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PNC Financial Services Group
2013 Annual Report
Meeting Main Street
Growing America

Table of contents

  • Page 1
    Meeting Main Street Growing America PNC Financial Services Group 2013 Annual Report

  • Page 2
    ... $ 1.15 Balance Sheet Assets Loans Deposits At year end 2013 $ 320,296 195,613 220,931 42,408 $ 72.21 (non-GAAP) 2012 $ 305,107 185,856 213,142 39,003 $ 67.05 $ 49.18 2011 $ 271,205 159,014 187,966 34,053 $ 61.52 $ 45.20 Shareholders' equity Book value per common share Tangible book value per...

  • Page 3
    ... a very good year in 2013. We reported record net income of $4.2 billion, or $7.39 per diluted common share, up from $3.0 billion, or $5.30 per diluted common share, in 2012. Our return on average assets was 1.38 percent. We grew commercial and consumer loans combined by $9.8 billion and deposits by...

  • Page 4
    ... that has not changed who we are, what we believe in or the model that has enabled us to truly be a part of the communities in which we do business. Total assets at year end Billions $320 PNC is a Main Street bank, not a Wall Street bank. We work to ensure small businesses can meet their payroll...

  • Page 5
    ...client acquisitions increased by 22 percent in 2013, with referral sales from other PNC lines of business up 44 percent compared to a year ago. AMG grew total revenue 7 percent year over year due to increases in the equity markets and strong sales production. Assets under administration increased 10...

  • Page 6
    ... of home purchase loan transactions year over year by 31 percent, more than double the industry purchase volume growth rate. We made significant progress in our work to build an integrated Purchase volume growth rate mortgage lending business that is a contributor to the PNC brand. In 2013, PNC...

  • Page 7
    ... order to survive, PNC invested heavily to grow. Our acquisitions of National City Corporation and the retail branch network of RBC Bank (USA) opened up unprecedented opportunities for future organic growth in new markets. But the integration of those businesses, along with a number of other smaller...

  • Page 8
    ...I Tier 1 common capital ratio at year end Disciplined risk management goes hand-in-hand with establishing a strong capital position to help ensure our ability to capitalize on opportunities when they arise as well as to sustain and continue executing on strategic priorities when faced with changing...

  • Page 9
    ... of our employees and the support of our board, shareholders, customers and partners in the community. This April, at our annual meeting of shareholders, Jim will retire from our board. I cannot thank him enough for his years of leadership, friendship and the wise counsel he continues to offer. Jim...

  • Page 10
    ... historical performance or from those anticipated in forward-looking statements, see the Cautionary Statement in Item 7 of our 2013 Annual Report on Form 10-K, which accompanies this letter. For additional information regarding PNC's pro forma Basel III Tier 1 common capital ratio, see the Funding...

  • Page 11
    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2013 Commission file number 001-09718 FORM 10-K THE PNC FINANCIAL SERVICES GROUP, INC. (Exact name of ...

  • Page 12
    ... Benefit Pension Plan Recourse And Repurchase Obligations Risk Management 2012 Versus 2011 Glossary Of Terms Cautionary Statement Regarding Forward-Looking Information Item 7A Item 8 Quantitative and Qualitative Disclosures About Market Risk. Financial Statements and Supplementary Data. Report...

  • Page 13
    ... Improvements Note 12 Time Deposits Note 13 Borrowed Funds Note 14 Capital Securities of Subsidiary Trusts and Perpetual Trust Securities Note 15 Employee Benefit Plans Note 16 Stock Based Compensation Plans Note 17 Financial Derivatives Note 18 Earnings Per Share Note 19 Equity Note 20 Other...

  • Page 14
    ... Impaired Loans Weighted Average Life of the Purchased Impaired Portfolios Accretable Difference Sensitivity - Total Purchased Impaired Loans Net Unfunded Credit Commitments Investment Securities Loans Held For Sale Details Of Funding Sources Shareholders' Equity Basel I Risk-Based Capital Estimated...

  • Page 15
    ... Sensitivity Analysis Net Interest Income Sensitivity to Alternative Rate Scenarios (Fourth Quarter 2013) Alternate Interest Rate Scenarios: One Year Forward Enterprise-Wide Gains/Losses Versus Value-at-Risk Customer-Related Trading Revenue Equity Investments Summary Financial Derivatives Summary...

  • Page 16
    ... Commercial Lending Asset Quality Indicators Home Equity and Residential Real Estate Balances Home Equity and Residential Real Estate Asset Quality Indicators - Excluding Purchased Impaired Loans Home Equity and Residential Real Estate Asset Quality Indicators - Purchased Impaired Loans Credit Card...

  • Page 17
    ...Value Information Related to Financial Instruments Changes in Goodwill by Business Segment Other Intangible Assets Amortization Expense on Existing Intangible Assets Summary of Changes in Customer-Related and Other Intangible Assets Commercial Mortgage Servicing Rights Residential Mortgage Servicing...

  • Page 18
    ... of Income Taxes Deferred Tax Assets and Liabilities Reconciliation of Statutory and Effective Tax Rates Net Operating Loss Carryforwards and Tax Credit Carryforwards Changes in Liability for Unrecognized Tax Benefits Basel I Regulatory Capital Net Outstanding Standby Letters of Credit Analysis of...

  • Page 19
    ... Raleigh, North Carolina, operated more than 400 branches in North Carolina, Florida, Alabama, Georgia, Virginia and South Carolina. The primary reasons for the acquisition of RBC Bank (USA) were to enhance shareholder value, to improve PNC's competitive position in the financial services industry...

  • Page 20
    ... reporting and global trade services. Capital markets-related products and services include foreign exchange, derivatives, securities, loan syndications and mergers and acquisitions advisory and related services to middle-market companies. We also provide commercial loan servicing, and real estate...

  • Page 21
    ... a publicly traded company, and additional information regarding its business is available in its filings with the Securities and Exchange Commission (SEC). Non-Strategic Assets Portfolio includes a consumer portfolio of mainly residential mortgage and brokered home equity loans and lines of credit...

  • Page 22
    ... of operation and profitability of our businesses. The profitability of our businesses could also be affected by rules and regulations that impact the business and 4 The PNC Financial Services Group, Inc. - Form 10-K financial communities in general, including changes to the laws governing taxation...

  • Page 23
    ...contingency funding plan and sufficient highly liquid assets to meet net stress cashflow needs (as determined under the company's liquidity stress tests) for 30 days, and establish certain oversight, governance and reporting responsibilities for the chief risk officer and risk committee of the Board...

  • Page 24
    ... I Tier 1 common capital, see the Funding and Capital Sources section of the Consolidated Balance Sheet Review section of Item 7 of this Report. Under the capital rules, a banking organization's risk-based capital ratios are calculated by allocating assets and specified off-balance sheet financial...

  • Page 25
    ... to pay or increase common stock dividends, reinstate or increase common stock repurchase programs, or redeem preferred stock or other regulatory capital instruments. In connection with the 2014 CCAR, PNC filed its capital plan and stress testing results using financial data as of September 30, 2013...

  • Page 26
    ...8 The PNC Financial Services Group, Inc. - Form 10-K condition. Further, in providing guidance to the large BHCs participating in the 2014 CCAR, discussed above, the Federal Reserve stated that it expects capital plans submitted in 2014 will reflect conservative dividend payout ratios and net share...

  • Page 27
    ... insurance underwriting activities, insurance company investment activities, real estate investment or development, and merchant banking. In order to have a financial subsidiary, a national bank and each of its depository institution affiliates must be and remain "well capitalized" and "well managed...

  • Page 28
    ... banking regulator could increase the costs to a bank and result in an aggregate cost of deposit funds higher than that of competing banks in a lower risk category. The methodology for the deposit insurance base calculation currently uses average assets less Tier 1 capital. Resolution Planning...

  • Page 29
    ... pool operator. BlackRock has subsidiaries in securities and related businesses subject to SEC, other governmental agencies, state, local and FINRA regulation, and a federally chartered nondepository trust company subsidiary subject to supervision The PNC Financial Services Group, Inc. - Form 10...

  • Page 30
    ... part-time employees were employed by our Retail Banking business. SEC REPORTS AND CORPORATE GOVERNANCE INFORMATION We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), and, in accordance with the Exchange Act, we file annual, quarterly...

  • Page 31
    ... Group, Inc.'s financial reports and information about its products and services are available on the internet at www.pnc.com. We provide information for investors on our corporate website under "About PNC - Investor Relations," such as Investor Events, Quarterly Earnings, SEC Filings, Financial...

  • Page 32
    ... 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 the importance of lending...

  • Page 33
    ... 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 fee income. The PNC Financial Services Group, Inc. - Form...

  • Page 34
    ..., customers may be less willing to maintain balances in non-interest bearing or low interest bank accounts, which could result in a loss of deposits or a relatively higher cost of funds to PNC. This could also result in a loss of fee income. In our asset management business, investment performance...

