to higher treasury management product revenue.
Lending and deposit services grew reflecting increased customer activity and growth in loan commitment fees.
Residential and commercial mortgage decreased primarily due to lower commercial mortgage banking activities, partially offset by an increase in residential mortgage servicing fees.
Other noninterest income decreased compared to 2022, primarily due to lower private equity revenue and the impact of Visa Class B derivative fair value adjustments of negative $279 million primarily related to the extension of anticipated litigation resolution timing. Visa Class B derivative fair value adjustments were negative $40 million in 2022.
The PNC Financial Services Group, Inc. – 2023 Form 10-K 43Further 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
Year ended December 31 ChangeDollars in millions 2023 2022 $ %Noninterest expensePersonnel $ 7,428 $ 7,244 $ 184 3 %
Occupancy 982 992 (10) (1) %
Equipment 1,411 1,395 16 1 %
Marketing 350 355 (5) (1) %
Other 3,841 3,184 657 21 %
Total noninterest expense $ 14,012 $ 13,170 $ 842 6 %
Noninterest expense increased compared to 2022 primarily due to higher other noninterest expense, which included $515 million pertaining to the FDIC special assessment as well as higher personnel costs, which included expenses of $150 million of workforce reduction charges.
We exceeded our 2023 continuous improvement program savings goal of $450 million, which included a $50 million mid-year increase. In 2024, our continuous improvement program goal will be $425 million.Effective Income Tax RateThe effective income tax rate was 16.2% for 2023 compared with 18.2% for 2022. The decrease was due to the favorable impact of certain tax matters in 2023.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 18 Income Taxes.
Provision for (Recapture of) Credit Losses
Table 6: Provision for (Recapture of) Credit Losses
Year ended December 31Dollars in millions 2023 2022Provision for (recapture of) credit lossesLoans and leases $ 792 $ 439
Unfunded lending related commitments (31) 32
Investment securities (18) 17
Other financial assets (1) (11)
Total provision for (recapture of) credit losses $ 742 $ 477
Provision for credit losses was $742 million in 2023, primarily driven by portfolio activity, including changes in credit quality related to the commercial real estate portfolio.
44 The PNC Financial Services Group, Inc. – 2023 Form 10-KC ONSOLIDATED B ALANCE S HEET R EVIEWThe 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 2022 over 2021, see the Consolidated Balance Sheet Review section in our 2022 Form 10-K.Table 7: Summarized Balance Sheet Data
December 31 December 31 ChangeDollars in millions 2023 2022 $ %AssetsInterest-earning deposits with banks $ 43,804 $ 27,320 $ 16,484 60 %
Loans held for sale 734 1,010 (276) (27) %
Investment securities 132,569 139,334 (6,765) (5) %
Loans 321,508 326,025 (4,517) (1) %
Allowance for loan and lease losses (4,791) (4,741) (50) (1) %
Mortgage servicing rights 3,686 3,423 263 8 %
Goodwill 10,932 10,987 (55) (1) %
Other 53,138 53,905 (767) (1) %
Total assets $ 561,580 $ 557,263 $ 4,317 1 %LiabilitiesDeposits $ 421,418 $ 436,282 $ (14,864) (3) %
Borrowed funds 72,737 58,713 14,024 24 %
Allowance for unfunded lending related commitments 663 694 (31) (4) %
Other 15,621 15,762 (141) (1) %
Total liabilities 510,439 511,451 (1,012) —EquityTotal shareholders’ equity 51,105 45,774 5,331 12 %
Noncontrolling interests 36 38 (2) (5) %
Total equity 51,141 45,812 5,329 12 %
Total liabilities and equity $ 561,580 $ 557,263 $ 4,317 1 %
Our balance sheet was strong and well-positioned at December 31, 2023. In comparison to December 31, 2022:
• Total assets increased modestly due to higher balances held with the Federal Reserve Bank, partially offset by lower securities and loan balances.
• Total liabilities were largely stable and included lower deposits, mostly offset by higher borrowed funds.
• Total equity increased due to the benefit of net income, an improvement in AOCI and net preferred stock issuances, partially offset by dividends paid and common share repurchases.
The ACL related to loans totaled $5.5 billion at December 31, 2023, and was relatively stable in comparison to reserves at December 31, 2022. The slight increase in reserves was primarily driven by portfolio activity, including changes in credit quality related to the commercial real estate portfolio, partially offset by an updated economic outlook. 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 3 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 19 Regulatory Matters.The PNC Financial Services Group, Inc. – 2023 Form 10-K 45Loans
Table 8: Loans
December 31 December 31 ChangeDollars in millions 2023 2022 $ %CommercialCommercial and industrial $ 177,580 $ 182,219 $ (4,639) (3) %
Commercial real estate 35,436 36,316 (880) (2) %
Equipment lease financing 6,542 6,514 28 —
Total commercial 219,558 225,049 (5,491) (2) %ConsumerResidential real estate 47,544 45,889 1,655 4 %
Home equity 26,150 25,983 167 1 %
Automobile 14,860 14,836 24 —
Credit card 7,180 7,069 111 2 %
Education 1,945 2,173 (228) (10) %
Other consumer 4,271 5,026 (755) (15) %
Total consumer 101,950 100,976 974 1 %
Total loans $ 321,508 $ 326,025 $ (4,517) (1) %
Commercial loans decreased driven by lower utilization of loan commitments and paydowns outpacing new production, partially offset by the acquisition of capital commitment facilities from Signature Bridge Bank, N.A. on October 2, 2023.
Consumer loans increased due to growth in residential mortgages, home equity, credit card and automobile loans, partially offset by declines in the remaining portfolios as paydowns outpaced new originations and draws on existing accounts.For additional information regarding our loan portfolio, see the Credit Risk Management portion of the Risk Management section, Note 1 Accounting Policies and Note 3 Loans and Related Allowance for Credit Losses.
Investment SecuritiesInvestment securities of $132.6 billion at December 31, 2023 decreased $6.8 billion, or 5%, compared to December 31, 2022, as limited purchase activity was more than offset by portfolio paydowns and maturities.
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.Table 9: Investment Securities (a)December 31, 2023 December 31, 2022Dollars in millions Amortized Cost (b) Fair Value Amortized Cost (b) Fair ValueU.S. Treasury and government agencies $ 44,125 $ 42,348 $ 45,767 $ 43,330
Agency residential mortgage-backed 73,329 67,925 77,385 71,073
Non-agency residential mortgage-backed 844 938 973 1,074
Agency commercial mortgage-backed 2,619 2,471 2,693 2,501
Non-agency commercial mortgage-backed (c) 2,286 2,217 2,992 2,883
Asset-backed (d) 6,982 6,984 7,291 7,183
Other debt (e) 5,952 5,850 6,642 6,394
Total investment securities (f) $ 136,137 $ 128,733 $ 143,743 $ 134,438
(a) Of our total securities portfolio, 97% were rated AAA/AA at both December 31, 2023 and 2022.
(b) Amortized cost is presented net of the allowance for investment securities, which totaled $92 million at December 31, 2023 and primarily related to non-agency commercial mortgage-backed securities. The comparable amount at December 31, 2022 was $149 million.(c) Collateralized primarily by multifamily housing, office buildings, retail properties, lodging properties and industrial properties.
(d) Collateralized primarily by consumer credit products, corporate debt and government guaranteed education loans.
(e) Includes state and municipal securities and corporate bonds.(f) Includes available for sale and held to maturity securities, which are recorded on our balance sheet at fair value and amortized cost, respectively.
46 The PNC Financial Services Group, Inc. – 2023 Form 10-K
Table 9 presents our investment securities portfolio by amortized cost and fair value. The relationship of fair value to amortized cost at December 31, 2023 was comparable to December 31, 2022 and 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 2 Investment Securities for additional details regarding the allowance for investment securities.
The duration of investment securities was 4.2 years at December 31, 2023. We estimate that at December 31, 2023 the effective
duration of investment securities was 4.1 years for an immediate 50 basis points parallel increase in interest rates and 4.2 years for an
immediate 50 basis points parallel decrease in interest rates. Comparable amounts at December 31, 2022 for the effective duration of
investment securities were 4.4 years and 4.5 years, respectively.
Based on expected prepayment speeds, the weighted-average expected maturity of the investment securities portfolio was 5.5 years at December 31, 2023 compared to 6.0 years at December 31, 2022.Table 10: Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt SecuritiesDecember 31, 2023 Years
Agency residential mortgage-backed 7.4
Non-agency residential mortgage-backed 9.9
Agency commercial mortgage-backed 5.0
Non-agency commercial mortgage-backed 1.0Asset-backed 2.2
Additional information regarding our investment securities portfolio is included in Note 2 Investment Securities and Note 14 Fair Value.
Funding Sources
Table 11: Details of Funding Sources
December 31 December 31 ChangeDollars in millions 2023 2022 $ %DepositsNoninterest-bearing $ 101,285 $ 124,486 $ (23,201) (19) %Interest-bearingMoney market 65,594 64,150 1,444 2 %
Demand 124,848 126,143 (1,295) (1) %
Savings 98,122 103,033 (4,911) (5) %
Time deposits 31,569 18,470 13,099 71 %
Total interest-bearing deposits 320,133 311,796 8,337 3 %
Total deposits 421,418 436,282 (14,864) (3) %Borrowed fundsFederal Home Loan Bank borrowings 38,000 32,075 5,925 18 %
Senior debt 26,836 16,657 10,179 61 %
Subordinated debt 4,875 6,307 (1,432) (23) %
Other 3,026 3,674 (648) (18) %
Total borrowed funds 72,737 58,713 14,024 24 %
Total funding sources $ 494,155 $ 494,995 $ (840) —
Deposits are considered an attractive source of funding due to their stability and relatively low cost to fund. Compared to December 31, 2022, our funding source composition has shifted and now includes lower deposit balances and higher borrowed funds, contributing to higher funding costs.
Total deposits decreased as a result of lower consumer and commercial deposits, reflecting the impact of competitive pricing dynamics and inflationary pressures. In addition, noninterest-bearing balances decreased due to the continued shift into interest-bearing deposits as a result of the elevated interest rate environment. A portion of that shift included an increase in total brokered deposits compared with 2022. Our total brokered deposit balances of $11.0 billion in 2023 and $9.5 billion in 2022, were significantly below both our internal and regulatory guidelines and limits.
The PNC Financial Services Group, Inc. – 2023 Form 10-K 47
Borrowed funds increased due to parent company senior debt issuances and higher FHLB borrowings.
The level and composition of borrowed funds fluctuates over time based on many factors, including market conditions, capital considerations, and funding needs, which are primarily driven by changes in loan, deposit and investment securities balances. While our largest source of liquidity on a consolidated basis is the customer deposit base generated by our banking businesses, we also 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 2023 liquidity and capital activities. See Note 9 Borrowed Funds for additional information related to our borrowings. See Average Consolidated Balance Sheet and Net Interest Analysis and Analysis of Year-to-Year Changes in Net Interest Income in the Statistical Information section of this Report for additional information on year-over-year volume and related funding cost changes.Shareholders’ EquityTotal shareholders’ equity was $51.1 billion at December 31, 2023, an increase of $5.3 billion compared to December 31, 2022, as increases related to net income of $5.6 billion, an improvement in AOCI of $2.5 billion and net preferred stock issuances of $0.5 billion were partially offset by dividends paid of $2.8 billion and common share repurchases of $0.6 billion.B USINESS S EGMENTS R EVIEWWe have three reportable business segments:
• Retail Banking
• Corporate & Institutional Banking
• Asset Management Group
Total business segment financial results differ from total consolidated net income. The impact of these differences is reflected in Other, as shown in Table 112 in Note 22 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, corporate overhead net of allocations, tax adjustments that are not allocated to business segments, exited businesses and the residual impact from funds transfer pricing operations.Certain amounts included in this Business Segments Review differ from those amounts shown in Note 22, primarily due to the presentation in this Financial Review of business net interest income on a taxable-equivalent basis.
See Note 22 Segment Reporting for additional information on our business segments, including a description of each business.48 The PNC Financial Services Group, Inc. – 2023 Form 10-KRetail BankingRetail Banking’s core strategy is to build lifelong, primary relationships by creating a sense of financial well-being and ease for our clients. Over time, we seek to deepen those relationships by meeting the broad range of our clients’ financial needs across savings, liquidity, lending, payments, investment and retirement solutions. We work to deliver these solutions in the most seamless and efficient way possible, meeting our customers where they want to be met - whether in a branch, through digital channels, an ATM or through our phone-based customer contact centers - while continuously optimizing the cost to sell and service. We believe that, over time, we can grow our customer base, enhance the breadth and depth of our client relationships and improve our efficiency through differentiated products and leading digital channels.Table 12: Retail Banking Table
(Unaudited)
Year ended December 31 ChangeDollars in millions, except as noted 2023 2022 $ %Income StatementNet interest income $ 9,974 $ 7,540 $ 2,434 32 %
Noninterest income 2,951 2,967 (16) (1) %
Total revenue 12,925 10,507 2,418 23 %
Provision for credit losses 396 259 137 53 %
Noninterest expense 7,555 7,598 (43) (1) %
Pretax earnings 4,974 2,650 2,324 88 %
Income taxes 1,163 621 542 87 %
Noncontrolling interests 43 55 (12) (22) %
Earnings $ 3,768 $ 1,974 $ 1,794 91 %Average Balance SheetLoans held for sale $ 569 $ 927 $ (358) (39) %Loans
ConsumerResidential real estate $ 35,156 $ 33,643 $ 1,513 4 %
Home equity 24,598 23,221 1,377 6 %
Automobile 14,943 15,425 (482) (3) %
Credit card 7,020 6,620 400 6 %
Education 2,090 2,381 (291) (12) %
Other consumer 1,910 2,164 (254) (12) %
Total consumer 85,717 83,454 2,263 3 %
Commercial 11,744 11,177 567 5 %
Total loans $ 97,461 $ 94,631 $ 2,830 3 %
Total assets $ 114,914 $ 113,829 $ 1,085 1 %DepositsNoninterest-bearing $ 58,566 $ 64,775 $ (6,209) (10) %
Interest-bearing 197,589 199,614 (2,025) (1) %
Total deposits $ 256,155 $ 264,389 $ (8,234) (3) %Performance RatiosReturn on average assets 3.28 % 1.73 %
Noninterest income to total revenue 23 % 28 %
Efficiency 58 % 72 %(continued on following page)The PNC Financial Services Group, Inc. – 2023 Form 10-K 49(Continued from previous page)
Year ended December 31 ChangeDollars in millions, except as noted 2023 2022 $ %Supplemental Noninterest Income InformationAsset management and brokerage $ 523 $ 528 $ (5) (1) %
Card and cash management $ 1,323 $ 1,338 $ (15) (1) %
Lending and deposit services $ 736 $ 670 $ 66 10 %
Residential and commercial mortgage $ 424 $ 319 $ 105 33 %Residential Mortgage InformationResidential mortgage servicing statistics (in billions, except as noted) (a)
Serviced portfolio balance (b) $ 209 $ 190 $ 19 10 %
Serviced portfolio acquisitions $ 35 $ 74 $ (39) (53) %
MSR asset value (b) $ 2.7 $ 2.3 $ 0.4 17 %
MSR capitalization value (in basis points) (b) 127 122 5 4 %Servicing income: (in millions)Servicing fees, net (c) $ 301 $ 192 $ 109 57 %
Mortgage servicing rights valuation, net of economic hedge $ 53 $ 9 $ 44 *Residential mortgage loan statisticsLoan origination volume (in billions) $ 7.4 $ 15.1 $ (7.7) (51) %
Loan sale margin percentage 2.34 % 2.14 %
Percentage of originations represented by:
Purchase volume (d) 87 % 67 %
Refinance volume 13 % 33 %
Other Information (b)
Customer-related statistics (average)
Non-teller deposit transactions (e) 66 % 64 %
Digital consumer customers (f) 77 % 78 %Credit-related statisticsNonperforming assets $ 834 $ 1,003 $ (169) (17) %
Net charge-offs - loans and leases $ 463 $ 435 $ 28 6 %Other statisticsATMs 8,447 8,933 (486) (5) %
Branches (g) 2,299 2,518 (219) (9) %
Brokerage account client assets (in billions) (h) $ 78 $ 70 $ 8 11 %*- 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 regularly scheduled loan principal payments, prepayments and loans 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 $1.8 billion in 2023 compared with 2022, primarily due to increased net interest income, partially offset by an increased provision for credit losses.
Net interest income increased in the comparison due to wider interest rate spreads on the value of deposits, partially offset by narrower interest rate spreads on the value of loans.
Noninterest income decreased primarily due to the impact of negative Visa Class B derivative fair value adjustments compared to 2022, partially offset by growth in residential mortgage banking and lending and deposit customer-related activities.
Provision for credit losses was primarily driven by portfolio activity.
Noninterest expense decreased in the comparison primarily due to lower personnel expense, partially offset by increased technology costs.
50 The PNC Financial Services Group, Inc. – 2023 Form 10-K
Retail Banking average total loans increased in 2023 compared to 2022. Average consumer loans increased driven by higher residential real estate and home equity loans as a result of new volume and draws on existing accounts outpacing liquidations, as well as growth in credit card loans due to new account production and purchase volume increases. The increase was partially offset by declines across the remaining portfolio as paydowns outpaced new originations. Average commercial loans increased due to growth in automobile dealer segment balances, partially offset by forgiveness of PPP loans.
Our focus on growing primary customer relationships is at the core of our deposit strategy in Retail, which is based on attracting and retaining stable, low-cost deposits as a key funding source for PNC. We have taken a disciplined approach to pricing, focused on retaining relationship-based balances and executing on targeted deposit growth and retention strategies aimed at more rate-sensitive customers. Our goal with regard to deposits is to optimize balances, economics and long-term customer growth. In 2023, average total deposits decreased compared to 2022, reflecting the impact of increased consumer spending and quantitative tightening by the Federal Reserve.
As part of our strategic focus on growing customers and meeting their financial needs, we operate and continue to optimize a coast-to-coast network of retail branches, solution centers and ATMs, which are complemented by PNC’s suite of digital capabilities. In February 2024, PNC announced it would be investing close to $1.0 billion, through 2028, to open more than 100 new branches in key locations, including Austin, Dallas, Denver, Houston, Miami, and San Antonio, and to renovate more than 1,200 existing locations across the country to enhance the customer experience.
Retail Banking continues to enhance the customer experience with refinements to product and service offerings that drive value for consumers and small businesses.
The PNC Financial Services Group, Inc. – 2023 Form 10-K 51Corporate & Institutional BankingCorporate & 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. We are a coast-to-coast franchise and our full suite of commercial products and services are offered nationally.Table 13: Corporate & Institutional Banking Table
(Unaudited)
Year ended December 31 ChangeDollars in millions 2023 2022 $ %Income StatementNet interest income $ 5,856 $ 5,270 $ 586 11 %
Noninterest income 3,537 3,621 (84) (2) %
Total revenue 9,393 8,891 502 6 %
Provision for credit losses 398 198 200 101 %
Noninterest expense 3,730 3,651 79 2 %
Pretax earnings 5,265 5,042 223 4 %
Income taxes 1,197 1,155 42 4 %
Noncontrolling interests 19 17 2 12 %
Earnings $ 4,049 $ 3,870 $ 179 5 %Average Balance SheetLoans held for sale $ 407 $ 475 $ (68) (14) %Loans
CommercialCommercial and industrial $ 166,289 $ 155,551 $ 10,738 7 %
Commercial real estate 34,522 33,373 1,149 3 %
Equipment lease financing 6,422 6,195 227 4 %
Total commercial 207,233 195,119 12,114 6 %
Consumer 6 9 (3) (33) %
Total loans $ 207,239 $ 195,128 $ 12,111 6 %
Total assets $ 233,337 $ 219,941 $ 13,396 6 %DepositsNoninterest-bearing $ 51,329 $ 76,956 $ (25,627) (33) %
Interest-bearing 91,815 71,388 20,427 29 %
Total deposits $ 143,144 $ 148,344 $ (5,200) (4) %Performance RatiosReturn on average assets 1.74 % 1.76 %
Noninterest income to total revenue 38 % 41 %
Efficiency 40 % 41 %Other InformationConsolidated revenue from: (a)
Treasury Management (b) $ 3,456 $ 2,801 $ 655 23 %Commercial mortgage banking activities:Commercial mortgage loans held for sale (c) $ 74 $ 77 $ (3) (4) %
Commercial mortgage loan servicing income (d) 185 256 (71) (28) %
Commercial mortgage servicing rights valuation, net of economic hedge 118 138 (20) (14) %
Total $ 377 $ 471 $ (94) (20) %Commercial mortgage servicing statisticsServiced portfolio balance (in billions) (e)(f) $ 288 $ 281 $ 7 2 %
MSR asset value (e) $ 1,032 $ 1,113 $ (81) (7) %
Average Loans by C&IB business (g)
Corporate Banking $ 117,568 $ 106,098 $ 11,470 11 %
Real Estate 47,312 45,335 1,977 4 %
Business Credit 29,984 28,461 1,523 5 %
Commercial Banking 8,024 9,294 (1,270) (14) %
Other 4,351 5,940 (1,589) (27) %
Total average loans $ 207,239 $ 195,128 $ 12,111 6 %Credit-related statisticsNonperforming assets (e) $ 1,217 $ 761 $ 456 60 %
Net charge-offs - loans and leases $ 266 $ 143 $ 123 86 %
(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 time and payoffs. Commercial mortgage servicing rights valuation, net of economic hedge is shown separately.
(e) As of December 31.
(f) Represents balances related to capitalized servicing.
(g) As the result of a business realignment within C&IB during the second quarter of 2023, certain loans were reclassified from Other to Corporate Banking in the prior periods to conform to the current period presentation.
Corporate & Institutional Banking earnings increased $179 million in 2023 compared with 2022, driven by higher net interest income, partially offset by a higher provision for credit losses, lower noninterest income and increased noninterest expense.
Net interest income increased in the comparison due to wider interest rate spreads on the value of deposits and higher average loan balances, 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 commercial mortgage banking activities and a decline in capital markets and advisory fees, partially offset by growth in treasury management product revenue.
Provision for credit losses was primarily driven by portfolio activity, including changes in credit quality related to the commercial real estate portfolio.
Noninterest expense increased in the comparison and included continued investments to support business growth.
Average loans increased compared with 2022 due to increases in Corporate Banking, Real Estate and Business Credit, partially offset by a decrease 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 throughout 2022 and the acquisition of capital commitment facilities from Signature Bridge Bank, N.A. on October 2, 2023.
• Real Estate provides banking, financing and servicing solutions for commercial real estate clients across the country. Average loans for this business increased largely due to new production throughout 2022, partially offset by a lower average utilization of loan commitments.
• Business Credit provides asset-based lending and equipment financing solutions. The loan and lease portfolio is mainly secured by business assets. Average loans for this business increased, primarily driven by new production, partially offset by a lower average utilization of loan commitments.
• Commercial Banking provides lending, treasury management and capital markets related products and services to smaller corporations and businesses. Average loans for this business declined primarily driven by lower average utilization of loan commitments, paydowns outpacing new production and PPP loan forgiveness.
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 2023 compared to 2022, reflecting the impact of quantitative tightening by the Federal Reserve and included a continued shift from noninterest-bearing to interest-bearing deposits as deposit rates have risen. 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.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 relationships exist. 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 includes funding credit from all treasury management customer deposit balances. Compared with 2022, treasury management revenue increased due to wider interest rate spreads on the value of deposits and higher product revenue.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. Totalrevenue from commercial mortgage banking activities decreased in the comparison primarily due to lower commercial mortgage servicing income.
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 merger and acquisition advisory fees and a decline in syndication fees, partially offset by higher customer-related trading revenue for derivatives, foreign exchange and fixed income.
