RBC Capital Markets, LLC Gerard Cassidy (Analyst) John Hearn, CFA (AVP) (207) 780-1554 (617) 722-4881 [email protected] [email protected] Steven Duong (AVP) Matthew Deschesne, CFA (207) 780-1554 (Associate) [email protected] (207) 780-1554 [email protected]

March 23, 2018 Sector: /Large-Cap PNC Financial Services Group Racing to Top-Level Performance Top Pick NYSE: PNC; USD 153.28 Our view: We believe that shares of PNC do not adequately reflect the value of the underlying business. We contend that PNC has multiple Price Target USD 170.00 levers to pull in order to increase profitability and manage expense WHAT'S INSIDE growth. Additionally, we expect that well executed acquisitions such as Rating/Risk Change Price Target Change EQUITY RESEARCH EQUITY the National City Corporation and RBC transactions will accelerate profitability improvement as integration matures; and keep management In-Depth Report Est. Change disciplined on any future transactions. Preview News Analysis Scenario Analysis* Key points: • Revisiting our Top Pick: We believe PNC Financial Services Group, Downside Current Price Upside Inc. is poised to achieved the levels of profitability and operating Scenario Price Target Scenario efficiency seen in top banking franchises such as U.S. Bancorp and M&T 136.00 153.28 170.00 204.00 Bank Corporation. Through diligent expense management, strategic 9% 13% 35% investments in modernizing its retail branch network, the continued *Implied Total Returns development of its Southeast footprint, and its focus in its middle Key Statistics Shares O/S (MM): 473.0 Market Cap (MM): 72,501 market business, we believe PNC has the potential to further improve Dividend: 3.00 Yield: 2.0% profitability and efficiency metrics while maintaining its high quality BVPS: 91.94 P/BVPS: 1.67x product offerings and robust credit quality. Tangible BVPS: 72.28 Avg. Daily Volume: 2,095,424 ROE: 10.2% • BlackRock holdings: PNC holds a 22% economic interest in BlackRock Float (MM): 474.7 (BLK). The investment has performed extraordinarily well for the company with unrealized gains reaching $10.2 billion and BLK earnings RBC Estimates adding 14.9% to PNC's fee income. FY Dec 2016A 2017A 2018E 2019E EPS, Ops Diluted 7.27 8.47 10.70 11.55 • Long-term value and allocation of capital: PNC's 10-year cumulative P/E 21.1x 18.1x 14.3x 13.3x dividend tangible book value per share growth of 17% was the highest among peers, driven by strong operational performance, capital return EPS, Ops Diluted Q1 Q2 Q3 Q4 2017 1.94A 2.10A 2.16A 2.29A management, and opportunistic acquisitions. 2018 2.49E 2.67E 2.76E 2.80E • Poised for loan growth: PNC has outperformed industry C&I loan All values in USD unless otherwise noted. growth in 2017 driven by its middle market market initiative. PNC is in 26 of the 50 U.S. metropolitan markets with Dallas, Kansas City, and Minneapolis expansion markets in 2017. PNC plans to expand into Denver, Houston, and Nashville in 2018. On the consumer side, PNC is enhancing its consumer lending platform and expects to see results from its universal banking branch format. • Investments in technology and infrastructure: In the past few years, PNC has built out its infrastructure to effectively manage CCAR and operate in a new tech environment with three state-of-the art data centers in its internal cloud. The company has now shifted its focus to consumer-facing development with its universal branch model, numo incubator, PNC iLab, and its Innovation Center with Carnegie Mellon. • Focused on efficiency: Cost savings from PNC's Continuous Improvement Program (CIP) has allowed the company to reinvest in the company to drive further savings and increased growth. • Potential profitability analysis: Our potential profitability analysis examines the drivers of ROAA and ROACE. We believe PNC could reach an ROAA of 1.48% and ROACE of 14.19%.

Disseminated: Mar 23, 2018 03:05ET; Produced: Mar 23, 2018 03:05ET Priced as of prior trading day's market close, EST (unless otherwise noted). For Required Conflicts Disclosures, see Page 45. Banks/Large-Cap The PNC Financial Services Group, Inc.

Target/Upside/Downside Scenarios Investment summary Exhibit 1: The PNC Financial Services Group, Inc. We rate PNC shares Top Pick for the following reasons:

125 Weeks 31OCT15 - 22MAR18 • Well positioned for rising interest rates: As of 4Q17, a 12- 175 UPSIDE 204.00 TARGET 170.00 month, gradual 100 basis points parallel shift in interest 155 CURRENT 153.28 145 135 DOWNSIDE 136.00 rates would result in net interest income increasing 2.7%, 125 115 down from the prior quarter of 2.9%. 105 • Expansion of middle markets and corporate finance 95 business: PNC has expanded into the Dallas, Kansas City, and 85 Minneapolis markets with its middle markets and corporate

75 finance products. The company is expected to deliver a 30m full suite of products and services into these markets. 20m 10m Additionally, we expect it to expand organically into Denver, 2016 2017 2018 Houston, and Nashville over the next 9-12 months. N D J F M A M J J A S O N D J F M A M J J A S O N D J F M Mar 2019 PNC Rel. S&P 500 COMPOSITE MA 40 weeks • Well-balanced business mix tied to an improving economy: Source: Bloomberg and RBC Capital Markets estimates for Upside/Downside/Target Most of PNC's business is focused on traditional banking, Target price/base case with a commercial/consumer loan breakout of ~67%/33%. For our base case scenario of $170, we expect interest rates to An improving economy should lead to solid loan growth, climb 50–75 basis points through year-end 2018, an effective and we expect the company to increase penetration of its 8 tax rate of ~17, a lower regulatory burden, and U.S. real GDP million consumer customer base with residential mortgages growth of 3% or higher per year. and credit card loans over the next 12-24 months. • High level of recurring fee revenues: Noninterest income Upside scenario accounts for approximately 45% of PNC’s total revenues, in Our upside scenario of $204 assumes U.S. real GDP growth line with top-performing peers at 40–50% or higher. above 4.0%, interest rates increase 75–100 basis points • A continued focus on reducing operating expenses: Bill through year-end 2018, an effective tax rate of 17% or Demchak has brought PNC’s efficiency ratio down to ~60% lower, an improvement in the regulatory environment beyond range by closing redundant branches and focusing on our expectations, and credit quality to remain the same or alternative banking channels. Currently, 54% of deposits are improve. transacted through non-teller channels. The company's roll- out of its universal branch model to ~21% of total branches Downside scenario supports this strategy. We believe the company's efficiency Our downside scenario of $136 assumes U.S. real GDP growth ratio could pierce below 60% in 2018. below 2%, interest rate increases of 25 basis points or • Strong capital: PNC’s CET1 ratio of 9.8% at 4Q17 well less through year-end 2018, no change in the regulatory exceeds the 8.5% level that we believe the company needs environment, and an effective tax rate greater than 20%. to run a conservative but highly profitable bank. The company repurchased $0.5 billion common shares in 4Q17 under its $2.7 billion share repurchase plan. • Deferred tax liability: The company has about $1.6 billion in deferred tax liabilities (DTLs) arising from its investment in Blackrock, Inc. at 4Q17, after a $1.2 billion revaluation of the DTLs due to tax legislation. • Monetization of BlackRock: The company may be able to monetize its BLK investment in a tax-efficient manner given the new tax legislation. In addition to the gain that PNC would record on the monetization, it would also free up ~$4 billion of capital that is required to support its investment in BLK, an increase from $3 billion last quarter due to the DTL revaluation. We believe, however, BlackRock remains a valuable investment for the company and PNC is expected to continue to hold onto this investment unless valuations reached levels that would make it financially prudent to monetize it.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 2 Banks/Large-Cap The PNC Financial Services Group, Inc.

Table of Contents

Executive summary ...... 3 Company Overview ...... 4 Company Description ...... 4 Business lines ...... 6 BlackRock Holdings ...... 9 BlackRock sale and special buyback impact to EPS ...... 10 Long-term value ...... 15 Poised for solid loan growth ...... 18 Investments in technology and infrastructure ...... 20 PNC Center for Financial Services Innovation ...... 21 numo ...... 21 PNC iLab ...... 21 Focused on efficiency ...... 21 Continuous Improvement Program ...... 21 Optimizing branch network...... 22 Allocation of capital ...... 24 Dividends and buybacks ...... 24 Historical look at M&A activity ...... 26 Profitability analysis ...... 28 Net interest income comparison ...... 30 Noninterest income comparison ...... 31 Noninterest expense comparison ...... 33 Loan loss provision comparison ...... 35 Leverage factor ...... 36 Potential profitability ...... 37 Valuation based on potential profitability ...... 39 Conclusion ...... 41

Exhibits

Exhibit 2: Total return CAGR ...... 6 Exhibit 3: Branch map ...... 7 Exhibit 4: 4Q17 end of period loan and average deposit breakout ...... 8 Exhibit 5: 4Q17 Income statement by business segment ...... 8 Exhibit 6: FY17 Income statement by business segment ...... 9 Exhibit 7: Historical statistics of BlackRock holdings ...... 12 Exhibit 8: PNC P&L with BlackRock breakout and BlackRock statistics – 2017 actual and 2018 RBC estimate ...... 13 Exhibit 9: BlackRock sale and PNC share repurchase ...... 14

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 3 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 10: Impact to EPS from BlackRock sale and share repurchase ...... 15 Exhibit 11: EPS sensitivity table to BlackRock sale and PNC stock share repurchase at various PNC stock prices and BlackRock market caps ...... 16 Exhibit 12: 4Q17 10-Year cumulative dividend tangible book value per share ...... 17 Exhibit 13: 10-Year cumulative dividend tangible book value per share ...... 18 Exhibit 14: PNC and peer core ROACE ...... 19 Exhibit 15: Quarterly year-over-year C&I loan growth for last two years ...... 20 Exhibit 16: Corporate and Commercial Banking indexed average loan growth: Southeast and Chicago vs. other markets ...... 20 Exhibit 17: Continuous Improvement Plan (CIP) cost savings vs. efficiency ratio and operating expense/average assets ...... 23 Exhibit 18: Traditional and universal branches ...... 23 Exhibit 19: Digital customers and non-teller deposits ...... 24 Exhibit 20: Key features of universal branch ...... 25 Exhibit 21: PNC historical payout versus CCAR average peer total payout ...... 26 Exhibit 22: PNC quarterly buybacks and average quarterly price/book and price/tangible book ...... 26 Exhibit 23: PNC CCAR statistics under supervisory severely adverse scenario 2014-2017 ...... 27 Exhibit 24: History of bank and thrift acquisitions ...... 28 Exhibit 25: Southeast expansion through RBC Bank ...... 29 Exhibit 26: 2017Q4 performance relative to peer group ...... 30 Exhibit 27: Net interest income/ average assets ...... 31 Exhibit 28: Average earning asset mix ...... 32 Exhibit 29: Noninterest income/ average assets ...... 33 Exhibit 30: Noninterest income/ average assets breakout ...... 34 Exhibit 31: Noninterest expense/ average assets ...... 35 Exhibit 32: Noninterest expense/ average assets breakout ...... 35 Exhibit 33: Loan loss provision ...... 36 Exhibit 34: PNC pro forma leverage factor ...... 37 Exhibit 35: Potential profitability ...... 38 Exhibit 36: Potential profitability waterfall analysis ...... 39 Exhibit 37: Top 20 banks – P/B vs. 2018E ROACE ...... 40 Exhibit 38: Valuation based on the discounted value of future economic profits...... 41

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 4 Banks/Large-Cap The PNC Financial Services Group, Inc.

Executive summary We believe the long-term outlook for profitability for PNC Financial Services Group (PNC), our Top Pick rated company, continues to be positive. We expect under the leadership of its CEO, Bill Demchak, the company is poised to boost its profitability, return on average common equity (ROACE), by focusing on its strategic priorities to expand its market share, deepen existing relationships and improve operating results. The company’s “Main Street”, relationship based banking model has been a competitive advantage, enabling them to bring resources of their size and scale to bear for clients and communities through local decision making and personal relationships. Long-term success, however, cannot be achieved without successful day-to-day execution, which often times is over looked by many banks. We do not expect it to be over looked by management of PNC.

When examining the characteristics of high performing bank stocks, we typically look to management teams that are able to grow tangible book value, balance high credit quality with a diverse stream of revenues, highly efficient operations and capital allocation, and superb profitability metrics. As detailed in Exhibit 2, commercial banks that meet these criteria have historically been rewarded with excellent long-term stock returns relative to peers. In examining the 5, 10 and 20-year compound annual growth rates of the largest U.S. banks, high quality institutions such as M&T Bank Corporation, Wells and Fargo & Co. (though recent performance has been challenged by its recent regulatory issues surrounding its retail sales practices) and JPMorgan Chase & Co. have been able to outperform the market in the long term. The 20-year returns were 9.6%, 8.3%, and 8.3%, respectively, versus the S&P 500 and peer group returns of 6.8% and -3.3%, respectively.

We believe PNC Financial Services Group, Inc. is on the cusp of entering this group of top performing U.S. banks. Through diligent expense management, strategic investments in modernizing its retail branch network the continued development of its Southeast footprint, and its middle market focus, we believe PNC has the potential to further improve profitability and efficiency metrics while maintaining its high quality product offerings and robust credit quality. In our analysis of PNC, we go over the major themes that support our outlook for the company and examine credit trends, the components of revenue, capital levels and expense management and efficiency to understand the company’s profitability profile. We then provide a detailed analysis of PNC profitability relative to peers and examine PNC’s potential profitability in a more normalized environment.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 5 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 2: Total return CAGR

Total return (%) Company Ticker 5 year 10 year 20 year 1 M&T Bank Corporation MTB 15.4 12.5 9.6 2 PNC Financial Services Group, Inc. PNC 21.9 12.8 8.3 3 JPMorgan Chase & Co. JPM 21.4 14.9 8.3 4 U.S. Bancorp USB 11.9 7.9 8.2 5 Capital One Financial Corporation COF 14.7 9.4 8.0 6 Wells Fargo & Company WFC 11.0 9.8 7.7 7 State Street Corporation STT 14.3 5.0 7.4 8 Northern Trust Corporation NTRS 16.8 7.2 7.3 9 BB&T Corporation BBT 15.4 9.4 6.3 10 Bank of Mellon Corporation BK 15.9 4.5 4.8 11 Comerica Incorporated CMA 24.0 12.6 4.8 12 Bank of America Corporation BAC 22.1 0.3 2.3 13 Fifth Third Bancorp FITB 18.2 6.9 2.2 14 SunTrust Banks, Inc. STI 22.3 4.5 2.2 15 Huntington Bancshares Incorporated HBAN 19.4 6.0 0.6 16 Regions Financial Corporation RF 21.1 1.8 0.5 17 KeyCorp KEY 18.2 2.0 0.5 18 Citigroup Inc. C 10.0 (8.7) (4.9) 19 First Republic Bank FRC 21.7 NA NA 20 Citizens Financial Group, Inc. CFG NA NA NA

Average 17.7 6.6 4.7

S&P 500 / Banks 15.1 4.4 (3.3)

S&P 500 14.3 10.2 6.8 Source: FactSet Note: Total return calculated as annualized compound total return, with dividends reinvested by default on the exdate, for dates requested.

Company Overview Company Description Headquartered in , , PNC Financial Services Group, Inc. is one of the largest diversified financial services companies in the . PNC has $381 billion in assets, which makes it the 6th largest commercial bank in the U.S. PNC engages in retail banking, corporate and institutional banking, asset management, and residential mortgage banking, providing many products and services nationally, as well as other products and services in their primary geographic markets located in Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Maryland, Indiana, North Carolina, , Kentucky, Washington, D.C., Delaware, Alabama, Virginia, Missouri, Georgia, Wisconsin and South Carolina. PNC also provides certain products and services internationally.

At December 31, 2017, PNC had consolidated total assets, total deposits and total equity of $381 billion, $265 billion and $47.6 billion, respectively. Exhibit 3 provides a map of PNC’s branch network. In Exhibit 4, we provide a breakout of PNC’s deposit and loan composition in the fourth quarter. Net interest revenue represents about 56% of total revenue while fee revenue totals 44% of total revenue, see Exhibit 6.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 6 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 3: Branch map

Source: S&P Global Market Intelligence

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 7 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 4: 4Q17 end of period loan and average deposit breakout

Loans Held for Investment ($M) 4Q17A % Total Commercial Lending 4Q17A % Total Average Deposits ($M) Commercial Money market 60,954 23.3% Manufacturing 20,578 9.3% Demand 57,128 21.8% Retail/wholesale trade 17,846 8.1% Savings 45,817 17.5% Service providers 15,100 6.8% Time deposits 17,438 6.67% Real estate related (a) 12,496 5.7% Total interest-bearing deposits 181,337 69.3% Health care 8,532 3.9% Total noninterest-bearing deposits 80,152 30.7% Financial services 9,739 4.4% Total deposits 261,489 100.0% Other industries 26,236 11.9% Total commercial 110,527 50.1% Commercial real estate 28,978 13.1% Equipment lease financing 7,934 3.6% Total commercial lending 147,439 66.9% Consumer lending Home equity 28,364 12.9% Residential real estate 17,212 7.8% Credit card 5,699 2.6% Other consumer Automobile 12,880 5.8% Education 4,454 2.0% Other 4,410 2.0% Total consumer lending 73,019 33.1% Total loans 220,458 100.0%

(a) Includes loans to customers in the real estate and construction industries. Source: Company reports.