  • Page 35
    ... limit the ability of PNC to most effectively hedge its risks, manage its balance sheet or provide products or services to its customers. In addition, as of December 31, 2013, PNC held interests in private equity and hedge funds that appear to be covered funds subject to the Volcker Rule regulations...

  • Page 36
    ... vehicle or other assets that represent a portion of the credit risk of the assets held by the securitization vehicle, or indirect, by impacting markets in which PNC participates and increasing the costs associated with loan origination. Since the beginning of the financial crisis, there has...

  • Page 37
    ... information, often from customers themselves. Most corporate and commercial transactions are now handled electronically, and our retail customers increasingly use online access and mobile devices to bank with us. The ability to conduct business with The PNC Financial Services Group, Inc. - Form...

  • Page 38
    ...on PNC. As our customers regularly use PNC-issued credit and debit cards to pay for transactions with retailers and other businesses, there is 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...

  • Page 39
    ... pricing of various products, grading loans and extending credit, measuring interest rate and other market risks, predicting losses, assessing capital adequacy, and calculating economic and regulatory capital levels, as well as to estimate the value of financial instruments and balance sheet items...

  • Page 40
    ...home equity loan business and could reduce future business opportunities. Investors in mortgage loans and other assets that we sell are more likely to seek indemnification from us against losses or otherwise seek to have us share in such losses. The CFPB has issued new rules for mortgage origination...

  • Page 41
    ... rates charged on loans or paid on interest-bearing deposits), product structure, the range of products and services offered, and the quality of customer service (including convenience and responsiveness to customer needs and concerns). The ability to access and use technology is an increasingly...

  • Page 42
    ... Vice President and Chief Financial Officer 55 Executive Vice President and Head of Technology and Operations 50 Senior Vice President and Controller 2002 1972 There are no SEC staff comments regarding PNC's periodic or current reports under the Exchange Act that are pending resolution. ITEM...

  • Page 43
    ... service to PNC's retail and small business customers, directed branch banking, business banking, community development and PNC Investments. Michael J. Hannon has served as Executive Vice President since February 2009, prior to which he served as Senior Vice President. He has served as Chief Credit...

  • Page 44
    ..., 71, Operating Partner, Snow Phipps Group, LLC (private equity) (1995) • William S. Demchak, 51, Chief Executive Officer and President of PNC (2013) • Andrew T. Feldstein, 49, Co-Founder and Chief Executive Officer of BlueMountain Capital Management, LLC (asset management firm) (2013) • Kay...

  • Page 45
    ...Financial Statements in Item 8 of this Report include additional information regarding our employee benefit plans that use PNC common stock. (b) Our current stock repurchase program allows us to purchase up to 25 million shares on the open market or in privately negotiated transactions. This program...

  • Page 46
    ... from the value of BlackRock shares issued in connection with BlackRock's acquisition of Barclays Global Investors (BGI) on December 1, 2009. (c) Includes results of operations for PNC Global Investment Servicing Inc. (GIS) through June 30, 2010 and the related after-tax gain on sale. We sold...

  • Page 47
    ... shareholders' equity Average assets Loans to deposits Dividend payout Basel I Tier 1 common Basel I Tier 1 risk-based Common shareholders' equity to total assets Average common shareholders' equity to average assets SELECTED STATISTICS Employees Retail Banking branches ATMs Residential mortgage...

  • Page 48
    ... of growing customers, loans, deposits and fee revenue and improving profitability, while investing for the future and managing risk, expenses and capital. We continue to invest in our products, markets and brand, and embrace our corporate responsibility to the communities where we do business. We...

  • Page 49
    ... other performance of, and availability of liquidity in, the capital and other financial markets, • Loan demand, utilization of credit commitments and standby letters of credit, and asset quality, • Customer demand for non-loan products and services, • Changes in the competitive and regulatory...

  • Page 50
    ... Information section in this Item 7 and Item 1A Risk Factors in this Report. Table 1: Summary Financial Results Year ended December 31 2013 2012 Net income (millions) Diluted earnings per common share from net income Return from net income on: Average common shareholders' equity Average assets...

  • Page 51
    ... 2013. In April 2013, our Board of Directors approved an increase to PNC's quarterly common stock dividend from 40 cents per common share to 44 cents per common share. A share repurchase program for 2013 was not included in the capital plan primarily as a result of PNC's 2012 acquisition of RBC Bank...

  • Page 52
    ... ended December 31 Dollars in millions 2013 2012 Change $ % Average assets Interest-earning assets Investment securities Loans Other Total interest-earning assets Noninterest-earning assets Total average assets Average liabilities and equity Interest-bearing liabilities Interest-bearing deposits...

  • Page 53
    ...in Item 8 of this Report. Table 3: Results of Businesses - Summary (Unaudited) Year ended December 31 In millions Net Income (Loss) 2013 2012 Revenue 2013 2012 Average Assets (a) 2013 2012 Retail Banking Corporate & Institutional Banking Asset Management Group Residential Mortgage Banking BlackRock...

  • Page 54
    ...higher revenue associated with private equity investments and commercial mortgage loans held for sale. In addition, the increase reflected higher revenue from credit valuations for customer-related derivatives activities as higher market interest rates reduced the fair value of PNC's credit exposure...

  • Page 55
    ... 23.9% for 2012. The effective tax rate is generally lower than the statutory rate primarily due to tax credits PNC receives from our investments in low income housing and new markets investments, as well as earnings in other tax exempt investments. The PNC Financial Services Group, Inc. - Form 10...

  • Page 56
    ...2013 2012 Change $ % Assets Interest-earning deposits with banks Loans held for sale Investment securities Loans Allowance for loan and lease losses Goodwill Other intangible assets Other, net Total assets Liabilities Deposits Borrowed funds Other Total liabilities Equity Total shareholders' equity...

  • Page 57
    ... and the carrying value of the loan) on those loans. Table 7: Details Of Loans Year ended December 31 Dollars in millions 2013 2012 Change $ % Commercial lending Commercial Retail/wholesale trade Manufacturing Service providers Real estate related (a) Financial services Health care Other industries...

  • Page 58
    ... 31, 2012. Commercial real estate loans represented 11% of total loans at December 31, 2013 and 10% at December 31, 2012 and represented 7% of total assets at December 31, 2013 and 6% at December 31, 2012. See the Credit Risk Management portion of the Risk Management section of this Item 7 for...

  • Page 59
    ... consumer portfolio increased, primarily driven by residential real estate and home equity loans. Increasing a portfolio's weighted average life will result in more interest income being recognized on purchased impaired loans in future periods. The PNC Financial Services Group, Inc. - Form 10-K 41

  • Page 60
    ... 31 2013 December 31 2012 Total commercial lending (a) Home equity lines of credit Credit card Other Total $ 90,104 18,754 16,746 4,266 $129,870 $ 78,703 19,814 17,381 4,694 $120,592 (a) Less than 5% of net unfunded credit commitments relate to commercial real estate at each date. Expected...

  • Page 61
    ... credit products, primarily home equity loans and government guaranteed student loans, and corporate debt. Includes available for sale and held to maturity securities. Investment securities represented 19% of total assets at December 31, 2013 and 20% at December 31, 2012. We evaluate our investment...

  • Page 62
    ... Investment Securities and Note 9 Fair Value in the Notes To Consolidated Financial Statements included in Item 8 of this Report. LOANS HELD FOR SALE Table 15: Loans Held For Sale In millions December 31 2013 December 31 2012 Commercial mortgages at fair value Commercial mortgages at lower of cost...

  • Page 63
    ... of this Item 7. The PNC Financial Services Group, Inc. - Form 10-K 45 Deposits Money market Demand Retail certificates of deposit Savings Time deposits in foreign offices and other time deposits Total deposits Borrowed funds Federal funds purchased and repurchase agreements Federal Home Loan Bank...

  • Page 64
    ... to meet the credit needs of their customers through estimated stress scenarios. They have also stated their view that common equity should be the dominant form of Tier 1 capital. As a result, regulators are now emphasizing the Tier 1 common capital ratio in their evaluation of bank holding company...

  • Page 65
    ... available for sale securities and pension and other postretirement plans, whereas under Basel III these items are a component of PNC's capital. The Basel III final rule also eliminates the Tier 1 treatment of trust preferred securities for bank holding companies with $15 billion or more in assets...

  • Page 66
    ... Exchange Agreement with PNC Preferred Funding Trust II. See Note 14 Capital Securities of Subsidiary Trusts and Perpetual Trust Securities in the Notes To Consolidated Financial Statements in Item 8 of this Report for additional information on contractual limitations on dividend payments resulting...

  • Page 67
    ... majority of assets recorded at fair value are included in the securities available for sale portfolio. The majority of Level 3 assets represent non-agency residential mortgage-backed securities in the securities available for sale portfolio for which there was limited market activity. An instrument...

