PNC Financial Services : 3Q22 Basel III Pillar 3 Disclosures

The PNC Financial Services Group, Inc.

Basel III Pillar 3 Report: Standardized Approach

September 30, 2022

			Page References
Pillar 3 Disclosure	Description	Pillar 3 September 30, 2022	2021
Report	Form 10-Q	Form 10-K
Introduction		3
	Forward-Looking Statements	3	42	84
	Basis of Consolidation	3		96
	Basel III Overview	3		3, 75, 173
Capital		4
	Summary of Capital	4		34, 141, 173
	Restrictions on Transfer of Funds or Total Capital	4		173
	Capital Adequacy	4
	Capital Ratios	4	55	2
	Table 1: Capital Ratios	5	34	76
	Table 2: Standardized Risk-Weighted Assets	6
Credit Risk		6
	Credit Risk Management	6	21	57, 61
	Summary of Credit Exposures	7	9-11,22-25, 52, 55,	45, 46, 62-65, 115,
			83, 97	118, 158, 187
	Table 3: Loan Exposures by Remaining Contractual	7
	Maturity
Credit Risk Mitigation		8
Counterparty Credit		8	83	158
Risk	Counterparty Credit Risk Mitigation	8
	Collateral	8	87, 89	158
	Table 4: Counterparty Credit Risk Exposures	9
Securitization		9		130
	Summary of Accounting Policies for Securitization	9		96, 130
	Activities
	Risk Management	9	52, 55	115, 118, 158
	Table 5: Securitization Exposures by Underlying Asset	10
	Type
	Regulatory Treatment of Securitizations	10
	Table 6: Capital Requirements of Securitization	10
	Exposures by Risk-Weighting

Equities Not Subject to the Market Risk Rule

	10		77, 96, 145
Summary of Equity Investment Exposures	11	35, 65	77, 130
Table 7: Book Value and Fair Value of Equity	11
Exposures Not Subject to Market Risk Rule
Table 8: Capital Requirements of Equity Investment	11
Exposures by Risk-Weighting

Market Risk Capital	12
Governance of Covered Positions	12
Valuation Policies, Procedures & Methodologies	12	74	15, 145
Value at Risk (VaR) Models	12
Table 9: VaR-Based Metrics	13
Back Testing	13
Model Validation	14
Stress Testing	14
Securitization Positions	14
Interest Rate Risk for	14	35	77
Non-Trading Activities
Supplementary	14
Leverage Ratio
Table 10: Supplementary Leverage Ratio	15	97	187
Glossary of Terms	15		191

PNC Pillar 3 Standardized Disclosures as of September 30, 2022

INTRODUCTION

The PNC Financial Services Group, Inc. (PNC) is one of the largest diversified financial services companies in the United States (U.S.) and is headquartered in Pittsburgh, Pennsylvania. PNC has businesses engaged in retail banking, including residential mortgage, corporate and institutional banking and asset management, providing many of its products and services nationally. Our retail branch network is located coast-to-coast. We also have strategic international offices in four countries outside the U.S. At September 30, 2022, consolidated total assets, total deposits and total shareholders' equity were $559.5 billion, $438.2 billion and $46.7 billion, respectively.

PNC is a bank holding company registered under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act. PNC provides its products and services primarily through PNC's only insured depository institution subsidiary, PNC Bank, National Association (PNC Bank).

This report (Pillar 3 Report) provides information about PNC's capital structure, risk exposures, risk assessment processes, risk- weighted assets and overall capital adequacy and should be read in conjunction with PNC's Securities and Exchange Commission (SEC) filings, including the Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K) and Quarterly Report on Form 10-Q for the period ended September 30, 2022 (September 30, 2022 Form 10-Q). These SEC filings are available at www.pnc.com/secfilings. The Pillar 3 Report and other regulatory disclosures, including PNC Bank's Call Report, are available at http://www.pnc.com/regulatorydisclosures.

Forward-Looking Statements

This disclosure may contain forward-looking statements, which are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date made. We do not assume any duty and do not undertake to update forward-looking statements. Actual results or future events could differ, possibly materially, from those anticipated in forward- looking statements, as well as from historical performance. See the Cautionary Statement Regarding Forward-Looking Information in PNC's September 30, 2022 Form 10-Q for more information. Also see all risks and uncertainties disclosed in PNC's SEC filings, including its 2021 Form 10-K, and subsequent reports on Forms 10-K,10-Q and 8-K, Proxy Statements on Schedule 14A, and, if applicable, its registration statements under the Securities Act of 1933, as amended, all of which are or will upon filing be accessible on PNC's website at www.pnc.com/secfilings and on the SEC's website at www.sec.gov.