52 The PNC Financial Services Group, Inc. – 2023 Form 10-KAsset Management Group
The Asset Management Group strives to be a 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. The 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
(Unaudited)
Year ended December 31 ChangeDollars in millions, except as noted 2023 2022 $ %Income StatementNet interest income $ 547 $ 608 $ (61) (10) %
Noninterest income 905 936 (31) (3) %
Total revenue 1,452 1,544 (92) (6) %
Provision for (recapture of) credit losses (3) 28 (31) *
Noninterest expense 1,115 1,086 29 3 %
Pretax earnings 340 430 (90) (21) %
Income taxes 80 100 (20) (20) %
Earnings $ 260 $ 330 $ (70) (21) %Average Balance Sheet
Loans
ConsumerResidential real estate $ 10,280 $ 8,029 $ 2,251 28 %
Other consumer 4,003 4,550 (547) (12) %
Total consumer 14,283 12,579 1,704 14 %
Commercial 1,107 1,505 (398) (26) %
Total loans $ 15,390 $ 14,084 $ 1,306 9 %
Total assets $ 15,812 $ 14,505 $ 1,307 9 %DepositsNoninterest-bearing $ 1,782 $ 2,664 $ (882) (33) %
Interest-bearing 25,928 27,830 (1,902) (7) %
Total deposits $ 27,710 $ 30,494 $ (2,784) (9) %Performance RatiosReturn on average assets 1.64 % 2.28 %
Noninterest income to total revenue 62 % 61 %
Efficiency 77 % 70 %Supplemental Noninterest Income InformationAsset management fees $ 882 $ 908 $ (26) (3) %
Brokerage fees 7 8 (1) (13) %
Total $ 889 $ 916 $ (27) (3) %Other InformationNonperforming assets (a) $ 39 $ 56 $ (17) (30) %
Net charge-offs (recoveries) - loans and leases $ (3) $ 17 $ (20) (118) %
Client Assets Under Administration (in billions) (a) (b)Discretionary client assets under managementPNC Private Bank $ 117 $ 105 $ 12 11 %
Institutional Asset Management 72 68 4 6 %
Total discretionary client assets under management $ 189 $ 173 $ 16 9 %
Nondiscretionary client assets under administration 179 152 27 18 %
Total $ 368 $ 325 $ 43 13 %
* -Not Meaningful
(a) As of December 31.
(b) Excludes brokerage account client assets.
The PNC Financial Services Group, Inc. – 2023 Form 10-K 53The 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, cash and fixed income client solutions, and retirement plan fiduciary investment services to institutional clients, including corporations, healthcare systems, insurance companies, municipalities and non-profits.Asset Management Group earnings decreased $70 million in 2023 compared with 2022, driven by lower net interest income and noninterest income and higher noninterest expense, partially offset by provision recapture.
Net interest income decreased in the comparison due to decline in average deposits as well as narrower interest rate spreads on the value of loans, partially offset by higher average loans and wider interest rate spreads on the value of deposits.
Noninterest income decreased in the comparison driven by lower asset management fees due to the impact of client activity.
Noninterest expense increased in the comparison, reflecting continued investments to support business growth.
Average loans increased compared with 2022, driven by growth in residential real estate lending, partially offset by a decrease in security based lending lines of credit.
Average deposits decreased in the comparison due to competitive pricing pressures as clients continue to seek higher yielding returns, including deploying funds into discretionary client assets under management.
Discretionary client assets under management increased in comparison to the prior year, primarily due to higher spot equity markets as of December 31, 2023, partially offset by client activity.R ISK M ANAGEMENT
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 and financial services environment. Accordingly, we are actively focused on the timely incorporation of applicable regulatory pronouncements and emerging risks into our ERM Framework.54 The PNC Financial Services Group, Inc. – 2023 Form 10-KRisk 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 StrategyWe 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 macroeconomic capital planning process. Effective stress testing enables us to consider the estimated effect on capital of various hypothetical macroeconomic scenarios.Risk Governance and OversightWe 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. – 2023 Form 10-K 55
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 help ensure appropriate risks are being taken and effectively managed and controlled, risk is managed across three lines of defense. A summary of the Board of Directors’ and each line of defense’s responsibilities is provided 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, perform independent assessment of risk, 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.
• Corporate Responsibility Committee : oversees management’s corporate responsibility efforts, internally and externally, to the extent such corporate responsibility efforts are not specifically within the purview of another Board committee (e.g., climate-related risks overseen by the Risk Committee and climate-related financial disclosures overseen by the Audit Committee), and implementation of PNC's publicly-announced Community Benefits Plan to provide loans, investments and other financial support to bolster economic opportunity for low- and moderate-income individuals and communities and other underserved individuals and communities, and to help remove historic barriers in the banking system.• 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, data risk, 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 PNC. 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.
56 The PNC Financial Services Group, Inc. – 2023 Form 10-K
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 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 IdentificationRisk 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 assessments.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, procedures, 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 ReportingRisk 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
The PNC Financial Services Group, Inc. – 2023 Form 10-K 57
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 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 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 is 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 the 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 issues that are important to the various stakeholders we serve, Corporate & Institutional Banking transactions may be subjected to an industry-agnostic Environmental and Social Risk Management assessment designed to help us better identify and mitigate environmental, human rights and other reputational risks early in the credit application process. Transactions identified as having a potential environmental, human rights or other reputational risk are evaluated to determine whether additional due diligence is warranted. 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. Additionally, PNC has procedures designed to ensure that 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 billions58 The PNC Financial Services Group, Inc. – 2023 Form 10-KWe use several credit quality indicators, as further detailed in Note 3 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
C ommercial and IndustrialCommercial and industrial loans comprised 55% and 56% of our total loan portfolio at December 31, 2023 and 2022, respectively. The majority of our commercial and industrial loans are secured by collateral that provides a secondary source of repayment should a 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 (based on the North American Industry Classification System).Table 16: Commercial and Industrial Loans by IndustryDecember 31, 2023 December 31, 2022Dollars in millions Amount % of Total Amount % of Total
Commercial and industrialManufacturing $ 28,989 16 % $ 30,845 17 %
Financial services 28,422 16 21,320 12
Retail/wholesale trade 28,198 16 29,176 16
Service providers 21,354 12 23,548 13
Real estate related (a) 16,235 9 17,780 10
Technology, media & telecommunications 10,249 6 11,845 7
Health care 9,808 6 10,649 6
Transportation and warehousing 7,733 4 7,858 4
Other industries 26,592 15 29,198 15
Total commercial and industrial loans $ 177,580 100 % $ 182,219 100 %(a) Represents loans to customers in the real estate and construction industries.Owner occupied commercial real estate loans totaled $9.6 billion at December 31, 2023 and are included in commercial and industrial loans as the credit decisioning for servicing these loans is based on the financial conditions of the owner, not the ability of the collateral to generate income. Owner occupied commercial real estate loans are well-diversified across industries.Commercial Real EstateCommercial real estate loans comprised $21.0 billion related to commercial mortgages on income-producing properties, $8.0 billion of intermediate-term financing loans, and $6.4 billion of real estate construction project loans as of December 31, 2023. Comparable amounts as of December 31, 2022 were $22.3 billion, $7.6 billion, and $6.4 billion, respectively. Commercial real estate primarily consists of an investment in land and/or buildings held to generate income, that income serves as the primary source for the repayment of the loan. However, for all commercial real estate assets, the disposition of the assigned collateral serves as a secondary source of repayment for the loan should the borrower experience cash generation difficulties.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 commercial real estate loans 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. – 2023 Form 10-K 59The following table presents our commercial real estate loans by geography and property type:
Table 17: Commercial Real Estate Loans by Geography and Property TypeDecember 31, 2023 December 31, 2022Dollars in millions Amount % of Total Amount % of Total
Geography (a)California $ 6,133 17 % $ 6,224 17 %
Florida 3,738 11 3,275 9
Texas 3,733 11 3,871 11
Virginia 1,590 4 1,638 5
Pennsylvania 1,515 4 1,638 5
Maryland 1,344 4 1,496 4
Arizona 1,216 3 1,040 3
Illinois 1,201 3 1,321 4
Colorado 1,182 3 1,336 4
Ohio 1,157 3 1,236 3
Other 12,627 37 13,241 35
Total commercial real estate loans $ 35,436 100 % $ 36,316 100 %Property Type (a)Multifamily $ 15,590 44 % $ 13,738 38 %
Office 8,019 23 9,123 25
Industrial/warehouse 4,089 12 4,035 11
Retail 2,490 7 2,855 8
Seniors housing 1,772 5 2,228 6
Hotel/motel 1,760 5 1,896 5
Mixed use 388 1 701 2
Other 1,328 3 1,740 5
Total commercial real estate loans $ 35,436 100 % $ 36,316 100 %
(a) Presented in descending order based on loan balances at December 31, 2023.
Given the foundational change in office demand driven by the acceptance of remote work, real estate performance related to the office sector continues to be an area of uncertainty. At December 31, 2023, our outstanding loan balances in the office portfolio totaled $8.0 billion, or 2.5% of total loans, while additional unfunded loan commitments totaled $0.4 billion. Also, the portfolio is well diversified geographically across our coast-to-coast franchise. Within the office portfolio at December 31, 2023, criticized loans totaled 24.8% and nonperforming loans totaled 8.4%, while delinquencies were zero. As measured at origination, the weighted average LTV for the office portfolio was 58%; however, updated appraisals have increased the weighted average LTV to 65% as of December 31, 2023. While LTV is one consideration, our risk assessment considers a number of factors in assessing the changing conditions affecting the portfolio. As of December 31, 2023, we have established reserves of 8.7% against office loans.
The greatest stress in our office portfolio is observed in multi-tenant office loans, which represents 56% of the portfolio at December 31, 2023. Within the multi-tenant classification, criticized levels were 43.4% while nonperforming loans totaled 14.5%, accounting for almost all of the nonperforming office population. The weighted average LTV for multi-tenant is 69% at December 31, 2023. Additionally, all of the commercial real estate charge-offs over the last year have been multi-tenant office loans. Given the higher level of stress, this segment has a proportionally higher reserve rate of 12.9%. The remaining 44% of the office portfolio is primarily comprised of single-tenant, medical and government tenant properties. This subset of the portfolio is performing considerably better, with less than 1% of the book in the criticized, delinquent and nonperforming loan categories. As of December 31, 2023, the weighted average LTV of this book is 60%.
Portfolio management efforts have escalated for the office portfolio, with internal risk ratings completed for each asset quarterly, accelerated reappraisal requirements and elevated approval levels for any credit action . Refreshed appraisals have updated valuations on more than 90% of the criticized office exposure over the past year. Additionally, active management efforts include ongoing performance assessments as well as the review of property, lending and capital markets. Portfolio updates are distributed to senior management weekly.
Given the ongoing change in this area, we expect additional stress in the office sector. However, we continue to actively manage the portfolio, and we believe reserve levels adequately reflect the expected credit losses in the portfolio.
60 The PNC Financial Services Group, Inc. – 2023 Form 10-KConsumer
Residential Real EstateResidential real estate loans primarily consisted of residential mortgage loans at both December 31, 2023 and 2022.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.
The following table presents certain key statistics related to our residential real estate portfolio:
Table 18: Residential Real Estate Loan StatisticsDecember 31, 2023 December 31, 2022Dollars in millions Amount % of Total Amount % of Total
Geography (a)California $ 19,911 42 % $ 18,609 41 %
Texas 4,009 8 4,194 9
Washington 3,467 7 3,009 7
Florida 3,356 7 3,360 7
New Jersey 1,909 4 1,925 4
New York 1,551 3 1,558 3
Arizona 1,431 3 1,436 3
Pennsylvania 1,229 3 1,188 3
Colorado 1,187 2 1,192 3
North Carolina 989 2 965 2
Other 8,505 19 8,453 18Total residential real estate loans$ 47,544 100 % $ 45,889 100 %
December 31, 2023 December 31, 2022Weighted-average loan origination statistics (b)Loan origination FICO score 772 770
LTV of loan originations 73 % 71 %
(a) Presented in descending order based on loan balances at December 31, 2023.
(b) Weighted-averages calculated for the twelve months ended December 31, 2023 and 2022, 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 $42.4 billion at December 31, 2023 with 45% located in California. Comparable amounts at December 31, 2022 were $40.6 billion and 44%, respectively.Home EquityHome equity loans comprised $20.6 billion of home equity lines of credit and $5.6 billion of closed-end home equity installment loans at December 31, 2023. Comparable amounts were $19.5 billion and $6.5 billion as of December 31, 2022, respectively. Home equity lines of credit are a variable interest rate product with fixed rate conversion options available to certain borrowers.
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, legacy brokered home equity loans, home equity lines of credit or legacy 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. – 2023 Form 10-K 61The following table presents certain key statistics related to our home equity portfolio:
Table 19: Home Equity Loan StatisticsDecember 31, 2023 December 31, 2022Dollars in millions Amount % of Total Amount % of Total
Geography (a)Pennsylvania $ 4,745 18 % $ 5,051 19 %
New Jersey 3,184 12 3,266 13
Ohio 2,242 9 2,352 9
Florida 2,230 9 2,082 8
California 1,580 6 1,247 5
Maryland 1,237 5 1,254 5
Texas 1,230 5 1,144 4
Michigan 1,214 5 1,263 5
Illinois 1,069 4 1,126 4
North Carolina 1,001 4 995 4
Other 6,418 23 6,203 24
Total home equity loans $ 26,150 100 % $ 25,983 100 %Lien type1st lien 52 % 58 %
2nd lien 48 42Total 100 % 100 %December 31, 2023 December 31, 2022Weighted-average loan origination statistics (b)Loan origination FICO score 772 774
LTV of loan originations 64 % 67 %
(a) Presented in descending order based on loan balances at December 31, 2023.
(b) Weighted-averages calculated for the twelve months ended December 31, 2023 and 2022, respectively.AutomobileAuto loans comprised $13.8 billion in the indirect auto portfolio and $1.1 billion in the direct auto portfolio as of December 31, 2023. Comparable amounts as of December 31, 2022 were $13.7 billion and $1.1 billion, respectively. The indirect auto portfolio consists of loans originated primarily through independent franchised dealers, including dealers located in our new expansion 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 StatisticsDecember 31, 2023 December 31, 2022Weighted-average loan origination FICO score (a) (b)Indirect auto 788 784
Direct auto 787 776Weighted-average term of loan originations - in months (a)Indirect auto 73 73
Direct auto 65 63
(a) Weighted-averages calculated for the twelve months ended December 31, 2023 and 2022, 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, 2023, the portfolio balance was composed of 45% new vehicle loans and 55% used vehicle loans. Comparable amounts at December 31, 2022 were 50% and 50%, 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.
62 The PNC Financial Services Group, Inc. – 2023 Form 10-KNonperforming Assets and Loan Delinquencies
Nonperforming AssetsNonperforming 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 loans whose terms were modified as a result of a borrower’s financial difficulty 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 TypeDecember 31, 2023 December 31, 2022 ChangeDollars in millions $ %Nonperforming loans (a)
Commercial $ 1,307 $ 858 $ 449 52%
Consumer (b) 873 1,127 (254) (23)%
Total nonperforming loans 2,180 1,985 195 10%
OREO and foreclosed assets 36 34 2 6%
Total nonperforming assets $ 2,216 $ 2,019 $ 197 10%
Nonperforming loans to total loans 0.68 % 0.61 %
Nonperforming assets to total loans, OREO and foreclosed assets 0.69 % 0.62 %
Nonperforming assets to total assets 0.39 % 0.36 %
Allowance for loan and lease losses to nonperforming loans 220 % 239 %
Allowance for credit losses to nonperforming loans (c) 250 % 274 %
(a) In connection with the adoption of ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures , nonperforming loans as of December 31, 2023 include certain loans where terms were modified as a result of a borrower’s financial difficulty. Prior period amounts included nonperforming TDRs, for which accounting guidance was eliminated effective January 1, 2023. See Note 1 Accounting Policies and the Loan Modifications to Borrowers Experiencing Financial Difficulty section of Note 3 Loans and Related Allowance for more information on our adoption of this ASU.
(b) Excludes most unsecured consumer loans and lines of credit, which are charged off after 120 to 180 days past due and are not placed on nonperforming status.
(c) 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, 2023 and 2022:Table 22: Change in Nonperforming AssetsIn millions 2023 2022
January 1 $ 2,019 $ 2,506
New nonperforming assets 1,999 1,523
Charge-offs and valuation adjustments (452) (370)
Principal activity, including paydowns and payoffs (831) (868)
Asset sales and transfers to loans held for sale (71) (52)
Returned to performing status (448) (720)
December 31 $ 2,216 $ 2,019
As of December 31, 2023, approximately 97% of total nonperforming loans were secured by collateral.Loan Delinquencies
We regularly monitor the level of loan delinquencies and believe these levels are 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 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, such as inflation levels, industry specific risks, interest rate levels, the level of consumer savings and deposit balances, and structural and secular changes fostered by the pandemic. To mitigate losses and enhance customer support, we offer loan modifications and collection programs to assist our customers. The CARES Act credit reporting rules expired in the third quarter of 2023 and, as such, delinquency status at December 31, 2023 is being reported for all loans based on the contractual terms of the loan. Amounts as of December 31, 2022 continue to be presented in accordance with the credit reporting rules under the CARES Act, which required certain loans
The PNC Financial Services Group, Inc. – 2023 Form 10-K 63
modified due to pandemic-related hardships to not be reported as past due based on the contractual terms of the loan, even when borrowers may not have made 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)
Amount % of Total Loans OutstandingDecember 31, 2023 December 31, 2022 Change December 31, 2023 December 31, 2022Dollars in millions $ %
Early stage loan delinquenciesAccruing loans past due 30 to 59 days $ 685 $ 747 $ (62) (8) % 0.21 % 0.23 %
Accruing loans past due 60 to 89 days 270 261 9 3 % 0.08 % 0.08 %
Total early stage loan delinquencies 955 1,008 (53) (5) % 0.30 % 0.31 %Late stage loan delinquenciesAccruing loans past due 90 days or more 429 482 (53) (11) % 0.13 % 0.15 %
Total accruing loans past due $ 1,384 $ 1,490 $ (106) (7) % 0.43 % 0.46 %
(a) Past due loan amounts include government insured or guaranteed loans of $0.4 billion at both December 31, 2023 and 2022.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.
Loan ModificationsWe provide 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, while consumer loan modifications are evaluated under our hardship relief programs.
On January 1, 2023, we adopted ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures , which eliminates the accounting guidance for TDRs and enhances the disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty. Refer to Note 1 Accounting Policies and Note 3 Loans and Related Allowance for Credit Losses for additional information on our adoption of this ASU.Allowance for Credit Losses
Our determination of the ACL is based on historical loss and performance experience, current economic conditions, the reasonable and
supportable forecasts of future economic conditions and other relevant factors, including current borrower and/or transaction characteristics and assessments of the remaining estimated contractual term as of the balance sheet date. We maintain the ACL at an appropriate level for expected losses on our existing investment securities, loans, equipment finance leases, other financial assets and unfunded lending related commitments.
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.
The reversion period is used to bridge our three-year reasonable and supportable forecast period and the long-run average expected credit losses. We consider a number of factors in determining the duration of the reversion period, such as contractual maturity of the asset, observed historical patterns and the estimated credit loss rates at the end of the forecast period relative to the beginning of the long run average period. The reversion period is typically 1-3 years, if not immediate.
The long-run average expected credit losses are derived from available historical credit information. We use long-run average expected losses 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 on our reserves 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 our methodologies and
64 The PNC Financial Services Group, Inc. – 2023 Form 10-K
discussion of the allowances for investment securities and other financial assets. See also the Critical Accounting Estimates and Judgments section of this Report for further discussion of the assumptions used in the determination of the ACL as of December 31, 2023.Allowance for Loan and Lease LossesOur 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 the estimated contractual term 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 of the likelihood that a borrower may not be able to pay their contractual obligation over a defined period of time. LGD describes the estimated magnitude of potential loss if a borrower were to default, and EAD (or utilization rates for certain revolving loans) is the estimated balance outstanding at the expected time of default. These parameters are calculated for each forecasted scenario and the long-run average period, and are combined to generate expected loss estimates by scenario in proportion to the scenario weights.
Prior to January 1, 2023, we used a discounted cash flow methodology for our consumer real estate related loan classes and certain TDRs. Effective January 1, 2023, we discontinued our use of the discounted cash flow methodology, and we now use a pooled expected credit loss methodology as described above.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 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 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 models and methodologies strive to reflect all relevant expected 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:
• 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 pooled 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 on the Consolidated Income Statement.The PNC Financial Services Group, Inc. – 2023 Form 10-K 65The following table summarizes our ACL related to loans:Table 24: Allowance for Credit Losses by Loan Class (a)
December 31, 2023 December 31, 2022Dollars in millions Allowance Amount Total Loans % of Total Loans Allowance Amount Total Loans % of Total Loans
Allowance for loans and lease losses
CommercialCommercial and industrial $ 1,806 $ 177,580 1.02 % $ 1,957 $ 182,219 1.07 %
Commercial real estate 1,371 35,436 3.87 % 1,047 36,316 2.88 %
Equipment lease financing 82 6,542 1.25 % 110 6,514 1.69 %
Total commercial 3,259 219,558 1.48 % 3,114 225,049 1.38 %ConsumerResidential real estate 61 47,544 0.13 % 92 45,889 0.20 %
Home equity 276 26,150 1.06 % 274 25,983 1.05 %
Automobile 173 14,860 1.16 % 226 14,836 1.52 %
Credit card 766 7,180 10.67 % 748 7,069 10.58 %
Education 56 1,945 2.88 % 63 2,173 2.90 %
Other consumer 200 4,271 4.68 % 224 5,026 4.46 %
Total consumer 1,532 101,950 1.50 % 1,627 100,976 1.61 %
Total $ 4,791 $ 321,508 1.49 % $ 4,741 $ 326,025 1.45 %Allowance for unfunded lending related commitments663 694Allowance for credit losses$ 5,454 $ 5,435
Allowance for credit losses to total loans 1.70 % 1.67 %
Commercial 1.73 % 1.66 %
Consumer 1.62 % 1.69 %
(a) Excludes allowances for investment securities and other financial assets, which together totaled $120 million and $176 million at December 31, 2023 and 2022, respectively.
66 The PNC Financial Services Group, Inc. – 2023 Form 10-KThe following table summarizes our loan charge-offs and recoveries:Table 25: Loan Charge-Offs and RecoveriesYear ended December 31 Dollars in millions Gross Charge-offs Recoveries Net Charge-offs / (Recoveries) % of Average Loans2023
Commercial
Commercial and industrial $ 244 $ 122 $ 122 0.07 %
Commercial real estate 180 6 174 0.48 %
Equipment lease financing 18 9 9 0.14 %
Total commercial 442 137 305 0.14 %
Consumer
Residential real estate 8 13 (5) (0.01) %
Home equity 21 46 (25) (0.10) %
Automobile 121 100 21 0.14 %
Credit card 319 43 276 3.93 %
Education 17 7 10 0.48 %
Other consumer 164 36 128 2.77 %
Total consumer 650 245 405 0.40 %
Total $ 1,092 $ 382 $ 710 0.22 %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 %
Total net charge-offs increased $147 million, or 26%, in 2023 compared to 2022. The increase in the comparison was driven by higher net charge-offs in both our commercial and consumer portfolios and was primarily attributable to increases in commercial real estate and credit card, partially offset by declines in other consumer and commercial and industrial.See Note 1 Accounting Policies and Note 3 Loans and Related Allowance for Credit Losses for additional information.Liquidity and Capital ManagementLiquidity 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. To ensure a strong liquidity position and compliance with regulatory requirements, management maintains a liquid asset buffer of cash on hand and highly liquid unencumbered securities.
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 internal 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 stress coverage limits and operating liquidity guidelines are designed to help ensure that sufficient liquidity is available to
The PNC Financial Services Group, Inc. – 2023 Form 10-K 67
meet our parent company obligations over the succeeding 24-month period. Liquidity-related risk limits and operating guidelines are established within our Enterprise Liquidity Management Policy covering regulatory metrics and various concentration limits. Management committees, including the ALCO, and the Board of Directors and its Risk Committee regularly review compliance with key established limits. PNC was in compliance with all relevant internal and regulatory liquidity limits and guidelines during 2023.
One of the ways we monitor our liquidity is by reference to the LCR, a regulatory minimum liquidity requirement designed to ensure that covered banking organizations maintain an adequate level of liquidity to meet net liquidity needs over the course of a hypothetical 30-day stress scenario. PNC and PNC Bank calculate the LCR daily and are required to maintain a regulatory minimum of 100%. The LCR for both PNC and PNC Bank exceeded the regulatory minimum requirement throughout the year for 2023, 2022 and 2021. Fluctuations in our average LCR result from changes to the components of the calculation, including high-quality liquid assets and net cash outflows, as a result of ongoing business activity.