  • Page 68
    ... Kingdom operations, loans with acceptable risk as they are predominantly well secured by short-term assets or, in limited situations, the borrower's appraised value of certain fixed assets. Country exposures are monitored and reported on a regular basis. We actively monitor sovereign risk, banking...

  • Page 69
    ... of 2012, we adopted a policy stating that Home equity loans past due 90 days or more would be placed on nonaccrual status. (j) Excludes satellite offices (e.g., drive-ups, electronic branches and retirement centers) that provide limited products and/or services. (k) Percentage of total deposit...

  • Page 70
    ... full year of operating expense in 2013 associated with the RBC Bank (USA) acquisition. 52 The PNC Financial Services Group, Inc. - Form 10-K Growing core checking deposits is key to Retail Banking's growth and to providing a source of low-cost funding to PNC. The deposit product strategy of Retail...

  • Page 71
    ... management, capital markets-related products and services, and commercial mortgage banking activities in the Product Revenue section of the Corporate & Institutional Banking Review. (b) Includes amounts reported in net interest income and corporate service fees. (c) Includes amounts reported in net...

  • Page 72
    ... Corporate Banking business provides lending, treasury management and capital markets-related products and services to mid-sized corporations, government and not-for-profit entities, and to large corporations. Average loans for this business increased $5.7 billion, or 13%, in 2013 compared with 2012...

  • Page 73
    ... risk as the loans are mainly secured by short-term assets. Average loans increased $1.6 billion, or 16%, in 2013 compared with 2012 due to customers seeking stable lending sources, loan usage rates and market share expansion. PNC Equipment Finance was the 4th largest bankaffiliated leasing company...

  • Page 74
    ... $ 145 (a) As of December 31. (b) Includes nonperforming loans of $70 million at both December 31, 2013 and December 31, 2012. (c) Recorded investment of purchased impaired loans related to acquisitions. (d) Excludes brokerage account assets. 56 The PNC Financial Services Group, Inc. - Form 10-K

  • Page 75
    ... to staff in high opportunity markets. Through 2013, the business delivered strong sales production and benefited from sales sourced from other PNC lines of business. Highlights of Asset Management Group's performance during 2013 include the following: • Positive net flows of approximately...

  • Page 76
    ...MSR capitalization value (in basis points) Weighted-average servicing fee (in basis points) Residential Mortgage Repurchase Reserve Beginning of period (Benefit)/ Provision RBC Bank (USA) acquisition Agency settlements Losses - loan repurchases End of Period Other Information Loan origination volume...

  • Page 77
    ... by lower loan sales revenue. The strategic focus of the business is the acquisition of new customers through a retail loan officer sales force with an emphasis on home purchase transactions. Our strategy involves competing on the basis of superior service to new and existing customers in serving...

  • Page 78
    ... total revenue Efficiency Other Information Nonperforming assets (b) (c) Purchased impaired loans (b) (d) Net charge-offs Net charge-off ratio Loans (b) Commercial Lending Commercial/Commercial real estate Lease financing Total commercial lending Consumer Lending Home equity Residential real estate...

  • Page 79
    ... business activity of this segment is to manage the wind-down of the portfolio while maximizing the value and mitigating risk. In March 2012, RBC Bank (USA) was acquired, which added approximately $1.0 billion of residential real estate loans, $.2 billion of commercial/commercial real estate loans...

  • Page 80
    ...Management section of this Item 7 (which includes an illustration of the estimated impact on the aggregate of the ALLL and allowance for unfunded loan commitments and letters of credit assuming we increased pool reserve loss rates for certain loan categories), and 62 The PNC Financial Services Group...

  • Page 81
    ... fourth quarter of 2012 within Noninterest expense which reduced the carrying value of goodwill attributed to Residential Mortgage Banking to zero. See Note 10 Goodwill and Other Intangible Assets in the Notes To Consolidated Financial Statements in Item 8 of this Report for additional information...

  • Page 82
    ...• Asset management, • Customer deposits, • Loan sales and servicing, • Brokerage services, • Sale of loans and securities, • Certain private equity activities, and • Securities, derivatives and foreign exchange activities. We also earn fees and commissions from issuing loan commitments...

  • Page 83
    ... be presented in the statement of financial position as a reduction to a deferred tax asset for a net operating loss (NOL) carryforward, similar tax loss, or a tax credit carryforward except when an NOL carryforward, similar tax loss, or tax credit carryforward is not available under the tax law of...

  • Page 84
    ... investment strategy, plan assets are primarily invested in equity investments and fixed income instruments. Plan fiduciaries determine and review the plan's investment policy, which is described more fully in Note 15 Employee Benefit Plans in the Notes To Consolidated Financial Statements in Item...

  • Page 85
    ... Group, Inc. - Form 10-K 67 RECOURSE AND REPURCHASE OBLIGATIONS As discussed in Note 3 Loan Sale and Servicing Activities and Variable Interest Entities in the Notes To Consolidated Financial Statements in Item 8 of this Report, PNC has sold commercial mortgage, residential mortgage and home equity...

  • Page 86
    ... Private Investors (a) Total unresolved claims FNMA, FHLMC and GNMA % (a) Activity relates to loans sold through Non-Agency securitization and loan sale transactions. $13 22 $35 37% $148 24 $172 86% $ 96 37 $133 72% $165 45 $210 79% $290 47 $337 86% 68 The PNC Financial Services Group...

  • Page 87
    ...home equity loans/lines of credit that were sold to a limited number of private investors in the financial services industry by National City prior to our acquisition of National City. PNC is no longer engaged in the brokered home equity lending business, and our exposure under these loan repurchase...

  • Page 88
    ... existing and potential future claims. 70 The PNC Financial Services Group, Inc. - Form 10-K At December 31, 2013 and December 31, 2012, the liability for estimated losses on indemnification and repurchase claims for home equity loans/lines of credit was $22 million and $58 million, respectively...

  • Page 89
    ... enterprise risk management. The Risk Committee of the Board of The PNC Financial Services Group, Inc. - Form 10-K 71 Risk Organization & Governance Risk Monitoring & Reporting Risk Appetite Statement Risk Capacity Appetite & Strategy Risk Identification & Quantification Risk Controls & Limits...

  • Page 90
    ... also form ad hoc groups (working groups) to address specific risk topics and report to a working committee or corporate committee. These working groups generally have a more narrow scope and may be limited in their duration. Policies and Procedures - PNC has established risk management policies and...

  • Page 91
    ...our purchased impaired loan portfolio. Increasing value of residential real estate is among the factors contributing to improved credit quality. • The level of ALLL decreased to $3.6 billion at December 31, 2013 from $4.0 billion at December 31, 2012. The PNC Financial Services Group, Inc. - Form...

  • Page 92
    ... Additional information regarding our nonperforming loans and nonaccrual policies is included in Note 1 Accounting Policies in the Notes To Consolidated Financial Statements in Item 8 of this Report. The major categories of nonperforming assets are presented in Table 35. In the first quarter of 2013...

  • Page 93
    ... 31 2013 December 31 2012 Nonperforming loans Commercial lending Commercial Retail/wholesale trade Manufacturing Service providers Real estate related (a) Financial services Health care Other industries Total commercial Commercial real estate Real estate projects (b) Commercial mortgage Total...

  • Page 94
    ...December 31, 2013, commercial lending nonperforming loans are carried at approximately 64% of their unpaid principal balance, due to charge-offs recorded to date, before consideration of the ALLL. See Note 5 Asset Quality in the Notes To Consolidated Financial Statements in Item 8 of this Report for...

  • Page 95
    ... 31 2013 2012 Dollars in millions Commercial Commercial real estate Equipment lease financing Home equity Residential real estate Non government insured Government insured Credit card Other consumer Non government insured Government insured Total (a) See note (a) at Table 40: Accruing Loans Past...

  • Page 96
    ... days or more decreased $315 million, of which $295 million related to residential real estate government insured loans. As part of this alignment, these loans were moved into nonaccrual status. On a regular basis our Special Asset Committee closely monitors loans, primarily commercial loans, that...

  • Page 97
    ...are scheduled to end. Table 41: Home Equity Lines of Credit - Draw Period End Dates In millions Interest Only Product Principal and Interest Product See Note 5 Asset Quality in the Notes To Consolidated Financial Statements in Item 8 of this Report for additional information. LOAN MODIFICATIONS AND...

  • Page 98
    ... Real Estate Related Loan Modifications December 31, 2013 Unpaid Number of Principal Accounts Balance December 31, 2012 Unpaid Number of Principal Accounts Balance Dollars in millions Home equity Temporary Modifications Permanent Modifications Total home equity Residential Mortgages Permanent...

  • Page 99
    ... as in Note 5 Asset Quality in the Notes To Consolidated Financial Statements in Item 8 of this Report. Beginning in 2010, we established certain commercial loan modification and payment programs for small business loans, Small Business Administration loans, and investment real estate loans. As of...