Basis of Consolidation

Our consolidated financial statements include the accounts of the parent company and its subsidiaries, most of which are wholly- owned, certain partnership interests and variable interest entities that are required to be consolidated under accounting principles generally accepted in the United States of America (GAAP). We have eliminated intercompany accounts and transactions. The basis for consolidation for regulatory capital calculations is the same as that used in the presentation of PNC's consolidated financial statements, which is described in further detail in Note 1 Accounting Policies in the Notes To Consolidated Financial Statements included in Item 8 of our 2021 Form 10-K. Consistent with the regulatory capital rules, the minimum capital requirement for our consolidated insurance underwriting subsidiaries under applicable law is deducted from our regulatory capital.

Basel III Overview

PNC is subject to the regulatory capital requirements established by the Board of Governors of the Federal Reserve System (Federal Reserve). PNC Bank is subject to the regulatory capital requirements established by the Office of the Comptroller of the Currency (OCC). For additional information regarding regulatory capital requirements, see the Banking Regulation and Supervision section included in Item 1 Business of our 2021 Form 10-K.

The Basel III regulatory capital ratios of PNC and PNC Bank as of September 30, 2022 exceeded the applicable minimum levels. For additional information regarding regulatory capital requirements, see the Banking Regulation and Supervision section included in Item 1 Business, the Liquidity and Capital Management section of Risk Management included in Item 7 and Note 20 Regulatory Matters in the Notes To Consolidated Financial Statements included in Item 8 of our 2021 Form 10-K.

The disclosures by PNC in this Pillar 3 Report include those required by the standardized approach. PNC is the top-tier entity within the PNC organization to which the standardized approach applies. In addition, PNC has more than $1 billion in aggregate quarterly average trading assets and trading liabilities, and is subject to the market risk capital rule as amended (the "Market Risk Rule"). This Pillar 3 Report also includes PNC's required disclosures under the Market Risk Rule.

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PNC Pillar 3 Standardized Disclosures as of September 30, 2022

CAPITAL

Summary of Capital

PNC's regulatory capital structure consists of the following capital instruments:

Common Stock

PNC has $5 par value common stock. At September 30, 2022, there were 800 million shares authorized, and 543 million shares issued, of which 139 million shares were held in treasury at cost. Holders of PNC common stock are entitled to receive dividends when declared by PNC's Board of Directors out of funds legally available for this purpose. See Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities included in Item 5 of our 2021 Form 10-K for additional information on our common stock.

Preferred Stock

See Note 12 Equity in the Notes To Consolidated Financial Statements included in Item 8 of our 2021 Form 10-K for information on our preferred stock.

Qualifying Subordinated Debt

PNC had $3.6 billion in subordinated debt that qualified as Tier 2 capital for the Basel III ratio at September 30, 2022. The interest rates on our subordinated debt range from 2.70% to 5.90% and maturities range from 2022 through 2033.

Restrictions on Transfer of Funds or Total Capital

Federal law and regulations place a variety of restrictions on the ability of PNC to transfer funds or total capital among entities within the PNC group. See Note 20 Regulatory Matters in the Notes To Consolidated Financial Statements included in Item 8 our 2021 Form 10-K for additional information on these restrictions.

Capital Adequacy

PNC's overall capital planning objective is to maintain sufficient capital resources, both in terms of quantity and quality, to cover all of the firm's risks and allow the firm to operate effectively through a range of economic environments. PNC's internal capital adequacy process (CAP) supports this overall objective by taking into account capital stress testing results, capital and liquidity positions and other risk considerations. In addition, PNC's CAP has a sound risk management infrastructure, including but not limited to, the thorough review and consideration of alternative economic scenarios as well as other risks. The Board of Directors, its Risk Committee, and senior management use the firm's CAP results to assess the level of capital that is appropriate for the firm to maintain in light of the range of risks facing the firm, the firm's business strategy, and its risk appetite. Sound capital stress testing practices and methodologies are a key component of PNC's CAP.