Business lines PNC has four reportable business segments: Retail Banking, Corporate & Institutional Banking, Asset Management Group, and BlackRock. Exhibit 5 provides a table the details the allocation of earnings across each business segment in the first quarter. A detailed description of each business line is provided below Exhibit 6.

Exhibit 5: 4Q17 Income statement by business segment

4Q17A Asset Other, INCOME STATEMENT by Retail Corp & Inst Mgmt including Total BUSINESS SEGMENT ($M except per share) Banking Banking Group BlackRock PNC Net interest income 1,190 898 71 186 2,345

Noninterest income 345 604 226 740 1,915 Total revenue 1,535 1,502 297 926 4,260 Provision for credit losses 149 (14) 7 (17) 125 Noninterest expense 1,391 643 217 810 3,061 Pretax earnings (5) 873 73 133 1,074 Income taxes 140 (64) 17 (1,110) (1,017) Earnings (145) 937 56 1,243 2,091

REPORTED PERFORMANCE RATIOS Return on average assets (0.65%) 2.45% 2.94% 1.15% Noninterest income to total revenue 22% 40% 76% 44% Efficiency 91% 43% 73% 60% Source: Company Reports; RBC Capital Markets

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 8 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 6: FY17 Income statement by business segment

FY17A Asset Other, INCOME STATEMENT by Retail Corp & Inst Mgmt including Total BUSINESS SEGMENT ($M except per share) Banking Banking Group BlackRock PNC Net interest income 4,626 3,551 287 644 9,108

Noninterest income 2,236 2,271 881 1,833 7,221 Total revenue 6,862 5,822 1,168 2,477 16,329 Provision for credit losses 347 160 1 (67) 441 Noninterest expense 5,451 2,428 863 1,656 10,398 Pretax earnings 1,064 3,234 304 888 5,490 Income taxes 534 770 102 (1,304) 102 Earnings 530 2,464 202 2,192 5,388

REPORTED PERFORMANCE RATIOS Return on average assets 0.60% 1.66% 2.69% 1.11% Noninterest income to total revenue 33% 39% 75% 43% Efficiency 79% 42% 74% 60% Source: Company Reports; RBC Capital Markets

Retail Banking Retail Banking provides deposit, lending, brokerage, investment management and cash management services to consumer and small business customers within PNC’s primary geographic markets. Customers have access to services through PNC’s branch network, ATMs, call centers, online banking, and mobile channels. PNC’s branch network is located primarily in Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Maryland, Indiana, North Carolina, Florida, Kentucky, Washington, D.C., Delaware, Alabama, Virginia, Missouri, Georgia, Wisconsin and South Carolina.

PNC’s core strategy is to acquire and retain customers who maintain their primary checking and transaction relationships with the company. It also seeks revenue growth by deepening the share of customers’ financial assets, such as savings and liquidity deposits, loans and investable assets, including retirement assets. A strategic priority for PNC is to redefine the retail banking business in response to changing customer preferences through transforming the customer experience. A key element of this strategy is to expand the use of lower-cost alternative distribution channels while continuing to optimize the traditional branch network through migrating transactions toward digital/electronic channels. According to data from PNC, it is 13x more expensive for a customer to engage in an interaction in a traditional branch vs. an alternative channel (care center, interactive voice response, ATM, or digital/mobile transaction).

PNC has also built out what it calls its “universal” branches, which accounted for approximately 21% of its total branch network at the end of 2017. These branches present PNC with an opportunity to engage in more cross-selling, as tellers will be more focused on selling products and consolidating customer assets, rather than dispensing cash. We expect the company to continue to utilize the universal branch approach for new branches. On a net basis, however, the company continues to optimize its retail branch footprint by reducing number branches by about 100 per year. Additionally, the company is using an “alternative format” to retrofit some of its existing branches by reconfiguring staffing and adding more technology, i.e., smart ATMs.

We believe one of the biggest opportunities for loan growth for PNC is increasing the penetration of its 8 million consumer customer base. Loan products the company will market into this segment include Home Equity (4Q17 outstandings of $28.4 billion), Credit Card (4Q17 outstandings of $5.7 billion), Direct Auto (4Q17 outstandings of $1.4 billion), and Education

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 9 Banks/Large-Cap The PNC Financial Services Group, Inc.

and Other (4Q17 outstandings of $8.9 billion). The company’s credit card penetration is an example of the opportunities the company could grow consumer loans, in our opinion. Presently, an estimated 25-27% of PNC’s customers have a credit card with PNC versus an industry average of about 35-40%. We believe with an increased focus on the consumer along with increased use of its digital platform, the company should be able to improve its market share within its own customer base.

Corporate & Institutional Banking Corporate & Institutional Banking provides lending, treasury management, and capital markets-related products and services to midsized and large corporations, government and not-for-profit entities. Lending products include secured and unsecured loans, letters of credit and equipment leases. Treasury management services include cash and investment management, receivables management, disbursement services; funds transfer services, information reporting and global trade services. Capital markets-related products and services include foreign exchange, derivatives, securities, loan syndications and mergers and acquisitions advisory and equity capital markets advisory related services. PNC also provides commercial loan servicing and technology solutions for the commercial real estate finance industry. Products and services are generally provided within PNC’s primary geographic markets, with certain products and services offered nationally and internationally.

Corporate & Institutional Banking (C&IB) is focused on becoming a premier provider of financial services in each of the markets PNC serves. The value proposition to its customers is driven by providing a broad range of competitive and high quality products and services by a team fully committed to delivering the comprehensive resources of PNC to help each client succeed. The company’s primary goals are to achieve market share growth and enhanced returns by means of expansion and retention of customer relationships through solutions- based selling, while maintaining prudent risk and expense management.

Within C&IB, PNC also provides asset based lending solutions through its PNC Business Credit segment within the C&IB segment. Loans within this portfolio are generally high-yielding and are secured by short-term assets. Average loans within the Business Credit segment increased 7% year-over-year in 2017 to $15.8 billion due to increased new originations and utilization. According to Loan Pricing Corporation (a division of Thomson Reuters), PNC has ranked within the top five syndicators of middle market loan transactions for each of the last five years, further bolstering the company’s expertise in lending across the C&IB segment.

In recent years the company has grown its corporate finance and middle market business organically in new markets. As part of this expansion the company opened offices in Denver, Kanas City and Minneapolis in 2017 and in 2018 plans to expand into Denver, Houston and Nashville.

Asset Management The Asset Management Group provides personal wealth management services for high net worth and ultra-high net worth clients, as well as institutional asset management services. Wealth management products and services include investment and retirement planning, customized investment management, private banking, tailored credit solutions, and trust management and administration for individuals and their families.

PNC’s Hawthorn business provides multi-generational planning for ultra-high net worth families. Institutional asset management provides custody, retirement administration, and advisory services.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 10 Banks/Large-Cap The PNC Financial Services Group, Inc.

Institutional clients include corporations, unions, municipalities, non-profits, foundations and endowments, primarily located in PNC’s geographic footprint.

Asset Management Group is focused on being one of the premier bank-held individual and institutional asset managers in each of the markets it serves. The business seeks to deliver high quality banking advice and trust and investment management services to PNC’s high net worth, ultra-high net worth and institutional client sectors through a broad array of products and services. Asset Management Group’s primary goals are to service its clients, grow the business and deliver solid financial performance with prudent risk and expense management. BlackRock Holdings BlackRock is a publicly traded investment management firm providing a broad range of investment and risk management services to institutional and retail clients worldwide. BlackRock develops investment outcomes and asset allocation solutions for clients using a diverse platform of active and index investment strategies across asset classes. Product offerings include single- and multi-asset class portfolios investing in equities, fixed income, alternatives and money market instruments. BlackRock also offers an investment and risk management technology platform, risk analytics, advisory and technology services and solutions to a broad base of institutional and wealth management investors.

PNC completed the acquisition of BlackRock on February 28, 1995 for approximately $240 million in cash and notes. BlackRock had $24.3 billion of managed assets at the time. At the time, BlackRock was wholly owned by PNC and operated as a subsidiary of PNC’s Asset Management Group under consolidation accounting. By 2004, PNC’s ownership interest dropped to 71%, still above the 50% threshold to be recorded under consolidation accounting. On September 29, 2006, Merrill Lynch contributed its investment management business to BlackRock in exchange for 65 million shares of newly issued BlackRock common and preferred stock, which resulted in PNC’s ownership interest falling to ~34% with ~44 million shares of BlackRock common stock by the end of 2006. BlackRock would be subsequently deconsolidated from PNC and recorded under the equity method of accounting (20-50% ownership).

Through the years, the BlackRock investment has performed exceptionally well. The strong performance also resulted in peculiar financial situations, particularly, the creation of deferred tax liabilities (DTLs). Exhibit 7 provides some historical statistics on the BlackRock investment as it relates to PNC. Under the equity method of accounting, as PNC receives more BlackRock earnings, the carrying value of the BlackRock investment increases, resulting in larger temporary differences between the carrying value of the asset and the tax value of the asset, thus creating DTLs. In the case of PNC’s BlackRock holdings, DTLs grew to $2.3 billion by the end of 2016 as a result of a having a highly profitable asset. The new tax legislation of lowering the federal corporate tax rate to 21% from 35% reduced PNC’s DTLs to $1.6 billion at the end of 2017.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 11 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 7: Historical statistics of BlackRock holdings

PNC BLK Unrealized BLK PNC BLK BLK PNC BLK BLK Carrying Market Gain on Revenues Economic Revenues/ Revenues/ BLK Year AUM ($B) Value ($M) Value ($M) BLK ($M) to PNC ($M) Interest PNC Fee Inc PNC Revs DTL ($B) 2007 1,357 4.1 9.4 5.3 334 33.5 % 8.8 % 5.7 % NA 2008 1,307 4.2 5.8 1.6 261 33.0 % 7.8 % 4.1 % NA 2009 3,346 5.8 10.1 4.3 262 24.0 % 3.7 % 1.6 % 1.9 2010 3,561 5.1 6.9 1.8 462 20.0 % 7.8 % 3.0 % 1.8 2011 3,513 5.3 6.4 1.1 464 21.0 % 8.2 % 3.2 % 1.7 2012 3,792 5.6 7.4 1.8 512 22.0 % 8.7 % 3.3 % 1.9 2013 4,324 6.0 11.7 5.7 621 22.0 % 9.0 % 3.9 % 2.0 2014 4,652 6.3 12.6 6.3 703 22.0 % 10.3 % 4.6 % 2.1 2015 4,645 6.7 12.0 5.3 717 22.0 % 10.3 % 4.7 % 2.2 2016 5,148 7.0 13.4 6.4 685 22.0 % 10.1 % 4.5 % 2.3 2017 6,288 7.7 17.9 10.2 1,078 22.0 % 14.9 % 6.6 % 1.6 Source: Company Reports; RBC Capital Markets

In the past, many investors have pushed for the monetization of the BlackRock investment as valuations continue higher and higher. However, there are a few issues with this.

First, what to do with the sizeable windfall? Currently, PNC, and the banking industry in general, is having an issue with having too much capital. Banks are trying to shed their excess capital in the most expedient methods possible that would receive the blessings of regulators. Currently, share buybacks have been the method of choice, but banks have generally not hovered too far away from a 100% payout level except for a few exceptions. Perhaps this CCAR cycle will be different, but that remains to be seen. Another issue is the higher valuation levels, making share buybacks even more expensive and less economically valuable. Deploying the windfall could be challenging for PNC upon initial review.

Second, despite the benefits of the new tax legislation, PNC would still have to pay $1.6 billion of DTLs, as well as, taxes on the estimated $10.2 billion in unrealized gains (see Exhibit 7). Similar to a personal IRA account or conducting a 1031 like-kind exchange, the more financially prudent move would be to defer the payment of taxes as long as possible and let the asset continue grow at its solid pace. Some have suggested that PNC conduct a tax-free spinoff of the BlackRock holdings whereby PNC’s shareholders would receive shares of PNC’s BlackRock holdings through a special dividend on a pro rata basis. Unfortunately, in order to qualify as a tax-free spinoff, PNC must own at least 80% of BlackRock shares, which well exceeds the company’s 21% voting interest at 4Q17.

Lastly, a distinguishing feature among high-performing regional peer groups is the contribution of noninterest income to total revenues. Typically, high-performing peers show noninterest income of 40-50% of total revenues. The high level of noninterest income offers some stability and revenue diversity from net interest income. PNC’s noninterest income made up 44% of total revenues in 2017, right in the middle of the high-performing peer range. We can see Exhibit 7 that BlackRock contributed 6.6% to total revenues. Without the BlackRock investment, PNC’s noninterest income would come in at the lower end of the high-performing peer range. BlackRock sale and special buyback impact to EPS Though we highlighted a few reasons for PNC to keep its BlackRock stake, the sale of BlackRock may be EPS accretive under the right circumstances, and therefore, offer more justification for the sale. First, assuming that PNC was able to sell its BlackRock ownership, a one-time special common stock buyback would make the most sense, i.e., a Dutch Auction tender offer. Therefore, PNC would need to receive approval from its regulators to conduct this special March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 12 Banks/Large-Cap The PNC Financial Services Group, Inc.

buyback. Second, PNC’s stock valuation must not be too high, while BlackRock’s valuation must be high enough.

Our analysis starts by looking at PNC’s profit & loss (P&L) with BlackRock’s contribution broken out as shown in the left table in Exhibit 8. PNC’s portion of BlackRock net income totaled $1.08 billion and a net tax benefit of $686 million in 2017. For 2018, PNC’s portion of BlackRock net income based on BlackRock consensus estimates was $1.00 billion (22% of BlackRock’s 2018 net income to common shareholders) and our estimated associated BlackRock tax of $153 million (15.3% effective rate). Our core EPS for PNC is $10.70 in 2018.

The table on the right shows BlackRock’s net income to common shareholders with 2017 at $4.97 billion and the 2018 consensus estimate of $4.62 billion. The carrying value at the end of 2017 was $7.7 billion and we estimate this to reach $8.3 billion by the end of 2018. The market value of PNC’s holdings was $17.9 billion at the end of 2017 and $19.6 billion at the latest closing price. For the purposes of this analysis, we will assume BlackRock’s stock remains constant for the remainder of the year.

Exhibit 8: PNC P&L with BlackRock breakout and BlackRock statistics – 2017 actual and 2018 RBC estimate

RBC BLK Statistics 2017 2018 % Chg Actual Estimate Profit & Loss (in M except per share) 2017 2018 BLK net income to common 4,970 4,623 (7)% % BLK net income in PNC revenues 22 % 22 % — bps Net interest income 9,108 9,768 Beginning BLK Carrying value 7,000 7,700 10 % Provision for credit loss 441 621 PLUS: BLK earnings 1,078 1,003 (7)% LESS: BLK dividends aggregate 360 418 16 % Noninterest income - excl BLK 6,143 6,356 Other adjustments (18) (18) — % BLK revenue 1,078 1,003 Ending BLK Carrying value 7,700 8,267 7 % Noninterest income 7,221 7,358 Non-core items 101 — BLK market cap (12/31/17) & (3/16/18) 82,364 90,591 10 % Core noninterest income 7,120 7,358 % BLK net income in PNC revenues 22 % 22 % — bps Marke value of holdings 17,865 19,649 10 % Noninterest expense 10,398 10,117 Non-core items 502 — Core noninterest expense 9,896 10,117

Pre-tax income 5,490 6,388 Non-BLK tax 788 933 BLK tax (686) 153 Tax 102 1,086 Net income 5,388 5,302 Pref div, non-control int, other (351) (328) Net income to common 5,037 4,974 Non-core items 922 — Core net income to common 4,115 4,974 Effective tax rate, Non-BLK 17.3 % Effective tax rate, BLK 15.3 % Effective tax rate 1.9 % 17.0 %

Core net income to common 4,115 4,974 Avg FD shares 486 465 Core EPS 8.47 10.70

Source: Company Reports; Factset; RBC Capital Markets

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 13 Banks/Large-Cap The PNC Financial Services Group, Inc.