  • Page 100
    ... are not returned to accrual status. See Note 5 Asset Quality in the Notes To Consolidated Financial Statements in this Report for additional information. 82 The PNC Financial Services Group, Inc. - Form 10-K For 2013, gross charge-offs were $1.6 billion and net chargeoffs to average loans was 0.57...

  • Page 101
    ... factors, • Model imprecision, • Changes in lending policies and procedures, • Timing of available information, including the performance of first lien positions, and • Limitations of available historical data. Purchased impaired loans are initially recorded at fair value and applicable...

  • Page 102
    ... executive management team is responsible for monitoring significant risks, key controls and related issues through management reporting and a governance structure of risk committees and sub-committees. Within Risk Management, Operational Risk Management functions are responsible for developing and...

  • Page 103
    ... Unit management is responsible for the day-to-day management of operational risks inherent in the products, services, and activities for which they are responsible. Business Unit management is also responsible for adhering to PNC's enterprise-wide operational risk management policies and procedures...

  • Page 104
    ... of reporting insurance related activities through a governance structure that allows management to fully vet risk information. PNC, through a subsidiary company, Alpine Indemnity Limited, provides insurance coverage for select corporate programs. PNC's risks associated with its participation as...

  • Page 105
    ... is available to meet our parent company obligations over the succeeding 24-month period. Risk limits for parent company liquidity are established within our Enterprise Capital and Liquidity Management Policy. Management's Asset and Liability Committee and the Board of Directors' Risk Committee...

  • Page 106
    ... funds purchased, securities sold under repurchase agreements, commercial paper issuances and other short-term borrowings). In 2004, PNC Bank, N.A. was authorized by its Board to offer up to $20 billion in senior and subordinated unsecured debt obligations with maturities of more than nine months...

  • Page 107
    ... of credit on behalf of PNC Bank, N.A. to secure certain public deposits. PNC Bank, N.A. began using standby letters of credit issued by the FHLB-Pittsburgh in response to anticipated regulatory changes to strengthen the liquidity requirements for large banks. If the FHLB-Pittsburgh is required to...

  • Page 108
    ... billion in funds available from its cash and investments. We can also generate liquidity for the parent company and PNC's non-bank subsidiaries through the issuance of debt securities and equity securities, including certain capital instruments, in public or private markets and commercial paper. We...

  • Page 109
    ... to insurance sold to our customers. Balances represent estimates based on availability of financial information. (d) Includes unfunded commitments related to private equity investments of $164 million that are not on our Consolidated Balance Sheet. Also includes commitments related to tax credit...

  • Page 110
    ... interest rates, credit spreads, foreign exchange rates and equity prices. We are exposed to market risk primarily by our involvement in the following activities, among others: • Traditional banking activities of taking deposits and extending loans, • Equity and other investments and activities...

  • Page 111
    ..., to changing interest rates and market conditions. MARKET RISK MANAGEMENT - CUSTOMER-RELATED TRADING RISK We engage in fixed income securities, derivatives and foreign exchange transactions to support our customers' investing and hedging activities. These transactions, related hedges and the credit...

  • Page 112
    ... capital. The Business Segments Review section of this Item 7 includes additional information about BlackRock. TAX CREDIT INVESTMENTS Included in our equity investments are tax credit investments which are accounted for under the equity method. These 94 The PNC Financial Services Group, Inc. - Form...

  • Page 113
    ... of financial derivatives as part of the overall asset and liability risk management process to help manage exposure to interest rate, market and credit risk inherent in our business activities. Substantially all such instruments are used to manage risk related to changes in interest rates. Interest...

  • Page 114
    ... of merchant, customer credit card and debit card transactions and the impact of the RBC Bank (USA) acquisition. Corporate services revenue increased by $.3 billion, or 30%, to $1.2 billion in 2012 compared with $.9 billion in 2011 due to higher commercial mortgage servicing revenue and higher...

  • Page 115
    ... equity loans and $.3 billion of credit card loans), $2.1 billion of residential real estate, and $.1 billion of equipment lease financing loans. Excluding acquisition activity, the increase in commercial loans was due to growth primarily in asset-based lending, real estate, healthcare, and public...

  • Page 116
    ... related to PNC's Residential Mortgage Banking reporting unit. See Note 2 Acquisition and Divestiture Activity and Note 10 Goodwill and Other Intangible Assets in the Notes To Consolidated Financial Statements included in Item 8 of this Report and in our 2012 Form 10-K. Funding Sources Total funding...

  • Page 117
    ...-bearing deposits, average money market deposits and average interest-bearing demand deposits drove the increase in transaction deposits, which resulted from deposits added in the RBC Bank (USA) acquisition and organic growth. Average total deposits represented 68% of average total assets for 2012...

  • Page 118
    ... loan-to-value ratio (CLTV) - This is the aggregate principal balance(s) of the mortgages on a property divided by its appraised value or purchase price. Commercial mortgage banking activities - Includes commercial mortgage servicing, originating commercial mortgages for sale and related hedging...

  • Page 119
    .... Nonperforming loans include loans to commercial, commercial real estate, equipment lease financing, home equity, residential real estate, credit card and other consumer customers as well as TDRs which have not returned to performing status. Nonperforming loans exclude certain government insured or...

  • Page 120
    ... the change in the fair value of the associated securities and derivative instruments. Return on average assets - Annualized net income divided by average assets. Return on average capital - Annualized net income divided by average capital. 102 The PNC Financial Services Group, Inc. - Form 10-K

  • Page 121
    ... right to receive a fee for collecting and forwarding payments on loans and related taxes and insurance premiums held in escrow. Swaptions - Contracts that grant the purchaser, for a premium payment, the right, but not the obligation, to enter into an interest rate swap agreement during a specified...

  • Page 122
    ... of unemployment, loan utilization rates, delinquencies, defaults and counterparty ability to meet credit and other obligations. 104 The PNC Financial Services Group, Inc. - Form 10-K - • • • • Changes in customer preferences and behavior, whether due to changing business and economic...

  • Page 123
    ...more detail by BlackRock in its SEC filings. • • • We grow our business in part by acquiring from time to time other financial services companies, financial services assets and related deposits and other liabilities. Acquisition risks and uncertainties include those presented by the nature...

  • Page 124
    ... REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of The PNC Financial Services Group, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and comprehensive income, of changes in equity...

  • Page 125
    ...PNC FINANCIAL SERVICES GROUP, INC. In millions, except per share data Year ended December 31 2013 2012 2011 Interest Income Loans Investment securities Other Total interest income Interest Expense Deposits Borrowed funds Total interest expense Net interest income Noninterest Income Asset management...

  • Page 126
    CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME THE PNC FINANCIAL SERVICES GROUP, INC. In millions Year ended December 31 2013 2012 2011 Net income Other comprehensive income (loss), before tax and net of reclassifications into Net income: Net unrealized gains (losses) on non-OTTI securities Net ...

  • Page 127
    ...and $319 measured at fair value) (b) Total assets Liabilities Deposits Noninterest-bearing Interest-bearing Total deposits Borrowed funds Federal funds purchased and repurchase agreements Federal Home Loan Bank borrowings Bank notes and senior debt Subordinated debt Commercial paper (includes $0 and...

  • Page 128
    ... par value were issued on May 7, 2013. (j) Includes an impact to noncontrolling interests for deconsolidation of limited partnership or non-managing member interests related to tax credit investments in the amount of $675 million during the second quarter of 2013. See Note 3 Loan Sale and Servicing...

  • Page 129
    ... BlackRock Excess tax benefits from share-based payment arrangements Net change in Trading securities and other short-term investments Loans held for sale Other assets Accrued expenses and other liabilities Other Net cash provided (used) by operating activities Investing Activities Sales Securities...

  • Page 130
    ... FLOWS THE PNC FINANCIAL SERVICES GROUP, INC. (continued from previous page) In millions Unaudited Year ended December 31 2013 2012 2011 Financing Activities Net change in Noninterest-bearing deposits Interest-bearing deposits Federal funds purchased and repurchase agreements Federal Home Loan Bank...

  • Page 131
    ... banking, asset management, and residential mortgage banking, providing many of its products and services nationally, as well as other products and services in PNC's primary geographic markets located in Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Maryland, Indiana, North Carolina, Florida...

  • Page 132
    ...• Asset management, • Customer deposits, • Loan sales and servicing, • Brokerage services, • Sale of loans and securities, • Certain private equity activities, and • Securities, derivatives and foreign exchange activities. We earn fees and commissions from: • Issuing loan commitments...

  • Page 133
    ...recorded on a trade-date basis. We classify debt securities as held to maturity and carry them at amortized cost if we have the positive intent and ability to hold the securities to maturity. Debt securities that we purchase for certain risk management activities, customer-related trading activities...

  • Page 134
    ... environment, market conditions and the availability of government programs. Measurement of delinquency status is based on the contractual terms of each loan. Loans that are 30 days or more past due in terms of payment are considered delinquent. 116 The PNC Financial Services Group, Inc. - Form 10...