In addition to the CAP, PNC is subject to the Federal Reserve's capital plan rule, annual capital stress testing requirements and Comprehensive Capital Analysis and Review (CCAR) process, as well as the applicable Dodd-Frank capital stress testing requirements of the Federal Reserve and the OCC. As part of the CCAR process, the Federal Reserve undertakes a supervisory assessment of PNC's capital adequacy. This assessment is based on a review of a comprehensive capital plan submitted by PNC to the Federal Reserve that describes the company's planned capital actions during the nine-quarter review period, as well as the results of stress tests conducted by both the company and the Federal Reserve under different hypothetical macroeconomic scenarios, including supervisory severely adverse scenario provided by the Federal Reserve.

Capital Ratios

All current period capital ratios are calculated using the regulatory capital methodology applicable to us during 2022. These Basel III capital ratios may be impacted by any additional regulatory guidance or analysis by PNC as to the application of the rules to PNC. Fully implemented Basel III results, in Table 1, are presented as estimates. PNC utilizes the fully implemented Basel III capital ratios to assess the impact to its capital position as if the impact of CECL had been fully phased in at September 30, 2022.

At September 30, 2022, PNC and PNC Bank, our sole banking subsidiary, were both 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 (CET1) risk-based capital, 8% for Tier 1 risk-based capital, 10% for Total risk-based capital and a Leverage ratio of at least 5%. For PNC Bank's capital ratios, see PNC Bank's Call Report for the period ended September 30, 2022.

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PNC Pillar 3 Standardized Disclosures as of September 30, 2022

The Basel III capital rule also includes regulatory capital buffer requirements above the minimum risk-based capital ratio requirements that banking organizations must meet in order to avoid limitations on capital distributions (including dividends and repurchases of any Tier 1 capital instrument, including common and qualifying preferred stock) and certain discretionary incentive compensation payments. Currently, PNC and PNC Bank are required to maintain a CET1 capital ratio of at least 7.0%, a Tier 1 capital ratio of at least 8.5%, and a Total risk-based capital ratio of at least 10.5% to avoid limitations on capital distributions and certain discretionary incentive compensation payments. Beginning in the fourth quarter of 2022, under the SCB framework, PNC will be required to maintain a CET1 capital ratio of at least 7.4%, a Tier 1 capital ratio of at least 8.9%, and a Total risk-based capital ratio of at least 10.9%. The capital conservation buffer is applicable to PNC Bank, and therefore, the current capital requirements for PNC Bank will remain unchanged. At September 30, 2022, both PNC and PNC Bank were above these ratio requirements.

The regulatory agencies have adopted a rule permitting banks 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 initial allowance for purchased credit deteriorated loans from BBVA, 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 of our 2021 Form 10-K.

In the third quarter of 2020, the Federal Reserve, OCC and FDIC also adopted a final rule that revises the definition of "eligible retained income" for purposes of the stress capital buffer (SCB) and other Basel III capital buffers. This revision is designed to phase in the potential application of these buffers more gradually, especially in periods when banking organizations are distributing all or a substantial majority of their net income. Under the final rule, eligible retained income is the greater of (i) the banking organization's net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, and (ii) the average of the banking organization's net income over the preceding four quarters. PNC's eligible retained income at September 30, 2022 was $1.5 billion.

See Note 4 Loans and Related Allowance for Credit Losses of our September 30, 2022 Form 10-Q on additional information about the effects of COVID-19 related loan modifications on delinquency status, which impacts our risk-weighted calculations.

The following table outlines the Basel III ratios for PNC as of September 30, 2022:

Table 1: Capital Ratios (a)

September 30, 2022

In millions		Basel III		Fully Implemented
		(estimated)
Consolidated PNC
Regulatory capital
Common equity Tier 1 capital	$	39,372	$	38,644
Tier 1 capital	$	46,617	$	45,889
Total capital	$	54,515	$	54,503
Risk-weighted assets
Basel III standardized approach risk-weighted assets	$	423,446	$	423,593
Average quarterly adjusted total assets	$	539,869	$	539,141

Risk-based capital and leverage ratios
Common equity Tier 1	9.3 %	9.1 %
Tier 1	11.0 %	10.8 %
Total	12.9 %	12.9 %
Leverage	8.6 %	8.5 %

1. See Table 28: Basel III Capital in the Capital Management portion of the Liquidity and Capital Management section of Risk Management in our September 30, 2022 Form 10-Q for additional information on the elements of, and adjustments and deductions to, our consolidated regulatory capital.

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