The NSFR is designed to measure the stability of the maturity structure of assets and liabilities of banking organizations over a one-year time horizon. PNC and PNC Bank calculate the NSFR daily and are required to maintain a regulatory minimum of 100%. PNC and PNC Bank have maintained NSFR compliance since the metric became effective on July 1, 2021.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 LiquidityOur 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 $421.4 billion at December 31, 2023 from $436.3 billion at December 31, 2022 and included a continued shift from noninterest-bearing to interest-bearing deposit products as a result of the elevated interest rate environment. As of December 31, 2023, uninsured deposits represented approximately 44% of our total deposit base. The majority of our uninsured deposits are related to commercial operating and relationship accounts, which we define as commercial deposit customers who utilize two or more PNC products. See the Funding Sources portion of the Consolidated Balance Sheet Review and Business Segments Review sections of this Financial Review for additional information on our deposits and related strategies.
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). In addition, PNC joined the Federal Reserve’s Standing Repo Facility on October 20, 2023, which allows eligible banks, such as PNC Bank, to borrow overnight in exchange for U.S Treasury, agency debt and agency mortgage-backed securities. See the Funding Sources section of the Consolidated Balance Sheet Review in this Financial Review and Note 9 Borrowed Funds included in this Report for additional information related to our borrowings.
Total senior and subordinated debt, on a consolidated basis, increased during 2023 due to the following activity:
Table 26: Senior and Subordinated Debt
In billions 2023
January 1 $ 23.0
Issuances 10.5
Calls and maturities (2.3)
Other 0.5
December 31 $ 31.7
Additionally, certain liquid assets and unused borrowing capacity from a number of sources are also available to manage our liquidity position. PNC has a contingency funding plan designed to ensure that liquidity sources are sufficient to meet ongoing obligations and commitments, particularly in the event of liquidity stress. This plan is designed to examine and quantify the organization’s liquidity under various internal liquidity stress scenarios and is periodically tested to assess the plan’s reliability. Additionally, the plan provides the strategies for addressing liquidity needs and responsive actions we would consider during liquidity stress events, which could include the issuance of incremental debt, preferred stock, or additional deposit actions, including the issuance of brokered CDs. The plan also addresses the governance, frequency of reporting and the responsibilities of key departments in the event of liquidity stress.
68 The PNC Financial Services Group, Inc. – 2023 Form 10-K
PNC defines our primary contingent liquidity sources as cash held at the Federal Reserve Bank, investment securities and unused borrowing capacity at the FHLB and Federal Reserve Bank. The following table summarizes our primary contingent liquidity sources at December 31, 2023 and December 31, 2022:
Table 27 : Primary Contingent Liquidity Sources
In billions December 31, 2023 December 31, 2022
Cash balance with Federal Reserve Bank $ 43.3 $ 26.9Investment securities (a)98.5 109.8Unused borrowing capacity from FHLB (b)35.4 42.9Unused borrowing capacity from Federal Reserve Bank (c)47.2 24.3
Total available contingent liquidity $ 224.4 $ 203.9
(a) Represents the fair value of investment securities that are available for sale or that can be used for pledging or to secure other sources of funding.
(b) At December 31, 2023, total FHLB borrowing capacity was $73.4 billion and total FHLB borrowings were $38.0 billion. Comparable amounts at December 31, 2022 were $75.0 billion and $32.1 billion, respectively.
(c) Total borrowing capacity with the Federal Reserve Bank was $47.2 billion at December 31, 2023 and $24.3 at December 31, 2022. PNC had no outstanding borrowings with the Federal Reserve Bank at December 31, 2023 and 2022.Bank LiquidityIn addition to our primary contingent liquidity sources, 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, 2023, PNC Bank’s remaining capacity to issue under the program was $33.3 billion.
Under PNC Bank’s 2013 commercial paper program, PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. As of December 31, 2023, there were no issuances outstanding under this program.
Additionally, PNC Bank may also access funding from the parent company through deposits placed at the bank or issuing intercompany 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, 2023, available parent company liquidity totaled $20.6 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 $6.3 billion at December 31, 2023. See Note 19 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. Under the parent company’s 2014 commercial paper program, the parent company has the ability to offer up to $5.0 billion of commercial paper to provide additional liquidity. At December 31, 2023, there were no issuances outstanding under this program.
The PNC Financial Services Group, Inc. – 2023 Form 10-K 69
The following table details Parent Company note issuances in 2023:
Table 28: Parent Company Notes IssuedIssuance Date Amount Description of IssuanceJanuary 24, 2023 $1.25 billion $1.25 billion of senior fixed-to-floating green bond notes with a maturity date of January 26, 2027. Interest is payable semi-annually in arrears at a fixed rate of 4.758% per annum, on January 26 and July 26 of each year, beginning on July 26, 2023. Beginning on January 26, 2026, 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 1.085%, on April 26, 2026, July 26, 2026, October 26, 2026, and at the maturity date.
January 24, 2023 $1.5 billion $1.5 billion of senior fixed-to-floating notes with a maturity date of January 24, 2034. Interest is payable semi-annually in arrears at a fixed rate of 5.068% per annum, on January 24 and July 24 of each year, beginning on July 24, 2023. Beginning on January 24, 2033, 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 1.933% on April 24, 2033, July 24, 2033, October 24, 2033 and at the maturity date.
June 12, 2023 $1.0 billion $1.0 billion of senior fixed-to-floating notes with a maturity date of June 12, 2026. Interest is payable semi-annually in arrears at a fixed rate of 5.812% per annum, on June 12 and December 12 of each year, beginning on December 12, 2023. Beginning on June 12, 2025, 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 1.322%, on September 12, 2025, December 12, 2025, March 12, 2026 and at the maturity date.
June 12, 2023 $2.5 billion $2.5 billion of senior fixed-to-floating notes with a maturity date of June 12, 2029. Interest is payable semi-annually in arrears at a fixed rate of 5.582% per annum, on June 12 and December 12 of each year, beginning on December 12, 2023. Beginning on June 12, 2028, 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 1.841%, on September 12, 2028, December 12, 2028, March 12, 2029 and at the maturity date.
August 18, 2023 $750 million $750 million of senior fixed-to-floating notes with a maturity date of August 18, 2034. Interest is payable semi-annually in arrears at a fixed rate of 5.939% per annum, on February 18 and August 18 of each year, beginning on February 18, 2024. Beginning on August 18, 2033, 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 1.946%, on November 18, 2033, February 18, 2034, May 18, 2034 and at the maturity date.
October 20, 2023 $1.25 billion $1.25 billion of senior fixed-to-floating notes with a maturity date of October 20, 2027. Interest is payable semi-annually in arrears at a fixed rate of 6.615% per annum, on April 20 and October 20 of each year, beginning on April 20, 2024. Beginning on October 20, 2026, 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 1.730%, on January 20, 2027, April 20, 2027, July 20, 2027 and at the maturity date.
October 20, 2023 $2.25 billion $2.25 billion of senior fixed-to-floating notes with a maturity date of October 20, 2034. Interest is payable semi-annually in arrears at a fixed rate of 6.875% per annum, on April 20 and October 20 of each year, beginning on April 20, 2024. Beginning on October 20, 2033, 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 2.284%, on January 20, 2034, April 20, 2034, July 20, 2034 and at the maturity date.
Parent company senior and subordinated debt carrying value totaled $24.0 billion and $13.1 billion at December 31, 2023 and December 31, 2022, respectively.
See Note 24 Subsequent Events for details on the parent company’s issuances of $1.0 billion of its 5.300% senior fixed-to-floating rate notes that mature on January 21, 2028, and $1.5 billion of its 5.676% senior fixed-to-floating rate notes that mature on January 22, 2035.Contractual Obligations and 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 6 Leases, Note 8 Time Deposits, Note 9 Borrowed Funds,
Note 10 Commitments and Note 16 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
70 The PNC Financial Services Group, Inc. – 2023 Form 10-K
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. For additional information on the potential impacts from a downgrade to our credit ratings, see Item 1A Risk Factors in this Report.
The following table presents credit ratings and outlook for PNC as of December 31, 2023:
Table 29: Credit Ratings and Outlook
December 31, 2023
Moody’s (a) Standard & Poor’s FitchPNC
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- ALong-term deposits Aa3 A AA-
Short-term deposits P-1 A-1 F1+Short-term notes P-1 A-1 F1
PNC
Agency rating outlook Negative Stable Stable(a) On August 7, 2023, the Moody's rating outlook on PNC's long-term issuer rating, long-term local currency bank deposits and senior unsecured local currency notes was changed to negative from stable, reflecting the current pressures on the U.S. banking sector.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 February 7, 2023, PNC issued 1,500,000 depositary shares each representing 1/100th ownership in a share of 6.250% fixed-rate
reset non-cumulative perpetual preferred stock, Series W, with a par value of $1 per share.
On November 1, 2023, PNC redeemed $1.0 billion of depositary shares representing interests in PNC’s fixed-to-floating non-cumulative perpetual preferred stock, Series O. Each depositary share represents 1/100th interest in a share of the Series O preferred stock.
In 2023, we returned $3.1 billion of capital to shareholders through dividends on common shares of $2.5 billion and repurchases of 4.0 million common shares for $0.6 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 previously approved repurchase program of up to 100 million common shares, of which approximately 45% were still available for repurchase at December 31, 2023. In light of the Federal banking agencies proposed rules to adjust the Basel III capital framework, share repurchase activity is expected to remain modest during the first quarter of 2024. PNC continues to evaluate the potential impact of the proposed rules and may adjust share repurchase activity depending on market and economic conditions, as well as other factors. PNC’s SCB for the four-quarter period beginning October 1, 2023 is the regulatory minimum of 2.5%.
On January 4, 2024, the PNC Board of Directors declared a quarterly cash dividend on common stock of $1.55 per share paid on February 5, 2024.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.The PNC Financial Services Group, Inc. – 2023 Form 10-K 71The following table summarizes our Basel III capital balances and ratios:Table 30: Basel III Capital
December 31, 2023Dollars in millions Basel III (a) (Fully Implemented) (estimated) (b)
Common equity Tier 1 capitalCommon stock plus related surplus, net of treasury stock $ (3,714) $ (3,714)
Retained earnings 56,773 56,290
Goodwill, net of associated deferred tax liabilities (10,698) (10,698)
Other disallowed intangibles, net of deferred tax liabilities (302) (302)
Other adjustments/(deductions) (85) (86)
Common equity Tier 1 capital (c) $ 41,974 $ 41,490Additional Tier 1 capitalPreferred stock plus related surplus 6,241 6,241
Tier 1 capital $ 48,215 $ 47,731Additional Tier 2 capitalQualifying subordinated debt 2,875 2,875
Eligible credit reserves includable in Tier 2 capital 4,842 5,265
Total Basel III capital $ 55,932 $ 55,871Risk-weighted assetsBasel III standardized approach risk-weighted assets (d) $ 424,408 $ 424,546Average quarterly adjusted total assets$ 557,202 $ 556,718
Supplementary leverage exposure (e) $ 666,356 $ 666,354Basel III risk-based capital and leverage ratios (f)Common equity Tier 1 9.9 % 9.8 %
Tier 1 11.4 % 11.2 %
Total 13.2 % 13.2 %Leverage (g)8.7 % 8.6 %
Supplementary leverage ratio (e) 7.2 % 7.2 %
(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 exclude 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 risk-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, FDMs, 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, 2023, 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 Common equity Tier 1 risk-based capital, 8% for Tier 1 risk-based capital, 10% for Total risk-based capital and a Leverage ratio of at least 5%.
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
72 The PNC Financial Services Group, Inc. – 2023 Form 10-K
our capital consistent with these regulatory principles, and we believe that our December 31, 2023 capital levels were aligned with them.We provide additional information regarding regulatory capital requirements and some of their potential impacts, including the proposed rules to adjust the Basel III framework, in the Supervision and Regulation section of Item 1 Business, Item 1A Risk Factors and Note 19 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 RiskInterest 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 market risk-related risk management policies, which are approved by management’s ALCO and the Risk Committee of the Board of Directors.
PNC utilizes sensitivities of NII and EVE to a set of interest rate scenarios to identify and measure its short-term and long-term structural interest rate risks.NII sensitivity results for the fourth quarters of 2023 and 2022 follow:
Table 31: Net Interest Income Sensitivity Analysis
Fourth Quarter 2023 Fourth Quarter 2022Net Interest Income Sensitivity Simulation (a)
Effect on NII in the first year from shocked interest rate:
200 basis point instantaneous increase(0.2) % 4.7 %200 basis point instantaneous decrease(0.3)% (5.7)%(a) The effect on NII in the first year from a 100 basis point instantaneous increase or decrease is not materially different from the 200 basis point scenarios as disclosed above.When forecasting net interest income, we make certain key assumptions that can materially impact the resulting sensitivities, including the following:
Future Balance Sheet Composition: Our balance sheet composition is dynamic and based on our forecasted expectations. As of the fourth quarter 2023, the projected balance sheet composition by the end of year one is generally consistent with the spot composition as of the fourth quarter 2023.
Deposit Betas: Deposit pricing changes are primarily driven by changes in the Federal Funds rate, with the relationship between deposit rates and Federal Funds rate defined as deposit beta. We define cumulative deposit beta as the change in deposit rate paid on interest bearing non-maturity deposits divided by the change in the upper level of the stated Federal Funds rate range since the first quarter of 2022, the start of the current rising rate cycle. As of December 2023, PNC’s cumulative deposit beta was 44%, an increase from 31% at December 2022. For interest rate risk modeling, PNC uses dynamic beta models to adjust assumed repricing sensitivity depending on market rate levels as well as other factors. The dynamic beta assumptions reflect historical experience and future expectations. Our scenario assumes that deposit betas slightly increase from current levels. Actual deposit rate paid may differ from modeled projections due to variables such as competition for deposits and customer behavior.
The PNC Financial Services Group, Inc. – 2023 Form 10-K 73
Asset Prepayments: PNC includes prepayment assumptions for both loan and investment portfolios. Mortgage and Home Equity portfolios utilize an industry standard model to drive estimated prepayments that increase in lower rate environments. Commercial and consumer loan portfolios assume static constant prepayment rates that are consistent across rate scenarios, as those portfolios historically do not exhibit significantly different prepayment behaviors based upon the level of market rates.
Impact of Derivatives : PNC uses interest rate derivatives to hedge floating rate commercial loans. PNC had $33.3 billion in receive fix / pay float swaps as of December 31, 2023, with a weighted average duration of 2.3 years and an average fixed rate of 2.1%. As of December 31, 2023 PNC also had collars in place, reflecting $12.5 billion of caps and $12.5 billion of floors, that are used to hedge these commercial loans. Additionally, PNC utilizes receive fix / pay float swaps as a means of hedging fixed rate debt. See Note 15 Financial Derivatives for additional information on how we use derivatives to hedge commercial loans and fixed rate debt.
EVE sensitivity results for the fourth quarter of 2023 and 2022 follow:
Table 32: Economic Value of Equity Sensitivity Analysis
Fourth Quarter 2023 Fourth Quarter 2022Economic Value of Equity Sensitivity Simulation
200 basis point instantaneous increase(4.3) % (5.1) %200 basis point instantaneous decrease(3.9)% (3.1)%
EVE measures the present value of all projected future cash flows associated with a point-in-time balance sheet and does not include projected new volume. EVE sensitivity to interest rate changes is a complementary metric to NII sensitivity analysis and represents an estimation of long-term interest rate risk. PNC calculates its EVE sensitivity by measuring the changes in the economic value of assets, liabilities and off-balance sheet instruments in response to an instantaneous +/-200 bps parallel shift in interest rates. Similar to the NII sensitivity analysis, we incorporate dynamic deposit repricing and loan prepayment assumptions. These methodologies are largely consistent between the EVE and NII sensitivity analyses. Additionally, deposit attrition is a significant contributor to EVE sensitivity. Deposit attrition is projected based on a dynamic model developed using long-term historical deposit behavior in addition to management assumptions including accelerated attrition for pandemic related excess deposits. PNC performs various sensitivity analyses to understand the impact of faster and slower deposit attrition on our risk metrics, with the results reported to the ALCO.
Compared to the fourth quarter of 2022, there have been no material changes to our NII sensitivity and EVE sensitivity assumptions, including data sources that drive assumptions setting.Market Risk Management – Customer-Related Trading RiskWe 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 2023 and 2022 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 2023 and 2022 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 $137 million in 2023 compared with $382 million in 2022 and is recorded in Capital markets and advisory and Other interest income on our Consolidated Income Statement. The decrease was primarily due to higher funding costs in the derivative and security trading desks, partially offset by improved foreign exchange client sales revenues.Market Risk Management – Equity And Other Investment Risk
Equity investment risk is the risk of potential losses associated with investing in both private and public equity markets. In addition to extending credit, taking deposits, underwriting securities and trading financial instruments, we make and manage direct investments in a variety of transactions, including management buyouts, recapitalizations and growth financings in a variety of industries. We also have investments in affiliated and non-affiliated funds that make similar investments in private equity, consistent with regulatory limitations. The economic and/or book value of these investments and other assets are directly affected by changes in market factors.74 The PNC Financial Services Group, Inc. – 2023 Form 10-KVarious PNC business units manage our equity and other investment activities. Our businesses are responsible for making investment decisions within the approved policy limits and associated guidelines.
A summary of our equity investments follows:Table 33: Equity Investments Summary
Dollars in millions December 31 2023 December 31 2022 Change$ %Tax credit investments $ 4,331 $ 4,308 $ 23 1 %
Private equity and other 3,983 4,129 (146) (4) %
Total $ 8,314 $ 8,437 $ (123) (1) %Tax Credit InvestmentsIncluded in our equity investments are direct tax credit investments and equity investments held by consolidated entities. These tax credit investment balances included unfunded commitments totaling $2.5 billion at both December 31, 2023 and 2022. These unfunded commitments are included in Other liabilities on our Consolidated Balance Sheet.Note 4 Loan Sale and Servicing Activities and Variable Interest Entities has further information on tax credit investments.
Private Equity and OtherThe 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 $2.2 billion at December 31, 2023 and $1.8 billion at December 31, 2022, respectively. As of December 31, 2023, $2.0 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. Based upon the December 31, 2023 per share closing price of $260.35 for a Visa Class A common share, the estimated value of our total investment in the Class B common shares was approximately $1.5 billion at the current conversion rate of Visa B shares to Visa A shares, while our cost basis was insignificant. See Note 14 Fair Value and Note 20 Legal Proceedings for additional information regarding our Visa agreements, and Visa’s amendments to its Certificate of Incorporation to institute a conversion and exchange offer program that would release transfer restrictions on portions of the Visa Class B common shares. 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 $18 million in 2023 and $45 million in 2022.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 creditlosses resulting from possible increased default rates. Throughout 2023, 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 DerivativesWe 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
The PNC Financial Services Group, Inc. – 2023 Form 10-K 75
notional and an underlying as specified in the contract. Therefore, cash requirements and exposure to credit risk are significantly less than the notional amount on these instruments.Further information on our financial derivatives is presented in Note 1 Accounting Policies, Note 14 Fair Value and Note 15 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 ManagementOperational 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.
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
76 The PNC Financial Services Group, Inc. – 2023 Form 10-K
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, 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. For additional information, see Item 1C Cybersecurity of this Report.C RITICAL A CCOUNTING E STIMATES AND J UDGMENTS
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 LossesWe 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 estimated 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 economic 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 the 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. Changes to the probability weights assigned to these scenarios and the 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 composition: 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.The PNC Financial Services Group, Inc. – 2023 Form 10-K 77For 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
Pursuant to 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 forecast the distribution of economic outcomes over the reasonable and supportable forecast period, we generate four economic forecast scenarios using a combination of quantitative macroeconomic models, other measures of economic activity and forward-looking expert judgment. Each scenario is then given an associated probability (weight) to represent our current expectation within that distribution over the forecast period. This process is informed by current economic conditions, expected business cycle evolution and the expert judgment of PNC’s RAC. This approach seeks to provide a reasonable representation of the forecast of expected economic outcomes and is used to estimate expected credit losses across a variety of loans, securities and other financial assets. Each quarter, the scenarios are presented to RAC for approval, and the committee also approves CECL scenario weights for use during the current reporting period.
The scenarios used for the period ended December 31, 2023 consider, among other factors, the ongoing inflationary pressures and the corresponding tightening of monetary policy and credit availability.
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, 2023 and 2022.
Table 34: Key Macroeconomic Variables in CECL Weighted-Average ScenariosAssumptions as of December 31, 2023
2024 2025 2026
U.S. real GDP (a) 0.1% 1.5% 2.0%U.S. Unemployment Rate (b) 4.5% 4.6% 4.2%
Assumptions as of December 31, 2022
2023 2024 2025
U.S. real GDP (a) (0.4)% 1.4% 1.9%
U.S. Unemployment Rate (c) 4.9% 4.9% 4.4%
(a) Represents year-over-year growth (loss) rates.
(b) Represents quarterly average rate at December 31, 2024, 2025 and 2026, respectively.
(c) Represents quarterly average rate at December 31, 2023, 2024 and 2025, respectively.
Real GDP growth is expected to slow from 3.1% in 2023 to just 0.1% in 2024 on a weighted average basis, with the slow down driven primarily by our most likely scenario that the U.S. economy enters a mild recession during the year. Growth then rises to 1.5% in 2025, before growing to 2.0% in 2026. The weighted average unemployment rate is expected to increase throughout 2024, peaking at 4.7% during the first half of 2025 and gradually improving to 4.2% by the fourth quarter of 2026.
The current state of the economy reflects heightened uncertainty due to structural and secular changes fostered by the pandemic for certain sectors of the economy, such as commercial real estate, combined with inflation, interest rate movements and declining consumer savings and deposit balances. 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 adequately 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 2024 ending the year down 2.0% compared to 2023 levels, with
78 The PNC Financial Services Group, Inc. – 2023 Form 10-K
growth picking up again by the end of 2025. The unemployment rate in this scenario increased to end 2024 at 6.3%, then peaks at 7.1% in the second half of 2025, before gradually improving to 6.0% by the end of 2026. Excluding consideration of qualitative adjustments, this sensitivity analysis would result in a hypothetical increase in our ACL of $1.7 billion at December 31, 2023. This scenario does not reflect our current expectation at December 31, 2023, 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.See the following for additional details on the components of our ACL:
• Allowance for Credit Losses in the Credit Risk Management section of this Item 7, and
• Note 1 Accounting Policies, Note 2 Investment Securities, and Note 3 Loans and Related Allowance for Credit Losses.
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 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 inverse 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 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 5 Goodwill and Mortgage Servicing Rights. For additional information on our residential and commercial MSRs, see Note 1 Accounting Policies, Note 5 Goodwill and Mortgage Servicing Rights and Note 14 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. An asset or liability’s classification as Level 2 or Level 3 is based upon the specific facts and circumstances associated with each instrument, and management applies judgment regarding the significance of unobservable inputs to each asset or liability when determining its fair value level classification. In addition to MSRs, certain of our private equity investments and available for sale securities have a high level of estimation uncertainty and require significant management judgment to determine the fair value. While estimating potential sensitivities around fair value measurements is inherently challenging, we provide a summary of the key unobservable inputs as well as additional information on Level 3 fair value measurements in Note 14 Fair Value.
The PNC Financial Services Group, Inc. – 2023 Form 10-K 79Recently Issued Accounting Standards
Accounting Standards Update Description Financial Statement ImpactImprovements to Reportable Segment Disclosures - ASU 2023-07
Issued November 2023
• Required with issuance of 2024 Form 10-K; early adoption is permitted.
• Requires that a public entity disclose significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss.
• Requires that a public entity disclose an amount for other segment items by reportable segment and a description of its composition.
• Requires that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by ASC 280 in interim periods.
• Clarifies that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit.
• Requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.
• Requires a retrospective transition approach for all prior periods presented in the financial statements.
• We are currently evaluating the disclosure requirements within this ASU and do not plan to early adopt.
• This ASU will not impact our Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Statement of Cash Flows, Consolidated Statement of Comprehensive Income, or Consolidated Statement of Changes in Equity.
• We expect to provide enhanced disclosures of significant segment level noninterest expenses as a result of this ASU.
Accounting Standards Update Description Financial Statement ImpactImprovements to Income Tax Disclosures - ASU 2023-09
Issued December 2023• Required effective date of January 1, 2025; early adoption is permitted.• Requires public business entities to, on an annual basis, (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold.