  • Page 135
    ... Residential mortgage noninterest income each period. See Note 9 Fair Value for additional information. Interest income with respect to loans held for sale is accrued based on the principal amount outstanding and the loan's contractual interest rate. The PNC Financial Services Group, Inc. - Form 10...

  • Page 136
    ... dollar commercial loans of $1 million or less, a partial or full charge-off will occur at 120 days past due for term loans and 180 days past due for revolvers. 118 The PNC Financial Services Group, Inc. - Form 10-K Certain small business credit card balances are placed on nonaccrual status when...

  • Page 137
    .... We estimate fair values primarily based on appraisals, or sales agreements with third parties. Fair value also considers the proceeds expected from government insurance and guarantees upon the conveyance of the other real estate owned (OREO). The PNC Financial Services Group, Inc. - Form 10-K 119

  • Page 138
    ... Model imprecision, • Changes in lending policies and procedures, • Timing of available information, including the performance of first lien positions, and • Limitations of available historical data. In determining the appropriateness of the ALLL, we make specific allocations to impaired loans...

  • Page 139
    ... on current market conditions. Revenue from the various loan servicing contracts for commercial, residential and other consumer loans is reported on the Consolidated Income Statement in line items Corporate services, Residential mortgage and Consumer services. FAIR VALUE OF FINANCIAL INSTRUMENTS The...

  • Page 140
    ... our asset and liability management process and through credit policies and procedures. We seek to minimize counterparty credit risk by entering into transactions with only high-quality institutions, establishing credit limits, and generally requiring bilateral netting and collateral agreements. We...

  • Page 141
    ... basis, fair value measurement for certain financial instruments with embedded derivatives. We enter into commitments to originate residential and commercial mortgage loans for sale. We also enter into commitments to purchase or sell commercial and residential real estate loans. These commitments...

  • Page 142
    .... Refer to Note 2 Acquisition and Divestiture Activity in Item 8 of our 2012 Form 10-K for additional details related to the RBC Bank (USA) transactions. 2012 SALE OF SMARTSTREET Effective October 26, 2012, PNC divested certain deposits and assets of the Smartstreet business unit, which was acquired...

  • Page 143
    ...securitizations, Non-agency securitizations, and loan sale transactions generally consists of servicing, repurchases of previously transferred loans under certain conditions and loss share arrangements, and, in limited circumstances, holding of mortgage-backed securities issued by the securitization...

  • Page 144
    ... 1,456 176 93 411 $2,754 $ 9 21 (6) (a) Represents financial and cash flow information associated with both commercial mortgage loan transfer and servicing activities. (b) These activities were part of an acquired brokered home equity lending business in which PNC is no longer engaged. See Note 24...

  • Page 145
    ... millions Residential Mortgages Commercial Mortgages Home Equity Loans/Lines (a) Year ended December 31, 2013 Net charge-offs (b) Year ended December 31, 2012 Net charge-offs (b) $303 $978 $262 (a) These activities were part of an acquired brokered home equity lending business in which PNC is no...

  • Page 146
    ... 31, 2012 In millions Market Street Credit Card Securitization Trust (e) Tax Credit Investments Total Assets Cash and due from banks Interest-earning deposits with banks Investment securities Loans Allowance for loan and lease losses Equity investments Other assets Total assets Liabilities...

  • Page 147
    ...business is to generate income from the syndication of these funds, generate servicing fees by managing the funds, and earn tax credits to reduce our tax liability. General partner or managing member activities include selecting, evaluating, structuring, negotiating, and closing the fund investments...

  • Page 148
    ... Summary In millions December 31 2013 December 31 2012 Commercial lending Commercial Commercial real estate Equipment lease financing Total commercial lending Consumer lending Home equity Residential real estate Credit card Other consumer Total consumer lending Total loans (a) (b) 36,447 15,065...

  • Page 149
    ... payments when due. We do not believe that these product features create a concentration of credit risk. At December 31, 2013, we pledged $23.4 billion of commercial loans to the Federal Reserve Bank (FRB) and $40.4 billion of residential real estate and other loans to the Federal Home Loan Bank...

  • Page 150
    ... Nonperforming Loans Purchased Impaired Total Loans December 31, 2013 Commercial Commercial real estate Equipment lease financing Home equity (d) Residential real estate (d) (e) Credit card Other consumer (d) (f) Total Percentage of total loans December 31, 2012 Commercial Commercial real estate...

  • Page 151
    ... 64: Nonperforming Assets Dollars in millions December 31 2013 December 31 2012 Nonperforming loans Commercial lending Commercial Commercial real estate Equipment lease financing Total commercial lending Consumer lending (a) Home equity (b) Residential real estate (b) Credit card Other consumer...

  • Page 152
    ... on a risk-adjusted basis, generally at least once per year. Additionally, no less frequently than on an annual basis, we update PD rates related to each rating grade based upon internal historical data, augmented by market data. For small balance homogenous pools of commercial loans, mortgages and...

  • Page 153
    ... regions to manage geographic exposures and associated risks. A combination of updated FICO scores, originated and updated LTV ratios and geographic location assigned to home equity loans and lines of credit and residential real estate loans The PNC Financial Services Group, Inc. - Form 10-K 135

  • Page 154
    ... purchased impaired loans. Consumer cash flow estimates are influenced by a number of credit related items, which include, but are not limited to: estimated real estate values, payment patterns, updated FICO scores, the current economic environment, updated LTV ratios and the date of origination...

  • Page 155
    ... billion in recorded investment, certain government insured or guaranteed residential real estate mortgages of approximately $1.7 billion and $2.3 billion, and loans held for sale at December 31, 2013 and December 31, 2012, respectively. See the Home Equity and Residential Real Estate Asset Quality...

  • Page 156
    ... values. These ratios are updated at least semi-annually. The related estimates and inputs are based upon an approach that uses a combination of third-party automated valuation models (AVMs), HPI indices, property location, internal and external balance information, origination data and management...

  • Page 157
    ... loans with no FICO score available or required refers to new accounts issued to borrowers with limited credit history, accounts for which we cannot obtain an updated FICO (e.g., recent profile changes), cards issued with a business name, and/or cards secured by collateral. Management proactively...

  • Page 158
    ...terms and are excluded from nonperforming loans. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to PNC are not returned to accrual status. 140 The PNC Financial Services Group, Inc. - Form 10-K

  • Page 159
    ... 71: Financial Impact and TDRs by Concession Type (a) During the year ended December 31, 2013 Dollars in millions Number of Loans Pre-TDR Recorded Investment (b) Post-TDR Recorded Investment (c) Principal Rate Forgiveness Reduction Other Total Commercial lending Commercial Commercial real estate...

  • Page 160
    ... guidance issued in the third quarter of 2012, management compiled TDR information related to changes in treatment of certain loans where a borrower has been discharged from personal liability in bankruptcy and has not formally reaffirmed its loan obligation to PNC. Because of the timing of...

  • Page 161
    ... in millions Number of Contracts Recorded Investment Commercial lending Commercial Commercial real estate Total commercial lending (a) Consumer lending Home equity Residential real estate Credit card Other consumer Total consumer lending Total TDRs During the year ended December 31, 2012 Dollars in...

  • Page 162
    ... 73: Impaired Loans Unpaid Principal Balance Recorded Investment (a) Associated Allowance (b) Average Recorded Investment (a) In millions December 31, 2013 Impaired loans with an associated allowance Commercial Commercial real estate Home equity Residential real estate Credit card Other consumer...

  • Page 163
    ... the consumer portfolio primarily due to increases in the expected average life of residential and home equity loans. The remaining net reclassifications were predominantly due to future cash flow improvements within the commercial portfolio. The PNC Financial Services Group, Inc. - Form 10-K 145

  • Page 164
    ..., • Model imprecision, • Changes in lending policies and procedures, • Timing of available information, including the performance of first lien positions, and • Limitations of available historical data. ALLOWANCE FOR PURCHASED NON-IMPAIRED LOANS ALLL for purchased non-impaired loans is...

  • Page 165
    ... Losses and Associated Loan Data In millions Commercial Lending Consumer Lending Total December 31, 2013 Allowance for Loan and Lease Losses January 1 Charge-offs Recoveries Net charge-offs Provision for credit losses Net change in allowance for unfunded loan commitments and letters of credit Other...

  • Page 166
    ... of Allowance for Unfunded Loan Commitments and Letters of Credit In millions 2013 2012 2011 January 1 Net change in allowance for unfunded loan commitments and letters of credit December 31 $250 (8) $242 $240 10 $250 $188 52 $240 148 The PNC Financial Services Group, Inc. - Form 10-K

  • Page 167
    ...: Investment Securities Summary In millions Amortized Cost Unrealized Gains Losses Fair Value December 31, 2013 SECURITIES AVAILABLE FOR SALE Debt securities U.S. Treasury and government agencies Residential mortgage-backed Agency Non-agency Commercial mortgage-backed Agency Non-agency Asset-backed...