We estimate PNC will collect net funds of $7.4 billion from the sale of BlackRock as shown in the top table of Exhibit 9. This is based on the expected after-tax gain on sale of $9.0 billion based on PNC’s portion of BlackRock’s market value, less the BlackRock carrying value, a 21% tax rate and less the DTL.

In the bottom table, we estimate that PNC could repurchase 71 million shares, which represents 16% of the shares outstanding. This is based on PNC’s current stock price and the BlackRock net funds from sale of $7.4 billion plus an estimated $4.0 billion in freed up capital to get total funds available for repurchase of $11.4 billion. Recall that Basel III guidelines requires that significant investments in unconsolidated financial institutions (primarily BlackRock holdings), mortgage servicing rights, and deferred tax assets must be deducted from capital to the extent they individually exceed 10%, or in the aggregate exceed 15%, of PNC's adjusted common equity tier 1 capital.

Exhibit 9: BlackRock sale and PNC share repurchase

BLK Sale 2018 Market value of BLK holdings 19,649 Carrying value of BLK holdings 8,267 Gain on sale 11,382 Tax Rate 21.0 % After-tax gain 8,992 LESS: DTL 1,600 Funds from BLK Sale 7,392

PNC Share Repurchase 2018 Funds from BLK Sale 7,392 PLUS: Freed BLK capital 4,000 Total funds available for repurchase 11,392 PNC Price (3/16/18) 160.07 Shares to be repurchased (M) 71 Shares outstanding (M) 448

% shares oustanding 16 % Source: Company Reports; Factset; RBC Capital Markets

Exhibit 10 shows the impact to EPS from the BlackRock sale and share repurchase. Upon the sale, PNC’s core net income and EPS would decline 17% to $4.12 billion and $8.87 per share, respectively from the lost BlackRock revenue. As mentioned, using the total net funds available for repurchase of $11.4 billion, PNC is able to repurchase 71 million shares, which would lower our 2018 estimated average fully diluted shares for PNC to 394 million. Pro forma EPS would increase to $10.48 from $8.87 without the share repurchase, but would still be 2% dilutive to our original 2018 EPS estimate of $10.70. PNC would need to purchase another 9 million shares to bring average fully diluted shares down to 385 million shares in order for the BlackRock sale and share repurchase to be EPS neutral.

Exhibit 11 gives an EPS sensitivity table to the BlackRock sale and PNC stock share repurchase at various PNC stock prices and BlackRock market caps. Currently, BlackRock’s market cap would need to increase another 9% to make this transaction EPS neutral at $10.70.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 14 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 10: Impact to EPS from BlackRock sale and share repurchase

RBC Non-BLK Actual Estimate Pro Forma Profit & Loss (in M except per share) 2017 2018 2018 % Chg

Net interest income 9,108 9,768 9,768 — %

Provision for credit loss 441 621 621 — %

Noninterest income - excl BLK 6,143 6,356 6,356 — % BLK revenue 1,078 1,003 — (100)% Noninterest income 7,221 7,358 6,356 (14)% Non-core items 101 — — NM Core noninterest income 7,120 7,358 6,356 (14)%

Noninterest expense 10,398 10,117 10,117 — % Non-core items 502 — — NM Core noninterest expense 9,896 10,117 10,117 — %

Pre-tax income 5,490 6,388 5,385 (16)% Non-BLK tax 788 933 933 — % BLK tax (686) 153 — (100)% Tax 102 1,086 933 (14)% Net income 5,388 5,302 4,452 (16)% Pref div, non-control int, other (351) (328) (328) — % Net income to common 5,037 4,974 4,124 (17)% Non-core items 922 — — NM Core net income to common 4,115 4,974 4,124 (17)% Effective tax rate, Non-BLK 17.3 % Effective tax rate, BLK 15.3 % Effective tax rate 1.9 % 17.0 % 17.3 % 33 bps

No Buyback Core net income to common 4,115 4,974 4,124 (17)% Avg FD shares 486 465 465 — % Core EPS 8.47 10.70 8.87 (17)%

With Buyback Core net income to common 4,115 4,974 4,124 (17)% Avg FD shares 486 465 465 — % Buyback from funds/capital of BLK sale — — (71) NM Pro forma Avg FD shares 486 465 394 (15)% EPS 8.47 10.70 10.48 (2)% Breakeven shares (M) to $10.70 385 Sharecount reduction needed (17)% NM

Source: Company Reports; Factset; RBC Capital Markets

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 15 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 11: EPS sensitivity table to BlackRock sale and PNC stock share repurchase at various PNC stock prices and BlackRock market caps

Break Even Sensitivity Analysis between PNC Stock Price and BLK Market Cap

PNC Price ($) % Chg — % 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 % 9 % 10 % 11 % 12 % 13 % 14 % 15 % 16 % 17 % 18 % 19 % 20 % Price 160.07 161.67 163.27 164.87 166.47 168.07 169.67 171.27 172.88 174.48 176.08 177.68 179.28 180.88 182.48 184.08 185.68 187.28 188.88 190.48 192.08

% Chg Mkt Cap — % 90,591 10.48 10.46 10.44 10.42 10.40 10.39 10.37 10.35 10.34 10.32 10.31 10.29 10.28 10.26 10.25 10.23 10.22 10.21 10.19 10.18 10.17 1 % 91,497 10.50 10.48 10.46 10.45 10.43 10.41 10.39 10.38 10.36 10.34 10.33 10.31 10.30 10.28 10.27 10.26 10.24 10.23 10.22 10.20 10.19 2 % 92,403 10.53 10.51 10.49 10.47 10.45 10.43 10.42 10.40 10.38 10.37 10.35 10.34 10.32 10.31 10.29 10.28 10.26 10.25 10.24 10.22 10.21 3 % 93,309 10.55 10.53 10.51 10.50 10.48 10.46 10.44 10.42 10.41 10.39 10.37 10.36 10.34 10.33 10.31 10.30 10.28 10.27 10.26 10.24 10.23 4 % 94,215 10.58 10.56 10.54 10.52 10.50 10.48 10.47 10.45 10.43 10.41 10.40 10.38 10.37 10.35 10.34 10.32 10.31 10.29 10.28 10.26 10.25 5 % 95,120 10.61 10.59 10.57 10.55 10.53 10.51 10.49 10.47 10.45 10.44 10.42 10.40 10.39 10.37 10.36 10.34 10.33 10.31 10.30 10.29 10.27 6 % 96,026 10.63 10.61 10.59 10.57 10.55 10.53 10.51 10.50 10.48 10.46 10.44 10.43 10.41 10.40 10.38 10.36 10.35 10.33 10.32 10.31 10.29 7 % 96,932 10.66 10.64 10.62 10.60 10.58 10.56 10.54 10.52 10.50 10.49 10.47 10.45 10.43 10.42 10.40 10.39 10.37 10.36 10.34 10.33 10.31 8 % 97,838 10.69 10.66 10.64 10.62 10.60 10.58 10.56 10.55 10.53 10.51 10.49 10.47 10.46 10.44 10.42 10.41 10.39 10.38 10.36 10.35 10.33 9 % 98,744 10.71 10.69 10.67 10.65 10.63 10.61 10.59 10.57 10.55 10.53 10.51 10.50 10.48 10.46 10.45 10.43 10.42 10.40 10.38 10.37 10.36 10 % 99,650 10.74 10.72 10.70 10.67 10.65 10.63 10.61 10.59 10.58 10.56 10.54 10.52 10.50 10.49 10.47 10.45 10.44 10.42 10.41 10.39 10.38 11 % 100,556 10.77 10.74 10.72 10.70 10.68 10.66 10.64 10.62 10.60 10.58 10.56 10.54 10.53 10.51 10.49 10.48 10.46 10.44 10.43 10.41 10.40 12 % 101,462 10.79 10.77 10.75 10.73 10.71 10.68 10.66 10.64 10.62 10.61 10.59 10.57 10.55 10.53 10.51 10.50 10.48 10.47 10.45 10.43 10.42

BLK Market Cap ($M) BLK Market Cap 13 % 102,368 10.82 10.80 10.78 10.75 10.73 10.71 10.69 10.67 10.65 10.63 10.61 10.59 10.57 10.56 10.54 10.52 10.50 10.49 10.47 10.46 10.44 14 % 103,274 10.85 10.83 10.80 10.78 10.76 10.74 10.71 10.69 10.67 10.65 10.63 10.62 10.60 10.58 10.56 10.54 10.53 10.51 10.49 10.48 10.46 15 % 104,179 10.88 10.85 10.83 10.81 10.78 10.76 10.74 10.72 10.70 10.68 10.66 10.64 10.62 10.60 10.58 10.57 10.55 10.53 10.52 10.50 10.48 16 % 105,085 10.91 10.88 10.86 10.83 10.81 10.79 10.77 10.74 10.72 10.70 10.68 10.66 10.64 10.63 10.61 10.59 10.57 10.55 10.54 10.52 10.50 17 % 105,991 10.93 10.91 10.88 10.86 10.84 10.81 10.79 10.77 10.75 10.73 10.71 10.69 10.67 10.65 10.63 10.61 10.59 10.58 10.56 10.54 10.53 18 % 106,897 10.96 10.94 10.91 10.89 10.86 10.84 10.82 10.80 10.77 10.75 10.73 10.71 10.69 10.67 10.65 10.64 10.62 10.60 10.58 10.56 10.55 19 % 107,803 10.99 10.96 10.94 10.91 10.89 10.87 10.84 10.82 10.80 10.78 10.76 10.74 10.72 10.70 10.68 10.66 10.64 10.62 10.60 10.59 10.57 20 % 108,709 11.02 10.99 10.97 10.94 10.92 10.89 10.87 10.85 10.82 10.80 10.78 10.76 10.74 10.72 10.70 10.68 10.66 10.64 10.63 10.61 10.59 Source: Company Reports; Factset; RBC Capital Markets

Long-term value One of the key financial metrics we look at is return on average tangible common equity (ROATCE). This is a great ratio to measure financial performance, but it does have some limitations primarily related to capital actions. One glaring example is when a company executes a transaction that is dilutive to tangible book value per share. Perversely, deals that are destructive to tangible book per share may end up providing a boost to ROATCE as the denominator of the ratio is destroyed. This provides a very perverse incentive for management teams. One could argue that shareholders will punish management teams for destroying capital (tangible common equity), and this is true within a certain time period. But as time goes on, shareholders and investors forget that destructive deal a year or two ago and go through the routine of relying primarily on ROATCE. Another example is when companies need to raise capital in poor capital raising environments and thereby dilute their current shareholders by having to issue a larger than normal number of shares.

Understanding the limitations of ROATCE, we still like to look at tangible book value per share growth within a certain period. Tangible book value per share growth would factor in both the ROATCE component and also dilution to capital component that we mentioned from destructive acquisitions and dilutive capital raises. However, what tangible book value per share growth does not factor in are dividends paid. A company that does not pay a dividend will have higher tangible book value per share growth than a company that does pay a dividend, ceteris paribus. Therefore, we modify our tangible book value per share growth analysis with a cumulative dividend tangible book value per share (CDTBVPS) growth analysis. The analysis adds back cumulative dividends that have been paid out for the focused period to tangible book value, which levels out the playing field between dividend payers and non- payers.

Exhibit 12 shows the 4Q17 10-year CDTBVPS for PNC and its peer group. In the case of PNC, 4Q17 tangible book value per share was $72, 10-year cumulative dividends that were paid out equated to $18 per share, resulting in the 4Q17 10-year CDTBVPS of $90 for PNC.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 16 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 12: 4Q17 10-Year cumulative dividend tangible book value per share

$100 $94 $90 $90 $80 $68 $70 $70 $60 $50 $42 $42 $40 $72 $69 $30 $30

Yr Yr Cumulative Div TBVPS $30 $60

- $23 $54 $19 $20 $12 $31 $35 $11 $10 $21 $18 $17 $21

4Q17 4Q17 10 $9 $10 $0 PNC WFC MTB JPM COF BBT FITB BAC USB STI RF KEY

4Q17 TBVPS 10-Yr Cumulative Dividend

Source: S&P Global Market Intelligence; RBC Capital Markets

The top chart in Exhibit 13 shows PNC’s and its peers’ 4Q07 tangible book value per share with their 4Q17 10-year CDTBVPS. The bottom left chart shows the 10-year compounded annual growth rate for tangible book value per share from 4Q07 to the 4Q17 10-year CDTBVPS. We can see that PNC comes out on top with a 17% CAGR followed by WFC and MTB. KEY was last in the group with a negative CAGR, while RF was second to last at 0% CAGR. In other words, if an investor paid 1.0x tangible book for PNC in 4Q07, or $18 per share, the investor would receive $90 per share in value at 4Q17 assuming the same multiple. The bottom right chart shows a simple point-to-point percent change in tangible book value per shares given the CAGR and time period. PNC’s value increased 4x during the 10-year period.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 17 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 13: 10-Year cumulative dividend tangible book value per share

4Q07 TBVPS vs 4Q17 10 Yr Cumulative Dividend TBVPS $100 $94 $90 $90 $80 $68 $70 $70 $60 $50 $42 $42 TBVPS $40 $28 $29 $30 $30 $30 $30 $22 $23 $11 $16 $18 $19 $20 $20 $10 $13 $12 $13 $11 $12 $10 $0 PNC WFC MTB JPM COF BBT FITB BAC USB STI RF KEY

4Q07 TBVPS 4Q17 10-Yr Cumulative Div TBVPS

10-Yr Compounded Annual Growth Rate Point-to-Point % Change 20% 450% 17% 399% 400% 15% 15% 350% 13% 12% 302% 300% 9% 235% 10% 9% 250% 209%

6% 200% CAGR

Point % Change 141%

4% -

5% 4% 3% 150% 126%

to - 100% 85% 50% 47% 40% 0% Point 50% 0% 0% -3% -2% -5% -50% -26% PNC WFC MTB JPM COF BBT FITB BAC USB STI RF KEY PNC WFC MTB JPM COF BBT FITB BAC USB STI RF KEY

Source: S&P Global Market Intelligence; RBC Capital Markets

Another very important profitability metric is return on average common equity (ROACE.) Using the ROACE analysis allows investors to compare banks that do acquisitions versus banks that do not do acquisitions. Exhibit 14 shows a breakout of PNC’s and its peers’ core and reported ROACE. PNC’s core ROACE is 10.4% which compares to an average of 10.2% for its peer group. PNC’s core ROACE is below the top performers, USB, at 13.5%, MTB, at 11.1%, and KEY and WFC, at 10.9%, each. The company recognizes the importance of driving ROACE higher. Under CEO Demchak’s leadership, we expect PNC to continue driving ROACE higher well into the future.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 18 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 14: PNC and peer core ROACE

Average PNC BAC BBT COF FITB JPM KEY MTB RF STI USB WFC Net Interest Income 2.97 % 2.49 % 2.03 % 2.95 % 6.40 % 2.75 % 2.05 % 2.74 % 3.23 % 2.89 % 2.80 % 2.75 % 2.58 % Adjustments 0.01 % 0.03 % — % — % 0.01 % 0.08 % — % — % — % 0.02 % — % — % — % Core Net Interest Income 2.98 % 2.52 % 2.03 % 2.95 % 6.41 % 2.83 % 2.05 % 2.74 % 3.23 % 2.91 % 2.80 % 2.75 % 2.58 %

Provision for Loan Losses 0.31 % 0.13 % 0.17 % 0.25 % 2.12 % 0.19 % 0.21 % 0.14 % 0.10 % (0.14)% 0.14 % 0.30 % 0.15 % Adjustments — % — % — % — % — % — % — % — % — % — % — % — % — % Core Provision for Loan Losses 0.31 % 0.13 % 0.17 % 0.25 % 2.12 % 0.19 % 0.21 % 0.14 % 0.10 % (0.14)% 0.14 % 0.30 % 0.15 %

Total Noninterest Income 1.81 % 2.04 % 1.54 % 2.20 % 1.30 % 1.61 % 1.75 % 1.90 % 1.48 % 1.81 % 1.89 % 2.14 % 2.03 % Adjustments (0.01)% (0.06)% 0.02 % — % 0.01 % 0.03 % (0.01)% — % — % — % 0.01 % — % (0.18)% Core Noninterest Income 1.79 % 1.98 % 1.56 % 2.20 % 1.31 % 1.65 % 1.75 % 1.90 % 1.48 % 1.81 % 1.90 % 2.14 % 1.86 %