• Requires that all entities disclose, on an annual basis, (1) the amount of income taxes paid (net of refunds received), disaggregated by federal (national), state and foreign taxes, and (2) the amount of income taxes paid (net of refunds received), disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received).• Requires a prospective transition approach, with an optional retrospective transition approach.
• We are currently evaluating the disclosure requirements within this ASU.
• This ASU will not impact our Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Statement of Cash Flows, Consolidated Statement of Comprehensive Income, or Consolidated Statement of Changes in Equity.• We expect to provide additional disaggregated income tax disclosures in accordance with this ASU.• We are evaluating when to adopt the amendments of this ASU.Recently Adopted Accounting Pronouncements
See Note 1 Accounting Policies regarding the impact of new accounting pronouncements that we have adopted.80 The PNC Financial Services Group, Inc. – 2023 Form 10-KC AUTIONARY S TATEMENT R EGARDING F ORWARD -L OOKING I NFORMATION
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 sanctions, tariffs and other trade policies of the U.S. and its global trading partners,
– Impacts of changes in federal, state and local governmental policy, including on the regulatory landscape, capital markets, taxes, infrastructure spending and social programs,
– Our 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:– PNC’s baseline forecast is for slower economic growth in 2024 as consumer spending growth slows and higher interest rates remain a drag on the economy. The ongoing strength of the labor market will continue to support consumer spending. Slowing inflation will allow for federal funds rate cuts starting in the late spring or early summer; this will support economic growth in the second half of 2024.
– GDP growth this year will be below trend at slightly above 1%, and the unemployment rate will increase modestly to somewhat above 4% by the end of 2024. Inflation will continue to slow as wage pressures abate, moving back to the Federal Reserve’s 2% long-term objective by the end of the year.
– PNC expects the federal funds rate to remain unchanged in the first part of 2024, between 5.25% and 5.50%, with federal funds rate cuts starting in May 2024 as inflation slows further. PNC expects the federal funds rate to end 2024 between 4.25% and 4.50%.• 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, its 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 affect matters such as business generation and retention, liquidity, funding and ability to attract and retain employees. These developments could include:
– Changes to laws and regulations, including changes affecting oversight of the financial services industry, changes in the enforcement and interpretation of such laws and regulations, 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.The PNC Financial Services Group, Inc. – 2023 Form 10-K 81– 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.
• W e 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, 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 manmade, 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 20 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.
FY 2024-12-31 (later)
ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
E XECUTIVE S UMMARY
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 and liquidity 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,
• 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,• The impact of tariffs and other trade policies of the U.S. and its global trading partners,
• 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,• The effect of climate change on our business and performance, including indirectly through impacts on our customers,36 The PNC Financial Services Group, Inc. – 2024 Form 10-K• 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.Signature Bank Portfolio Acquisition
On October 2, 2023, PNC acquired a portfolio of capital commitments facilities from Signature Bridge Bank, N.A. through an agreement with the FDIC as receiver of the former Signature Bank, New York. The acquired portfolio represented approximately $16.0 billion in total commitments, including approximately $9.0 billion of funded loans, at the time of acquisition.
Workforce ReductionDuring the fourth quarter of 2023, PNC implemented a workforce reduction that was expected to reduce 2024 personnel expense by approximately $325 million annually, on a pre-tax basis. PNC incurred expenses of $150 million in the fourth quarter of 2023 in connection with this workforce reduction.FDIC Special AssessmentIn November 2023, the FDIC approved a final rule to implement a special assessment to recover the loss to the Deposit Insurance Fund associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank. As a result, PNC incurred a pre-tax expense of $515 million during the fourth quarter of 2023. In the first quarter of 2024, PNC incurred an additional pre-tax expense of $130 million related to the increase in the FDIC’s expected losses. The fourth quarter of 2024 included an $18 million pre-tax reduction of the FDIC special assessment.
Second Quarter 2024 Significant Items
In the second quarter of 2024, PNC participated in the Visa exchange program, allowing PNC to convert its Visa Class B-1 common
shares into approximately equal amounts of Visa Class B-2 common shares and Visa Class C common shares. This conversion event
resulted in a gain of $754 million related to the Visa Class C common shares received. PNC retained the Visa Class B-2 common
shares. The second quarter of 2024 also included Visa Class B-2 derivative fair value adjustments of negative $116 million and a $120
million expense related to a PNC Foundation contribution. During the second quarter, PNC also repositioned the investment securities
portfolio, selling low-yielding investment securities for net proceeds of $3.8 billion, resulting in a loss of $497 million. PNC
redeployed the full proceeds from the sale into higher-yielding investment securities. The combined impact of all of these significant items on pre-tax noninterest income and pre-tax noninterest expense in the second quarter of 2024 was $141 million and $120 million, respectively.
Hurricanes Helene and Milton
During September 2024, Hurricane Helene made landfall in Florida’s panhandle, impacting a large region of the
southeastern United States, including the southern Appalachians. In October 2024, Hurricane Milton made landfall
on the central west coast of Florida, causing widespread damage across the state. The storms resulted in property damage to our
customers, the closing or disruption of many businesses, including some of PNC’s branches and facilities and damage to the
community infrastructure. We evaluated the impact to our businesses, and, based on our assessments to date, these storms did not have a material impact on our operating results, including credit losses.
The PNC Financial Services Group, Inc. – 2024 Form 10-K 37Selected 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
Year ended December 31Dollars in millions, except per share data 2024 2023 2022Summary of OperationsNet interest income $ 13,499 $ 13,916 $ 13,014
Noninterest income 8,056 7,574 8,106
Total revenue 21,555 21,490 21,120
Provision for credit losses 789 742 477
Noninterest expense 13,524 14,012 13,170
Income before income taxes and noncontrolling interests 7,242 6,736 7,473
Income taxes 1,289 1,089 1,360
Net income $ 5,953 $ 5,647 $ 6,113
Net income attributable to common shareholders $ 5,529 $ 5,153 $ 5,735Per Common ShareDiluted earnings $ 13.74 $ 12.79 $ 13.85
Book value per common share $ 122.94 $ 112.72 $ 99.93
Tangible book value per common share (non-GAAP) (a) $ 95.33 $ 85.08 $ 72.12Performance RatiosNet interest margin (non-GAAP) (b) 2.66 % 2.76 % 2.65 %
Noninterest income to total revenue 37 % 35 % 38 %
Efficiency 63 % 65 % 62 %Return on:Average common shareholders’ equity 11.92 % 12.35 % 13.52 %
Average assets 1.05 % 1.01 % 1.11 %
(a) See explanation and reconciliation of this non-GAAP measure in the Non-GAAP Financial Information section of this Item 7.
(b) See explanation and reconciliation of this non-GAAP measure in the Average Consolidated Balance Sheet and Net Interest Analysis and Non-GAAP Financial Information sections of this Item 7.Table 2: Balance Sheet Highlights and Other Selected RatiosDecember 31
Dollars in millions, except as noted 2024 2023Balance Sheet HighlightsAssets $ 560,038 $ 561,580
Loans $ 316,467 $ 321,508
Allowance for loan and lease losses $ 4,486 $ 4,791
Interest-earning deposits with banks $ 39,347 $ 43,804
Investment securities $ 139,732 $ 132,569
Total deposits $ 426,738 $ 421,418
Borrowed funds $ 61,673 $ 72,737
Total shareholders’ equity $ 54,425 $ 51,105
Common shareholders’ equity $ 48,676 $ 44,864Other Selected RatiosCommon equity Tier 1 10.5 % 9.9 %
Dividend payout 45.9 % 47.8 %
Loans to deposits 74 % 76 %
Common shareholders’ equity to total assets 8.7 % 8.0 %
Average common shareholders’ equity to average assets 8.2 % 7.5 %
38 The PNC Financial Services Group, Inc. – 2024 Form 10-KIncome Statement HighlightsNet income for 2024 was $6.0 billion or $13.74 per diluted common share, an increase of $0.4 billion, or 5%, compared to net income of $5.6 billion, or $12.79 per diluted common share, for 2023. The increase was primarily due to lower noninterest expense and higher noninterest income, partially offset by lower net interest income.
• Total revenue was stable at $21.6 billion.
• Net interest income decreased $0.4 billion, or 3%, to $13.5 billion as the benefit of higher interest-earning asset yields and balances was more than offset by increased funding costs.
• Net interest margin decreased to 2.66% for 2024 compared to 2.76% for 2023.
• Noninterest income increased $0.5 billion, or 6%, to $8.1 billion primarily driven by higher capital markets and advisory fees.
• Provision for credit losses was $789 million in 2024 reflecting the impact of net charge-offs, primarily in our commercial real estate, commercial and industrial and credit card loan classes, and a net decline in the ACL due to improved macroeconomic factors and portfolio activity. Provision for credit losses was $742 million in 2023.
• Noninterest expense decreased $488 million, or 3%, to $13.5 billion compared to 2023 reflecting lower costs related to the FDIC’s special assessment and lower personnel expense, partially offset by a PNC Foundation contribution expense of $120 million in the second quarter of 2024 and impairments of $97 million in the fourth quarter of 2024 primarily related to technology investments. Costs related to the FDIC special assessment were $112 million in 2024 compared to $515 million in 2023. Noninterest expense in 2023 also included $150 million of workforce reduction charges.For additional detail, see the Consolidated Income Statement Review section of this Item 7.
Balance Sheet HighlightsOur balance sheet was well positioned at December 31, 2024. In comparison to December 31, 2023:
• Total assets were stable and included higher securities balances, partially offset by lower loans outstanding and lower balances held with the Federal Reserve Bank.
• Total loans decreased $5.0 billion, or 2%, to $316.5 billion.
• Total commercial loans decreased $3.4 billion, or 2%, to $216.2 billion, due to lower utilization of loan commitments and commercial real estate paydowns.
• Total consumer loans decreased $1.6 billion, or 2%, to $100.3 billion, as growth in automobile loans was more than offset by declines in the remaining portfolios as paydowns outpaced originations.
• Investment securities increased $7.2 billion, or 5%, to $139.7 billion, due to increased purchase activity, primarily of U.S. Treasury securities, partially offset by portfolio paydowns and maturities.
• Interest earning deposits with banks, primarily with the Federal Reserve Bank, decreased $4.5 billion, or 10%, to $39.3 billion, primarily due to lower borrowed funds and higher securities balances, partially offset by higher deposits and lower loan balances.
• Total deposits increased $5.3 billion, or 1%, to $426.7 billion, reflecting higher interest-bearing deposits, partially offset by lower noninterest-bearing deposits. Interest-bearing deposits increased due to higher commercial balances, partially offset by lower consumer balances. Noninterest-bearing deposit balances decreased due to a decline in both commercial and consumer balances.
• Borrowed funds of $61.7 billion decreased $11.1 billion, or 15%, due to lower FHLB advances, partially offset by parent company senior debt issuances.For additional detail, see the Consolidated Balance Sheet Review section of this Item 7.
Credit Quality Highlights2024 reflected strong credit quality performance.
• At December 31, 2024 compared to December 31, 2023:
• Overall loan delinquencies of $1.4 billion were stable.
• The ACL related to loans, which consists of the ALLL and the allowance for unfunded lending related commitments, totaled $5.2 billion and $5.5 billion at December 31, 2024, and 2023, respectively. The reserve change was driven by improved macroeconomic factors as well as portfolio activity. ACL to total loans was 1.64% and 1.70% at December 31, 2024 and 2023, respectively.
• Nonperforming assets of $2.4 billion increased $141 million, or 6%, primarily due to higher commercial real estate nonperforming loans.
• Net charge-offs of $1.0 billion or 0.33% of average loans in 2024 increased $331 million compared to net charge-offs of $710 million or 0.22% of average loans for 2023, reflecting higher commercial and consumer net loan charge-offs.For additional detail, see the Credit Risk Management portion of the Risk Management section of this Item 7.The PNC Financial Services Group, Inc. – 2024 Form 10-K 39Capital and Liquidity HighlightsWe maintained strong capital and liquidity positions during 2024.
• Common shareholders’ equity increased $3.8 billion to $48.7 billion at December 31, 2024, due to the benefit of net income and an improvement in AOCI, partially offset by common dividends paid and common share repurchases.
• In 2024, we returned $3.1 billion of capital to shareholders through dividends on common shares of $2.5 billion and repurchases of 3.5 million common shares for $0.6 billion.
• PNC’s SCB for the four-quarter period beginning October 1, 2024 is the regulatory minimum of 2.5%. See the Supervision and Regulation section of Item 1 and the Liquidity and Capital Management portion of the Risk Management section of this Item 7 for more details on the SCB and our common shares still available for repurchase.
• On January 3, 2025, the PNC Board of Directors declared a quarterly cash dividend on common stock of $1.60 per share to be paid on February 5, 2025 to shareholders of record at the close of business January 15, 2025.
• The Basel III CET1 capital ratio increased to 10.5% at December 31, 2024 from 9.9% at December 31, 2023.
• PNC elected a five-year transition provision effective March 31, 2020 to delay until December 31, 2021 the full impact of the CECL standard on regulatory capital, followed by a three-year transition period. Effective for the first quarter of 2022, PNC entered a three-year transition period, and the full impact of the CECL standard was phased-in to regulatory capital through December 31, 2024. In the first quarter of 2025, CECL will be fully reflected in regulatory capital. The estimated CET1 fully implemented ratio was 10.5% at December 31, 2024 compared to 9.8% at December 31, 2023.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. 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 2024 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, among other things, 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 labor market remains strong, and job and income gains will continue to support consumer spending growth in the near term. PNC’s baseline forecast is for continued expansion, but slower economic growth in 2025 than in 2024. High interest rates remain a drag on the economy, consumer spending growth will slow to a pace more consistent with household income growth, and government’s contribution to economic growth will be smaller.
• Real GDP growth in 2025 and 2026 will be approximately 2%, and the unemployment rate will remain somewhat above 4% throughout 2025 and into 2026. There will be little progress on inflation in 2025; wage pressures will abate, but higher tariffs will offset this, and inflation will remain above the Federal Reserve’s 2% objective throughout 2025.
• Little progress on inflation this year will limit monetary easing. PNC expects two additional federal funds rate cuts of 25 basis points each in 2025, one in May and one in July. The federal funds rate will be in a range between 3.75% and 4.00% in the second half of 2025, and remain in that range into 2026.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.For the full year 2025, compared to full year 2024, we expect:
• Average loans to be stable,
• Spot loans to be up 2% to 3%,
• Net interest income to be up 6% to 7%,
• Noninterest income to be up approximately 5%,
• Revenue to be up approximately 6%,
• Noninterest expense to be up approximately 1%, and
• The effective tax rate to be approximately 19%.
For the first quarter of 2025, compared to the fourth quarter of 2024, we expect:• Average loans to be down approximately 1%,• Net interest income to be down 2% to 3%,
• Fee income to be stable,
40 The PNC Financial Services Group, Inc. – 2024 Form 10-K
• Other noninterest income to be between $150 million and $200 million,
• Revenue to be down 1% to 2%,
• Noninterest expense to be down 2% to 3%, and
• Net loan charge-offs to be approximately $300 million.
Noninterest income, other noninterest income and revenue guidance does not forecast net securities gains or losses or Visa activity.
We are unable to provide a meaningful or accurate reconciliation of forward-looking non-GAAP measures, without unreasonable effort, 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 unavailable information.C ONSOLIDATED I NCOME S TATEMENT R EVIEWOur Consolidated Income Statement is presented in Item 8 of this Report. For the comparison of 2023 over 2022, see the Consolidated Income Statement Review section in our 2023 Form 10-K.
Net income for 2024 was $6.0 billion, or $13.74 per diluted common share, an increase of $0.4 billion, or 5%, compared to net income of $5.6 billion, or $12.79 per diluted common share, for 2023. The increase was primarily due to lower noninterest expense and higher noninterest income, partially offset by lower net interest income.Net Interest Income
Table 3: Summarized Average Balances and Net Interest Income (a)2024 2023Year 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 assetsInvestment securities $ 140,742 2.94 % $ 4,144 $ 140,351 2.54 % $ 3,568
Loans 319,794 6.08 % 19,456 323,520 5.69 % 18,423
Interest-earning deposits with banks 43,145 5.34 % 2,303 36,645 5.19 % 1,902
Other 9,135 6.70 % 612 8,884 6.33 % 562
Total interest-earning assets/interest income $ 512,816 5.17 % 26,515 $ 509,400 4.80 % 24,455Liabilities
Interest-bearing liabilitiesInterest-bearing deposits $ 324,435 2.59 % 8,401 $ 315,393 2.10 % 6,609
Borrowed funds 74,061 6.05 % 4,484 67,282 5.62 % 3,783
Total interest-bearing liabilities/interest expense $ 398,496 3.23 % 12,885 $ 382,675 2.72 % 10,392
Net interest margin/income (non-GAAP) 2.66 % 13,630 2.76 % 14,063
Taxable-equivalent adjustments (131) (147)
Net interest income (GAAP) $ 13,499 $ 13,916
(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 the Reconciliation of Taxable-Equivalent Net Interest Income (non-GAAP) of this Item 7.
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 Average Consolidated Balance Sheet and Net Interest Analysis section of this Item 7 for additional information.
Net interest income decreased $0.4 billion, or 3%, and net interest margin decreased 10 basis points in 2024 compared with 2023 as the benefit of higher interest-earning asset yields and balances were more than offset by increased funding costs.
Average investment securities were stable as net purchase activity of available-for-sale securities was offset by portfolio paydowns and maturities of held-to-maturity securities. Average investment securities represented 27% of average interest-earning assets in 2024 compared to 28% in 2023.
Average loans decreased $3.7 billion, or 1%, primarily due to lower average utilization of commercial loan commitments. Average loans represented 62% of average interest-earning assets in 2024 compared to 64% in 2023.
The PNC Financial Services Group, Inc. – 2024 Form 10-K 41
Average interest-earning deposits with banks increased $6.5 billion, or 18%, primarily due to higher borrowed funds and lower loan balances, partially offset by lower deposits.
Average interest-bearing deposits increased $9.0 billion, or 3%, reflecting growth in commercial deposits, partially offset by a decline in consumer balances. In total, average interest-bearing deposits represented 81% of average interest-bearing liabilities in 2024 compared to 82% in 2023.
Average borrowed funds increased $6.8 billion, or 10%, primarily due to parent company senior debt issuances, partially offset by lower FHLB advances.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
Year ended December 31 ChangeDollars in millions 2024 2023 $ %Noninterest incomeAsset management and brokerage $ 1,485 $ 1,412 $ 73 5 %
Capital markets and advisory 1,250 952 298 31 %
Card and cash management 2,770 2,733 37 1 %
Lending and deposit services 1,259 1,233 26 2 %
Residential and commercial mortgage 581 625 (44) (7) %
Other income
Gain on Visa shares exchange program 754 754 *
Securities gains (losses) (500) (2) (498) *
Other 457 621 (164) (26) %
Total other income 711 619 92 15 %
Total noninterest income $ 8,056 $ 7,574 $ 482 6 %
*- Not Meaningful
Noninterest income as a percentage of total revenue was 37% for 2024 and 35% for 2023.
Asset management and brokerage fees increased reflecting the impact of higher average equity markets as well as higher annuity sales. PNC’s discretionary client assets under management increased to $211 billion at December 31, 2024 compared to $189 billion at December 31, 2023, primarily due to higher spot equity markets. Capital markets and advisory fees increased primarily due to higher merger and acquisition advisory activity and increased underwriting fees. Card and cash management revenue growth was driven by higher treasury management product revenue. Lending and deposit services grew as a result of increased customer activity. Residential and commercial mortgage decreased due to lower residential mortgage banking activities. Other noninterest income increased compared to 2023 driven by the benefit of significant items in the second quarter of 2024, partially offset by lower private equity revenue.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.42 The PNC Financial Services Group, Inc. – 2024 Form 10-KNoninterest Expense
Table 5: Noninterest Expense
Year ended December 31 ChangeDollars in millions 2024 2023 $ %Noninterest expensePersonnel $ 7,302 $ 7,428 $ (126) (2) %
Occupancy 954 982 (28) (3) %
Equipment 1,527 1,411 116 8 %
Marketing 362 350 12 3 %
Other 3,379 3,841 (462) (12) %
Total noninterest expense $ 13,524 $ 14,012 $ (488) (3) %
Noninterest expense decreased compared to 2023 reflecting lower costs related to the FDIC’s special assessment and lower personnel expense, partially offset by a PNC Foundation contribution expense of $120 million in the second quarter of 2024 and impairments of $97 million in the fourth quarter of 2024 primarily related to technology investments. Costs related to the FDIC special assessment were $112 million in 2024 compared to $515 million in 2023. Noninterest expense in 2023 also included $150 million of workforce reduction charges.
We exceeded our 2024 continuous improvement program savings goal of $450 million. In 2025, our continuous improvement program goal will be $350 million.Effective Income Tax RateThe effective income tax rate was 17.8% for 2024 compared with 16.2% for 2023.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 18 Income Taxes.
Provision for (Recapture of) Credit Losses
Table 6: Provision for (Recapture of) Credit Losses
Year ended December 31Dollars in millions 2024 2023Provision for (recapture of) credit lossesLoans and leases $ 741 $ 792
Unfunded lending related commitments 56 (31)
Investment securities (10) (18)
Other financial assets 2 (1)
Total provision for (recapture of) credit losses $ 789 $ 742
Provision for credit losses is driven by net charge-offs and changes to the ACL. The provision for credit losses was $789 million in 2024 reflecting the impact of net charge-offs, primarily in our commercial real estate, commercial and industrial and credit card loan classes, and a net decline in the ACL due to improved macroeconomic factors and portfolio activity.
The PNC Financial Services Group, Inc. – 2024 Form 10-K 43C ONSOLIDATED B ALANCE S HEET R EVIEWThe 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 2023 over 2022, see the Consolidated Balance Sheet Review section in our 2023 Form 10-K.Table 7: Summarized Balance Sheet Data
December 31 December 31 ChangeDollars in millions 2024 2023 $ %AssetsInterest-earning deposits with banks $ 39,347 $ 43,804 $ (4,457) (10) %
Loans held for sale 850 734 116 16 %
Investment securities 139,732 132,569 7,163 5 %
Loans 316,467 321,508 (5,041) (2) %
Allowance for loan and lease losses (4,486) (4,791) 305 6 %
Mortgage servicing rights 3,711 3,686 25 1 %
Goodwill 10,932 10,932 —
Other 53,485 53,138 347 1 %
Total assets $ 560,038 $ 561,580 $ (1,542) —LiabilitiesDeposits $ 426,738 $ 421,418 $ 5,320 1 %
Borrowed funds 61,673 72,737 (11,064) (15) %
Allowance for unfunded lending related commitments 719 663 56 8 %
Other 16,439 15,621 818 5 %
Total liabilities 505,569 510,439 (4,870) (1) %EquityTotal shareholders’ equity 54,425 51,105 3,320 6 %
Noncontrolling interests 44 36 8 22 %
Total equity 54,469 51,141 3,328 7 %
Total liabilities and equity $ 560,038 $ 561,580 $ (1,542) —
Our balance sheet was well positioned at December 31, 2024. In comparison to December 31, 2023:
• Total assets were stable reflecting higher securities balances, partially offset by lower loans outstanding and lower balances held with the Federal Reserve Bank.
• Total liabilities were stable and included lower borrowed funds, partially offset by higher deposits.
• Total equity increased due to the benefit of net income and an improvement in AOCI, partially offset by dividends paid, common shares repurchased and a preferred stock redemption.
The ACL related to loans totaled $5.2 billion and $5.5 billion at December 31, 2024 and 2023, respectively. The reserve change was driven by improved macroeconomic factors as well as portfolio activity. 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 3 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 19 Regulatory Matters.44 The PNC Financial Services Group, Inc. – 2024 Form 10-KLoans
Table 8: Loans
December 31 December 31 ChangeDollars in millions 2024 2023 $ %CommercialCommercial and industrial $ 175,790 $ 177,580 $ (1,790) (1) %
Commercial real estate 33,619 35,436 (1,817) (5) %
Equipment lease financing 6,755 6,542 213 3 %
Total commercial 216,164 219,558 (3,394) (2) %ConsumerResidential real estate 46,415 47,544 (1,129) (2) %
Home equity 25,991 26,150 (159) (1) %
Automobile 15,355 14,860 495 3 %
Credit card 6,879 7,180 (301) (4) %
Education 1,636 1,945 (309) (16) %
Other consumer 4,027 4,271 (244) (6) %
Total consumer 100,303 101,950 (1,647) (2) %
Total loans $ 316,467 $ 321,508 $ (5,041) (2) %
Commercial loans decreased due to lower utilization of loan commitments and commercial real estate paydowns.