  • Page 168
    ... to securities transferred, which are offset in Accumulated Other Comprehensive Income, net of tax. The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the securities available for sale...

  • Page 169
    ... Unrealized loss position 12 months or more Unrealized Fair Loss Value Total Unrealized Loss In millions Fair Value December 31, 2013 Debt securities U.S. Treasury and government agencies Residential mortgage-backed Agency Non-agency Commercial mortgage-backed Agency Non-agency Asset-backed State...

  • Page 170
    ...income (loss), net of tax, on securities that we do not expect to sell were as follows: Table 81: Other-Than-Temporary Impairments Year ended December 31 In millions 2013 2012 2011 Credit portion of OTTI losses Available for sale securities: Non-agency residential mortgage-backed Asset-backed Other...

  • Page 171
    ... Years through 10 Years After 10 Years Total SECURITIES AVAILABLE FOR SALE U.S. Treasury and government agencies Residential mortgage-backed Agency Non-agency Commercial mortgage-backed Agency Non-agency Asset-backed State and municipal Other debt Total debt securities available for sale Fair value...

  • Page 172
    ... sale, commercial mortgage servicing rights, equity investments and other assets. These assets which are generally classified as Level 3 are included in Table 90 in this Note 9. We characterize active markets as those where transaction volumes are sufficient to provide objective pricing information...

  • Page 173
    ... market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. One of the vendor's prices are set with reference to market activity for highly liquid assets such as U.S. Treasury and agency securities and agency residential mortgage...

  • Page 174
    ... and certain interest rate options. Other contracts include risk participation agreements and other types of contracts. The fair value of residential mortgage loan commitment assets as of December 31, 2013 are included in the Insignificant Level 3 assets, net of liabilities line item in Table 89...

  • Page 175
    ... from a loan pricing service, sale commitments, or a model based on indications received in marketing the credit or on the loan's characteristics in comparison to market data on similar loans. These instruments are classified as Level 2. The PNC Financial Services Group, Inc. - Form 10-K 157

  • Page 176
    ... reviews the portfolio company valuations on a quarterly basis and oversight is provided by senior management of the business. We value indirect investments in private equity funds based on net asset value as provided in the financial statements that we receive from their managers. Due to the time...

  • Page 177
    ... plan participants may also invest based on fixed income and equity-based funds. PNC utilizes a Rabbi Trust to hedge the returns by purchasing similar funds on which the participant returns are based. The Rabbi Trust balances are recorded in Other Assets at fair value using the quoted market price...

  • Page 178
    ... securities Trading loans (a) Residential mortgage servicing rights (f) Commercial mortgage loans held for sale (c) Equity investments (a) Direct investments Indirect investments (g) Total equity investments Customer resale agreements (h) Loans (i) Other assets (a) BlackRock Series C Preferred...

  • Page 179
    ... available for sale Financial derivatives Residential mortgage loans held for sale Trading securities - Debt Residential mortgage servicing rights Commercial mortgage loans held for sale Equity investments Direct investments Indirect investments Total equity investments Loans Other assets BlackRock...

  • Page 180
    ... 49 Total securities available for sale 6,729 Financial derivatives 67 Residential mortgage loans held for sale Trading securities - Debt 39 Residential mortgage servicing rights 647 Commercial mortgage loans held for sale 843 Equity investments Direct investments 856 Indirect investments 648 Total...

  • Page 181
    ... securities Trading securities - Debt Residential mortgage servicing rights Commercial mortgage loans held for sale Equity investments - Direct investments Equity investments - Indirect (d) Loans - Residential real estate 164 Discounted cash flow Loans - Home equity (e) BlackRock Series C Preferred...

  • Page 182
    ... securities Residential mortgage loan commitments Trading securities - Debt Residential mortgage loans held for sale Residential mortgage servicing rights Commercial mortgage loans held for sale Equity investments - Direct investments Equity investments - Indirect (d) Loans - Residential real estate...

  • Page 183
    ...2013 or 2012. EQUITY INVESTMENTS The amounts below for equity investments represent the carrying value of Low Income Housing Tax Credit (LIHTC) investments held for sale calculated using a discounted cash flow model. The significant unobservable input is management's estimate of required market rate...

  • Page 184
    ... branches. Table 90: Fair Value Measurements - Nonrecurring Fair Value December 31 December 31 2013 2012 In millions Assets (a) Nonaccrual loans Loans held for sale Equity investments Commercial mortgage servicing rights OREO and foreclosed assets Long-lived assets held for sale Total assets Year...

  • Page 185
    ... Information Level 3 Instruments Only Dollars in millions Fair Value Valuation Techniques Unobservable Inputs Range (Weighted Average) December 31, 2013 Assets Nonaccrual loans (a) Loans held for sale Equity investments Commercial mortgage servicing rights Other (c) Total Assets December 31, 2012...

  • Page 186
    ... - Changes in Fair Value (a) Gains (Losses) Year ended December 31 In millions 2013 2012 2011 Assets Customer resale agreements Residential mortgage-backed agency securities with embedded derivatives (b) Trading loans Residential mortgage loans held for sale Commercial mortgage loans held for sale...

  • Page 187
    ...government insured loans, which positively impacts the fair value. Also included are home equity loans owned by private investors, which negatively impacts the fair value. (c) Related to a Non-agency securitization that PNC consolidated in the first quarter of 2013. The PNC Financial Services Group...

  • Page 188
    ... Unfunded loan commitments and letters of credit Total Liabilities December 31, 2012 Assets Cash and due from banks Short-term assets Trading securities Investment securities Trading loans Loans held for sale Net loans (excludes leases) Other assets Mortgage servicing rights Financial derivatives...

  • Page 189
    ...represent the total market value of PNC's assets and liabilities as the table excludes the following: • real and personal property, • lease financing, • loan customer relationships, • deposit customer intangibles, • retail branch networks, • fee-based businesses, such as asset management...

  • Page 190
    ... fair value of financial derivatives. NOTE 10 GOODWILL AND OTHER INTANGIBLE ASSETS Changes in goodwill by business segment during 2013 and 2012 follow: Table 95: Changes in Goodwill by Business Segment (a) Retail Banking Corporate & Institutional Banking Asset Management Group Residential Mortgage...

  • Page 191
    ... related to commercial MSRs. For additional information regarding the election of commercial MSRs at fair value, see Note 1 Accounting Policies for more detail. We recognize as an other intangible asset the right to service mortgage loans for others. Commercial MSRs are purchased or originated...

  • Page 192
    .... (b) Represents MSR value changes resulting primarily from market-driven changes in interest rates. We recognize mortgage servicing right assets on residential real estate loans when we retain the obligation to service these loans upon sale and the servicing fee is more than adequate compensation...

  • Page 193
    ... 101: Commercial Mortgage Loan Servicing Rights - Key Valuation Assumptions Dollars in millions December 31 2013 December 31 2012 Fees from commercial MSRs, residential MSRs and other loan servicing are reported on our Consolidated Income Statement in the line items Corporate services, Residential...

  • Page 194
    ... have balances that will mature from 2014 - 2030, with interest rates ranging from zero to 7.33%. Included in borrowed funds are certain borrowings which are reported at fair value. Refer to Note 9 Fair Value for additional information. 176 The PNC Financial Services Group, Inc. - Form 10...

  • Page 195
    ... 2013 was .808%. On or after June 1, 2008 at par. This Trust is a wholly-owned finance subsidiary of PNC. In the event of certain changes or amendments to regulatory requirements or federal tax rules, the capital securities are redeemable in whole. In accordance with GAAP, the financial statements...

  • Page 196
    ...cash payment representing the market value of such in-kind dividend, and PNC has committed to contribute such in-kind dividend to PNC Bank, N.A. (e) Except for: (i) purchases, redemptions or other acquisitions of shares of capital stock of PNC in connection with any employment contract, benefit plan...

  • Page 197
    ... and Change in Plan Assets Qualified Pension 2013 2012 Nonqualified Pension 2013 2012 Postretirement Benefits 2013 2012 December 31 (Measurement Date) - in millions Accumulated benefit obligation at end of year Projected benefit obligation at beginning of year National City acquisition RBC Bank...

  • Page 198
    ...of listed domestic and international equity securities, U.S. government and agency securities, corporate debt securities, and real estate investments. The Plan held no PNC common stock as of December 31, 2013 and December 31, 2012. The PNC Financial Services Group, Inc. Administrative Committee (the...

  • Page 199
    ... 31, 2012: • Money market and mutual funds are valued at the net asset value of the shares held by the pension plan at year end. • U.S. government and agency securities, corporate debt, common stock and preferred stock are valued at the closing price reported on the active market on which...

  • Page 200
    ...December 31 2012 Fair Value Quoted Prices in Active Markets For Identical Assets (Level 1) Fair Value Measurements Using: Significant Other Significant Observable Unobservable Inputs Inputs (Level 2) (Level 3) Cash Money market funds U.S. government and agency securities Corporate debt (a) Common...