Total Realized Gains on Secs (0.01)% (0.00)% (0.00)% (0.00)% 0.00 % (0.00)% (0.00)% 0.00 % 0.07 % 0.04 % (0.21)% 0.01 % 0.03 %

Total Noninterest Expense 3.10 % 3.26 % 2.28 % 3.33 % 4.14 % 3.06 % 2.30 % 3.19 % 2.59 % 3.12 % 3.04 % 3.45 % 3.49 % Adjustments (0.26)% (0.53)% — % (0.04)% (0.10)% (0.28)% — % (0.25)% (0.15)% (0.16)% (0.22)% (0.72)% (0.67)% Core Noninterest Expense 2.84 % 2.72 % 2.28 % 3.29 % 4.04 % 2.78 % 2.30 % 2.94 % 2.45 % 2.96 % 2.82 % 2.73 % 2.82 %

Inc bef Inc Tax & Extra Items 1.36 % 1.14 % 1.11 % 1.57 % 1.44 % 1.11 % 1.29 % 1.31 % 2.09 % 1.77 % 1.30 % 1.15 % 1.00 % Adjustments 0.26 % 0.50 % 0.02 % 0.04 % 0.12 % 0.39 % (0.01)% 0.25 % 0.15 % 0.18 % 0.23 % 0.72 % 0.50 % Core Inc bef Inc Tax & Extra Items 1.61 % 1.65 % 1.13 % 1.61 % 1.56 % 1.50 % 1.28 % 1.56 % 2.24 % 1.95 % 1.53 % 1.87 % 1.50 % Income Taxes 0.36 % (1.08)% 0.67 % 0.38 % 2.39 % (0.33)% 0.63 % 0.73 % 1.02 % 0.69 % (0.14)% (0.33)% (0.32)% Adjustments 0.02 % 1.47 % (0.50)% (0.08)% (1.95)% 0.57 % (0.38)% (0.41)% (0.28)% (0.17)% 0.51 % 0.80 % 0.69 % Tax Effect of Pre-Tax Adj 0.04 % — % 0.01 % 0.01 % 0.03 % 0.13 % (0.00)% 0.07 % 0.06 % 0.07 % 0.08 % 0.06 % 0.00 % Core Income Taxes 0.42 % 0.39 % 0.18 % 0.31 % 0.47 % 0.37 % 0.24 % 0.39 % 0.79 % 0.59 % 0.45 % 0.53 % 0.37 % Income before Extraord Items 1.00 % 2.22 % 0.44 % 1.20 % (0.95)% 1.45 % 0.66 % 0.57 % 1.07 % 1.08 % 1.44 % 1.48 % 1.33 % Core Income before Extraord Items 1.19 % 1.25 % 0.95 % 1.30 % 1.09 % 1.13 % 1.04 % 1.16 % 1.44 % 1.36 % 1.08 % 1.35 % 1.13 % PLUS: Extraord Items, Net Tax (0.01)% — % — % — % (0.12)% — % — % 0.01 % — % 0.00 % — % — % — % LESS: Noncontrolling Interest 0.00 % 0.01 % 0.00 % 0.02 % (0.00)% 0.00 % — % 0.00 % — % — % 0.00 % 0.00 % 0.02 % BHC Net Income 0.98 % 2.21 % 0.44 % 1.18 % (1.07)% 1.45 % 0.66 % 0.57 % 1.07 % 1.08 % 1.44 % 1.47 % 1.31 % Core BHC Net Income 1.18 % 1.24 % 0.95 % 1.28 % 0.97 % 1.13 % 1.04 % 1.16 % 1.44 % 1.36 % 1.07 % 1.34 % 1.11 % LESS: Preferred Dividends 0.06 % 0.06 % 0.05 % 0.08 % 0.09 % 0.06 % 0.07 % 0.04 % 0.06 % 0.05 % 0.06 % 0.06 % 0.09 % Net Income to Common (ROAA) 0.92 % 2.15 % 0.39 % 1.10 % (1.16)% 1.38 % 0.59 % 0.53 % 1.01 % 1.03 % 1.38 % 1.42 % 1.22 % Core Net Income to Common (ROAA) 1.11 % 1.18 % 0.90 % 1.20 % 0.88 % 1.07 % 0.97 % 1.12 % 1.38 % 1.31 % 1.02 % 1.29 % 1.02 % Leverage Factor (Assets/Equity) 9.2x 8.8x 9.3x 8.4x 8.1x 9.4x 11.1x 9.7x 8.0x 8.0x 9.1x 10.5x 10.7x ROACE 8.66 % 18.85 % 3.61 % 9.21 % (9.32)% 12.94 % 6.59 % 5.16 % 8.09 % 8.17 % 12.62 % 14.90 % 13.07 % Core ROACE 10.23 % 10.37 % 8.42 % 10.06 % 7.08 % 9.99 % 10.77 % 10.89 % 11.06 % 10.41 % 9.28 % 13.52 % 10.94 % Effective Tax Rate 20.5 % (94.7)% 60.7 % 23.9 % 165.9 % (29.8)% 48.7 % 56.2 % 48.7 % 39.0 % (11.0)% (28.6)% (32.4)% Source: S&P Global Market Intelligence; RBC Capital Markets

Poised for solid loan growth We expect the U.S. economy will continue to accelerate from solid fundamentals with a turbo boost from the new tax legislation. As businesses expand, PNC is poised to ride this economic expansion. Exhibit 15 shows how PNC’s commercial & industrial (C&I) loans have accelerated for most of 2017 relative to the industry. PNC’s year-over-year C&I loan growth was 10% in 4Q17, while the industry showed seven straight quarters of declining growth.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 19 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 15: Quarterly year-over-year C&I loan growth for last two years

12.0 %

10.4 % 9.9 % 10.0 % 9.6 % 9.5 % 8.9 % 8.9 % 8.0 % 7.4 % 6.0 % 5.9 % 6.1 % 6.0 %

4.0 % 2.8 % 3.1 % 1.7 % 2.0 % 2.1 % 2.0 % 1.2 % — % 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4

PNC Industry

Source: S&P Global Market Intelligence; RBC Capital Markets

A key factor in PNC’s strong C&I growth in 2017 relative to the industry is its plan to expand its middle market business, which was formalized in the beginning of 2017. Currently, PNC is in 26 of the 50 U.S. metropolitan markets with Dallas, Kansas City, and Minneapolis expansion markets in 2017. PNC plans to expand into Denver, Houston, and Nashville in 2018. The company plans to leverage its already successful middle market strategy in the Southeast and Chicago to drive growth in the new expansion markets by delivering its full suite of commercial products and services and embedding itself within the communities with regional presidents. Exhibit 16 shows the success the Southeast and Chicago expansion markets have had since 1Q13 relative to PNC’s other markets.

Exhibit 16: Corporate and Commercial Banking indexed average loan growth: Southeast and Chicago vs. other markets

Source: Company reports.

PNC is also focused on growing its consumer loans by enhancing its consumer lending platform:

 Home equity lending:

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 20 Banks/Large-Cap The PNC Financial Services Group, Inc.

o PNC is transforming its home lending capabilities by integrating its home equity and mortgage divisions, which should facilitate higher origination leads. o PNC is digitizing its origination processes thereby streamlining the process and reducing errors. o PNC disclosed that home equity loans booked by mortgage loan officers for the year-to-date 3Q17 were 86% higher than the prior year period.  Credit card lending: o Credit card loans grew 7.9% in 4Q17 from the year-ago quarter and stood at $5.7 billion. o Digital consumers (consumer checking relationships that process the majority of their transactions through non-teller channels) continue to grow increasing to 63% of consumer checking relationships in 4Q17 from 60% in the prior year. The increase adoption of digital channels should facilitate increased credit card sales. o PNC successfully launched its new tiered Cash Rewards card in June 2017.  Direct auto lending: o Mobile application launched in July 2017. o Increasing adoption of digital channels should facilitate increasing direct auto originations.  Unsecured installment lending: o Digital unsecured installment loan product pilot was launched in 4Q16 and accounted for 20% of new account production as of 3Q17.  Private education lending: o PNC launched an education refinancing product in June 2017 and now provides borrowers the opportunity to combine multiple loans. According to recent data from Experian, student loan borrowers carry an average of 3.7 loans each totaling more than $34,000. PNC's refinance loan is available to consumers with both federal and/or private student loans. o PNC plans to leverage its university banking relationships with students including credit card to generate growth.

Investments in technology and infrastructure Over the past few years, PNC and other leading banks have invested heavily in technology and infrastructure. Some of the investments were most likely encouraged by regulators through the CCAR process, but many major banks now view technology and infrastructure spend as an arms race to streamline processes as much as possible, which would free up capital for further technology and infrastructure investments, as well as, higher margin products and services.

PNC has built out key foundational capabilities that allow for greater speed, security and stability. The company has built its internal cloud with three state-of-the art data centers up and running that help ensure the availability and recoverability of data and applications in real time. All these investments lead to increased efficiencies through automation and robotics, resulting in net savings that allow for further investments in technology, infrastructure, and high-margin products and services.

With much of the infrastructure investments done, PNC has now shifted towards consumer- facing, digital initiatives. To do this successfully, the company began building out a culture of technological innovation, such as the PNC Center for Financial Services Innovation, the numo fintech incubator, and the PNC iLab.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 21 Banks/Large-Cap The PNC Financial Services Group, Inc.

PNC Center for Financial Services Innovation The PNC Center for Financial Services Innovation was created in January 2013 in conjunction with Carnegie Mellon University (CMU). The center is housed within the Tepper School of Business and draws upon expertise throughout CMU to advance collaborative research in business, consumer behavior, computer science, engineering and public policy with a mission to stimulate the advancement of financial services through technological innovation.

Some of these technologies include online banking, mobile devices, and social media. The PNC Center encourages research that can use these environments to improve consumer experiences of financial services and promote new technologies that can deliver these experiences to the consumer. The center serves a dual role to foster the creation of knowledge through research and to disseminate this knowledge through education. numo numo is a fintech incubator launched in February 2017 and is wholly-owned by PNC consisting of technologists, designers, business thinkers, and academics with the goal of creating world class software and data products. The privately held company builds consumer and enterprise software in-house related to financial services. We expect numo to build out a portfolio of products and services soon. PNC iLab In 2015, PNC opened its iLab, a facility located in downtown Pittsburgh that enables the company to bring customers and employees directly into the product development and launch process. The iLab tests early product concepts and evaluates technologies that help PNC create better customer experiences and includes new ATMs and a branch and call center mock-up as well. The iLab has been very helpful in understanding the customer experience, such as opening an account and real-time selling over video channels. Focused on efficiency Continuous Improvement Program PNC introduced its Continuous Improvement Program (CIP) in 2012 starting out with $550 million in annualized cost savings for that year with over 600 identified initiatives at the time. Subsequently every year, PNC successfully met its CIP cost savings targets. The left chart in Exhibit 17 gives the CIP cost savings and efficiency ratios through 2018 estimates. Despite the improving expense profile, the efficiency ratio continued to climb through 2015 as net interest margins (NIMs) were squeezed due to the prolonged low-interest rate environment. The chart on the right, however, highlights the improving expense profile by showing operating expenses as a percentage of average assets declining through 2016. As revenues were aided by a normalizing interest rate environment in 2016 and after, the efficiency ratio started to decline.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 22 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 17: Continuous Improvement Plan (CIP) cost savings vs. efficiency ratio and operating expense/average assets

CIP and Efficiency Ratio CIP and Operating Expense/Average Assets 800 62.5 % 800 3.40 % 700 700 700 62.0 % 700 3.30 % 61.5 % 3.20 % 600 550 600 550 500 500 61.0 % 500 500 3.10 % 500 500 400 60.5 % 400 3.00 % 400 350 400 350

60.0 % 2.90 %

CIP ($M) CIP ($M) CIP 300 250 300 250

59.5 % Efficiency Ratio 2.80 % 200 200 59.0 % 2.70 % 100 100 58.5 % 2.60 % OperatingExpense/Average Assets

— 58.0 % — 2.50 % 2012 2013 2014 2015 2016 2017 2018E 2012 2013 2014 2015 2016 2017 2018E

CIP Efficiency Ratio CIP Op Exp/Avg Assets

Source: Company reports; RBC Capital Markets

Optimizing branch network In 2013, CEO and Chairman, William Demchak, announced plans to shrink traditional branches down to a third of total branches in five years (end of 2018) by building out/converting to universal branches and consolidating traditional branches. As of the end of 2017, PNC’s total branch count of 2,459 declined by a compounded annual growth rate (CAGR) of 3.1% since 2012. Traditional branches declined by a 7.5% CAGR for that period and made up 79% of the total branch count. PNC still has quite a bit of work remaining to reach its original goal of reducing traditional branches to a third of total branches.

Exhibit 18: Traditional and universal branches

3,500 Total Branch CAGR: -3.1% 2,881 3,000 2,714 2,697 2,616 2,520 45 156 2,459 2,500 359 526 512 2,000 Traditional Branch CAGR: -7.5% 1,500 Branches 2,881 2,669 2,541 2,257 1,000 1,994 1,947

500 100 % 98 % 94 % 86 % 79 % 79 % — 2012 2013 2014 2015 2016 2017

Traditional Branch Universal Branch Traditional/Total Branch

Source: Company reports.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 23 Banks/Large-Cap The PNC Financial Services Group, Inc.

PNC estimates that the cost per interaction is 13x greater in a branch channel versus alternative channels, which include care centers, interactive voice response, ATMs, and digital/mobile. Universal branches would increase the usage of alternative channels, and thereby increase efficiency, offer clients improved services and banking options, and provide PNC the increased opportunity to maximize their client relationship. These universal branches occupy less square feet than traditional branches and rely more heavily on technology to facilitate transactions. Exhibit 19 highlights the success of migrating customers over to lower cost channels. Average digital customers (consumer checking relationships that process the majority of their transactions through non-teller channels) increased to 62% in 2017 from 35% in 2012 and average non-teller deposits (consumer and business banking deposit transactions processed at an ATM or through mobile banking applications) increased to 54% at 4Q17 from 23% at 2Q13. PNC’s goal is to reduce customer-facing procedures by 80% and has implemented a new Salesforce CRM platform to more efficiently manage clients and convert leads. Aside from reducing costs, the digital platform has contributed to revenues with 12% of year-to-date product sales coming from the digital channel.

Exhibit 19: Digital customers and non-teller deposits

65 % 62 % 60 % 58 % 54 % 55 % 52 % 51 % 50 % 46 % 46 % 45 %

40 % 38 % 38 % 35 % 35 % 30 % 30 %

25 % 23 %

20 % 2012* 2013 2014 2015 2016 2017

Avg Annual Digital Customers Avg Non-Teller Deposits in the 4Q

Source: Company reports * Average Non-Teller Deposits for 2Q13. 4Q12 data not available.

The term “universal” is not necessarily a physical format with various physical manifestations of the concept, such as pop-up branches and tellerless branches. Today, banking clients are coming in less for traditional transactions given technology and mobile banking. Rather, the universal banking concept is about staff realignment…developing employees to handle all a customer’s needs.

The term “tellerless” doesn’t mean that there aren’t any employees. Instead, employees are retrained as “financial consultants” that can speak to a range of topics beyond traditional teller activities, which would allow PNC to deepen its client relationships. Financial consultants have more responsibilities, and as a result, have different pay levels and opportunities for incentives. We believe this would lower branch employee turnover rate. Overall retail banking turnover dropped 22% year-over-year in 3Q17, while top performer retail banking turnover declined 25% for the same period.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 24 Banks/Large-Cap The PNC Financial Services Group, Inc.

The physical universal branch format is different with no teller lines and counters. Transactions are completed at two specific locations: 1) smart ATMs or 2) teller cash recyclers, which dispense cash at concierge stations, where customers meet with a financial consultants. There may be multiple concierge stations at a single branch. Exhibit 20 lists key features of the universal branch.

Exhibit 20: Key features of universal branch

Lobby managers Lobby managers are the first PNC employees to meet clients. Part greeter, part banking concierge, lobby managers welcome clients into the branch, determine what the client is looking for, and who in the branch can help, as well as, help clients with their electronic banking or ATM questions. Smart ATMs Smart ATMs accept cash deposits and can dispense $1 bills, similar to ATMs deployed by larger banks. PNC lobby managers and other employees will also put more emphasis on smart ATMs to help make banking easier for clients. Universal branches have 24-hour access to smart ATMs. iPads Lobby managers, or “financial consultants,” carry iPads with them in case clients are more comfortable using them or also allow the lobby managers to show to clients how they can access their accounts safely on the provided iPad and provide a tutorial as well. No tellers There are no “tellers” in the traditional sense of someone behind the bank partitions waiting for clients to come. However, if clients are more comfortable with a PNC employee making a deposit for client, then that’s what PNC will do. The universal branch model gives clients more options. Private banking rooms There are also private rooms where clients can fill out any necessary paperwork or use a smartphone or tablet to access an account in private. Universal tables Universal tables are computers at desks in the lobby where clients can access PNC’s network and their accounts.