Consumer loans decreased as growth in automobile loans was more than offset by declines in the remaining portfolios as paydowns outpaced 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 3 Loans and Related Allowance for Credit Losses.
Investment SecuritiesInvestment securities of $139.7 billion at December 31, 2024 increased $7.2 billion, or 5%, compared to December 31, 2023 due to increased purchase activity, primarily of U.S. Treasury securities, partially offset by portfolio paydowns and maturities.
In the second quarter of 2024, we repositioned the investment securities portfolio and sold available-for-sale securities with a weighted average yield of approximately 1.5% for net proceeds of $3.8 billion. The sale of these securities resulted in a loss of $497 million. We deployed the sale proceeds into available-for-sale securities with a weighted average yield of approximately 5.5%.
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.Table 9: Investment Securities (a)December 31, 2024 December 31, 2023Dollars in millions Amortized Cost (b) Fair Value Amortized Cost (b) Fair ValueU.S. Treasury and government agencies $ 53,382 $ 52,075 $ 44,125 $ 42,348
Agency residential mortgage-backed 73,760 67,117 73,329 67,925
Non-agency residential mortgage-backed 744 822 844 938
Agency commercial mortgage-backed 3,032 2,875 2,619 2,471
Non-agency commercial mortgage-backed (c) 1,542 1,523 2,286 2,217
Asset-backed (d) 5,733 5,793 6,982 6,984
Other debt (e) 4,998 4,892 5,952 5,850
Total investment securities (f) $ 143,191 $ 135,097 $ 136,137 $ 128,733
(a) Of our total securities portfolio, 97% were rated AAA/AA at both December 31, 2024 and 2023.
(b) Amortized cost is presented net of the allowance for investment securities, which totaled $91 million at December 31, 2024 and primarily related to non-agency commercial mortgage-backed securities. The comparable amount at December 31, 2023 was $92 million.(c) Collateralized primarily by multifamily housing, office buildings, retail properties, lodging properties and industrial properties.
(d) Collateralized primarily by consumer credit products, corporate debt and government guaranteed education loans.
(e) Includes state and municipal securities and corporate bonds.(f) Includes available-for-sale and held-to-maturity securities, which are recorded on our balance sheet at fair value and amortized cost, respectively.
The PNC Financial Services Group, Inc. – 2024 Form 10-K 45
Table 9 presents our investment securities portfolio by amortized cost and fair value. The relationship of fair value to amortized cost at December 31, 2024 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 2 Investment Securities for additional details regarding the allowance for investment securities.
The duration of investment securities was 3.5 years and 4.2 years at December 31, 2024 and December 31, 2023, respectively. We estimate that at December 31, 2024 the effective duration of investment securities was 3.4 years for an immediate 50 basis points parallel increase in interest rates and 3.5 years for an immediate 50 basis points parallel decrease in interest rates. Comparable amounts at December 31, 2023 for the effective duration of investment securities were 4.1 years and 4.2 years, respectively.
Based on expected prepayment speeds, the weighted-average expected maturity of the investment securities portfolio was 5.3 years at December 31, 2024 compared to 5.5 years at December 31, 2023.Table 10: Weighted-Average Expected Maturities of Mortgage and Asset-Backed Debt SecuritiesDecember 31, 2024 Years
Agency residential mortgage-backed 6.9
Non-agency residential mortgage-backed 10.3
Agency commercial mortgage-backed 4.1
Non-agency commercial mortgage-backed 0.6Asset-backed 2.2
Additional information regarding our investment securities portfolio is included in Note 2 Investment Securities and Note 14 Fair Value.
Funding Sources
Table 11: Details of Funding Sources
December 31 December 31 ChangeDollars in millions 2024 2023 $ %DepositsNoninterest-bearing $ 92,641 $ 101,285 $ (8,644) (9) %Interest-bearingMoney market 73,801 65,594 8,207 13 %
Demand 128,810 124,848 3,962 3 %
Savings 97,147 98,122 (975) (1) %
Time deposits 34,339 31,569 2,770 9 %
Total interest-bearing deposits 334,097 320,133 13,964 4 %
Total deposits 426,738 421,418 5,320 1 %Borrowed fundsFederal Home Loan Bank advances 22,000 38,000 (16,000) (42) %
Senior debt 32,497 26,836 5,661 21 %
Subordinated debt 4,104 4,875 (771) (16) %
Other 3,072 3,026 46 2 %
Total borrowed funds 61,673 72,737 (11,064) (15) %
Total funding sources $ 488,411 $ 494,155 $ (5,744) (1) %
Deposits are considered an attractive source of funding due to their stability and relatively low cost to fund. Compared to December 31, 2023, our funding source composition included lower borrowed funds and higher deposit balances.
Total deposits increased reflecting higher interest-bearing deposits, partially offset by lower noninterest-bearing deposits. Interest-bearing deposits increased due to higher commercial balances partially offset by lower consumer balances. Noninterest-bearing deposit balances decreased due to a decline in both commercial and consumer balances. This shift in deposit composition contributed to an increase in funding costs for the year ended December 31, 2024 compared to the same period in 2023. Our total brokered deposit balances of $7.3 billion at December 31, 2024 and $11.0 billion at December 31, 2023, were significantly below both our internal and regulatory guidelines and limits.
Borrowed funds decreased due to lower FHLB advances, partially offset by parent company senior debt issuances.
46 The PNC Financial Services Group, Inc. – 2024 Form 10-K
The level and composition of borrowed funds fluctuates over time based on many factors, including market conditions, capital considerations, and funding needs, which are primarily driven by changes in loan, deposit and investment securities balances. While our largest source of liquidity on a consolidated basis is the customer deposit base generated by our banking businesses, we also 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 2024 liquidity and capital activities. See Note 9 Borrowed Funds for additional information related to our borrowings. See Average Consolidated Balance Sheet and Net Interest Analysis and Analysis of Year-to-Year Changes in Net Interest Income sections of this Item 7 for additional information on year-over-year volume and related funding cost changes.Shareholders’ EquityTotal shareholders’ equity was $54.4 billion at December 31, 2024, an increase of $3.3 billion compared to December 31, 2023, primarily due to increases related to net income of $6.0 billion and an improvement in AOCI of $1.1 billion, partially offset by dividends paid of $2.9 billion, common share repurchases of $0.6 billion and a preferred stock redemption of $0.5 billion.B USINESS S EGMENTS R EVIEWDuring the fourth quarter of 2024, we adopted ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. In connection with this adoption, the presentation of our business segment results has been updated to reflect significant segment-level expense information. See Note 1 Accounting Policies and Note 22 Segment Reporting for additional information related to our adoption of this ASU.
We have three reportable business segments: Retail Banking, Corporate & Institutional Banking and Asset Management Group. Our reportable business segments are defined by the nature of products and services, types of customers, methods used to distribute products or provide services and similar financial performance.
Total business segment financial results differ from our consolidated reporting due to the remaining corporate operations, or other activities, that do not meet the criteria for disclosure as a separate reportable business. These other activities include residual activities 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, corporate overhead net of allocations, tax adjustments that are not allocated to business segments, exited businesses and the residual impact from FTP operations. See Table 121 in Note 22 Segment Reporting for additional information.Certain amounts included in this Business Segments Review differ from those amounts shown in Note 22, primarily due to the presentation in this Financial Review of business net interest income on a taxable-equivalent basis.
See Note 22 Segment Reporting for additional information on our business segments, including a description of each business.The PNC Financial Services Group, Inc. – 2024 Form 10-K 47Retail BankingRetail Banking’s core strategy is to build lifelong, primary relationships by creating a sense of financial well-being and ease for our clients. Over time, we seek to deepen those relationships by meeting the broad range of our clients’ financial needs across savings, liquidity, lending, payments, investment and retirement solutions. We work to deliver these solutions in the most seamless and efficient way possible, meeting our customers where they are - whether in a branch, through digital channels, at an ATM or through our phone-based customer contact centers - while continuously optimizing the cost to sell and service. We believe that, over time, we can grow our customer base, enhance the breadth and depth of our client relationships and improve our efficiency through differentiated products and leading digital channels.Table 12: Retail Banking Table
(Unaudited)
Year ended December 31 ChangeDollars in millions, except as noted 2024 2023 $ %Income StatementNet interest income $ 10,933 $ 9,974 $ 959 10 %
Noninterest income 3,582 2,951 631 21 %
Total revenue 14,515 12,925 1,590 12 %
Provision for credit losses 362 396 (34) (9) %
Noninterest expense
Personnel 2,189 2,266 (77) (3) %
Segment allocations (a) 3,653 3,571 82 2 %
Depreciation and amortization 312 330 (18) (5) %
Other (b) 1,377 1,388 (11) (1) %
Total noninterest expense 7,531 7,555 (24) —
Pretax earnings 6,622 4,974 1,648 33 %
Income taxes 1,545 1,163 382 33 %
Noncontrolling interests 39 43 (4) (9) %
Earnings $ 5,038 $ 3,768 $ 1,270 34 %Average Balance SheetLoans held for sale $ 746 $ 569 $ 177 31 %Loans
ConsumerResidential real estate $ 34,068 $ 35,156 $ (1,088) (3) %
Home equity 24,390 24,598 (208) (1) %
Automobile 14,960 14,943 17 —
Credit card 6,838 7,020 (182) (3) %
Education 1,787 2,090 (303) (14) %
Other consumer 1,763 1,910 (147) (8) %
Total consumer 83,806 85,717 (1,911) (2) %
Commercial 12,781 11,744 1,037 9 %
Total loans $ 96,587 $ 97,461 $ (874) (1) %
Total assets $ 114,631 $ 114,914 $ (283) —DepositsNoninterest-bearing $ 53,064 $ 58,566 $ (5,502) (9) %
Interest-bearing 195,626 197,589 (1,963) (1) %
Total deposits $ 248,690 $ 256,155 $ (7,465) (3) %Performance RatiosReturn on average assets 4.39 % 3.28 %
Noninterest income to total revenue 25 % 23 %
Efficiency 52 % 58 %(continued on following page)48 The PNC Financial Services Group, Inc. – 2024 Form 10-K(Continued from previous page)
Year ended December 31 ChangeDollars in millions, except as noted 2024 2023 $ %Supplemental Noninterest Income InformationAsset management and brokerage $ 552 $ 523 $ 29 6 %
Card and cash management $ 1,263 $ 1,323 $ (60) (5) %
Lending and deposit services $ 744 $ 736 $ 8 1 %
Residential and commercial mortgage $ 342 $ 424 $ (82) (19) %
Other income - Gain on Visa shares exchange program $ 754 $ $ 754 *Residential Mortgage InformationResidential mortgage servicing statistics (in billions, except as noted) (c)
Serviced portfolio balance (d) $ 197 $ 209 $ (12) (6) %
MSR asset value (d) $ 2.6 $ 2.7 $ (0.1) (4) %Servicing income: (in millions)Servicing fees, net (e) $ 287 $ 301 $ (14) (5) %
Mortgage servicing rights valuation, net of economic hedge $ 5 $ 53 $ (48) (91) %Residential mortgage loan statisticsLoan origination volume (in billions) $ 6.4 $ 7.4 $ (1.0) (14) %
Loan sale margin percentage 1.76 % 2.34 %
Other InformationCredit-related statisticsNonperforming assets (d) $ 848 $ 834 $ 14 2 %
Net charge-offs - loans and leases $ 570 $ 463 $ 107 23 %Other statisticsBranches (d) (f) 2,234 2,299 (65) (3) %
Brokerage account client assets (in billions) (d) (g) $ 84 $ 78 $ 6 8 %*- Not Meaningful(a) Represents expense allocations for corporate overhead services used by each business segment; primarily comprised of technology, human resources and occupancy-related allocations.
(b) Other is primarily comprised of other direct expenses including outside services and equipment expense. Amounts for 2024 also include asset impairments primarily related to technology investments.
(c) Represents mortgage loan servicing balances for third parties and the related income.
(d) As of December 31.
(e) Servicing fees net of impact of decrease in MSR value due to passage of time, which includes the impact from regularly scheduled loan principal payments, prepayments and loans paid off during the period.
(f) Reflects all branches excluding standalone mortgage offices and satellite offices (e.g., drive-ups, electronic branches and retirement centers) that provide limited products and/or services.
(g) Includes cash and money market balances.
Retail Banking earnings increased $1.3 billion in 2024 compared with 2023 primarily due to higher revenue.
Net interest income increased in the comparison due to wider interest rate spreads on the value of deposits, partially offset by declines in average deposit balances.
Noninterest income increased in the comparison reflecting a gain resulting from PNC’s participation in the Visa exchange program and higher asset management and brokerage fees, partially offset by lower residential and commercial mortgage fees as well as a decline in card and cash management fees.
Provision for credit losses reflected the impact of net charge-offs and a net decline in the ACL due to improved macroeconomic factors and portfolio activity.
Noninterest expense was stable as lower personnel expense offset the impact of asset impairments and increased technology investments.
Retail Banking average total loans were stable in 2024 compared to 2023. Average consumer loans decreased driven by lower residential real estate, as a result of paydowns outpacing new volume, as well as continued declines in education loans from runoff in the government guaranteed portfolio. Average commercial loans increased due to growth in loan commitments utilization, primarily within the automobile dealer segment.
Our focus on growing primary customer relationships is at the core of our deposit strategy in Retail, which is based on attracting and retaining stable, low-cost deposits as a key funding source for PNC. We have taken a disciplined approach to pricing, focused on
The PNC Financial Services Group, Inc. – 2024 Form 10-K 49
retaining relationship-based balances and executing on targeted deposit growth and retention strategies aimed at more rate-sensitive customers. Our goal with regard to deposits is to optimize balances, economics and long-term customer growth. In 2024, average total deposits decreased compared to 2023, and included the impact of quantitative tightening by the Federal Reserve and increased customer spending.
Retail Banking continues to enhance the customer experience with refinements to product and service offerings that drive value for
consumers and small businesses, including our new PNC Cash Unlimited ® credit card.
As part of our strategic focus on growing customers and meeting their financial needs, we operate and continue to optimize a coast-to-coast network of retail branches, solution centers and ATMs, which are complemented by PNC’s suite of digital capabilities. In 2024, PNC announced it would be investing approximately $1.5 billion, over the next five years, to open more than 200 new branches in key locations, including Atlanta, Austin, Charlotte, Dallas, Denver, Houston, Miami, Orlando, Phoenix, Raleigh, San Antonio, and Tampa, while completing renovations of 1,400 existing locations across the country during the same time period to enhance the customer experience.
50 The PNC Financial Services Group, Inc. – 2024 Form 10-KCorporate & Institutional BankingCorporate & 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. We are a coast-to-coast franchise and our full suite of commercial products and services is offered nationally.Table 13: Corporate & Institutional Banking Table
(Unaudited)
Year ended December 31 ChangeDollars in millions 2024 2023 $ %Income StatementNet interest income $ 6,412 $ 5,856 $ 556 9 %
Noninterest income 3,927 3,537 390 11 %
Total revenue 10,339 9,393 946 10 %
Provision for credit losses 453 398 55 14 %
Noninterest expense
Personnel 1,508 1,426 82 6 %
Segment allocations (a) 1,497 1,507 (10) (1) %
Depreciation and amortization 202 211 (9) (4) %
Other (b) 557 586 (29) (5) %
Total noninterest expense 3,764 3,730 34 1 %
Pretax earnings 6,122 5,265 857 16 %
Income taxes 1,374 1,197 177 15 %
Noncontrolling interests 19 19 —
Earnings $ 4,729 $ 4,049 $ 680 17 %Average Balance SheetLoans held for sale $ 384 $ 407 $ (23) (6) %Loans
CommercialCommercial and industrial $ 163,220 $ 166,289 $ (3,069) (2) %
Commercial real estate 34,208 34,522 (314) (1) %
Equipment lease financing 6,556 6,422 134 2 %
Total commercial 203,984 207,233 (3,249) (2) %
Consumer 3 6 (3) (50) %
Total loans $ 203,987 $ 207,239 $ (3,252) (2) %
Total assets $ 228,349 $ 233,337 $ (4,988) (2) %DepositsNoninterest-bearing $ 42,081 $ 51,329 $ (9,248) (18) %
Interest-bearing 102,931 91,815 11,116 12 %
Total deposits $ 145,012 $ 143,144 $ 1,868 1 %Performance RatiosReturn on average assets 2.07 % 1.74 %
Noninterest income to total revenue 38 % 38 %
Efficiency 36 % 40 %
(continued on following page)
The PNC Financial Services Group, Inc. – 2024 Form 10-K 51
(Continued from previous page)
(Unaudited)
Year ended December 31 Change
Dollars in millions 2024 2023 $ %Other InformationConsolidated revenue from: (c)
Treasury Management (d) $ 3,922 $ 3,456 $ 466 13 %Commercial mortgage banking activities:Commercial mortgage loans held for sale (e) $ 81 $ 74 $ 7 9 %
Commercial mortgage loan servicing income (f) 353 185 168 91 %
Commercial mortgage servicing rights valuation, net of economic hedge 147 118 29 25 %
Total $ 581 $ 377 $ 204 54 %Commercial mortgage servicing statisticsServiced portfolio balance (in billions) (g) (h) $ 290 $ 288 $ 2 1 %
MSR asset value (g) $ 1,085 $ 1,032 $ 53 5 %
Average Loans by C&IB business
Corporate Banking $ 116,494 $ 117,568 $ (1,074) (1) %
Real Estate 46,061 47,312 (1,251) (3) %
Business Credit 29,690 29,984 (294) (1) %
Commercial Banking 7,450 8,024 (574) (7) %
Other 4,292 4,351 (59) (1) %
Total average loans $ 203,987 $ 207,239 $ (3,252) (2) %Credit-related statisticsNonperforming assets (g) $ 1,368 $ 1,217 $ 151 12 %
Net charge-offs - loans and leases $ 484 $ 266 $ 218 82 %
(a) Represents expense allocations for corporate overhead services used by each business segment; primarily comprised of technology, human resources and occupancy-related allocations.
(b) Other is primarily comprised of other direct expenses including outside services and equipment expense.
(c) See the additional revenue discussion regarding treasury management and commercial mortgage banking activities in the Product Revenue section of this Corporate & Institutional Banking section.
(d) Amounts are reported in net interest income and noninterest income.
(e) 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.
(f) Represents net interest income and noninterest income from loan servicing, net of reduction in commercial mortgage servicing rights due to time and payoffs. Commercial mortgage servicing rights valuation, net of economic hedge is shown separately.
(g) As of December 31.
(h) Represents balances related to capitalized servicing.
Corporate & Institutional Banking earnings increased $680 million in 2024 compared with 2023 driven by higher revenue, partially offset by a higher provision for credit losses and increased noninterest expense.
Net interest income increased in the comparison primarily due to wider interest rate spreads on the value of deposits, partially offset by narrower interest rate spreads on the value of loans and lower average loan balances.
Noninterest income increased in the comparison primarily due to higher capital markets and advisory fees and growth in treasury management product revenue.
Provision for credit losses reflected the impact of net charge-offs and a net decline in the ACL due to improved macroeconomic factors and portfolio activity.
Noninterest expense increased in the comparison primarily due to increased business activity, partially offset by a continued focus on expense management.
Average loans decreased compared with 2023:
• 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 were stable as lower average utilization of loan commitments was largely offset by the acquisition of capital commitment facilities from Signature Bridge Bank in the fourth quarter of 2023.
• Real Estate provides banking, financing, servicing and technology solutions for commercial real estate clients across the country. Average loans for this business declined largely due to paydowns outpacing new production, partially offset by a higher average utilization of loan commitments.
• Business Credit provides asset-based lending and equipment financing solutions. The loan and lease portfolio is mainly secured by business assets. Average loans for this business were stable, primarily driven by new production, partially offset by a lower average utilization of loan commitments.
52 The PNC Financial Services Group, Inc. – 2024 Form 10-K
• Commercial Banking provides lending, treasury management and capital markets related products and services to smaller corporations and businesses. Average loans for this business declined driven by paydowns outpacing new production and lower average utilization of loan commitments.
The deposit strategy of Corporate & Institutional Banking is to remain disciplined on pricing and focused on growing and retaining relationship-based balances over time, executing on customer and segment-specific deposit growth strategies and continuing to provide funding and liquidity to PNC. Average total deposits were stable in 2024 compared to 2023, as growth in interest-bearing deposits was mostly offset a decline in noninterest-bearing deposits. 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.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 relationships exist. 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 includes funding credit from all treasury management customer deposit balances. Compared with 2023, treasury management revenue increased due to wider interest rate spreads on the value of deposits and higher product revenue.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. Totalrevenue from commercial mortgage banking activities increased in the comparison primarily due to higher commercial mortgage loan servicing income.
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 increase in capital markets and advisory fees in the comparison was mostly driven by higher merger and acquisition advisory fees, higher underwriting fees and an increase in loan syndication fees, partially offset by lower customer-related interest rate derivative trading revenue.
The PNC Financial Services Group, Inc. – 2024 Form 10-K 53Asset Management Group
The Asset Management Group strives to be a 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. The 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
(Unaudited)
Year ended December 31 ChangeDollars in millions, except as noted 2024 2023 $ %Income StatementNet interest income $ 652 $ 547 $ 105 19 %
Noninterest income 949 905 44 5 %
Total revenue 1,601 1,452 149 10 %
Provision for (recapture of) credit losses (3) (3) —
Noninterest expense
Personnel 472 494 (22) (4) %
Segment allocations (a) 454 464 (10) (2) %
Depreciation and amortization 30 30 —
Other (b) 117 127 (10) (8) %
Total noninterest expense 1,073 1,115 (42) (4) %
Pretax earnings 531 340 191 56 %
Income taxes 124 80 44 55 %
Earnings $ 407 $ 260 $ 147 57 %Average Balance Sheet
Loans
ConsumerResidential real estate $ 11,952 $ 10,280 $ 1,672 16 %
Other consumer 3,716 4,003 (287) (7) %
Total consumer 15,668 14,283 1,385 10 %
Commercial 761 1,107 (346) (31) %
Total loans $ 16,429 $ 15,390 $ 1,039 7 %
Total assets $ 16,872 $ 15,812 $ 1,060 7 %DepositsNoninterest-bearing $ 1,639 $ 1,782 $ (143) (8) %
Interest-bearing 26,232 25,928 304 1 %
Total deposits $ 27,871 $ 27,710 $ 161 1 %Performance RatiosReturn on average assets 2.41 % 1.64 %
Noninterest income to total revenue 59 % 62 %
Efficiency 67 % 77 %Supplemental Noninterest Income InformationAsset management fees $ 933 $ 882 $ 51 6 %
Brokerage fees 1 7 (6) (86) %
Total $ 934 $ 889 $ 45 5 %Other InformationNonperforming assets (c) $ 28 $ 39 $ (11) (28) %
Net charge-offs (recoveries) - loans and leases $ 2 $ (3) $ 5 167 %
Client Assets Under Administration (in billions) (c) (d)Discretionary client assets under managementPNC Private Bank $ 129 $ 117 $ 12 10 %
Institutional Asset Management 82 72 10 14 %
Total discretionary client assets under management $ 211 $ 189 $ 22 12 %
Nondiscretionary client assets under administration 210 179 31 17 %
Total $ 421 $ 368 $ 53 14 %
54 The PNC Financial Services Group, Inc. – 2024 Form 10-K
(a) Represents expense allocations for corporate overhead services used by each business segment; primarily comprised of technology, human resources and occupancy-related allocations.
(b) Other is primarily comprised of other direct expenses including outside services and equipment expense.
(c) As of December 31.
(d) Excludes brokerage account client assets.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, cash and fixed income client solutions, and retirement plan fiduciary investment services to institutional clients, including corporations, healthcare systems, insurance companies, municipalities and non-profits.Asset Management Group earnings increased $147 million in 2024 compared with 2023 driven by higher revenue and lower noninterest expense.
Net interest income increased in the comparison primarily due to wider interest rate spreads on the value of deposits and higher average loan balances, partially offset by narrower interest rate spreads on the value of loans.