  • Page 201
    ... summarizes changes in the fair value of the pension plan's Level 3 assets during 2013 and 2012. Table 115: Rollforward of Pension Plan Level 3 Assets Interest in Collective Funds Corporate Debt Limited Partnerships In millions January 1, 2013 Net realized gain/(loss) on sale of investments Net...

  • Page 202
    ... plan and the allocation strategy currently in place among those classes. We review this assumption at each measurement date and adjust it if warranted. This assumption will be changed from 7.50% to 7.00% for determining 2014 net periodic cost. 184 The PNC Financial Services Group, Inc. - Form...

  • Page 203
    ...plan called The PNC Financial Services Group, Inc. Deferred Compensation and Incentive Plan (DCIP). Unamortized actuarial gains and losses and prior service costs and credits are recognized in AOCI each December 31, with amortization of these amounts through net periodic benefit cost. The estimated...

  • Page 204
    ... date fair value exceeded the market value. Table 123: Stock Option Rollforward PNC Options Converted From National City WeightedAverage Exercise Price WeightedAverage Exercise Price PNC WeightedAverage Exercise Price Year ended December 31, 2013 In thousands, except weighted-average data Shares...

  • Page 205
    ...average price of $90.86 and $106.08, respectively. The total intrinsic value of options exercised during 2013, 2012 and 2011 was $86 million, $37 million and $4 million, respectively. The total tax benefit recognized related to compensation expense on all share-based payment arrangements during 2013...

  • Page 206
    ... of the next six-month offering period. Eligible participants may purchase our common stock at 95% of the fair market value on the last day of each six-month offering period. No charge to earnings is recorded with respect to the ESPP. 188 The PNC Financial Services Group, Inc. - Form 10-K

  • Page 207
    ... rate, market and credit risk and reduce the effects that changes in interest rates may have on net income, fair value of assets and liabilities, and cash flows. We also enter into derivatives with customers to facilitate their risk management activities. Derivatives represent contracts between...

  • Page 208
    ... enter into pay-fixed, receive-variable interest rate swaps and zero-coupon swaps to hedge changes in the fair value of fixed rate and zero-coupon investment securities caused by fluctuations in market interest rates. The specific products hedged include U.S. Treasury, government agency and other...

  • Page 209
    ... millions Year ended December 31 2013 2012 Gains (Losses) on Derivatives Recognized in OCI (Effective Portion) Foreign exchange contracts $(21) $(27) (a) The loss recognized in Accumulated other comprehensive income was less than $1 million as of December 31, 2011. The PNC Financial Services Group...

  • Page 210
    ... used for customer-related activities: Interest rate contracts: Swaps Caps/floors - Sold Caps/floors - Purchased Swaptions Futures (c) Mortgage-backed securities commitments Subtotal Foreign exchange contracts Equity contracts Credit contracts: Risk participation agreements Subtotal Derivatives...

  • Page 211
    ... risk and credit risk include forward loan sale contracts, interest rate swaps, and credit default swaps. Gains and losses on the commitments, loans and derivatives are included in Other noninterest income. Derivatives used to economically hedge the change in value of commercial mortgage servicing...

  • Page 212
    ... from commercial mortgage banking activities Derivatives used for customer-related activities: Interest rate contracts Foreign exchange contracts Equity contracts Credit contracts Gains (losses) from customer-related activities (c) Derivatives used for other risk management activities: Interest rate...

  • Page 213
    .... Corporate Debt Commercial mortgage-backed securities Loans 37% 63% 0% 32% 54% 14% RISK PARTICIPATION AGREEMENTS We also periodically enter into risk participation agreements to share some of the credit exposure with other counterparties related to interest rate derivative contracts or...

  • Page 214
    ...the Consolidated Balance Sheet Fair Value Cash Offset Amount Collateral Net Fair Value Derivative Assets Securities Collateral Held Under Master Netting Agreements December 31, 2013 In millions Net Amounts Derivative assets Interest rate contracts Foreign exchange contracts Credit contracts Total...

  • Page 215
    ... with high credit ratings and by using internal credit approvals, limits, and monitoring procedures. Collateral may also be exchanged under certain derivative agreements that are not considered master netting agreements. At December 31, 2013, we held cash, U.S. government securities and mortgage...

  • Page 216
    ... which the Series B preferred stock is convertible. The Series B preferred stock was issued in connection with the consolidation of Pittsburgh National Corporation and Provident National Corporation in 1983. (d) Non-Cumulative preferred stock. 198 The PNC Financial Services Group, Inc. - Form 10-K

  • Page 217
    ... 31, 2013, we had reserved approximately 103.5 million common shares to be issued in connection with certain stock plans. Effective October 4, 2007, our Board of Directors approved a stock repurchase program to purchase up to 25 million shares of PNC common stock on the open market or in privately...

  • Page 218
    ... investment securities interest income Less: Net gains (losses) realized on sale of securities reclassified to noninterest income Net unrealized gains (losses) on nonOTTI securities Balance at December 31, 2012 2013 activity Increase in net unrealized gains (losses) on non-OTTI securities Less: Net...

  • Page 219
    ... adjustments Total 2012 activity Balance at December 31, 2012 2013 Activity PNC's portion of BlackRock's OCI Net investment hedge derivatives (b) (527) 192 $ 384 $(141) Pretax Tax Pension and other postretirement benefit plan adjustments Balance at December 31, 2010 2011 Activity Net pension and...

  • Page 220
    ... of the tax credit carryforwards expire in 2033. The federal net operating loss carryforwards and tax credit carryforwards above are substantially from the 2012 acquisition of RBC Bank (USA) and are subject to a federal annual Section 382 limitation of $119 million under the Internal Revenue Code of...

  • Page 221
    ... acquisitions), the access to and cost of funding for new business initiatives, the ability to pay dividends, the ability to repurchase shares or other capital instruments, the level of deposit insurance costs, and the level and nature of regulatory oversight depend, in large part, on a financial...

  • Page 222
    ..., • Corporate policies, • Contractual restrictions, and • Other factors. Also, there are statutory and regulatory limitations on the ability of national banks to pay dividends or make other capital distributions. The amount available for dividend payments to the parent company by PNC Bank...

  • Page 223
    ..., merchants operating commercial businesses throughout the U.S. and trade associations, allege, among other things, that the defendants conspired to fix the prices for general purpose card network services and otherwise imposed unreasonable restraints on trade, resulting in the payment of inflated...

  • Page 224
    ... all borrowers who obtained a second residential non-purchase 206 The PNC Financial Services Group, Inc. - Form 10-K money mortgage loan, secured by their principal dwelling, from either CBNV or the other defendant bank, the terms of which made the loan subject to HOEPA. The plaintiffs seek, among...

  • Page 225
    ..., trebled under state law), prejudgment interest, attorneys' fees, and declaratory relief finding the overdraft policies to be unfair and unconscionable. FULTON FINANCIAL In 2009, Fulton Financial Advisors, N.A. filed lawsuits against PNC Capital Markets, LLC and NatCity Investments, Inc. in the...

  • Page 226
    ..., against numerous financial companies, including The PNC Financial Services Group, Inc., as successor in interest to National City Corporation, and PNC Investments LLC, as successor in interest to NatCity Investments, Inc. (Federal Home Loan Bank of Chicago v. Bank of America Funding Corp., et...

  • Page 227
    ... all persons who obtained residential mortgage loans originated, funded or originated through correspondent lending by National City or any of its subsidiaries or affiliates between January 1, 2004 and the present and, in connection with these mortgage loans, purchased private mortgage insurance and...

  • Page 228
    ...financial protection, fair lending, mortgage origination and servicing, mortgage-related insurance and reinsurance, sales by third party providers of voluntary identity protection services to PNC customers, municipal finance activities, and participation in government insurance or guarantee programs...

  • Page 229
    ... Financial Protection Bureau jointly investigated whether mortgage loan pricing by National City and PNC had a disparate impact on protected classes. In December 2013, PNC settled with the Department of Justice and the CFPB covering lending activity by National City Bank from 2002 to its merger...

  • Page 230
    ... of credit and have risk participations in standby letters of credit issued by other financial institutions, in each case to support obligations of our customers to third parties, such as insurance requirements and the facilitation of transactions involving capital markets product execution. Net...

  • Page 231
    ...can cover the purchase or sale of entire businesses, loan portfolios, branch banks, partial interests in companies, or other types of assets. These agreements generally include indemnification provisions under which we indemnify the third parties to these agreements against a variety of risks to the...

  • Page 232
    ...home equity loans/lines of credit that were sold to a limited number of private investors in the financial services industry by National City prior to our acquisition of National City. PNC is no longer engaged in the brokered home equity lending business, and our exposure under these loan repurchase...