Source: Central Penn Business Journal.

Allocation of capital Dividends and buybacks As we highlighted in Exhibit 13, PNC has the highest 10-year cumulative dividend tangible book value per share CAGR among its peers. The company’s acquisition of National City Corporation checking for proper name contributed to this outperformance. This strong return to shareholders is not only a function of operational acumen, but also from being great stewards of shareholder capital, which includes capital return and opportunistic acquisitions (at least non-destructive acquisitions). Exhibit 21 breaks out PNC’s total payout from 2012 to 2017. The company, along with many of its peers, did not repurchase shares prior to 2014. Total payouts generally have increased every year since 2013 and stood at ~100% of earnings, in line with the CCAR peers with share repurchases making up approximately two-thirds of the capital return.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 25 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 21: PNC historical payout versus CCAR average peer total payout

120 102 100 87 83 80 66 67 60 60 55 40

PayoutRatio (%) 40 28 26

20 35 28 26 27 27 29

— 2012 2013 2014 2015 2016 2017

PNC Dividend PNC Buyback CCAR Avg Peer Total Payout PNC Total Payout

Source: Company reports; RBC Capital Markets. Note: Periods are CCAR years, not calendar years and payouts are based on RBC estimates at the reported time.

As valuations have increased, the price of share repurchases have increased as well. Exhibit 22 shows the quarterly share repurchases and average price-to-book value and price-to-tangible book value for the periods going back to 2014. From 2Q14 to 3Q16, share repurchases have been conducted in periods where valuations were between 1.0-1.2x tangible book and 1.2- 1.6x book. Since the President-elect Trump won the presidency, valuations have climbed drastically. Valuations from 1Q17 to 4Q17 have ranged between 1.4-1.6x tangible book and ~1.8-2.0x book. Despite this, we still believe share repurchases are a valuable method of returning capital to shareholders.

Exhibit 22: PNC quarterly buybacks and average quarterly price/book and price/tangible book

200 % 1,000 180 % 900 160 % 800 140 % 700 120 % 688 600 612 100 % 600 600 500 535 500 500 500 500 499 500 80 % 465 400

P/BV P/BV P/TBV & 60 % 400 400 300 Repurchases Repurchases ($M) 40 % 200 20 % 200 100 —

— % —

Jun-14 Jun-15 Jun-16 Jun-17

Sep-14 Sep-15 Sep-16 Sep-17

Dec-14 Dec-15 Dec-16 Dec-17

Mar-14 Mar-15 Mar-16 Mar-17

Quarterly Buybacks P/B P/TBV

Source: Company reports; RBC Capital Markets. Note: Periods are calendar cycle.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 26 Banks/Large-Cap The PNC Financial Services Group, Inc.

We believe PNC still has a meaningful level of capital to return. Exhibit 23 provides PNC’s CCAR statistics since 2014. For 2017, PNC’s projected minimum CET1 ratio of 6.3% exceeded the 4.5% required minimum by ~180 basis points. Therefore, we believe PNC has 100-150 basis points of capital that could be returned to shareholders.

Exhibit 23: PNC CCAR statistics under supervisory severely adverse scenario 2014-2017

2014 2015 2016 2017 Tier 1 Common Ratio Projected Min 8.1 % 8.0 % NA NA Required Min 5.0 % 5.0 % NA NA Excess 3.1 % 3.0 % NA NA CET1 Ratio Projected Min 6.7 % 7.0 % 6.1 % 6.3 % Required Min 4.0 % 4.5 % 4.5 % 4.5 % Excess 2.7 % 2.5 % 1.6 % 1.8 % Tier 1 Risk-Based Capital Ratio Projected Min 8.2 % 8.3 % 7.5 % 7.6 % Required Min 5.5 % 6.0 % 6.0 % 6.0 % Excess 2.7 % 2.3 % 1.5 % 1.6 % Total Risk-Based Capital Ratio Projected Min 11.4 % 11.1 % 9.8 % 9.6 % Required Min 8.0 % 8.0 % 8.0 % 8.0 % Excess 3.4 % 3.1 % 1.8 % 1.6 % Tier 1 Leverage Ratio Projected Min 8.0 % 7.3 % 6.4 % 6.4 % Required Min 4.0 % 4.0 % 4.0 % 4.0 % Excess 4.0 % 3.3 % 2.4 % 2.4 % Supplementary Leverage Ratio Projected Min NA NA NA 5.4 % Required Min NA NA NA 3.0 %

Excess NA NA NA 2.4 % Source: Company reports; RBC Capital Markets.

Historical look at M&A activity Exhibit 24 provides a brief overview of PNC’s bank and thrift acquisition history. Prior to the National City Corporation and RBC Bank transactions, the company’s acquisitions had a mixed benefit to shareholders, in our opinion. The transformational deal for the company was the National City Corporation acquisition in 2008. At announcement, PNC offered National City Corporation a total consideration of $5.6 billion, which equated to 26.6% of book value and 36.6% of tangible book value. The tangible book premium to core deposits was -9.09%. At announcement, the transaction had an estimated internal rate of return of 15.0%, was expected to be 15.0% dilutive to earnings in the first year and accretive to earnings in the second year.

The most recent bank acquisition was completed in March of 2012 and involved the purchase of RBC Bank (USA), the U.S. retail banking subsidiary of . The RBC acquisition also included the purchase of a credit card portfolio from RBC Bank (Georgia). PNC paid $3.6 billion in cash as the consideration for the acquisition of both RBC Bank (USA) and the credit card portfolio. The transaction added approximately $18.1 billion in deposits, $14.5 billion of loans and $1.1 billion of goodwill and intangible assets to PNC’s consolidated balance sheet. At the time of the announcement, the deal had an internal rate of return of 19.0% and

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 27 Banks/Large-Cap The PNC Financial Services Group, Inc.

was expected to be accretive to earnings in the first year following the completion of the transaction.

The two aforementioned acquisitions were the best acquisitions the company has done in over 15 years, in our view. These acquisitions were transformational and accretive to either earnings or tangible book value. Some of the company’s earlier acquisitions were not as beneficial as these last two, in our opinion.

As detailed in the deal map in Exhibit 25, the RBC Bank acquisition helped to solidify PNC’s Southeast presence through RBC’s 400 branches in North Carolina, Florida, Alabama, Georgia, Virginia and South Carolina. The retail branch network acquired from RBC has served as the base from which PNC has built out its asset management and corporate banking operations in the Southeast. Prior to the RBC Bank acquisition, PNC was able to establish a retail banking beachhead in the Southeast through the Florida branches acquired in the National City transaction in 2008.

Exhibit 24: History of bank and thrift acquisitions

Announcement Target Total Assets Target / Seller State/Country Industry Type Date Status Deal Value ($M) ($000) RBC Bank (USA) NC, USA Bank 06/20/2011 Completed on 3/2/2012 3,450.00 27,375,539 National City Corporation OH, USA Bank 10/24/2008 Completed on 12/31/2008 5,603.72 145,034,858 Sterling Financial Corporation PA, USA Bank 07/19/2007 Completed on 4/4/2008 559.89 3,276,967 Yardville National Bancorp NJ, USA Bank 06/06/2007 Completed on 10/26/2007 405.79 2,676,952 Mercantile Bankshares Corporation MD, USA Bank 10/08/2006 Completed on 3/2/2007 6,027.06 17,002,714 Riggs National Corporation DC, USA Bank 07/16/2004 Completed on 5/13/2005 643.65 5,899,713 United National Bancorp NJ, USA Bank 08/21/2003 Completed on 1/1/2004 649.02 3,031,851 Midlantic Corporation NJ, USA Bank 07/10/1995 Completed on 12/31/1995 3,043.20 13,634,216 Chemical New Jersey Holdings, Inc. NJ, USA Bank 03/08/1995 Completed on 10/6/1995 504.00 3,345,000 Brentwood Financial Corp. OH, USA Savings Bank/Thrift/Mutual 08/03/1994 Completed on 3/3/1995 21.20 100,346 Indian River Federal Savings Bank FL, USA Savings Bank/Thrift/Mutual 07/28/1994 Completed on 1/16/1995 11.80 66,911 First Eastern Corp. PA, USA Bank 07/27/1993 Completed on 6/17/1994 331.70 2,133,601 United Federal Bancorp, Inc. PA, USA Savings Bank/Thrift/Mutual 05/04/1993 Completed on 1/21/1994 162.70 812,797 Massachusetts Company, Inc MA, USA Bank 02/23/1993 Completed on 9/17/1993 52.00 967,021 Gateway Fed Corporation OH, USA Savings Bank/Thrift/Mutual 12/22/1992 Completed on 11/19/1993 59.10 503,552 Ohio Bancorp OH, USA Bank 12/04/1992 Terminated 249.60 1,763,553 Flagship Financial Corp. PA, USA Savings Bank/Thrift/Mutual 01/21/1992 Completed on 11/20/1992 45.90 946,926 Sunrise Bancorp, Inc. KY, USA Savings Bank/Thrift/Mutual 12/20/1991 Completed on 9/4/1992 24.80 266,160 CCNB Corporation PA, USA Bank 12/11/1991 Completed on 10/23/1992 171.60 1,238,585 First National Pennsylvania Corporation (The) PA, USA Bank 09/16/1991 Completed on 7/23/1992 80.10 692,221 Pro Group, Inc. PA, USA Bank 06/12/1991 Completed on 1/13/1992 5.50 67,539 Bank of Delaware Corporation DE, USA Bank 09/22/1988 Completed on 3/31/1989 215.00 1,816,834 Central Bancorporation, Inc OH, USA Bank 07/31/1987 Completed on 2/29/1988 731.40 NA Citizens Fidelity Corp KY, USA Bank 06/30/1986 Completed on 2/27/1987 716.90 NA Source: S&P Global Market Intelligence

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 28 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 25: Southeast expansion through RBC Bank

Source: S&P Global Market Intelligence

Profitability analysis Exhibit 26 highlights PNC’s income statement relative to a peer group consisting of PNC, WFC, MTB, JPM, COF, BBT, FITB, BAC, USB, STI, RF, and KEY for 2017Q4. PNC compares favorably in noninterest income and loan loss provisions as a percentage of average assets and comes in line with peers for noninterest expense. Within noninterest income, PNC scores in the highest two quintiles for all noninterest categories (fiduciary activities, service charges on deposits, trading revenue, and other service charges and noninterest income.

In the exhibits that follow, we analyze PNC’s profitability with a detailed look into the components of PNC’s ROAA and ROACE relative to its peer group. Additionally, using 2017Q4 regulatory data, we detail some of the levers that management has at its disposal to increase profitability and lower the efficiency ratio.

The historical data supports the view that companies who are able to provide consistently high levels of profitability as measured by ROACE are awarded a premium valuation. Furthermore, managements that manage and allocate capital in the most profitable manner will also be awarded a premium stock valuation. These two drivers of valuation easily offset any downward pressure on valuation that may be caused due to modest or limited earnings growth. Furthermore, the best managed banks have sacrificed earnings growth at certain times in the economic cycle to protect the integrity of the balance sheet, profitability and capital; and in doing so; they have been awarded the higher stock valuations.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 29 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 26: 2017Q4 performance relative to peer group

2017Q4 % Avg Peer Group Quintile Rank # of Peer PNC Financial Services Group, Inc. ($Ms) Assets Average Rank % ≤20% ≤40% ≤60% ≤80% ≤100% Data Pts Interest Income Total Interest Income on Lns 2,131 2.27% 2.83% 9 33% c g c c c 12 Total Income from Leases 39 0.04% 0.04% 4 75% c c c g c 12 Tot Bal Due from Dep Inst 85 0.09% 0.06% 3 83% c c c c g 12 Tot Int/Div Income on Secs 509 0.54% 0.47% 3 83% c c c c g 12 Trading Accounts 19 0.02% 0.07% 5 67% c c c g c 12 Fed Funds Sold 4 0.00% 0.02% 5 67% c c c g c 12 Other Interest Inc 37 0.04% 0.01% 1 100% c c c c g 12 Total Interest Income 2,825 3.00% 3.50% 10 25% c g c c c 12

Interest Expense Tot Int Expense-Deposits 190 0.20% 0.22% 7 50% c c g c c 12 Fed Funds Purchased 5 0.00% 0.03% 5 67% c c c g c 12 Borrow Funds (Excl Sub Debt) 238 0.25% 0.23% 9 33% c g c c c 12 Subordinated Notes & Debentures 46 0.05% 0.05% 8 42% c c g c c 12 Other Interest Expense 1 0.00% 0.01% 5 67% c c c g c 12 Total Interest Expense 480 0.51% 0.52% 5 67% c c c g c 12

Net Interest Income 2,345 2.49% 2.97% 10 25% c g c c c 12

Provision for Loan Losses 120 0.13% 0.31% 3 83% c c c c g 12

Noninterest Income Fiduciary Activities 220 0.23% 0.18% 4 75% c c c g c 12 Services Charges on Deps 316 0.34% 0.30% 3 83% c c c c g 12 Tot Trading Revenue 61 0.06% 0.08% 5 67% c c c g c 12 Total Oth Svc Chgs & NII 1,321 1.40% 1.24% 5 67% c c c g c 12 Total Noninterest Income 1,918 2.04% 1.81% 3 83% c c c c g 12

Gain:Realized Gns HTM Secs - - - 1 100% c c c c g 12 Gain:Realized Gns AFS Secs (4) -0.00% -0.01% 10 25% c g c c c 12 Total Realized Gains on Secs (4) -0.00% -0.01% 10 25% c g c c c 12

Noninterest Expense Salary and Benefits 1,441 1.53% 1.55% 5 67% c c c g c 12 Occupancy & Fixed Asset 371 0.39% 0.33% 11 17% g c c c c 12 Tot Amrtz & Oth Nonint Exp 1,253 1.33% 1.22% 9 33% c g c c c 12 Total Noninterest Expense 3,065 3.26% 3.10% 8 42% c c g c c 12

Inc bef Inc Tax & Extra Items 1,074 1.14% 1.36% 9 33% c g c c c 12 Income Taxes (1,017) -1.08% 0.36% 1 100% c c c c g 12 Income before Extraord Items 2,091 2.22% 1.00% 1 100% c c c c g 12 PLUS: Extraord Items, Net Tax - - -0.01% 3 83% c c c c g 12 LESS: Noncontrolling Interest 12 0.01% 0.00% 10 25% c g c c c 12 BHC Net Income 2,079 2.21% 0.98% 1 100% c c c c g 12 LESS: Preferred Dividends 55 0.06% 0.06% 6 58% c c g c c 12 Net Income to Common (ROAA) 2,025 2.15% 0.92% 1 100% c c c c g 12 Leverage Factor (Assets/Equity) 8.8 9.2 8 42% c c g c c 12 ROACE 18.85% 8.66% 1 100% c c c c g 12 Effective Tax Rate -95% 26%

Average Assets 376,354 745,298 5 67% c c c g c 12 Average Common Equity 42,967 74,982 6 58% c c g c c 12

Source: S&P Global Market Intelligence; Regulatory filings; RBC Capital Markets 1 Peer group consists of BAC, BBT, COF, FITB, JPM, KEY, MTB, PNC, RF, STI, USB and WFC.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 30 Banks/Large-Cap The PNC Financial Services Group, Inc.

Net interest income comparison Exhibit 27 details the historical performance of net interest income to average assets for PNC and its peer group from 2014Q4 – 2017Q4. In the fourth quarter, PNC’s net interest income to average assets came in at 2.49%, which is 13 basis points above the 2014Q4 – 2017Q4 median of 2.36%. The peak level of 2.52% occurred in 2017Q3 while the minimum of 2.30% occurred in 2015Q3.