Noninterest income increased in the comparison primarily driven by higher average equity markets, partially offset by the impact of client activity.
Noninterest expense decreased in the comparison reflecting a continued focus on expense management.
Average loans increased compared with 2023 driven by growth in residential mortgage loans.
Average total deposits were stable in the comparison as growth in time deposits and deposit sweep balances was partially offset by declines in savings and money market deposits.
Discretionary client assets under management increased in comparison to the prior year, primarily due to higher spot equity markets as of December 31, 2024.R ISK M ANAGEMENT
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 and liquidity 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 and financial services environment. Accordingly, we are actively focused on the timely incorporation of applicable regulatory pronouncements and emerging risks into our ERM Framework.The PNC Financial Services Group, Inc. – 2024 Form 10-K 55Risk 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 StrategyWe seek to ensure that our overall enterprise strategy is within acceptable risk parameters through our risk appetite, strategic planning, capital and liquidity 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 periodically based on 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 and Liquidity Planning and Stress Testing : Capital and liquidity planning helps to ensure we are maintaining safe and sound operations and viability. The planning processes and the resulting plans evolve as our overall risks, activities and risk management practices change. Additionally, both plans must align with our strategic planning process. Stress testing is an essential element of the capital planning and liquidity risk management processes. Effective stress testing enables us to consider the estimated effect on the firm’s capital and liquidity positions across various hypothetical macroeconomic scenarios.
56 The PNC Financial Services Group, Inc. – 2024 Form 10-KRisk Governance and OversightWe 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 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 help ensure appropriate risks are being taken and effectively managed and controlled, risk is managed across three lines of defense. A summary of the Board of Directors’ and each line of defense’s responsibilities is provided 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, perform independent assessment of risk, 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, including succession planning. 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.
• Corporate Responsibility Committee : oversees management’s corporate responsibility efforts, internally and externally, to the extent such corporate responsibility efforts are not specifically within the purview of another Board committee (e.g., climate-related risks overseen by the Risk Committee and climate-related financial disclosures overseen by the Audit Committee), and implementation of PNC’s publicly-announced Community Benefits Plan to provide loans, investments and other financial support to bolster economic opportunity for low- and moderate-income individuals and communities and other underserved individuals and communities, and to help remove historic barriers in the banking system.• 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, data risk, cybersecurity, information security, business continuity and significant technology initiatives and programs.Management Executive Committee – The Management Executive Committee is responsible for guiding the creation and execution of our business strategy across PNC. With this responsibility, the Management Executive Committee executes various strategic approval and review activities, with a focus on capital deployment, business performance and risk management.
The PNC Financial Services Group, Inc. – 2024 Form 10-K 57
Corporate Committees – The Corporate Committees generally operate based on the delegated approval authority from a Board-level Committee, the Management Executive Committee or other Corporate Committees. These Committees operate at the 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 IdentificationRisk identification takes place across a variety of risk types throughout the organization. These risk types include, but are not limited to, credit, liquidity, 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 assessments.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 Assessments
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. Risk assessments also support the implementation of mitigation strategies, or under certain circumstances, the decision to accept the risk (if there are no feasible alternatives to the business need, or the exposure may be significantly reduced or eliminated within a reasonable time frame through the course of business-as-usual activities). As part of the risk assessment processes, 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, including emerging risks; and reveal unanticipated risks that may not be easy to understand or predict.Risk Controls and Monitoring
Our ERM Framework consists of policies, procedures, 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 identify potential control improvements. 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 ReportingRisk reporting is a comprehensive way to: (i) identify and communicate aggregate risks, including identified concentrations and themes; (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 through the governance structure up to the Board of Directors and executive management.
58 The PNC Financial Services Group, Inc. – 2024 Form 10-K
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 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 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.Loan Portfolio Characteristics and Analysis
Table 15: Details of Loans
In billionsWe use several credit quality indicators, as further detailed in Note 3 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
C ommercial and IndustrialCommercial and industrial loans comprised 56% and 55% of our total loan portfolio at December 31, 2024 and 2023, respectively. The majority of our commercial and industrial loans are secured by collateral that provides a secondary source of repayment should a 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
The PNC Financial Services Group, Inc. – 2024 Form 10-K 59
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 (based on the North American Industry Classification System).Table 16: Commercial and Industrial Loans by IndustryDecember 31, 2024 December 31, 2023Dollars in millions Amount % of Total Amount % of Total
Commercial and industrialRetail/wholesale trade $ 30,010 17 % $ 28,198 16 %
Financial services 27,737 16 28,422 16
Manufacturing 27,700 16 28,989 16
Service providers 21,881 12 21,354 12
Real estate related (a) 14,910 8 16,235 9
Technology, media and telecommunications 9,767 6 10,249 6
Health care 9,694 6 9,808 6
Transportation and warehousing 7,320 4 7,733 4
Other industries 26,771 15 26,592 15
Total commercial and industrial loans $ 175,790 100 % $ 177,580 100 %(a) Represents loans to customers in the real estate and construction industries.Owner occupied commercial real estate loans totaled $9.2 billion and $9.6 billion at December 31, 2024 and 2023, respectively. These loans are included in commercial and industrial loans as the credit decisioning for servicing these loans is based on the financial conditions of the owner, not the ability of the collateral to generate income. Owner occupied commercial real estate loans are well-diversified across industries.Commercial Real EstateCommercial real estate loans of $33.6 billion as of December 31, 2024 comprised $19.3 billion related to commercial mortgages on income-producing properties, $8.6 billion of intermediate-term financing loans and $5.7 billion of real estate construction project loans. At December 31, 2023, comparable amounts were $35.4 billion, $21.0 billion, $8.0 billion and $6.4 billion, respectively. Commercial real estate primarily consists of an investment in land and/or buildings held to generate income which serves as the primary source for the repayment of the loan. However, for all commercial real estate assets, the disposition of the assigned collateral serves as a secondary source of repayment for the loan should the borrower experience cash generation difficulties.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 commercial real estate loans 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.60 The PNC Financial Services Group, Inc. – 2024 Form 10-KThe following table presents our commercial real estate loans by geography and property type:
Table 17: Commercial Real Estate Loans by Geography and Property TypeDecember 31, 2024 December 31, 2023Dollars in millions Amount % of Total Amount % of Total
Geography (a)California $ 5,675 17 % $ 6,133 17 %
Florida 3,807 11 3,738 11
Texas 3,763 11 3,733 11
Virginia 1,476 4 1,590 4
Arizona 1,438 4 1,216 3
Pennsylvania 1,213 4 1,515 4
Maryland 1,169 3 1,344 4
North Carolina 1,150 3 1,142 3
Ohio 1,107 3 1,157 3
Illinois 1,090 3 1,201 3
Other 11,731 37 12,667 37
Total commercial real estate loans $ 33,619 100 % $ 35,436 100 %Property Type (a)Multifamily $ 16,089 48 % $ 15,590 44 %
Office 6,707 20 8,019 23
Industrial/warehouse 3,911 12 4,089 12
Retail 2,090 6 2,490 7
Seniors housing 1,731 5 1,772 5
Hotel/motel 1,567 5 1,760 5
Mixed use 336 1 388 1
Other 1,188 3 1,328 3
Total commercial real estate loans $ 33,619 100 % $ 35,436 100 %
(a) Presented in descending order based on loan balances at December 31, 2024.
Commercial Real Estate: Office Portfolio
Given the fundamental change in office demand driven by the acceptance of remote work, real estate performance related to the office sector continues to be an area of uncertainty. At December 31, 2024, our outstanding loan balances in the office portfolio totaled $6.7 billion, or 2.1% of total loans, while additional unfunded loan commitments totaled $0.2 billion. The portfolio is well diversified geographically across our coast-to-coast franchise. Within the office portfolio at December 31, 2024, criticized loans totaled 30.5% and nonperforming loans totaled 12.6%, while delinquencies were 0.6%. As measured at origination, the weighted average LTV for the office portfolio was 58.8%; however, for those loans that received appraisals in 2024, the weighted average LTV for those loans has increased to 81.8% as of December 31, 2024. During 2024, PNC received updated appraisals for 44.8% of the outstanding balance in the office portfolio. While LTV is one consideration, our risk assessment considers a number of factors in assessing the changing conditions affecting the portfolio. As of December 31, 2024, we have established reserves of 13.3% against office loans.
The greatest stress in our office portfolio is observed in multi-tenant office loans, which represents 54.0% of the portfolio at December 31, 2024. Within the multi-tenant classification, criticized levels were 53.0% while nonperforming loans totaled 22.7%, accounting for almost all of the nonperforming office population. For multi-tenant office loans that received appraisals in 2024, the weighted average LTV for those loans was 86.3% at December 31, 2024. During 2024, PNC received updated appraisals for 66.4% of the outstanding balance in the multi-tenant office portfolio. Additionally, commercial real estate charge-offs since the beginning of 2024 have primarily been multi-tenant office loans. Given the higher level of expected stress, this segment has a proportionally higher reserve rate of 19.9% as of December 31, 2024. The remaining 46.0% of the office portfolio is primarily comprised of single-tenant, medical and government tenant properties. These three tenant classifications are performing considerably better, with approximately 3.8% of the book in the criticized loan category and 0.6% in the nonperforming loan category. As of December 31, 2024, the weighted average LTV inclusive of both updated property values and origination-derived values of this book is 59.9%.
The office portfolio remains an elevated area of focus for portfolio management, with internal risk ratings completed quarterly for each asset with the exception of medical office loans, accelerated reappraisal requirements and elevated approval levels for any credit action. Additionally, active management efforts include ongoing performance assessments as well as the review of property, lending and capital markets. Portfolio updates are distributed to senior management weekly. Collateral in the office portfolio is appraised by qualified, independent third-party state certified real estate appraisers. New loans or loans being evaluated for extension or material modification are required to be appraised. The frequency of reappraisals outside of a credit action is based on regulatory and internal requirements. Generally, for loans with heightened risk, a cadence has been established to obtain updated appraisals at least annually
The PNC Financial Services Group, Inc. – 2024 Form 10-K 61
to aid in determining the timing and amount of a charge-off, if deemed necessary. Loans that do not demonstrate a heightened risk are monitored through our ongoing management of the portfolio, including any need for a new appraisal. All appraisals are reviewed by independent qualified real estate valuation personnel. For existing office building loans, PNC employs the as-is market value from third-party appraisals to calculate LTV.
Given the ongoing uncertainty in this area, we expect additional stress in the office sector, and a portion of this stress will bear itself out as we work through maturities that will approximate 40% through December 31, 2025. Upon maturity, and where the balance is not paid in full, an extension may be granted because contractual extension terms are met; alternatively, an extension may be granted based on negotiated terms, and a portion of these extensions may involve the curtailment or charge-off of principal. We continue to actively manage the portfolio, and we believe reserve levels reflect the expected credit losses in the portfolio.
Commercial Real Estate: Multifamily Portfolio
As of December 31, 2024, our outstanding loan balances in the multifamily portfolio totaled $16.1 billion, or 5.1% of total loans, while additional unfunded loan commitments totaled $2.3 billion. Although inflationary pressures, higher interest rates and elevated supply in certain markets have impacted internal risk assessments and regulatory classification in this portfolio, we have not seen a notable change in loan performance at this time with regards to nonperformance, delinquency or charge-offs. Additionally, the portfolio is well diversified geographically across our coast-to-coast franchise. We continue to closely monitor our exposure in this sector.Consumer
Residential Real EstateResidential real estate loans primarily consisted of residential mortgage loans at both December 31, 2024 and 2023.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.
The following table presents certain key statistics related to our residential real estate portfolio:
Table 18: Residential Real Estate Loan StatisticsDecember 31, 2024 December 31, 2023Dollars in millions Amount % of Total Amount % of Total
Geography (a)California $ 19,869 43 % $ 19,911 42 %
Texas 3,748 8 4,009 8
Washington 3,481 7 3,467 7
Florida 3,171 7 3,356 7
New Jersey 1,847 4 1,909 4
New York 1,493 3 1,551 3
Arizona 1,340 3 1,431 3
Pennsylvania 1,197 3 1,229 3
Colorado 1,139 2 1,187 2
North Carolina 963 2 989 2
Other 8,167 18 8,505 19Total residential real estate loans$ 46,415 100 % $ 47,544 100 %
December 31, 2024 December 31, 2023Weighted-average loan origination statistics (b)Loan origination FICO score 773 772
LTV of loan originations 73 % 73 %
(a) Presented in descending order based on loan balances at December 31, 2024.
(b) Weighted-averages calculated for the twelve months ended December 31, 2024 and 2023, 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 $41.7 billion at
62 The PNC Financial Services Group, Inc. – 2024 Form 10-K
December 31, 2024 with 46% located in California. Comparable amounts at December 31, 2023 were $42.4 billion and 45%, respectively.Home EquityHome equity loans of $26.0 billion as of December 31, 2024 were comprised of $21.3 billion of home equity lines of credit and $4.7 billion of closed-end home equity installment loans. At December 31, 2023, comparable amounts were $26.2 billion, $20.6 billion and $5.6 billion, respectively. Home equity lines of credit are a variable interest rate product with fixed rate conversion options available to certain borrowers.
Similar to residential real estate loans, we obtain loan attributes at origination, including FICO scores and LTVs, and we update these and other credit metrics at least quarterly. Borrower performance of this portfolio is tracked on a monthly basis. We also segment the population into pools based on product type (e.g., home equity loans, legacy brokered home equity loans, home equity lines of credit or legacy 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 following table presents certain key statistics related to our home equity portfolio:
Table 19: Home Equity Loan StatisticsDecember 31, 2024 December 31, 2023Dollars in millions Amount % of Total Amount % of Total
Geography (a)Pennsylvania $ 4,504 17 % $ 4,745 18 %
New Jersey 3,153 12 3,184 12
Florida 2,239 9 2,230 9
Ohio 2,145 8 2,242 9
California 1,743 7 1,580 6
Texas 1,299 5 1,230 5
Maryland 1,209 5 1,237 5
Michigan 1,166 4 1,214 5
Illinois 1,032 4 1,069 4
North Carolina 1,001 4 1,001 4
Other 6,500 25 6,418 23
Total home equity loans $ 25,991 100 % $ 26,150 100 %Lien type1st lien 49 % 52 %
2nd lien 51 48Total 100 % 100 %December 31, 2024 December 31, 2023Weighted-average loan origination statistics (b)Loan origination FICO score 773 772
LTV of loan originations 62 % 64 %
(a) Presented in descending order based on loan balances at December 31, 2024.
(b) Weighted-averages calculated for the twelve months ended December 31, 2024 and 2023, respectively.AutomobileAuto loans of $15.4 billion as of December 31, 2024 comprised $14.4 billion in the indirect auto portfolio and $1.0 billion in the direct auto portfolio. At December 31, 2023, comparable amounts were $14.9 billion, $13.8 billion and $1.1 billion, respectively. The indirect auto portfolio consists of loans originated primarily through independent franchised dealers, including dealers located in our newer markets. This business is strategically aligned with our core retail banking business.
The PNC Financial Services Group, Inc. – 2024 Form 10-K 63The following table presents certain key statistics related to our indirect and direct auto portfolios:
Table 20: Auto Loan StatisticsDecember 31, 2024 December 31, 2023Weighted-average loan origination FICO score (a) (b)Indirect auto 793 788
Direct auto 786 787Weighted-average term of loan originations - in months (a)Indirect auto 72 73
Direct auto 64 65
(a) Weighted-averages calculated for the twelve months ended December 31, 2024 and 2023, 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, 2024, the portfolio balance was composed of 43% new vehicle loans and 57% used vehicle loans. Comparable amounts at December 31, 2023 were 45% and 55%, respectively.
The auto loan portfolio’s performance is measured monthly, including both updated collateral values and FICO scores that are obtained at least quarterly. For internal reporting and risk management, we analyze the portfolio by product channel and product type and regularly evaluate default and delinquency experience. As part of our overall risk analysis and monitoring, we segment the portfolio by geography, channel, collateral attributes and credit metrics which include FICO score, LTV and term.Nonperforming Assets and Loan Delinquencies
Nonperforming AssetsNonperforming assets include nonperforming loans and leases, OREO and foreclosed assets. Nonperforming loans are those loans accounted for at amortized cost whose credit quality has deteriorated to the extent full collection of contractual principal and interest is not probable. 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 TypeDecember 31, 2024 December 31, 2023 ChangeDollars in millions $ %Nonperforming loans
Commercial $ 1,462 $ 1,307 $ 155 12%
Consumer (a) 864 873 (9) (1)%
Total nonperforming loans 2,326 2,180 146 7%
OREO and foreclosed assets 31 36 (5) (14)%
Total nonperforming assets $ 2,357 $ 2,216 $ 141 6%
Nonperforming loans to total loans 0.73 % 0.68 %
Nonperforming assets to total loans, OREO and foreclosed assets 0.74 % 0.69 %
Nonperforming assets to total assets 0.42 % 0.39 %
Allowance for loan and lease losses to nonperforming loans 193 % 220 %
Allowance for credit losses to nonperforming loans (b) 224 % 250 %
(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.
Increases in nonperforming assets from December 31, 2023 were primarily driven by higher commercial real estate nonperforming loans.
64 The PNC Financial Services Group, Inc. – 2024 Form 10-K
The following table provides details on the change in nonperforming assets for the years ended December 31, 2024 and 2023:Table 22: Change in Nonperforming AssetsIn millions 2024 2023
January 1 $ 2,216 $ 2,019
New nonperforming assets 2,245 1,999
Charge-offs and valuation adjustments (685) (452)
Principal activity, including paydowns and payoffs (1,112) (831)
Asset sales and transfers to loans held for sale (53) (71)
Returned to performing status (254) (448)
December 31 $ 2,357 $ 2,216
As of December 31, 2024, approximately 96% of total nonperforming loans were secured by collateral.Loan Delinquencies
We regularly monitor the level of loan delinquencies and believe these levels are 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 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 address operating environment changes such as inflation levels, industry specific risks, interest rate levels, the level of consumer savings and deposit balances, and structural and secular changes such as those arising from the pandemic. To mitigate losses and enhance customer support, we offer loan modifications and collection programs to assist our customers.The following table presents a summary of accruing loans past due by delinquency status:
Table 23: Accruing Loans Past Due (a)
Amount % of Total Loans OutstandingDecember 31, 2024 December 31, 2023 Change December 31, 2024 December 31, 2023Dollars in millions $ %
Early stage loan delinquenciesAccruing loans past due 30 to 59 days $ 697 $ 685 $ 12 2 % 0.22 % 0.21 %
Accruing loans past due 60 to 89 days 288 270 18 7 % 0.09 % 0.08 %
Total early stage loan delinquencies 985 955 30 3 % 0.31 % 0.30 %Late stage loan delinquenciesAccruing loans past due 90 days or more 397 429 (32) (7) % 0.13 % 0.13 %
Total accruing loans past due $ 1,382 $ 1,384 $ (2) 0.44 % 0.43 %
(a) Past due loan amounts include government insured or guaranteed loans of $0.4 billion at both December 31, 2024 and 2023.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.
Loan ModificationsWe may provide 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, while consumer loan modifications are evaluated under our hardship relief programs. For additional information on our commercial real estate, office-related modification offerings, see the Commercial Real Estate portion of the Credit Risk Management section of this Financial Review.
See Note 1 Accounting Policies and Note 3 Loans and Related Allowance for Credit Losses for additional information on loan modifications to borrowers experiencing financial difficulty.
The PNC Financial Services Group, Inc. – 2024 Form 10-K 65
The following table provides details on the contractual maturity ranges and interest sensitivity of our loan classes at December 31, 2024.
Table 24 : Selected Loan Maturities and Interest Sensitivity
Loans Due After 1 Year Contractual Maturity Range
December 31, 2024
In millions
Predetermined Rate Floating or Adjustable Rate 1 Year or Less After 1 Year Through 5 Years After 5 Years Through 15 Years After 15 Years Gross Loans
Commercial
Commercial and industrial $ 17,760 $ 106,109 $ 51,921 $ 109,877 $ 11,421 $ 2,571 $ 175,790
Commercial real estate 4,896 15,049 13,674 18,074 1,504 367 33,619
Equipment lease financing 4,601 319 1,835 4,541 379 6,755
Total commercial 27,257 121,477 67,430 132,492 13,304 2,938 216,164
Consumer
Residential real estate 27,797 17,225 1,393 5,516 15,100 24,406 46,415
Home equity 14,459 10,215 1,317 4,281 7,878 12,515 25,991
Automobile 11,454 3,901 10,492 962 15,355
Credit card 6,879 6,879
Education 580 915 141 568 778 149 1,636
Other consumer 1,083 156 2,788 1,171 68 4,027
Total consumer 55,373 28,511 16,419 22,028 24,786 37,070 100,303
Total loans $ 82,630 $ 149,988 $ 83,849 $ 154,520 $ 38,090 $ 40,008 $ 316,467Allowance for Credit Losses
Our determination of the ACL is based on historical loss and performance experience, current economic conditions, the reasonable and
supportable forecasts of future economic conditions and other relevant factors, including current borrower and/or transaction characteristics and assessments of the remaining estimated contractual term as of the balance sheet date. We maintain the ACL at an appropriate level for expected losses on our existing investment securities, loans, equipment finance leases, other financial assets and unfunded lending related commitments.
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.
The reversion period is used to bridge our three-year reasonable and supportable forecast period and the long-run average expected credit losses. We consider a number of factors in determining the duration of the reversion period, such as contractual maturity of the asset, observed historical patterns and the estimated credit loss rates at the end of the forecast period relative to the beginning of the long run average period. The reversion period is typically 1-3 years, if not immediate.
The long-run average expected credit losses are derived from available historical credit information. We use long-run average expected losses 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 on our reserves 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 our methodologies and discussion of the allowances for investment securities and other financial assets. See also the Critical Accounting Estimates and Judgments section of this Report for further discussion of the assumptions used in the determination of the ACL as of December 31, 2024.Allowance for Loan and Lease LossesOur 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 the estimated contractual term in our expected loss estimates. We use historical data, current borrower characteristics and forecasted economic
66 The PNC Financial Services Group, Inc. – 2024 Form 10-K
variables in quantitative methods to estimate these risk parameters by loan, loan segment or lease. PD represents a quantification of risk of the likelihood that a borrower may not be able to pay their contractual obligation over a defined period of time. LGD describes the estimated magnitude of potential loss if a borrower were to default, and EAD (or utilization rates for certain revolving loans) is the estimated balance outstanding at the expected time of default. These parameters are calculated for each forecasted scenario and the long-run average period, and are combined to generate expected loss estimates by scenario in proportion to the scenario weights.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 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 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 models and methodologies strive to reflect all relevant expected 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:
• 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 pooled 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 on the Consolidated Income Statement.The PNC Financial Services Group, Inc. – 2024 Form 10-K 67The following table summarizes our ACL related to loans:Table 25: Allowance for Credit Losses by Loan Class (a)
December 31, 2024 December 31, 2023Dollars in millions Allowance Amount Total Loans % of Total Loans Allowance Amount Total Loans % of Total Loans
Allowance for loans and lease losses
CommercialCommercial and industrial $ 1,605 $ 175,790 0.91 % $ 1,806 $ 177,580 1.02 %
Commercial real estate 1,483 33,619 4.41 % 1,371 35,436 3.87 %
Equipment lease financing 60 6,755 0.89 % 82 6,542 1.25 %
Total commercial 3,148 216,164 1.46 % 3,259 219,558 1.48 %ConsumerResidential real estate 37 46,415 0.08 % 61 47,544 0.13 %
Home equity 266 25,991 1.02 % 276 26,150 1.06 %
Automobile 160 15,355 1.04 % 173 14,860 1.16 %
Credit card 664 6,879 9.65 % 766 7,180 10.67 %
Education 48 1,636 2.93 % 56 1,945 2.88 %
Other consumer 163 4,027 4.05 % 200 4,271 4.68 %
Total consumer 1,338 100,303 1.33 % 1,532 101,950 1.50 %
Total $ 4,486 $ 316,467 1.42 % $ 4,791 $ 321,508 1.49 %Allowance for unfunded lending related commitments719 663Allowance for credit losses$ 5,205 $ 5,454
Allowance for credit losses to total loans 1.64 % 1.70 %
Commercial 1.72 % 1.73 %
Consumer 1.47 % 1.62 %
(a) Excludes allowances for investment securities and other financial assets, which together totaled $114 million and $120 million at December 31, 2024 and 2023, respectively.