  • Page 233
    ...and Unasserted Claims 2013 Home Equity Loans/ Lines (b) 2012 Home Equity Residential Loans/ Mortgages (a) Lines (b) In millions Residential Mortgages (a) Total Total January 1 Reserve adjustments, net RBC Bank (USA) acquisition Losses - loan repurchases and private investor settlements March 31...

  • Page 234
    ... value. (a) Reinsurance agreements exposure balances represent estimates based on availability of financial information from insurance carriers. (b) Through the purchase of catastrophe reinsurance connected to the Lender Placed Hazard Exposure, should a catastrophic event occur, PNC will benefit...

  • Page 235
    ... master netting agreement. (d) Represents the repurchase agreement amount included in Federal funds purchased and repurchase agreements on our Consolidated Balance Sheet and the related accrued interest expense in the amount of less than $1 million at both December 31, 2013 and December 31, 2012...

  • Page 236
    ... financial information of the parent company is as follows: Table 157: Parent Company - Income Statement Year ended December 31- in millions 2013 2012 2011 Table 158: Parent Company - Balance Sheet December 31- in millions 2013 2012 Assets Cash held at banking subsidiary Restricted deposits...

  • Page 237
    ... costs, asset and liability management activities including net securities gains or losses, other-than-temporary impairment of investment securities and certain trading activities, exited businesses, private equity investments, intercompany eliminations, most corporate overhead, tax adjustments...

  • Page 238
    ...Jersey, Michigan, Illinois, Maryland, Indiana, North Carolina, Florida, Kentucky, Washington, D.C., Delaware, Alabama, Virginia, Missouri, Georgia, Wisconsin and South Carolina. Corporate & Institutional Banking provides lending, treasury management, and capital markets-related products and services...

  • Page 239
    ... Banking Asset Management Group Residential Mortgage Banking Non-Strategic Assets Portfolio Year ended December 31 In millions Retail Banking BlackRock Other Consolidated 2013 Income Statement Net interest income Noninterest income Total revenue Provision for credit losses (benefit...

  • Page 240
    ... agreement with the purchaser of the shares, resulting in an after-tax gain of $40 million. STATISTICAL INFORMATION (UNAUDITED) THE PNC FINANCIAL SERVICES GROUP, INC. Selected Quarterly Financial Data (a) Dollars in millions, except per share data Fourth 2013 Third Second First Fourth 2012 Third...

  • Page 241
    ... and Equity Interest-bearing liabilities: Interest-bearing deposits Money market Demand Savings Retail certificates of deposit Time deposits in foreign offices and other time Total interest-bearing deposits Borrowed funds Federal funds purchased and repurchase agreements Federal Home Loan Bank...

  • Page 242
    ... 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...

  • Page 243
    ...-earning assets Interest-Bearing Liabilities Interest-bearing deposits Money market Demand Savings Retail certificates of deposit Time deposits in foreign offices and other time Total interest-bearing deposits Borrowed funds Federal funds purchased and repurchase agreements Federal Home Loan Bank...

  • Page 244
    ... Commercial Commercial real estate Equipment lease financing Total commercial lending Consumer lending Home equity Residential real estate Credit card Other consumer Total consumer lending Total loans (a) Includes the impact of the RBC Bank (USA) acquisition, which we acquired on March 2, 2012...

  • Page 245
    NONPERFORMING ASSETS AND RELATED INFORMATION December 31 - dollars in millions 2013 2012 2011 2010 2009 Nonperforming loans Commercial Commercial real estate Equipment lease financing Total commercial lending Consumer lending (a) Home equity (b) (c) Residential real estate (b) Credit card (d) Other...

  • Page 246
    ...-offs Recoveries Commercial Commercial real estate Equipment lease financing Consumer (a) Residential real estate Total recoveries Net charge-offs Provision for credit losses Net change in allowance for unfunded loan commitments and letters of credit Acquired allowance - National City Adoption of...

  • Page 247
    ... the range of high and low sale and quarter-end closing prices for The PNC Financial Services Group, Inc. common stock and the cash dividends declared per common share. Cash Dividends Declared Commercial Commercial real estate - Real estate projects Total Loans with: Predetermined rate Floating or...

  • Page 248
    ... address. ITEM DISCLOSURE CONTROLS AND PROCEDURES AND CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING As of December 31, 2013, we performed an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and the Executive Vice President...

  • Page 249
    ... Stock-Based Compensation Plans in the Notes To Consolidated Financial Statements in Item 8 of this Report. Equity Compensation Plan Information At December 31, 2013 (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted-average exercise price of...

  • Page 250
    ... purchase price for shares of PNC common stock sold under the plan represents 95% of the fair market value on the last day of each six-month offering period. Note 8 - The plans in this section of the table reflect awards under pre-acquisition plans of National City Corporation and Sterling Financial...

  • Page 251
    ... of costs, and - Related person transactions policies and procedures" in our Proxy Statement to be filed for the 2014 annual meeting of shareholders and is incorporated herein by reference. ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item is included...

  • Page 252
    ... /s/ Robert Q. Reilly Robert Q. Reilly Executive Vice President and Chief Financial Officer February 28, 2014 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of The PNC Financial Services Group, Inc. and in the...

  • Page 253
    ... of the Corporation's Current Report on Form 8-K filed August 15, 2013 3.1.1 3.1.2 Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series O dated July 21, 2011 Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual...

  • Page 254
    ... Deposit Agreement, dated May 7, 2013, between the Corporation, Computershare Trust Company, N.A., Computershare Inc. and the holders from time to time of the Depositary Receipts representing interests in the Series R preferred stock Form of PNC Bank, National Association Global Bank Note for Fixed...

  • Page 255
    ... Paying Agency Agreement, dated January 16, 2014, between PNC Bank, National Association and PNC Bank, National Association, relating to the $25 billion Global Bank Note Program for the Issue of Senior and Subordinated Bank Notes Form of PNC Bank, National Association Global Bank Note for Fixed Rate...

  • Page 256
    ...to Exhibit 10.5 of the Corporation's 2nd Quarter 2004 Form 10-Q* 10.7.2 10.8 Addendum to the Corporation's 2006 Incentive Award Plan, effective as of January 26, 2012 The Corporation's 1997 Long-Term Incentive Award Plan, as amended and restated E-4 PNC Financial Services Group, Inc. - Form 10-K

  • Page 257
    ...settlor, and Hershey Trust Company, as trustee Trust Agreement between PNC Investment Corp., as settlor, and PNC Bank, National Association, as trustee Certificate of Corporate Action for Grantor Trusts effective January 1, 2012 The Corporation's Employee Stock Purchase Plan, as amended and restated...

  • Page 258
    ... share unit agreements Additional 2013 forms of employee restricted share unit agreements Additional 2013 and 2014 forms of employee restricted share unit and performance unit agreements Forms of director stock option agreements 10.35 10.36 10.37 E-6 PNC Financial Services Group, Inc. - Form...

  • Page 259
    .... Exchange Agreement dated as of May 21, 2012 by and among PNC Bancorp, Inc., the Corporation and BlackRock, Inc. PNC Bank, National Association US $20,000,000,000 Global Bank Note Program for the Issue of Senior and Subordinated Bank Notes with Maturities of more than Nine Months from Date of Issue...

  • Page 260
    ... 2012 and for each of the three years ended December 31, 2013 Consent order between The PNC Financial Services Group, Inc. and the Board of Governors of the Federal Reserve System Consent order between PNC Bank, National Association and the Office of the Comptroller of the Currency Interactive Data...

  • Page 261
    ...does not relate to Interactive Data Files as defined in Rule 11 of Regulation S-T. CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, William S. Demchak, certify that: 1. 2. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013 of The PNC Financial Services Group, Inc.; Based...

  • Page 262
    ... does not relate to Interactive Data Files as defined in Rule 11 of Regulation S-T. CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Robert Q. Reilly, certify that: 1. 2. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013 of The PNC Financial Services Group, Inc.; Based...

  • Page 263
    ... with the Annual Report on Form 10-K for the year ended December 31, 2013 of The PNC Financial Services Group, Inc. (Corporation) as filed with the Securities and Exchange Commission on the date hereof (Report), I, William S. Demchak, Chief Executive Officer and President of the Corporation, hereby...

  • Page 264
    ... with the Annual Report on Form 10-K for the year ended December 31, 2013 of The PNC Financial Services Group, Inc. (Corporation) as filed with the Securities and Exchange Commission on the date hereof (Report), I, Robert Q. Reilly, Executive Vice President and Chief Financial Officer of the...

  • Page 265
    ...the range of high and low sale and quarter-end closing prices for The PNC Financial Services Group, Inc. common stock and the cash dividends declared per common share. Cash Dividends Declared High Low Close 2013 Quarter First $ 66.93 Second 74.19 Third 77.93 Fourth 78.36 Total 2012 Quarter First...

  • Page 266
    Corporate Headquarters The PNC Financial Services Group, Inc. One PNC Plaza, 249 Fifth Avenue Pittsburgh, PA 15222-2707 412-762-2000