Exhibit 27: Net interest income/ average assets

Net Interest Income/ Avg Assets (%) 2014 to 2017 Ticker Chart Min Max Average MEDIAN # Data Pts 2017

PNC 2.30 2.52 2.38 2.36 13 2.49

BAC 1.72 2.31 1.91 1.90 13 2.03

BBT 2.78 2.98 2.89 2.90 13 2.95

COF 5.90 6.41 6.15 6.13 13 6.40

FITB 2.52 2.80 2.64 2.60 13 2.75

JPM 1.69 2.05 1.87 1.88 13 2.05

KEY 2.41 2.90 2.61 2.51 13 2.74

MTB 2.76 3.23 2.90 2.81 13 3.23

RF 2.65 2.90 2.75 2.72 13 2.89

STI 2.42 2.80 2.64 2.64 13 2.80

USB 2.65 2.79 2.70 2.69 13 2.75

WFC 2.54 2.73 2.61 2.61 13 2.58 Source: S&P Global Market Intelligence; Regulatory filings

In Exhibit 28 we compare PNC’s average earning asset mix with its peer group in 2017Q4. The two pie charts provide a breakout of the average earning asset mix for PNC and the weighted average of the peer group. The table in the lower panel of Exhibit 28 provides a heat map that details the relative concentrations of different earning asset categories across the group. All other loans makes up the largest proportion of PNC’s earning asset mix at 41% primarily due to PNC’s C&I loan portfolio. PNC, like other regional banks, have a higher level of loans relative to total earning assets as compared to JPM, BAC, and WFC, who need a higher level of liquidity and thus hold a higher level of lower yielding securities.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 31 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 28: Average earning asset mix

PNC Average earning asset mix Weighted average peer group average earning asset mix 11.0% 8.3% 14.8% 1.4% 0.5% 7.3% 3.8% 13.9% Real Estate Loans:1-4 Family Real Estate Loans:1-4 Family Real Estate Loans: All Other Real Estate Loans: All Other 11.1% 14.4% All Other Loans All Other Loans Loans in Foreign Off 10.0% Loans in Foreign Off US Treas Secs & Govt Oblig 7.0% US Treas Secs & Govt Oblig Mortgage-backed Securities Mortgage-backed Securities 3.5% 4.3% All Other Securities All Other Securities Trading Accounts Trading Accounts Fed Funds Sold 13.1% Fed Funds Sold Bal Due & Other Earn Assets 28.1% Bal Due & Other Earn Assets 2.4% 0.8% 41.4% 2.9% Average Earning asset mix Average Earning Assets Mix Wtd Avg 2017Q4 Peer Group PNC BAC BBT COF FITB JPM KEY MTB RF STI USB WFC Real Estate Loans:1-4 Family 14.8% 13.9% 12.7% 20.3% 5.9% 17.8% 11.9% 14.2% 23.2% 22.3% 21.5% 19.9% 19.4% Real Estate Loans: All Other 7.0% 11.1% 3.7% 19.2% 9.2% 8.8% 4.9% 14.2% 30.3% 12.3% 9.0% 9.3% 8.0% All Other Loans 28.1% 41.4% 26.1% 34.0% 59.1% 46.1% 20.0% 42.8% 26.9% 39.0% 47.4% 38.8% 24.8% Loans in Foreign Off 2.9% 0.8% 5.0% 0.2% 2.7% 0.4% 3.2% 0.1% 0.1% 0.0% 0.0% 0.1% 2.3% US Treas Secs & Govt Oblig 2.4% 4.3% 2.6% 3.0% 1.6% 0.1% 1.1% 0.1% 1.8% 0.3% 2.4% 6.9% 2.9% Mortgage-backed Securities 13.1% 14.4% 16.6% 20.8% 18.5% 22.4% 5.0% 23.8% 11.1% 21.8% 13.7% 18.9% 14.3% All Other Securities 3.5% 3.8% 1.6% 0.8% 0.5% 1.8% 4.7% 0.0% 0.2% 1.2% 0.4% 1.5% 6.2% Trading Accounts 10.0% 1.4% 13.5% 1.0% 0.2% 1.0% 17.4% 1.2% 0.2% 0.4% 3.1% 0.8% 5.9% Fed Funds Sold 7.3% 0.5% 10.9% 0.1% 0.0% 0.0% 12.3% 0.0% 0.0% 0.0% 0.6% 0.1% 4.4% Bal Due & Other Earn Assets 11.0% 8.3% 7.3% 0.6% 2.3% 1.6% 19.6% 3.5% 6.1% 2.7% 1.9% 3.7% 11.7% Total Average Earning Assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: S&P Global Market Intelligence; Regulatory filings

As interest rates normalize, PNC’s net interest margin (NIM) should continue to expand as well. As of 4Q17, the company expects a 12-month, gradual 100 basis points parallel shift in interest rates would result in net interest income increasing 2.7% in the first year and 5.0% in the second year. Therefore, we think it is reasonable for net interest income to eventually reach 3.05% of average assets or perhaps even higher. Noninterest income comparison Exhibit 29 details historical noninterest income to average asset performance for PNC relative to its peer group. The current quarter’s ratio of noninterest income to average earning assets of 2.04% includes $54 million of net non-recurring items (0.06% of average assets) and is above the 2014Q4 – 2017Q4 median for PNC and many of its peers. The increase from historical levels is largely reflective of improvement in the consumer and corporate services businesses. The peak of 2.18% occurred in 2014Q4 while the minimum value of 1.75% occurred in 2016Q1.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 32 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 29: Noninterest income/ average assets

Noninterest Income/ Avg Assets (%) 2014 to 2017 Ticker Chart Min Max Average MEDIAN # Data Pts 2017

PNC 1.75 2.18 1.94 1.92 13 2.04

BAC 1.54 2.15 1.86 1.94 13 1.54

BBT 1.85 2.20 2.08 2.11 13 2.20

COF 1.19 1.53 1.39 1.39 13 1.30

FITB 1.46 4.40 2.06 1.75 13 1.61

JPM 1.75 2.14 1.99 1.98 13 1.75

KEY 1.69 2.12 1.89 1.90 13 1.90

MTB 1.31 1.99 1.55 1.48 13 1.48

RF 1.48 2.02 1.73 1.73 13 1.81

STI 1.69 1.93 1.79 1.80 13 1.89

USB 2.05 2.41 2.21 2.20 13 2.14

WFC 1.83 2.41 2.13 2.14 13 2.03 Source: S&P Global Market Intelligence; Regulatory filings

Exhibit 30 provides a heat map that compares the underlying noninterest income components for PNC and its peer group. Green boxes represent the highest ranking relative to the peer group while red boxes represent the lowest ranking. Yellow and orange boxes provide additional gradations between the peer group leaders and laggards. BBT is the standout in overall noninterest income to average asset performance driven by its insurance business. USB comes in second driven by other noninterest income revenue, which primarily comes from its payments, processing, and other corporate services businesses. MTB ranks highest in fiduciary activities, while RF ranked highest in service charges on accounts. PNC’s overall performance of 2.04% of average assets outperforms the group average of 1.81%, with exceptionally strong performance in investment banking of 0.69% of assets, compared with the peer average of 0.21%. We believe this performance is partly attributable to a $254 million net gain from flow through from the tax impact of its BlackRock holdings.

We believe PNC’s noninterest income to average asset ratio could average 2.00%, above the long-term medium of 1.92%, due to its continuing investment in BlackRock, universal banking push, and middle market initiative.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 33 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 30: Noninterest income/ average assets breakout

Peer Group % Avg Assets 2017Q4 Average PNC BAC BBT COF FITB JPM KEY MTB RF STI USB WFC Noninterest Income Fiduciary Activities 0.18% 0.23% 0.08% 0.08% 0.01% 0.18% 0.31% 0.17% 0.40% 0.19% 0.16% 0.28% 0.11% Services Charges on Deps 0.30% 0.34% 0.24% 0.33% 0.10% 0.41% 0.19% 0.26% 0.28% 0.57% 0.31% 0.31% 0.28% Tot Trading Revenue 0.08% 0.06% 0.20% 0.06% 0.01% 0.14% 0.31% 0.04% 0.03% 0.02% 0.07% 0.04% 0.03% Fees & Comm. from Sec. Brokerage 0.12% 0.08% 0.51% 0.14% 0.02% 0.04% 0.10% 0.13% 0.02% 0.04% 0.11% 0.07% 0.23% IB, Adv,& Underwriting Fees & Comm. 0.21% 0.69% 0.25% 0.09% 0.02% 0.09% 0.45% 0.25% 0.04% 0.06% 0.22% 0.02% 0.38% Fees & Comm. Annuities and Sales 0.02% 0.02% 0.00% 0.03% 0.00% 0.02% 0.01% 0.04% 0.02% 0.01% 0.03% 0.01% 0.04% Inv Bnkg, Advsy, & Other 0.35% 0.78% 0.75% 0.25% 0.04% 0.14% 0.56% 0.42% 0.08% 0.11% 0.36% 0.10% 0.65% Venture Capital Revenue 0.01% 0.03% - - - 0.02% 0.02% 0.01% 0.00% - - 0.00% 0.09% Net Servicing Fees 0.07% 0.02% 0.02% 0.12% 0.01% 0.10% 0.04% 0.06% 0.16% 0.11% 0.08% 0.07% 0.05% Net Securitization Income 0.00% - 0.00% - 0.00% - - - - - 0.01% - 0.01% Ins & Reinsur Underwrtng Inc 0.00% 0.00% - - - -0.00% -0.00% - -0.00% 0.00% -0.00% - 0.02% Other Insurance Income 0.09% 0.00% 0.02% 0.75% 0.00% 0.02% 0.00% 0.04% 0.03% 0.12% 0.01% 0.00% 0.03% Insurance Comm & Fees 0.09% 0.01% 0.02% 0.75% 0.00% 0.02% 0.00% 0.04% 0.03% 0.12% 0.01% 0.00% 0.05% Net Gain on Sale of Loans and Leases 0.05% 0.06% -0.02% 0.10% 0.02% 0.02% 0.01% 0.22% 0.11% 0.05% -0.10% 0.12% 0.04% Net Gain on Sale of OREO 0.00% -0.00% -0.00% 0.00% -0.01% -0.00% 0.00% -0.00% -0.00% 0.01% -0.00% 0.01% 0.00% Net Gains Sales Othr Assets 0.00% 0.00% -0.01% -0.00% 0.00% 0.02% -0.01% -0.00% -0.01% -0.03% -0.02% 0.05% 0.03% Other Noninterest Income 0.66% 0.50% 0.25% 0.52% 1.13% 0.57% 0.33% 0.69% 0.38% 0.66% 1.02% 1.16% 0.69% Total Oth Svc Chgs & NII 1.24% 1.40% 1.01% 1.73% 1.19% 0.89% 0.95% 1.43% 0.77% 1.03% 1.35% 1.51% 1.62% Total Noninterest Income 1.81% 2.04% 1.54% 2.20% 1.30% 1.61% 1.75% 1.90% 1.48% 1.81% 1.89% 2.14% 2.03% Source: S&P Global Market Intelligence; Regulatory filings

Noninterest expense comparison Exhibit 31 details the historical performance of noninterest expense to average assets for PNC and its peer group from 2014Q4 – 2017Q4. PNC’s ratio of noninterest expenses to average assets was 3.26% in the fourth quarter as compared to the average of 2.72%. During 4Q17, PNC reported several one-time items totaling $502 million consisting of a contribution to the PNC Foundation, employee cash payments and pension credits, and costs associated with real estate dispositions and exits. PNC’s Continuous Improvement Program (CIP) has been a success since its implementation in 2012. We expect the CIP to reduce operating expenses by an additional $250 million in 2018.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 34 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 31: Noninterest expense/ average assets

Noninterest Expense/ Avg Assets (%) 2014 to 2017 Ticker Chart Min Max Average MEDIAN # Data Pts 2017

PNC 2.59 3.26 2.72 2.66 13 3.26

BAC 2.28 2.87 2.54 2.54 13 2.28

BBT 2.95 3.81 3.19 3.11 13 3.33

COF 3.86 4.31 4.05 3.99 13 4.14

FITB 2.69 3.06 2.76 2.73 13 3.06

JPM 2.20 2.55 2.35 2.34 13 2.30

KEY 2.93 3.57 3.09 3.03 13 3.19

MTB 2.36 2.81 2.57 2.59 13 2.59

RF 2.85 3.31 2.99 2.94 13 3.12

STI 2.77 3.13 2.88 2.85 13 3.04

USB 2.62 3.45 2.78 2.71 13 3.45

WFC 2.73 3.49 2.93 2.89 13 3.49 Source: S&P Global Market Intelligence; Regulatory filings

Exhibit 32 provides a heat map that compares the underlying noninterest expense components for PNC and its peer group, as well as a chart that compares salary and benefit expense against peers. During the quarter, PNC’s noninterest expense to average assets was 3.26%, above the peer group average of 3.10% primarily due to the one-time items previously mentioned, which added 54 basis points. Excluding the one-time items, PNC’s core expenses were 2.72% of average assets, well below the peer average. Going forward, we expect PNC to drive efficiencies further and lower the CIP and harvesting the efficiencies from its technology and infrastructure investments of the past few years. We expect salaries & benefits expense to fall to 1.35% of average assets and occupancy & fixed assets expense of 0.35%, driving total noninterest expense to 2.58% of average assets.

Exhibit 32: Noninterest expense/ average assets breakout

Peer Group % Avg Assets 2017Q4 Average PNC BAC BBT COF FITB JPM KEY MTB RF STI USB WFC Noninterest Expense Salary and Benefits 1.55% 1.53% 1.29% 1.87% 1.72% 1.44% 1.19% 1.78% 1.34% 1.62% 1.56% 1.58% 1.74% Occupancy & Fixed Asset 0.33% 0.39% 0.25% 0.35% 0.38% 0.29% 0.37% 0.36% 0.24% 0.53% 0.27% 0.23% 0.27% Goodwill Impairment Ls ------Amrtz Exp & Impair Ls 0.03% 0.03% 0.03% 0.06% 0.07% 0.00% 0.00% 0.08% 0.02% 0.03% 0.00% 0.04% 0.06% Amrtz of Intangible Assets 0.03% 0.03% 0.03% 0.06% 0.07% 0.00% 0.00% 0.08% 0.02% 0.03% 0.00% 0.04% 0.06% Data Processing Expenses 0.13% 0.15% 0.14% 0.14% 0.21% 0.09% 0.03% 0.16% 0.08% NA 0.28% 0.09% 0.04% Adv & Mrktg Expenses 0.13% 0.06% 0.09% 0.05% 0.51% 0.08% 0.11% 0.10% 0.06% 0.08% 0.20% 0.19% 0.04% Directors' Fees NA NA NA NA NA NA NA NA NA NA NA NA NA Prntg,Stnry, & Supplies NA NA NA NA NA NA NA NA NA NA NA NA NA Postage 0.05% NA 0.03% NA 0.08% NA NA NA NA NA NA 0.04% NA Legal Fees & Expenses 0.04% NA 0.03% NA NA NA 0.03% NA 0.07% 0.02% NA NA 0.04% Accounting/Audit NA NA NA NA NA NA NA NA NA NA NA NA NA Consulting 0.07% NA 0.04% 0.05% NA 0.04% 0.12% NA 0.08% 0.05% NA 0.07% 0.13% ATM/Interchange NA NA NA NA NA NA NA NA NA NA NA NA NA Telecommunications 0.03% 0.03% 0.03% NA NA NA 0.04% NA NA 0.03% NA NA NA Other 0.85% 1.06% 0.37% 0.81% 1.17% 1.12% 0.40% 0.72% 0.69% 0.77% 0.73% 1.20% 1.16% Other Nonint Expense 1.19% 1.31% 0.72% 1.04% 1.97% 1.33% 0.73% 0.98% 0.99% 0.94% 1.21% 1.60% 1.41% Tot Amrtz & Oth Nonint Exp 1.22% 1.33% 0.74% 1.10% 2.04% 1.33% 0.74% 1.05% 1.01% 0.97% 1.21% 1.64% 1.47% Total Noninterest Expense 3.10% 3.26% 2.28% 3.33% 4.14% 3.06% 2.30% 3.19% 2.59% 3.12% 3.04% 3.45% 3.49% Source: S&P Global Market Intelligence; Regulatory filings

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 35 Banks/Large-Cap The PNC Financial Services Group, Inc.

Loan loss provision comparison The top chart of Exhibit 33 provides the historical loan loss provisioning expense relative to average loans for PNC and its peer group, while the lower chart provides the loan loss provisioning expense relative to average assets. Loan loss provisions peaked in 2008 and 2009 and have since declined to historically low levels. In the fourth quarter of 2017, PNC’s loan loss provision represented 0.22% of average loans and 0.13% of average assets. These figures compare to the 2014Q4 – 2017Q4 average of 0.16% of average loans and 0.10% of average assets. We expect PNC loan loss provision to normalize from the currently benign environment to 0.40% of average loans, or 0.24% of average assets.