68 The PNC Financial Services Group, Inc. – 2024 Form 10-KThe following table summarizes our loan charge-offs and recoveries:Table 26: Loan Charge-Offs and RecoveriesYear ended December 31 Dollars in millions Gross Charge-offs Recoveries Net Charge-offs / (Recoveries) % of Average Loans2024
Commercial
Commercial and industrial $ 328 $ 119 $ 209 0.12 %
Commercial real estate 358 13 345 0.98 %
Equipment lease financing 34 17 17 0.26 %
Total commercial 720 149 571 0.26 %
Consumer
Residential real estate 3 10 (7) (0.01) %
Home equity 36 42 (6) (0.02) %
Automobile 131 97 34 0.23 %
Credit card 355 55 300 4.38 %
Education 19 6 13 0.73 %
Other consumer 171 35 136 3.29 %
Total consumer 715 245 470 0.47 %
Total $ 1,435 $ 394 $ 1,041 0.33 %2023
Commercial
Commercial and industrial $ 244 $ 122 $ 122 0.07 %
Commercial real estate 180 6 174 0.48 %
Equipment lease financing 18 9 9 0.14 %
Total commercial 442 137 305 0.14 %
Consumer
Residential real estate 8 13 (5) (0.01) %
Home equity 21 46 (25) (0.10) %
Automobile 121 100 21 0.14 %
Credit card 319 43 276 3.93 %
Education 17 7 10 0.48 %
Other consumer 164 36 128 2.77 %
Total consumer 650 245 405 0.40 %
Total $ 1,092 $ 382 $ 710 0.22 %Total net charge-offs increased $331 million, or 47%, in 2024 compared to 2023. The increase in the comparison was driven by higher net charge-offs in both our commercial and consumer portfolios, primarily attributable to increases in commercial and industrial, commercial real estate and credit card loan classes.See Note 1 Accounting Policies and Note 3 Loans and Related Allowance for Credit Losses for additional information.Climate Change and Other Risks
PNC’s credit risk framework allows for the consideration of the credit risk that may arise, or be accelerated, by 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 the 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. Credit Risk Management also participates as members of the Climate Risk Committee which provides a forum for the discussion, assessment, and monitoring of enterprise-wide activities to identify, monitor, manage and report on climate-related risks and issues which may include updates to PNC’s Credit Portfolio Strategy Committee. Credit Risk Management also takes into account potential environmental, human rights and other reputational risks as part of its holistic review of industries and sectors and to the extent those risks may impact credit risk would participate in portfolio decisions regarding those impacts. Outcomes from those climate and other risk reviews may be incorporated into credit policies and risk procedures that govern our risk appetite, credit decisioning, portfolio management and reserve processes. Additionally, PNC has procedures designed to ensure that 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).
The PNC Financial Services Group, Inc. – 2024 Form 10-K 69Liquidity and Capital ManagementThe two fundamental components of liquidity risk are a potential loss assuming we are unable to meet our funding requirements at a reasonable cost, and 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. We also maintain a liquidity position and use liquidity risk management practices that we believe are appropriate considering PNC and PNC Bank’s capital adequacy, risk profile, complexity, activities, and size, as well as applicable regulatory liquidity requirements and associated regulatory practices.
We perform ongoing monitoring of liquidity through a series of early warning indicators tailored to PNC’s risk profile, complexity, activities, and size that may identify a potential market, or PNC-specific, liquidity stress event. In addition, management performs a set of internal 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. Liquidity-related risk limits and operating guidelines are established within our Enterprise Liquidity Management Policy covering regulatory metrics and various concentration limits. Management committees, including the ALCO, and the Board of Directors and its Risk Committee regularly review compliance with key established limits. PNC was in compliance with all relevant internal and regulatory liquidity limits and guidelines throughout the year for 2024 and 2023.
One of the ways we monitor our liquidity is by reference to the LCR, a regulatory minimum liquidity requirement designed to ensure that covered banking organizations maintain an adequate level of liquidity to meet net liquidity needs over the course of a hypothetical 30-day stress scenario. PNC and PNC Bank calculate the LCR daily and are required to maintain a regulatory minimum of 100%. The LCR for both PNC and PNC Bank exceeded the regulatory minimum requirement throughout the year for 2024 and 2023. Fluctuations in our LCR result from changes to the components of the calculation, including high-quality liquid assets and net cash outflows, as a result of ongoing business activity.
The NSFR is designed to measure the stability of the maturity structure of assets and liabilities of banking organizations over a one-year time horizon. PNC and PNC Bank calculate the NSFR daily and are required to maintain a regulatory minimum of 100%. The NSFR for PNC and PNC Bank exceeded the regulatory minimum requirement throughout the year for 2024 and 2023.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 LiquidityOur largest source of liquidity on a consolidated basis is the customer deposit base generated by our banking businesses. These deposits provide relatively stable and low-cost funding. Total deposits increased to $426.7 billion at December 31, 2024 from $421.4 billion at December 31, 2023 reflecting higher interest-bearing deposits, partially offset by lower noninterest-bearing deposits. Interest-bearing deposits increased due to higher commercial balances, partially offset by lower consumer balances. Noninterest-bearing deposit balances decreased due to a decline in both commercial and consumer balances.
The aggregate amount of uninsured deposits, based on the regulatory instructions in the Consolidated Reports of Condition and Income - FFIEC 031, were estimated to be $194.9 billion and $190.3 billion at December 31, 2024 and 2023, respectively. The portion of U.S. time deposits in excess of the FDIC insurance limit or similar state deposit regime was $5.1 billion at December 31, 2024. The majority of our uninsured deposits are related to commercial operating and relationship accounts, which we define as commercial deposit customers who utilize two or more PNC products. See the Funding Sources in the Consolidated Balance Sheet Review and the Business Segments Review of this Item 7 for additional information on our deposits and related strategies.
We may also obtain liquidity through various forms of funding, such as senior notes, subordinated debt, FHLB advances, securities
sold under repurchase agreements, commercial paper and other short-term borrowings. See the Funding Sources in the Consolidated Balance Sheet Review of this Item 7 and Note 9 Borrowed Funds included in this Report for additional information related to our borrowings.
Total senior and subordinated debt, on a consolidated basis, increased due to the following activity:
Table 27: Senior and Subordinated Debt
In billions 2024
January 1 $ 31.7
Issuances 10.0
Calls and maturities (4.8)
Other (0.3)
December 31 $ 36.6
Additionally, PNC maintains access to contingent funding sources that include unused borrowing capacity and certain liquid assets.
70 The PNC Financial Services Group, Inc. – 2024 Form 10-K
PNC has a contingency funding plan designed to ensure that liquidity sources are sufficient to meet ongoing obligations and
commitments, particularly in the event of liquidity stress. This plan is designed to examine and quantify the organization’s liquidity under various internal liquidity stress scenarios and is periodically tested to assess the plan’s reliability. Additionally, the plan provides the strategies for addressing liquidity needs and responsive actions we would consider during liquidity stress events, which could include the issuance of incremental debt, preferred stock, or additional deposit actions, including the issuance of brokered CDs. The plan also addresses the governance, frequency of reporting and the responsibilities of key departments in the event of liquidity stress.
PNC defines our primary contingent liquidity sources as cash held at the Federal Reserve Bank, investment securities and unused borrowing capacity at the FHLB and Federal Reserve Bank. The following table summarizes our primary contingent liquidity sources at December 31, 2024 and December 31, 2023:
Table 28 : Primary Contingent Liquidity Sources
In billions December 31, 2024 December 31, 2023
Cash balance with Federal Reserve Bank $ 39.0 $ 43.3Investment securities (a)64.5 98.5Unused borrowing capacity from FHLB (b)51.0 35.4Unused borrowing capacity from Federal Reserve Bank (c)77.9 47.2
Total available contingent liquidity $ 232.4 $ 224.4
(a) Represents the fair value of investment securities that can be used for pledging or to secure other sources of funding.
(b) At December 31, 2024, total FHLB borrowing capacity was $73.3 billion and total FHLB advances and letters of credit were $22.3 billion. Comparable amounts at December 31, 2023 were $73.4 billion and $38.0 billion, respectively.
(c) Total borrowing capacity with the Federal Reserve Bank was $77.9 billion at December 31, 2024 and $47.2 billion at December 31, 2023. PNC had no outstanding borrowings with the Federal Reserve Bank at December 31, 2024 and 2023.
As part of PNC’s contingency planning, during 2024 we increased the amount of investment securities prepositioned at the Federal Reserve Bank’s Discount Window, supporting our resilience and operational readiness.Bank LiquidityIn addition to our primary contingent liquidity sources, 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, 2024, PNC Bank’s remaining capacity to issue under the program was $32.3 billion.
Under PNC Bank’s 2013 commercial paper program, PNC Bank has the ability to offer up to $10.0 billion of its commercial paper to provide additional liquidity. As of December 31, 2024, there were no issuances outstanding under this program.
Additionally, PNC Bank may also access funding from the parent company through deposits placed at the bank or issuing intercompany unsecured notes.
The following table details PNC Bank note issuances during 2024:
Table 29: PNC Bank Notes Issued
Issuance Date Amount Description of Issuance
December 2, 2024 $500 million $500 million in aggregate principal amount of its senior floating rate notes due January 15, 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 pricing supplement), plus 0.500%, beginning on January 15, 2025 until the maturity date of January 15, 2027.
December 2, 2024 $1.25 billion $1.25 billion in aggregate principal amount of its senior fixed-to-floating rate notes due January 15, 2027. Interest is payable semi-annually in arrears at a fixed rate of 4.775% per annum, on January 15 and July 15 of each year, beginning on January 15, 2025. Beginning on January 15, 2026, 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 pricing supplement), plus 0.504%, on April 15, 2026, July 15, 2026, October 15, 2026 and at the maturity date.
The PNC Financial Services Group, Inc. – 2024 Form 10-K 71
The following table details PNC Bank note redemptions during 2024:
Table 30: PNC Bank Notes Redeemed
Redemption Date Amount Description of Redemption
November 4, 2024 $200 million
All outstanding senior floating rate bank notes with an original scheduled maturity date of December 2, 2024. The redemption price was equal to 100% of the principal amount, plus any accrued and unpaid interest to the redemption date of November 4, 2024.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, 2024, available parent company liquidity totaled $24.8 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 $7.4 billion at December 31, 2024. See Note 19 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. Under the parent company’s 2014 commercial paper program, the parent company has the ability to offer up to $5.0 billion of commercial paper to provide additional liquidity. At December 31, 2024, there were no issuances outstanding under this program.
72 The PNC Financial Services Group, Inc. – 2024 Form 10-K
The following table details Parent Company note issuances during 2024:
Table 31: Parent Company Notes IssuedIssuance Date Amount Description of IssuanceJanuary 22, 2024 $1.0 billion $1.0 billion of senior fixed-to-floating rate notes with a maturity date of January 21, 2028. Interest is payable semi-annually in arrears at a fixed rate of 5.300% per annum, on January 21 and July 21 of each year, beginning on July 21, 2024. Beginning on January 21, 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 1.342%, on April 21, 2027, July 21, 2027, October 21, 2027 and at the maturity date.
January 22, 2024 $1.5 billion $1.5 billion of senior fixed-to-floating rate notes with a maturity date of January 22, 2035. Interest is payable semi-annually in arrears at a fixed rate of 5.676% per annum, on January 22 and July 22 of each year, beginning on July 22, 2024. Beginning on January 22, 2034, 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 1.902%, on April 22, 2034, July 22, 2034, October 22, 2034 and at the maturity date.
May 14, 2024 $1.75 billion $1.75 billion of senior fixed-to-floating rate notes with a maturity date of May 14, 2030. Interest is payable semi-annually in arrears at a fixed rate of 5.492% per annum, on May 14 and November 14 of each year, beginning on November 14, 2024. Beginning on May 14, 2029, 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 1.198%, on August 14, 2029, November 14, 2029, February 14, 2030 and at the maturity date.
July 23, 2024 $1.0 billion $1.0 billion of senior fixed-to-floating rate notes with a maturity date of July 23, 2027. Interest is payable semi-annually in arrears at a fixed rate of 5.102% per annum, on January 23 and July 23 of each year, beginning on January 23, 2025. Beginning on July 23, 2026 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 0.796%, on October 23, 2026, January 23, 2027, April 23, 2027 and at the maturity date.
July 23, 2024 $1.5 billion $1.5 billion of senior fixed-to-floating rate notes with a maturity date of July 23, 2035. Interest is payable semi-annually in arrears at a fixed rate of 5.401% per annum, on January 23 and July 23 of each year, beginning on January 23, 2025. Beginning on July 23, 2034 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 1.599%, on October 23, 2034, January 23, 2035, April 23, 2035 and at the maturity date.
October 21, 2024 $1.5 billion $1.5 billion of senior fixed-to-floating rate notes with a maturity date of October 21, 2032. Interest is payable semi-annually in arrears at a fixed rate of 4.812% per annum, on April 21 and October 21 of each year, beginning on April 21, 2025. Beginning on October 21, 2031, 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 1.259%, on January 21, 2032, April 21, 2032, July 21, 2032 and at the maturity date.
See Note 24 Subsequent Events for details on the parent company’s issuances of $1.0 billion of its 5.222% senior fixed-to-floating rate
notes that mature on January 29, 2031, and $1.75 billion of its 5.575% senior fixed-to-floating rate notes that mature on January 29, 2036.
Parent company senior and subordinated debt carrying value totaled $28.4 billion and $24.0 billion at December 31, 2024 and 2023, respectively.
The following table details Parent Company note redemptions during 2024:
Table 32: Parent Company Notes Redeemed
Redemption Date Amount Description of Redemption
October 28, 2024 $1.0 billion All outstanding senior fixed-to-floating rate notes with an original scheduled maturity date of October 28, 2025. The redemption price was equal to 100% of the principal amount, plus any accrued and unpaid interest to the redemption date of October 28, 2024.Contractual Obligations and 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 6 Leases, Note 8 Time Deposits, Note 9 Borrowed Funds,
Note 10 Commitments and Note 16 Employee Benefit Plans.The PNC Financial Services Group, Inc. – 2024 Form 10-K 73Credit 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. For additional information on the potential impacts from a downgrade to our credit ratings, see Item 1A Risk Factors in this Report.
The following table presents credit ratings and outlook for PNC as of December 31, 2024:
Table 33: Credit Ratings and Outlook
December 31, 2024
Moody’s
Standard & Poor’s (a)
FitchPNC
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- ALong-term deposits Aa3 no rating
AA-
Short-term deposits P-1 no rating
F1+Short-term notes P-1 A-1 F1
PNC
Agency rating outlook Negative Stable Stable(a) S&P does not provide depositor ratings. PNC Bank’s long term issuer rating is A and short term issuer rating is A-1.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 December 2, 2024, PNC redeemed $500 million of depositary shares representing interests in PNC’s fixed-to-floating rate non-cumulative perpetual preferred stock, Series R. Each depositary share represents 1/100th interest in a share of the Series R preferred stock.
In 2024, we returned $3.1 billion of capital to shareholders through dividends on common shares of $2.5 billion and repurchases of 3.5 million common shares for $0.6 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 previously approved repurchase program of up to 100 million common shares, of which approximately 42% were still available for repurchase at December 31, 2024. First quarter 2025 share repurchase activity is expected to approximate recent quarterly average share repurchase levels. PNC may adjust share repurchase activity depending on market and economic conditions, as well as other factors. PNC’s SCB for the four-quarter period beginning October 1, 2024 is the regulatory minimum of 2.5%.
On January 3, 2025, the PNC Board of Directors declared a quarterly cash dividend on common stock of $1.60 per share paid on February 5, 2025 to shareholders of record at the close of business January 15, 2025.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. – 2024 Form 10-KThe following table summarizes our Basel III capital balances and ratios:Table 34: Basel III Capital
December 31, 2024Dollars in millions Basel III (a) (Fully Implemented) (estimated) (b)
Common equity Tier 1 capitalCommon stock plus related surplus, net of treasury stock $ (4,041) $ (4,041)
Retained earnings 59,524 59,282
Goodwill, net of associated deferred tax liabilities (10,699) (10,699)
Other disallowed intangibles, net of deferred tax liabilities (231) (231)
Other adjustments/(deductions) (86) (86)
Common equity Tier 1 capital (c) $ 44,467 $ 44,225Additional Tier 1 capitalPreferred stock plus related surplus 5,749 5,749
Tier 1 capital $ 50,216 $ 49,974Additional Tier 2 capitalQualifying subordinated debt 2,211 2,211
Eligible credit reserves includable in Tier 2 capital 4,903 5,142
Total Basel III capital $ 57,330 $ 57,327Risk-weighted assetsBasel III standardized approach risk-weighted assets (d) $ 422,399 $ 422,494Average quarterly adjusted total assets$ 556,962 $ 556,720
Supplementary leverage exposure (e) $ 672,278 $ 672,277Basel III risk-based capital and leverage ratios (f)Common equity Tier 1 10.5 % 10.5 %
Tier 1 11.9 % 11.8 %
Total 13.6 % 13.6 %Leverage (g)9.0 % 9.0 %
Supplementary leverage ratio (e) 7.5 % 7.4 %
(a) The ratios are calculated to reflect PNC’s election to adopt the CECL five-year transition provisions. Effective for the first quarter of 2022, PNC entered a three-year transition period, and the full impact of the CECL standard was phased-in to regulatory capital through December 31, 2024. In the first quarter of 2025, CECL will be fully reflected in regulatory capital.(b) The ratios are calculated to reflect the full impact of CECL and exclude 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 risk-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, FDMs, 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 entered a three-year transition period, and the full impact of the CECL standard was phased-in to regulatory capital through December 31, 2024. In the first quarter of 2025, CECL will be fully reflected in regulatory capital. See additional discussion of this rule in the Supervision and Regulation section of Item 1 Business and Item 1A Risk Factors.
At December 31, 2024, 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 Common equity Tier 1 risk-based capital, 8% for Tier 1 risk-based capital, 10% for Total risk-based capital and a Leverage ratio of at least 5%.
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
The PNC Financial Services Group, Inc. – 2024 Form 10-K 75
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 we believe that our December 31, 2024 capital levels were aligned with them.We provide additional information regarding regulatory capital requirements and some of their potential impacts, including the proposed rules to adjust the Basel III framework, in the Supervision and Regulation section of Item 1 Business, Item 1A Risk Factors and Note 19 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, and securities underwriting as a result of customer activities 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 RiskInterest 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, 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 market risk-related risk management policies, which are approved by management’s ALCO and the Risk Committee of the Board of Directors.
PNC utilizes sensitivities of NII and EVE to a set of interest rate scenarios to identify and measure its short-term and long-term structural interest rate risks.NII sensitivity results for the fourth quarters of 2024 and 2023 follow:
Table 35: Net Interest Income Sensitivity Analysis
Fourth Quarter 2024 Fourth Quarter 2023Net Interest Income Sensitivity Simulation (a)
Effect on NII in the first year from shocked interest rate:
200 basis point instantaneous increase(0.6) % (0.2) %200 basis point instantaneous decrease(0.5)% (0.3) %(a) The effect on NII in the first year from a 100 basis point instantaneous increase or decrease is not materially different from the 200 basis point scenarios as disclosed above.When forecasting NII, we make certain key assumptions that can materially impact the resulting sensitivities, including the following:
Future Balance Sheet Composition: Our balance sheet composition is dynamic and based on our forecasted expectations. As of the fourth quarter 2024, the projected balance sheet composition by the end of year one is generally consistent with the spot composition at December 31, 2024.
Balance Sheet Forecast: Our balance sheet forecast is based on various assumptions that include key interest rate risk aspects such as loan and deposit growth, as well as mix, and is consistent with our guidance.
Deposit Betas: Deposit pricing changes are primarily driven by changes in the Federal Funds rate. PNC’s deposit beta was 47% for
December 2024. We define deposit beta as the change in deposit rate paid on total interest-bearing deposits divided by the change in
the upper level of the average stated Federal Funds rate range since August 2024, the start of the current easing rate cycle. For rate
sensitivity purposes, PNC assumes the cumulative deposit beta will decrease from the current level. Prior to the beginning of the easing cycle, PNC’s beta calculation represented the change in deposit rate paid on interest-bearing non-maturity deposits divided by the change in the upper level of the stated Federal Funds rate since the first quarter of 2022, the start of the rising rate cycle. For interest rate risk modeling, PNC uses dynamic beta models to adjust assumed repricing sensitivity depending on market rate levels as
76 The PNC Financial Services Group, Inc. – 2024 Form 10-K
well as other factors. The dynamic beta assumptions reflect historical experience as well as future expectations, and are periodically updated to reflect the current view of future expectations. Actual deposit rates paid may differ from modeled projections due to variables such as competition for deposits and customer behavior.
Asset Prepayments: PNC includes prepayment assumptions for both loan and investment portfolios. Mortgage and Home Equity portfolios utilize an industry standard model to drive estimated prepayments that increase in lower rate environments. Commercial and other consumer loan portfolios assume static constant prepayment rates that are consistent across rate scenarios, as those portfolios historically do not exhibit significantly different prepayment behaviors based upon the level of market rates.
Impact of Derivatives : As part of our risk management strategy, PNC uses interest rate derivatives, some of which are forward starting, to hedge floating rate commercial loans. PNC had $50.5 billion in active and forward starting receive fix / pay float swaps as of December 31, 2024, with a weighted average duration of 2.4 years and an average fixed rate of 3.45%. As of December 31, 2024 PNC also had collars in place, reflecting $12.5 billion of caps and $12.5 billion of floors, that are used to hedge these commercial loans. Additionally, PNC utilizes receive fix / pay float swaps as a means of hedging fixed rate debt, as well as pay fix / receive float swaps as a means of hedging the investment securities portfolio. See Note 15 Financial Derivatives for additional information on how we use derivatives to hedge these financial instruments.
EVE sensitivity results for the fourth quarter of 2024 and 2023 follow:
Table 36: Economic Value of Equity Sensitivity Analysis
Fourth Quarter 2024 Fourth Quarter 2023Economic Value of Equity Sensitivity Simulation
200 basis point instantaneous increase(6.5) % (4.3) %200 basis point instantaneous decrease0.1% (3.9)%
EVE measures the present value of all projected future cash flows associated with a point-in-time balance sheet and does not include projected new volume. EVE sensitivity to interest rate changes is a complementary metric to NII sensitivity analysis and represents an estimation of long-term interest rate risk. PNC calculates its EVE sensitivity by measuring the changes in the economic value of assets, liabilities and off-balance sheet instruments in response to an instantaneous +/-200 bps parallel shift in interest rates. Similar to the NII sensitivity analysis, we incorporate dynamic deposit repricing and loan prepayment assumptions. Directionally, higher deposit beta assumptions result in increasing liability sensitivity whereas lower deposit betas increase asset sensitivity. Conceptually similar, higher loan prepayment assumptions cause an increase in asset sensitivity and lower prepayments result in an increase in liability sensitivity. These behavioral modeling assumptions are largely consistent between the EVE and NII sensitivity analyses, and also share the same starting balance sheet position as of December 31, 2024. Deposit attrition is also a significant contributor to EVE sensitivity. Deposit attrition is projected based on a dynamic model developed using long-term historical deposit behavior in addition to management assumptions including accelerated attrition for pandemic related excess deposits. PNC performs various sensitivity analyses to understand the impact of faster and slower deposit attrition, loan prepayments, and deposit betas on our risk metrics, with the results reported to ALCO.
PNC’s EVE exposure was balanced between rising and falling rates at the end of 2023, with modest decreases in EVE resulting under either scenario. By the end of 2024, PNC had moderately higher exposure to rate increases and largely neutral impacts to falling rates, primarily as a result of rate increases in the middle and long portions of the yield curve during 2024.