Exhibit 33: Loan loss provision

Loan loss provision/average loans Loan Loss Provision/Avg Loans (%) 2014 to 2017 Ticker Chart Min Max Average MEDIAN # Data Pts 2017

PNC 0.06 0.26 0.16 0.15 13 0.22

BAC 0.10 0.44 0.33 0.34 13 0.40

BBT 0.28 0.54 0.36 0.36 13 0.39

COF 1.80 3.28 2.61 2.74 13 3.04

FITB 0.22 0.66 0.36 0.34 13 0.29

JPM 0.28 0.75 0.53 0.51 13 0.57

KEY 0.14 0.48 0.28 0.27 13 0.22

MTB 0.14 0.29 0.21 0.22 13 0.14

RF (0.22) 0.55 0.25 0.30 13 (0.22)

STI 0.07 0.39 0.23 0.24 13 0.20

USB 0.31 0.55 0.46 0.47 13 0.48

WFC 0.12 0.43 0.29 0.30 13 0.30 Loan loss provision/average assets Loan Loss Provision/Avg Assets (%) 2014 to 2017 Ticker Chart Min Max Average MEDIAN # Data Pts 2017

PNC 0.04 0.15 0.10 0.09 13 0.13

BAC 0.04 0.19 0.14 0.14 13 0.17

BBT 0.18 0.35 0.23 0.23 13 0.25

COF 1.20 2.26 1.79 1.89 13 2.12

FITB 0.15 0.45 0.24 0.23 13 0.19

JPM 0.09 0.27 0.18 0.18 13 0.21

KEY 0.09 0.32 0.18 0.18 13 0.14

MTB 0.10 0.20 0.15 0.16 13 0.10

RF (0.14) 0.36 0.16 0.20 13 (0.14)

STI 0.05 0.28 0.16 0.17 13 0.14

USB 0.20 0.34 0.29 0.29 13 0.30

WFC 0.06 0.22 0.15 0.15 13 0.15

Source: S&P Global Market Intelligence; Regulatory filings

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 36 Banks/Large-Cap The PNC Financial Services Group, Inc.

Leverage factor In the fourth quarter, PNC recorded a fully phased-in CET1 ratio of 9.8%, comfortably exceeding its minimum requirements. Based on CCAR statistics highlighted in Exhibit 23, we believe the company could lower its CET1 ratio to 8.5%, and therefore, increase its ratio of average assets to average common equity (i.e. leverage) to bolster its ROACE. In Exhibit 34, we calculate a potential level of average assets to average common equity, or “leverage factor,” based on different potential levels for PNC’s CET1 ratio. Assuming PNC is able to maintain a CET1 ratio of 8.5%, the pro forma leverage factor would equate to 9.6x.

Exhibit 34: PNC pro forma leverage factor

Basel III CET1 Ratio 2017Q4 Basel III CET1 31,087 Basel III RWA 315,954 Basel III CET1 Ratio 9.8%

Basel III CET1 Target Capital Shortfall Min Mid Max Basel III CET1 Ratio Target 8.0% 8.5% 9.0% 2017Q4 9.8% 9.8% 9.8% Shortfall / (Excess) % -1.8% -1.3% -0.8% Shortfall / (Excess) $ (5,811) (4,231) (2,651)

Basel III CET1 Target Pro Forma Basel III CET1 Ratio Min Mid Max 2017Q4 Basel III CET1 31,087 31,087 31,087 Additional / (Unnecessary) Capital (5,811) (4,231) (2,651) Pro Forma Basel III CET1 25,276 26,856 28,436

Additional / (Unnecessary) Assets (5,811) (4,231) (2,651) Risk-Weighting (Assuming Treasuries) 0% 0% 0% Additional / (Unnecessary) RWA - - - 2017Q4 Basel III RWA 315,954 315,954 315,954 Pro Forma Basel III RWA 315,954 315,954 315,954

Pro Forma Basel III CET1 Ratio 8.0% 8.5% 9.0%

Pro Forma Leverage Factor Mid Scenario 2017Q4 Average Common Equity 42,967 Additional / (Unnecessary) Capital (4,231) Pro Forma Basel III CET1 38,736

2017Q4 Average Assets 376,354 Additional / (Unnecessary) Assets (4,231) Pro Forma Basel III CET1 372,123

Pro Forma Leverage Factor 9.6x

Source: Company FR Y-9C filing; RBC Capital Markets

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 37 Banks/Large-Cap The PNC Financial Services Group, Inc.

Potential profitability Exhibit 35 provides a table that summarizes PNC’s potential profitability level given the assumptions outlined in Exhibit 27 through Exhibit 34. In Exhibit 36, we illustrate how our assumptions flow through the income statement through a waterfall analysis of PNC’s potential profitability. Based upon the assumption outlined above, we believe PNC could achieve an ROAA and ROACE of 1.48% and 14.19%, respectively.

Exhibit 35: Potential profitability

Profitability Potential Summary PNC Net Interest Income/Avg Assets 2.69% Provision for Loan Losses/Avg Assets 0.24% Provision for Loan Losses/Avg Loans 0.40% Total Noninterest Income/Avg Assets 2.00% Total Noninterest Expense/Avg Assets 2.58% Efficiency Ratio 55% Salaries & Benefits/Total Revenue 29% Effective Tax Rate 17% ROAA (net of preferred dividends) 1.48% Leverage Factor (Assets/Equity) 9.6x ROACE 14.19% Source: Company FR Y-9C filing; RBC Capital Markets

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 38 Banks/Large-Cap The PNC Financial Services Group, Inc.

Exhibit 36: Potential profitability waterfall analysis

Inc & Exp as % Avg Assets PNC Peer Group PNC 2017Q4 Average Profitability Potential Waterfall Analysis

Interest Income Total Interest Income on Lns & Leases 2.87% 2.31% 2.44% Tot Int/Div Income on Secs 0.47% 0.54% 0.59% Trading Accounts 0.07% 0.02% 0.02% Fed Funds Sold 0.02% 0.00% 0.01% Total Bal Due & Other Earn Ass Income 0.07% 0.13% 0.15% Total Interest Income 3.50% 3.00% 3.20%

Interest Expense Tot Int Expense-Deposits 0.22% 0.20% 0.20% Fed Funds Purchased 0.03% 0.00% 0.00% All Other Borrowings 0.30% Other Interest Expense 0.01% 0.00% 0.00% Total Interest Expense 0.52% 0.51% 0.51%

Net Interest Income 2.97% 2.49% NIM: 3.05% 2.69%

Provision for Loan Losses 0.31% 0.13% Loan Loss Provision/Avg Loans: 0.40% 0.24%

Noninterest Income Fiduciary Activities 0.18% 0.23% 0.30% Services Charges on Deps 0.30% 0.34% 0.34% Tot Trading Revenue 0.08% 0.06% 0.07% Fees & Comm. from Sec. Brokerage 0.12% 0.08% 0.08% IB, Adv,& Underwriting Fees & Comm. 0.21% 0.69% 0.40% Fees & Comm. Annuities and Sales 0.02% 0.02% 0.02% Inv Bnkg, Advsy, & Other 0.35% 0.78% 0.49% Venture Capital Revenue 0.01% 0.03% 0.03% Net Servicing Fees 0.07% 0.02% 0.05% Net Securitization Income 0.00% - - Insurance Comm & Fees 0.09% 0.01% 0.01% Net Gain on Sale of Loans and Leases 0.05% 0.06% 0.06% Net Gain on Sale of OREO 0.00% -0.00% - Net Gains Sales Othr Assets 0.00% 0.00% 0.00% Other Noninterest Income 0.66% 0.50% 0.65% Total Oth Svc Chgs & NII 1.24% 1.40% 1.29% Total Noninterest Income 1.81% 2.04% 2.00%

Gain:Realized Gns HTM Secs - - - Gain:Realized Gns AFS Secs -0.01% -0.00% - Total Realized Gains on Secs -0.01% -0.00% -

Noninterest Expense Salary and Benefits 1.55% 1.53% Sal & Ben/Total Revenue: 29% 1.35% Occupancy & Fixed Asset 0.33% 0.39% 0.35% Amrtz of Intangible Assets 0.03% 0.03% 0.03% Other Nonint Expense 1.19% 1.31% 0.86% Tot Amrtz & Oth Nonint Exp 1.22% 1.33% 0.89% Total Noninterest Expense 3.10% 3.26% Efficiency Ratio: 55% 2.58%

Inc bef Inc Tax & Extra Items 1.36% 1.14% 1.86% Income Taxes 0.36% -1.08% Effective tax rate: 17% 0.32% Income before Extraord Items 1.00% 2.22% 1.55% PLUS: Extraord Items, Net Tax -0.01% - - LESS: Noncontrolling Interest 0.00% 0.01% 0.01% BHC Net Income 0.98% 2.21% 1.53% LESS: Preferred Dividends 0.06% 0.06% 0.06% Net Income (ROAA) 0.92% 2.15% 1.48% Leverage Factor (Assets/Equity) 9.2x 8.8x 9.6 ROACE 8.66% 18.85% 14.19% Effective Tax Rate 26% -95%

Average Assets 745,298 376,354 Average Common Equity 74,982 42,967 Source: Company FR Y-9C filing; RBC Capital Markets

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 39 Banks/Large-Cap The PNC Financial Services Group, Inc.

Valuation based on potential profitability We contend that profitability (ROACE) is one of the primary drivers of stock valuation. Exhibit 37 provides a chart of first quarter price to book values versus our estimates for 2018 Return on Average Common Equity (ROACE) for the top 20 banks. As detailed in the chart, highly profitable institutions such as USB are rewarded with correspondingly high price to book valuations.

Exhibit 37: Top 20 banks – P/B vs. 2018E ROACE

300.0

250.0 NTRS

y = 15.471x - 22.811 200.0 R² = 0.6103 FRC USB CMASTT MTB WFC PNC JPM HBAN 150.0 KEY BK BBT Price/ Price/ Book (%) FITB STI RF BAC COF 100.0 CFGC

50.0 3.0 5.0 7.0 9.0 11.0 13.0 15.0 17.0

ROACE (%)

Source: S&P Global Market Intelligence; RBC Capital Markets

We base our valuation methodology on the expected price to book value ratio and our estimated book value in one year (4Q18). The expected price to book value ratio is based on the discounted value of future economic profits (i.e. the value that a company generates above its cost of equity). This analysis essentially values book value based upon a company’s ROE factoring in the level of risk for owning the security. A company’s cost of equity encompasses the level of risk (β) relative to a market. The valuations in this analysis are dependent upon several inputs:

 Potential return on average common equity (ROACE): Based the results of our potential profitability analysis (Exhibit 36), we estimate PNC´s potential ROACE to be 14.19%.  Beta (β): The company’s 5-year historical β was 0.94  Expected market return: We assume a 10% market return.  Total payout ratio: We assumed a long-term total payout ratio (both dividends and share repurchases) of 75%.  Risk-free rate: We use the 10-year U.S. Treasury yield of 2.55% as the risk-free rate.  The analysis gives the imputed price to book value ratio. The bottom of Exhibit 38 provides a sensitivity data table for the imputed price to book value at various expected market

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 40 Banks/Large-Cap The PNC Financial Services Group, Inc.

return and normalized ROACE assumptions. We then applied the imputed price to book valuation range (assuming a potential ROACE of 14.19%) to the reported 4Q17 and our estimated 4Q18 book values to determine the expected valuations for those periods. Based on this analysis, the mid-range price-to-book multiple for PNC is 177%, which implies a long term value of $163-$178 per share, or ~$170 per share.

Exhibit 38: Valuation based on the discounted value of future economic profits

PNC PNC Expected Market Return Price to Book Value Based on the Discounted Value of Future Economic Profits Cost of EquityCost of Equity

Price ROE - Cost of Equity Cost of Equity = Risk-Free Rate + β x [Expected Market Return - Risk-Free Rate] = 1 + Book Value Cost of Equity - (1 - Total Payout Ratio) x ROE Cost of Equity = 2.550 % + 0.94 x [10.00% - 2.550%] Price 14.19% - 9.55% = 1 + Cost of Equity = 9.55 % Book Value 9.55% - (1 - 75%) x 14.19%

Price = 177 % Book Value Valuation

Price to Book Value Book Value 159 % 177 % 195 % 4Q17A 91.94 146.64 162.93 179.22 4Q18E 100.36 160.06 177.85 195.63 Price to Book Value Based on Various Normalized ROE and Expected Market Return Scenarios

Expected Market Return 177 % 5 % 6 % 7 % 8 % 9 % 10 % 11 % 12 % 13 % 14 % 15 % 16 % 17 % 4.2 % 83 % 66 % 55 % 47 % 42 % 37 % 33 % 30 % 28 % 26 % 24 % 22 % 21 % 5.2 % 109 % 87 % 72 % 61 % 53 % 47 % 42 % 38 % 35 % 32 % 30 % 28 % 26 % 6.2 % 140 % 109 % 90 % 76 % 66 % 58 % 52 % 47 % 43 % 39 % 37 % 34 % 32 % 7.2 % 176 % 135 % 109 % 92 % 79 % 70 % 62 % 56 % 51 % 47 % 43 % 40 % 38 % 8.2 % 219 % 164 % 131 % 109 % 94 % 82 % 73 % 65 % 59 % 55 % 50 % 47 % 44 % 9.2 % 270 % 197 % 155 % 128 % 109 % 95 % 84 % 75 % 68 % 63 % 58 % 53 % 50 % 10.2 % 331 % 235 % 183 % 149 % 126 % 109 % 96 % 86 % 78 % 71 % 65 % 60 % 56 % 11.2 % 408 % 280 % 213 % 172 % 144 % 124 % 109 % 97 % 88 % 80 % 73 % 68 % 63 % 12.2 % 506 % 333 % 248 % 198 % 164 % 141 % 123 % 109 % 98 % 89 % 82 % 75 % 70 % 13.2 % 636 % 396 % 288 % 226 % 186 % 158 % 137 % 122 % 109 % 99 % 90 % 83 % 77 % 14.2 % 815 % 474 % 334 % 258 % 210 % 177 % 153 % 135 % 121 % 109 % 99 % 91 % 85 % 15.2 % NM 571 % 388 % 294 % 237 % 198 % 170 % 149 % 133 % 120 % 109 % 100 % 92 % 16.2 % NM 696 % 452 % 335 % 266 % 221 % 188 % 164 % 146 % 131 % 119 % 109 % 100 % Normalized ROE Normalized 17.2 % NM 862 % 529 % 382 % 299 % 245 % 208 % 181 % 160 % 143 % 130 % 118 % 109 % 18.2 % NM NM 624 % 436 % 336 % 273 % 229 % 198 % 174 % 156 % 141 % 128 % 118 % 19.2 % NM NM 744 % 501 % 377 % 303 % 253 % 217 % 190 % 169 % 152 % 138 % 127 % 20.2 % NM NM 898 % 577 % 425 % 336 % 278 % 237 % 207 % 183 % 164 % 149 % 137 % 21.2 % NM NM NM 669 % 479 % 373 % 306 % 259 % 225 % 198 % 177 % 161 % 147 % 22.2 % NM NM NM 783 % 543 % 415 % 337 % 283 % 244 % 214 % 191 % 173 % 157 % 23.2 % NM NM NM 927 % 618 % 463 % 370 % 309 % 265 % 231 % 206 % 185 % 168 % 24.2 % NM NM NM NM 707 % 518 % 408 % 337 % 287 % 250 % 221 % 198 % 180 %

Source: RBC Capital Markets estimates

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 41 Banks/Large-Cap The PNC Financial Services Group, Inc.

Conclusion We believe there is still further upside to PNC’s valuation. PNC’s diligent expense management, strategic investments in modernizing its retail branch network and the continued development of its Southeast footprint lead us to believe that PNC has multiple levers to pull in order to increase profitability. Additionally, we expect that well executed acquisitions such as the National City Corporation and RBC Bank transactions will accelerate profitability improvement as integration matures. We anticipate the company will be able to increase the productivity of its retail banking franchise, boost noninterest income further with its universal banking format and middle market initiative, and drive expenses down from its technology and infrastructure investments.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 42 Banks/Large-Cap The PNC Financial Services Group, Inc.

Valuation We believe that PNC should eventually trade at ~1.7x book value based on our discounted value of future economic profits analysis, which estimates a cost of equity of 9.55% based on a 5-year beta of ~0.94, the risk-free rate of approximately 2.84% based on the 10-year treasury, a normalized ROE of ~14%, a long-term total payout ratio of 75%, and the expected market return of 10%. Our $170 price target lies within our valuation range of $159 to $174, reflecting current market conditions, and is the basis of our Top Pick rating. Risks to rating and price target Our price target is contingent upon a steady rise in interest rates, the expectation for lower regulation in the next two years, GDP increasing to 3% per year or higher, and credit quality remaining relatively stable. Any deviation from our expectations could impede achievement of our price target. Company description With $381 billion in assets at December 31, 2017, PNC is one of the largest diversified financial services companies in the United States 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, as well as other products and services in PNC's primary geographic markets located in Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Maryland, Indiana, Florida, North Carolina, Kentucky, Washington, D.C., Delaware, Virginia, Georgia, Alabama, Missouri, Wisconsin, and South Carolina. PNC also provides certain products and services internationally.