Compared to the fourth quarter of 2023, there have been no material changes to our NII sensitivity and EVE sensitivity assumptions, including data sources that drive assumptions setting.Market Risk Management – Customer-Related Trading RiskWe 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 and funding 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 2024 and 2023 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
The PNC Financial Services Group, Inc. – 2024 Form 10-K 77
2024 and 2023 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 $122 million in 2024 compared to $137 million in 2023 and is recorded in Capital markets and advisory noninterest income and Other interest income on our Consolidated Income Statement. The decrease was primarily due to lower derivative client sales revenue, partially offset by higher securities client sales revenue.Market Risk Management – Equity And Other Investment Risk
Equity investment risk is the risk of potential losses associated with investing in both private and public equity markets. In addition to extending credit, taking deposits, underwriting securities and trading financial instruments, we make and manage direct investments in a variety of transactions, including management buyouts, recapitalizations and growth financings in a variety of industries. We also have investments in affiliated and non-affiliated funds that make similar investments in private equity, consistent with regulatory limitations. The economic and/or book value of these investments and other assets are directly affected by changes in market factors.Various PNC business units manage our equity and other investment activities. Our businesses are responsible for making investment decisions within the approved policy limits and associated guidelines.
A summary of our equity investments follows:Table 37: Equity Investments Summary
Dollars in millions December 31 2024 December 31 2023 Change$ %Tax credit investments $ 5,066 $ 4,331 $ 735 17 %
Private equity and other 4,534 3,983 551 14 %
Total $ 9,600 $ 8,314 $ 1,286 15 %Tax Credit InvestmentsIncluded in our equity investments are direct tax credit investments and equity investments held by consolidated entities. These tax credit investment balances included unfunded commitments totaling $2.9 billion and $2.5 billion at December 31, 2024 and 2023, respectively. These unfunded commitments are included in Other liabilities on our Consolidated Balance Sheet.Note 4 Loan Sale and Servicing Activities and Variable Interest Entities has further information on tax credit investments.
Private Equity and OtherThe 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 $2.3 billion at December 31, 2024 and $2.2 billion at December 31, 2023, respectively. As of December 31, 2024, $2.1 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.
During the second quarter of 2024, PNC participated in the Visa exchange program, allowing PNC to convert its Visa Class B-1
common shares into approximately equal amounts of Visa Class B-2 common shares and Visa Class C common shares. This
conversion event resulted in a gain of $754 million related to the Visa Class C common shares received. PNC retained the Visa Class
B-2 common shares. The Visa Class B-2 common shares, which are included in our other equity investments at cost, remain subject to
the same restrictions that were imposed on the Visa Class B-1 common shares. Participation in the exchange required PNC to agree to
a make-whole agreement that subjects PNC to the same indemnity obligations to Visa as prior to participation in the exchange
program.
The Visa Class B-2 common shares that we own are transferable only under limited circumstances until either the resolution of the pending interchange litigation or Visa launches another exchange program allowing PNC to convert a portion of its Visa Class B-2 common shares into freely transferable Visa Class C common shares. At December 31, 2024, the estimated value of our total investment in the Visa Class B-2 common shares was approximately $0.9 billion while our cost basis was insignificant. The estimated value does not represent fair value of the Visa Class B-2 common shares given the shares’ limited transferability and the lack of observable transactions in the marketplace. See Note 14 Fair Value and Note 20 Legal Proceedings for additional information regarding our Visa agreements.
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 $33 million in 2024 and $18 million in 2023.
78 The PNC Financial Services Group, Inc. – 2024 Form 10-KImpact 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 creditlosses resulting from possible increased default rates. While interest rates remained high in 2024, inflation has started to slow, leading to an easing of the Federal Reserve’s monetary policy. See Item 1A Risk Factors, our Executive Summary and Cautionary Statement Regarding Forward-Looking Information 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 DerivativesFinancial derivatives involve, to varying degrees, market and credit risk. Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional and an underlying as specified in the contract. Therefore, cash requirements and exposure to credit risk are significantly less than the notional amount on these instruments.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.Further information on our financial derivatives is presented in Note 1 Accounting Policies, Note 14 Fair Value and Note 15 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 ManagementOperational risk is the risk to PNC’s 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.
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) 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 supporting robust stress testing and capital planning.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 arising from violations of laws, rules or regulations including nonconformance with prescribed practices and industry standards driven by self-regulatory organizations.
• Data Management: Risk associated with data accuracy, integrity or quality.• 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.The PNC Financial Services Group, Inc. – 2024 Form 10-K 79We 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.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, 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. For additional information, see Item 1C Cybersecurity of this Report.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. As part of assessing those risks, transactions and potential customers may be subjected to an industry-agnostic reputation risk assessment designed to help us better identify and mitigate environmental, human rights and other reputational risks early in the on-boarding process. Transactions and potential customers identified as having these risks are evaluated to determine whether additional due diligence is warranted. Strategic risk is another component of the ERM Framework that is also critical to optimizing shareholder returns. Strategic risk is the risk to earnings, capital, or liquidity 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.
80 The PNC Financial Services Group, Inc. – 2024 Form 10-K
A VERAGE C ONSOLIDATED B ALANCE S HEET A ND N ET I NTEREST A NALYSIS
The following tables show PNC’s average consolidated balance sheet results and analysis of net interest income, as well as the year-to-year changes in net interest income.
Table 38: Average Consolidated Balance Sheet and Net Interest Analysis (a) (b) (c)
2024 2023 2022
Taxable-equivalent basis Dollars in millions Average Balances Interest Income/ Expense Average Yields/ Rates Average Balances Interest Income/ Expense Average Yields/ Rates Average Balances Interest Income/ Expense Average Yields/ Rates
Assets
Interest-earning assets:
Investment securities
Securities available-for-sale
Residential mortgage-backed $ 31,535 $ 1,040 3.30 % $ 31,899 $ 912 2.86 % $ 42,993 $ 953 2.22 %
Commercial mortgage-backed 2,706 83 3.07 % 2,913 86 2.95 % 4,107 104 2.53 %
Asset-backed 1,982 116 5.85 % 719 46 6.40 % 2,184 37 1.69 %
U.S. Treasury and government agencies 16,010 740 4.62 % 8,271 183 2.21 % 21,642 314 1.45 %
Other 2,603 69 2.65 % 3,021 77 2.55 % 3,982 102 2.56 %
Total securities available-for-sale 54,836 2,048 3.73 % 46,823 1,304 2.78 % 74,908 1,510 2.02 %
Securities held-to-maturity
Residential mortgage-backed 41,846 1,173 2.80 % 44,517 1,217 2.73 % 29,325 677 2.31 %
Commercial mortgage-backed 2,090 111 5.31 % 2,378 127 5.34 % 1,400 51 3.64 %
Asset-backed 4,697 213 4.53 % 6,557 278 4.24 % 4,446 122 2.74 %
U.S. Treasury and government agencies 34,360 463 1.35 % 36,790 490 1.33 % 25,074 300 1.20 %
Other 2,913 136 4.67 % 3,286 152 4.63 % 1,996 87 4.31 %
Total securities held-to-maturity 85,906 2,096 2.44 % 93,528 2,264 2.42 % 62,241 1,237 1.99 %
Total investment securities 140,742 4,144 2.94 % 140,351 3,568 2.54 % 137,149 2,747 2.00 %
Loans
Commercial and industrial 177,210 11,087 6.26 % 179,650 10,494 5.84 % 168,663 6,079 3.60 %
Commercial real estate 35,241 2,352 6.67 % 35,923 2,336 6.50 % 34,954 1,389 3.97 %
Equipment lease financing 6,557 356 5.43 % 6,423 297 4.62 % 6,196 238 3.84 %
Consumer 53,678 3,914 7.29 % 54,835 3,675 6.70 % 54,721 2,814 5.14 %
Residential real estate 47,108 1,747 3.71 % 46,689 1,621 3.47 % 43,165 1,366 3.16 %
Total loans 319,794 19,456 6.08 % 323,520 18,423 5.69 % 307,699 11,886 3.86 %
Interest-earning deposits with banks 43,145 2,303 5.34 % 36,645 1,902 5.19 % 41,050 578 1.41 %
Other interest-earning assets 9,135 612 6.70 % 8,884 562 6.33 % 9,651 337 3.50 %
Total interest-earning assets/interest income 512,816 26,515 5.17 % 509,400 24,455 4.80 % 495,549 15,548 3.14 %
Noninterest-earning assets 52,067 49,370 55,103
Total assets $ 564,883 $ 558,770 $ 550,652
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing deposits
Money market $ 70,331 2,392 3.40 % $ 65,037 1,890 2.91 % $ 61,376 444 0.72 %
Demand 122,095 2,706 2.22 % 124,084 2,444 1.97 % 118,749 583 0.49 %
Savings 96,708 1,746 1.81 % 101,470 1,381 1.36 % 106,577 176 0.17 %
Time deposits 35,301 1,557 4.41 % 24,802 894 3.60 % 12,340 64 0.52 %
Total interest-bearing deposits 324,435 8,401 2.59 % 315,393 6,609 2.10 % 299,042 1,267 0.42 %
Borrowed funds
Federal Home Loan Bank advances 32,345 1,821 5.63 % 34,440 1,864 5.41 % 13,674 440 3.22 %
Senior debt 30,751 2,022 6.58 % 22,696 1,373 6.05 % 16,265 401 2.47 %
Subordinated debt 4,574 300 6.56 % 5,580 348 6.24 % 7,081 206 2.91 %
Other 6,391 341 5.34 % 4,566 198 4.34 % 5,430 108 1.99 %
Total borrowed funds 74,061 4,484 6.05 % 67,282 3,783 5.62 % 42,450 1,155 2.72 %
Total interest-bearing liabilities/interest expense 398,496 12,885 3.23 % 382,675 10,392 2.72 % 341,492 2,422 0.71 %
Noninterest-bearing liabilities and equity:
Noninterest-bearing deposits 96,772 111,670 144,382
Accrued expenses and other liabilities 17,004 15,759 16,414
Equity 52,611 48,666 48,364
Total liabilities and equity $ 564,883 $ 558,770 $ 550,652
Interest rate spread 1.94 % 2.08 % 2.43 %
Benefit from use of noninterest bearing sources 0.72 0.68 0.22
Net interest income/margin $ 13,630 2.66 % $ 14,063 2.76 % $ 13,126 2.65 %
(a) Nonaccrual loans are included in loans, net of unearned income. The impact of financial derivatives used in interest rate risk management is included in the interest income/expense and average yields/rates of the related assets and liabilities. Basis adjustments related to hedged items are included in noninterest-earning assets and noninterest-bearing liabilities. Average balances of securities are based on amortized historical cost (excluding adjustments to fair value, which are included in other assets). Average balances for certain loans and borrowed funds accounted for at fair value are included in noninterest-earning assets and noninterest-bearing liabilities, with changes in fair value recorded in Noninterest income.
(b) Loan fees for the years ended December 31, 2024, 2023 and 2022 were $189 million, $183 million and $188 million, respectively.
(c) Interest income calculated as taxable-equivalent interest income. See Reconciliation of Taxable-Equivalent Net Interest Income in the Non-GAAP Financial Information section for more information.
The PNC Financial Services Group, Inc. – 2024 Form 10-K 81
Table 39 : Analysis of Year-to-Year Changes in Net Interest Income (a) (b)
2024/2023 2023/2022
Taxable-equivalent basis Increase/(Decrease) in Income/ Expense Due to Changes in: Increase/(Decrease) in Income/ Expense Due to Changes in:
In millions Volume Rate Total Volume Rate Total
Interest-Earning Assets
Investment securities
Securities available-for-sale
Residential mortgage-backed $ (10) $ 138 $ 128 $ (279) $ 238 $ (41)
Commercial mortgage-backed $ (6) $ 3 (3) $ (33) $ 15 (18)
Asset-backed $ 74 $ (4) 70 $ (38) $ 47 9
U.S. Treasury and government agencies $ 257 $ 300 557 $ (249) $ 118 (131)
Other $ (11) $ 3 (8) $ (24) $ (1) (25)
Total securities available-for-sale $ 248 $ 496 744 $ (673) $ 467 (206)
Securities held-to-maturity
Residential mortgage-backed $ (74) $ 30 (44) $ 398 $ 142 540
Commercial mortgage-backed $ (15) $ (1) (16) $ 46 $ 30 76
Asset-backed $ (83) $ 18 (65) $ 73 $ 83 156
U.S. Treasury and government agencies $ (33) $ 6 (27) $ 153 $ 37 190
Other $ (17) $ 1 (16) $ 59 $ 6 65
Total securities held-to-maturity $ (186) $ 18 (168) $ 716 $ 311 1,027
Total investment securities $ 10 $ 566 576 $ 65 $ 756 821
Loans
Commercial and industrial $ (145) $ 738 593 $ 419 $ 3,996 4,415
Commercial real estate $ (45) $ 61 16 $ 40 $ 907 947
Equipment lease financing $ 6 $ 53 59 $ 9 $ 50 59
Consumer $ (79) $ 318 239 $ 6 $ 855 861
Residential real estate $ 15 $ 111 126 $ 117 $ 138 255
Total loans $ (214) $ 1,247 1,033 $ 639 $ 5,898 6,537
Interest-earning deposits with banks $ 346 $ 55 401 $ (68) $ 1,392 1,324
Other interest-earning assets $ 16 $ 34 50 $ (29) $ 254 225
Total interest-earning assets $ 165 $ 1,895 $ 2,060 $ 447 $ 8,460 $ 8,907
Interest-Bearing Liabilities
Interest-bearing deposits
Money market $ 162 $ 340 $ 502 $ 28 $ 1,418 $ 1,446
Demand $ (40) $ 302 262 $ 27 $ 1,834 1,861
Savings $ (68) $ 433 365 $ (8) $ 1,213 1,205
Time deposits $ 434 $ 229 663 $ 121 $ 709 830
Total interest-bearing deposits $ 194 $ 1,598 1,792 $ 73 $ 5,269 5,342
Borrowed funds
Federal Home Loan Bank advances $ (116) $ 73 (43) $ 983 $ 441 1,424
Senior debt $ 522 $ 127 649 $ 208 $ 764 972
Subordinated debt $ (65) $ 17 (48) $ (52) $ 194 142
Other $ 90 $ 53 143 $ (19) $ 109 90
Total borrowed funds $ 397 $ 304 701 $ 931 $ 1,697 2,628
Total interest-bearing liabilities $ 448 $ 2,045 2,493 $ 325 $ 7,645 7,970
Change in net interest income $ 91 $ (524) $ (433) $ 377 $ 560 $ 937
(a) Changes attributable to rate/volume are prorated into rate and volume components.
(b) Interest income is calculated as taxable-equivalent interest income. To provide more meaningful comparisons of interest income, we use interest income on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP. See Reconciliation of Taxable-Equivalent Net Interest Income in the Non-GAAP Financial Information section for more information.
N ON -GAAP F INANCIAL I NFORMATION
PNC reports certain financial measures that are not in accordance with GAAP. These non-GAAP financial measures are provided as supplemental information to the financial measures in this Report that are calculated and presented in accordance with GAAP. While we believe that these non-GAAP measures are useful tools for the purpose of evaluating certain financial results, they should not be considered superior to and are not intended to be considered in isolation or as a substitute for the related GAAP financial measures presented in this Report.
82 The PNC Financial Services Group, Inc. – 2024 Form 10-K
Table 40: Reconciliation of Taxable-Equivalent Net Interest Income (non-GAAP) (a)
Year ended December 31 In millions
2024 2023 2022
Net interest income (GAAP) $ 13,499 $ 13,916 $ 13,014
Taxable-equivalent adjustments 131 147 112
Net interest income (non-GAAP) $ 13,630 $ 14,063 $ 13,126
(a) The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest income, we use interest income on a taxable-equivalent basis by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP.
Table 41: Reconciliation of Tangible Book Value Per Common Share (non-GAAP)
December 31 Dollars in millions, except per share data 2024 2023 2022
Book value per common share $ 122.94 $ 112.72 $ 99.93
Tangible book value per common share
Common shareholders’ equity $ 48,676 $ 44,864 $ 40,028
Goodwill and other intangible assets (11,171) (11,244) (11,400)
Deferred tax liabilities on goodwill and other intangible assets 241 244 261
Tangible common shareholders’ equity $ 37,746 $ 33,864 $ 28,889
Period-end common shares outstanding (in millions) 396 398 401
Tangible book value per common share (non-GAAP) (a) $ 95.33 $ 85.08 $ 72.12
(a) Tangible book value per common share is a non-GAAP measure and is calculated based on tangible common shareholders’ equity divided by period-end common shares outstanding. We believe this non-GAAP measure serves as a useful tool to help evaluate the strength and discipline of a company’s capital management strategies and as an additional, conservative measure of total company value.C RITICAL A CCOUNTING E STIMATES AND J UDGMENTS
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 LossesWe 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 estimated 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 economic 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 the ACL on an ongoing basis. 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. Changes to the probability weights assigned to these scenarios and the 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 composition: 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.We also 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, as discussed below and in the Allowance for Credit Losses section of Note 1 Accounting Policies.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, andThe PNC Financial Services Group, Inc. – 2024 Form 10-K 83(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
Pursuant to 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 forecast the distribution of economic outcomes over the reasonable and supportable forecast period, we generate four economic forecast scenarios using a combination of quantitative macroeconomic models, other measures of economic activity and forward-looking expert judgment. Each scenario is then given an associated probability (weight) to represent our current expectation within that distribution over the forecast period. This process is informed by current economic conditions, expected business cycle evolution and the expert judgment of PNC’s RAC. This approach seeks to provide a reasonable representation of the forecast of expected economic outcomes and is used to estimate expected credit losses across a variety of loans, securities and other financial assets. Each quarter, the scenarios and their respective weights are presented to RAC for approval.
The scenarios used for the period ended December 31, 2024 consider, among other factors, the ongoing inflationary pressures and the corresponding tightness of monetary policy and credit availability. Given these factors, growth is expected to slow from current levels in the coming quarters. While recession risks remain elevated, our most likely expectation at December 31, 2024 is that the U.S. economy avoids a recession.
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, 2024 and 2023.
Table 42: Key Macroeconomic Variables in CECL Weighted-Average Scenarios
Assumptions as of December 31, 2024
2025 2026 2027
U.S. real GDP (a) 0.7% 2.2% 2.2%
U.S. Unemployment Rate (b) 4.8% 4.7% 4.4%Assumptions as of December 31, 2023
2024 2025 2026
U.S. real GDP (a) 0.1% 1.5% 2.0%U.S. Unemployment Rate (c) 4.5% 4.6% 4.2%
(a) Represents year-over-year growth rates.
(b) Represents quarterly average rate at December 31, 2025, 2026 and 2027, respectively.
(c) Represents quarterly average rate at December 31, 2024, 2025 and 2026, respectively.
Real GDP growth is expected to slow by the end of 2025 to 0.7% on a weighted average basis, down from the 1.5% assumed at December 31, 2023. Growth then rebounds to 2.2% where real GDP remains stable through 2026 and 2027. The weighted-average unemployment rate is expected to end 2025 at 4.8%, peaking at 4.9% in 2026 before decreasing to 4.4% by the fourth quarter of 2027.
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 2025 ending the year down 2.5% compared to 2024 levels, with growth picking up again by the end of 2026. The unemployment rate in this scenario increased to end 2025 at 6.6%, then peaks at 7.1% in 2026, before gradually improving to 6.1% by the end of 2027. Excluding consideration of qualitative adjustments, this sensitivity analysis would result in a hypothetical increase in our ACL of $2.3 billion at December 31, 2024. This scenario does not reflect our current expectation at December 31, 2024, 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.
Qualitative Component
As discussed in the Allowance for Credit Losses section of Note 1 Accounting Policies, we incorporate qualitative reserves in the ACL that reflect our best estimate of expected losses that may not be adequately represented in our quantitative methods or economic assumptions. Qualitative factors may include, but are not limited to, inherent forecasting limitations, model imprecision, timing of available information, and/or emerging and ongoing credit risks. At December 31, 2024, the qualitative framework considers PNC’s
84 The PNC Financial Services Group, Inc. – 2024 Form 10-K
view of the current state of the economy, which continues to reflect uncertainty due to the fundamental change in office demand from the acceptance of remote work, inflationary pressures, interest rate movements and housing affordability. Our most significant qualitative factor was related to the office portfolio of the commercial real estate loan class.
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.See the following for additional details on the components of our ACL:
• Allowance for Credit Losses in the Credit Risk Management section of this Item 7, and
• Note 1 Accounting Policies, Note 2 Investment Securities, and Note 3 Loans and Related Allowance for Credit Losses.
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 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 inverse 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 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 5 Goodwill and Mortgage Servicing Rights. For additional information on our residential and commercial MSRs, see Note 1 Accounting Policies, Note 5 Goodwill and Mortgage Servicing Rights and Note 14 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. An asset or liability’s classification as Level 2 or Level 3 is based upon the specific facts and circumstances associated with each instrument, and management applies judgment regarding the significance of unobservable inputs to each asset or liability when determining its fair value level classification. In addition to MSRs, certain of our private equity investments and available-for-sale securities have a high level of estimation uncertainty and require significant management judgment to determine the fair value. While estimating potential sensitivities around fair value measurements is inherently challenging, we provide a summary of the key unobservable inputs as well as additional information on Level 3 fair value measurements in Note 14 Fair Value.
The PNC Financial Services Group, Inc. – 2024 Form 10-K 85Recently Issued Accounting Standards
Accounting Standards Update Description Financial Statement ImpactImprovements to Income Tax Disclosures - ASU 2023-09
Issued December 2023• Required with issuance of 2025 Form 10-K; early adoption is permitted.• Requires public business entities to, on an annual basis, (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold.
• Requires that all entities disclose, on an annual basis, (1) the amount of income taxes paid (net of refunds received), disaggregated by federal (national), state and foreign taxes, and (2) the amount of income taxes paid (net of refunds received), disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received).• Allows for either a prospective or retrospective transition approach.
• We are currently evaluating the disclosure requirements of this ASU and do not plan to early adopt.
• This ASU will not impact our Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity or Consolidated Statement of Cash Flows.• We expect to provide additional disaggregated income tax disclosures in accordance with this ASU.Accounting Standards Update Description Financial Statement Impact
Disaggregation of Income Statement Expenses - ASU 2024-03
Issued November 2024
• Required with issuance of 2027 Form 10-K; early adoption is permitted. • Requires public business entities to disclose, in the notes to financial statements and on an annual and interim basis, specified information about certain costs and expenses (including, if relevant: inventory purchases, employee compensation, depreciation, intangible asset amortization, and depreciation from oil and gas-producing activities).
• Requires qualitative descriptions of amounts not separately disaggregated to be disclosed.
• Requires disclosure of the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.
• Allows for either a prospective or retrospective transition approach.
• We are currently evaluating the disclosure requirements within this ASU and do not plan to early adopt. • This ASU will not impact our Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity or Consolidated Statement of Cash Flows.
• We expect to provide additional disaggregated income statement expense disclosures in accordance with this ASU.Recently Adopted Accounting Pronouncements
See Note 1 Accounting Policies regarding the impact of new accounting pronouncements that we have adopted.86 The PNC Financial Services Group, Inc. – 2024 Form 10-KC AUTIONARY S TATEMENT R EGARDING F ORWARD -L OOKING I NFORMATION
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 sanctions, tariffs and other trade policies of the U.S. and its global trading partners,
– Impacts of changes in federal, state and local governmental policy, including on the regulatory landscape, capital markets, taxes, infrastructure spending and social programs,
– Our 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 labor market remains strong, and job and income gains will continue to support consumer spending growth in the near term. PNC’s baseline forecast is for continued expansion, but slower economic growth in 2025 than in 2024. High interest rates remain a drag on the economy, consumer spending growth will slow to a pace more consistent with household income growth, and government’s contribution to economic growth will be smaller.
– Real GDP growth in 2025 and 2026 will be approximately 2%, and the unemployment rate will remain somewhat above 4% throughout 2025 and into 2026. There will be little progress on inflation in 2025; wage pressures will abate, but higher tariffs will offset this, and inflation will remain above the Federal Reserve’s 2% objective throughout 2025.
– Little progress on inflation this year will limit monetary easing. PNC expects two additional federal funds rate cuts of 25 basis points each in 2025, one in May and one in July. The federal funds rate will be in a range between 3.75% and 4.00% in the second half of 2025, and remain in that range into 2026.• 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, its 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 affect matters such as business generation and retention, liquidity, funding and ability to attract and retain employees. These developments could include:
– Changes to laws and regulations, including changes affecting oversight of the financial services industry, changes in the enforcement and interpretation of such laws and regulations, 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.The PNC Financial Services Group, Inc. – 2024 Form 10-K 87– 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.
• W e 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, 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 manmade, 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 20 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.