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 43 Banks/Large-Cap The PNC Financial Services Group, Inc.

THE PNC FINANCIAL SERVICES GROUP, INC. PNC ($ millions, except per share data) Gerard Cassidy (207) 780-1554

INCOME STATEMENT FY16A 1Q17A 2Q17A 3Q17A 4Q17A FY17A 1Q18E 2Q18E 3Q18E 4Q18E FY18E FY19E Net Interest Margin (FTE) 2.73 % 2.77 % 2.84 % 2.91 % 2.88 % 2.87 % 2.91 % 2.93 % 2.94 % 2.94 % 2.93 % 2.91 %

Net Interest Income (FTE) 8,586 2,212 2,312 2,400 2,399 9,323 2,397 2,454 2,510 2,535 9,896 10,203 Provision For Credit Losses 433 88 98 130 125 441 149 147 150 175 621 748 Total noninterest income 6,771 1,724 1,802 1,780 1,915 7,221 1,796 1,827 1,857 1,878 7,358 7,675 Total Revenues - FTE 15,357 3,936 4,114 4,180 4,314 16,544 4,193 4,281 4,368 4,413 17,254 17,879 Total noninterest expense 9,476 2,402 2,479 2,456 3,061 10,398 2,481 2,510 2,541 2,585 10,117 10,500 Pre-tax income/(loss) from cont'g ops. 5,253 1,394 1,483 1,539 1,074 5,490 1,530 1,592 1,644 1,621 6,388 6,503 Income tax expense/(benefit) 1,268 320 386 413 (1,017) 102 260 271 280 276 1,086 1,105 Net income/(loss) from continuing ops. 3,985 1,074 1,097 1,126 2,091 5,388 1,270 1,321 1,365 1,346 5,302 5,397 Net income/(loss) from discontinued ops. ------Net income (loss) 3,985 1,074 1,097 1,126 2,091 5,388 1,270 1,321 1,365 1,346 5,302 5,397 LESS: Noncontrol int, pref div, & other 297 101 67 76 68 312 76 56 76 56 264 264 LESS: Impact of restricted shrs, BlackRock & other 38 10 5 8 16 39 16 16 16 16 64 64 Reported net income to diluted common shares 3,650 963 1,025 1,042 2,007 5,037 1,178 1,249 1,273 1,274 4,974 5,069 LESS: Non-Core Income/(Expense) 13 11 - - 911 922 ------Core Net Income to Common 3,637 952 1,025 1,042 1,096 4,115 1,178 1,249 1,273 1,274 4,974 5,069 Reported EPS 7.30 1.96 2.10 2.16 4.18 10.36 2.49 2.67 2.76 2.80 10.70 11.55 LESS: Non-Core Income/(Expense) per shr 0.03 0.02 - - 1.90 1.90 ------Core EPS 7.27 1.94 2.10 2.16 2.29 8.47 2.49 2.67 2.76 2.80 10.70 11.55 Yr/Yr Change 3.8 % 19.4 % 18.2 % 17.2 % 11.9 % 16.4 % 28.4 % 27.0 % 27.8 % 22.5 % 26.4 % 7.9 % Avg FD Common Shares 500 492 488 483 480 486 474 468 462 455 465 439 Net Share Repurchases (Issuance) (19) - (5) (4) (3) (12) (6) (6) (7) (7) (25) (26) Dividends Per Share 2.12 0.55 0.55 0.75 0.75 - 0.75 0.75 1.00 1.00 3.50 4.40 Book Value Per Share 86.10 86.14 87.78 89.05 91.94 91.94 94.08 96.32 98.31 100.36 100.36 108.64 Tangible Book Value per Share 67.41 67.47 68.55 69.72 72.28 72.28 74.22 76.28 78.02 79.82 79.82 87.07

RATIOS Core ROAA 1.01 % 1.05 % 1.11 % 1.11 % 1.15 % 1.11 % 1.24 % 1.30 % 1.30 % 1.29 % 1.28 % 1.26 % Core ROACE 8.72 % 9.30 % 9.83 % 9.82 % 10.23 % 9.80 % 11.04 % 11.45 % 11.46 % 11.40 % 11.34 % 11.29 % Core ROATCE 11.25 % 12.00 % 12.69 % 12.68 % 13.18 % 12.65 % 14.14 % 14.61 % 14.58 % 14.48 % 14.44 % 14.24 % Efficiency Ratio 62 % 62 % 60 % 59 % 60 % 60 % 59 % 59 % 58 % 59 % 59 % 59 % Personnel/Op. Revenues 31.7 % 32.1 % 30.7 % 30.5 % 33.8 % 31.8 % 31.1 % 30.9 % 30.6 % 30.6 % 30.8 % 30.4 % Op. Fees/Op. Revenues 43.8 % 43.1 % 43.8 % 42.6 % 43.7 % 43.3 % 42.8 % 42.7 % 42.5 % 42.6 % 42.6 % 42.9 %

BALANCE SHEET FY16A 1Q17A 2Q17A 3Q17A 4Q17A FY17A 1Q18E 2Q18E 3Q18E 4Q18E FY18E FY19E EOP Total Loans 213,337 214,240 220,064 222,873 223,113 223,113 224,491 226,736 229,004 231,294 231,294 242,594 EOP Earnings Assets 314,995 318,549 318,977 322,580 327,839 327,839 333,663 336,277 338,740 341,227 341,227 353,338 EOP Total Assets 366,380 370,944 372,190 375,191 380,768 380,768 386,837 389,717 392,452 395,198 395,198 408,403 EOP Deposits 257,164 260,710 259,176 260,735 265,053 265,053 265,411 269,393 273,433 277,535 277,535 294,565 EOP Common Equity 41,723 41,774 42,103 42,406 43,530 43,530 43,972 44,490 44,745 45,007 45,007 45,925 EOP Intangibles (incl MSRs) 10,861 10,970 11,030 11,017 11,005 11,005 11,005 11,005 11,005 11,005 11,005 11,005 EOP Tangible Common Equity (excl MSRs) 32,651 32,721 32,878 33,204 34,223 34,223 34,689 35,231 35,509 35,795 35,795 36,809 EOP Total Equity 46,854 45,903 46,185 46,452 47,585 47,585 48,027 48,545 48,800 49,062 49,062 49,980

RATIOS EOP Loans/Deposits 83 % 82 % 85 % 85 % 84 % 84 % 85 % 84 % 84 % 83 % 83 % 82 % EOP Common Equity/Assets 11.4 % 11.3 % 11.3 % 11.3 % 11.4 % 11.4 % 11.4 % 11.4 % 11.4 % 11.4 % 11.4 % 11.2 % TCE Ratio 9.2 % 9.1 % 9.1 % 9.1 % 9.2 % 9.2 % 9.2 % 9.3 % 9.3 % 9.3 % 9.3 % 9.2 % Basel III Common Equity Tier 1 Capital Ratio 10.0 % 10.0 % 9.8 % 9.8 % 9.8 % 9.8 % 9.8 % 10.0 % 10.0 % 10.0 % 10.0 % 10.0 %

ASSET QUALITY FY16A 1Q17A 2Q17A 3Q17A 4Q17A FY17A 1Q18E 2Q18E 3Q18E 4Q18E FY18E FY19E Net Charge-Offs 543 118 110 106 123 457 116 130 139 146 531 664 Nonperforming Loans (incl 90PD) 3,368 3,220 3,219 3,099 3,107 3,107 3,108 3,177 3,245 3,312 3,312 3,807 OREO 230 214 196 194 170 170 165 160 155 150 150 133 Total NPAs (incl 90PD) 3,598 3,434 3,415 3,293 3,277 3,277 3,273 3,337 3,400 3,463 3,463 3,940 Loan Loss Reserve 2,587 2,561 2,561 2,605 2,611 2,609 2,644 2,661 2,673 2,702 2,700 2,784

RATIOS Reserve/loans HFI 1.23 % 1.20 % 1.17 % 1.18 % 1.18 % 1.18 % 1.18 % 1.17 % 1.17 % 1.17 % 1.17 % 1.15 % Reserve/NPAs 72 % 75 % 75 % 79 % 80 % 80 % 81 % 80 % 79 % 78 % 78 % 71 % NPAs/(loans HFI + ORE) 1.70 % 1.61 % 1.56 % 1.49 % 1.49 % 1.49 % 1.46 % 1.47 % 1.48 % 1.50 % 1.50 % 1.62 % NCOs/Avg loans HFI 0.26 % 0.23 % 0.20 % 0.19 % 0.22 % 0.21 % 0.21 % 0.23 % 0.24 % 0.25 % 0.23 % 0.28 % PCL/Avg Loans HFI 0.21 % 0.17 % 0.18 % 0.24 % 0.22 % 0.20 % 0.27 % 0.26 % 0.26 % 0.30 % 0.27 % 0.31 %

GROWTH RATES FY16A 1Q17A 2Q17A 3Q17A 4Q17A FY17A 1Q18E 2Q18E 3Q18E 4Q18E FY18E FY19E Average Total Loans 0.7 % 0.7 % 1.9 % 1.3 % 0.9 % 4.0 % 1.5 % 1.0 % 1.0 % 1.0 % 4.9 % 4.9 % EOP Total Loans 2.4 % 0.4 % 2.7 % 1.3 % 0.1 % 4.6 % 0.6 % 1.0 % 1.0 % 1.0 % 3.7 % 4.9 % Average Earning Assets 2.0 % 0.3 % 0.9 % 0.8 % 1.0 % 3.3 % 1.2 % 0.8 % 0.7 % 1.0 % 3.7 % 3.8 % Average Total Assets 1.8 % 0.1 % 1.1 % 0.8 % 0.9 % 2.9 % 1.9 % 0.8 % 0.7 % 0.9 % 4.5 % 3.6 % EOP Total Assets 2.2 % 1.2 % 0.3 % 0.8 % 1.5 % 3.9 % 1.6 % 0.7 % 0.7 % 0.7 % 3.8 % 3.3 % EOP Deposits 3.3 % 1.4 % (0.6)% 0.6 % 1.7 % 3.1 % 0.1 % 1.5 % 1.5 % 1.5 % 4.7 % 6.1 % Total Revenues - FTE (0.4)% 0.3 % 4.5 % 1.6 % 3.2 % 7.7 % (2.8)% 2.1 % 2.0 % 1.0 % 4.3 % 3.6 % Net Interest Income (FTE) 1.3 % 1.5 % 4.5 % 3.8 % (0.0)% 8.6 % (0.1)% 2.4 % 2.3 % 1.0 % 6.1 % 3.1 % Total Noninterest Income (2.5)% (1.1)% 4.5 % (1.2)% 7.6 % 6.6 % (6.2)% 1.7 % 1.7 % 1.1 % 1.9 % 4.3 % Total Noninterest Expense 0.1 % (1.6)% 3.2 % (0.9)% 24.6 % 9.7 % (18.9)% 1.2 % 1.3 % 1.7 % (2.7)% 3.8 % Reported Net Income (5.1)% (1.0)% 6.4 % 1.7 % 92.6 % 38.0 % (41.3)% 6.0 % 1.9 % 0.1 % (1.3)% 1.9 % EPS - Reported (1.1)% (0.6)% 7.3 % 2.7 % 94.0 % 42.0 % (40.6)% 7.3 % 3.4 % 1.5 % 3.2 % 7.9 % EPS - Core 3.8 % (5.2)% 8.5 % 2.7 % 5.9 % 16.4 % 8.8 % 7.3 % 3.4 % 1.5 % 26.4 % 7.9 % Source: Company filings and RBC Capital Markets estimates

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 44 Banks/Large-Cap The PNC Financial Services Group, Inc.

Required disclosures Conflicts disclosures The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates. Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in, this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/ DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. RBC Capital Markets, LLC makes a market in the securities of The PNC Financial Services Group, Inc.. A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than investment banking services from The PNC Financial Services Group, Inc. during the past 12 months. During this time, a member company of RBC Capital Markets or one of its affiliates provided non-securities services to The PNC Financial Services Group, Inc.. RBC Capital Markets is currently providing The PNC Financial Services Group, Inc. with non-securities services. RBC Capital Markets has provided The PNC Financial Services Group, Inc. with non-securities services in the past 12 months. Explanation of RBC Capital Markets Equity rating system An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the analyst's sector average. Although RBC Capital Markets' ratings of Top Pick (TP)/Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis. Ratings Top Pick (TP): Represents analyst's best idea in the sector; expected to provide significant absolute total return over 12 months with a favorable risk-reward ratio. Outperform (O): Expected to materially outperform sector average over 12 months. Sector Perform (SP): Returns expected to be in line with sector average over 12 months. Underperform (U): Returns expected to be materially below sector average over 12 months. Risk Rating As of March 31, 2013, RBC Capital Markets suspends its Average and Above Average risk ratings. The Speculative risk rating reflects a security's lower level of financial or operating predictability, illiquid share trading volumes, high balance sheet leverage, or limited operating history that result in a higher expectation of financial and/or stock price volatility. Distribution of ratings For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick(TP)/ Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis (as described above). Distribution of ratings RBC Capital Markets, Equity Research As of 31-Dec-2017 Investment Banking Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [Top Pick & Outperform] 868 52.42 281 32.37 HOLD [Sector Perform] 683 41.24 155 22.69 SELL [Underperform] 105 6.34 8 7.62

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 45 Banks/Large-Cap The PNC Financial Services Group, Inc.

References to a Recommended List in the recommendation history chart may include one or more recommended lists or model portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio: ADR (RL 10), and the Guided Portfolio: All Cap Growth (RL 12), and former lists called the Guided Portfolio: Large Cap (RL 7), the Guided Portfolio: Midcap 111 (RL 9), and the Guided Portfolio: Global Equity (U.S.) (RL 11). RBC Capital Markets recommended lists include the Strategy Focus List and the Fundamental Equity Weightings (FEW) portfolios. The abbreviation 'RL On' means the date a security was placed on a Recommended List. The abbreviation 'RL Off' means the date a security was removed from a Recommended List. Equity valuation and risks For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please see the most recent company-specific research report at https://www.rbcinsightresearch.com or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.

The PNC Financial Services Group, Inc.

Valuation

We believe that PNC should eventually trade at ~1.7x book value based on our discounted value of future economic profits analysis, which estimates a cost of equity of 9.55% based on a 5-year beta of ~0.94, the risk-free rate of approximately 2.84% based on the 10-year treasury, a normalized ROE of ~14%, a long-term total payout ratio of 75%, and the expected market return of 10%. Our $170 price target lies within our valuation range of $159 to $174, reflecting current market conditions, and is the basis of our Top Pick rating.

Risks to rating and price target

Our price target is contingent upon a steady rise in interest rates, the expectation for lower regulation in the next two years, GDP increasing to 3% per year or higher, and credit quality remaining relatively stable. Any deviation from our expectations could impede achievement of our price target. Conflicts policy RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 46 Banks/Large-Cap The PNC Financial Services Group, Inc.

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March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 47 Banks/Large-Cap The PNC Financial Services Group, Inc.

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If this material relates to the acquisition or possible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product and consider that document before making any decision about whether to acquire the product. This research report is not for retail investors as defined in section 761G of the Corporations Act. To Hong Kong Residents: This publication is distributed in Hong Kong by Royal Bank of Canada, Hong Kong Branch, which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission ('SFC'), RBC Investment Services (Asia) Limited and RBC Investment Management (Asia) Limited, both entities are regulated by the SFC. Financial Services provided to Australia: Financial services may be provided in Australia in accordance with applicable law. Financial services provided by the Royal Bank of Canada, Hong Kong Branch are provided pursuant to the Royal Bank of Canada's Australian Financial Services Licence ('AFSL') (No. 246521.) To Singapore Residents: This publication is distributed in Singapore by the Royal Bank of Canada, Singapore Branch, a registered entity granted offshore bank licence by the Monetary Authority of Singapore. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, you should consider whether the product is suitable for you. Past performance is not indicative of future performance. If you have any questions related to this publication, please contact the Royal Bank of Canada, Singapore Branch. Royal Bank of Canada, Singapore Branch accepts responsibility for this report and its dissemination in Singapore. To Japanese Residents: Unless otherwise exempted by Japanese law, this publication is distributed in Japan by or through RBC Capital Markets (Japan) Ltd. which is a Financial Instruments Firm registered with the Kanto Local Financial Bureau (Registered number 203) and a member of the Japan Securities Dealers Association ("JSDA"). .® Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license. Copyright © RBC Capital Markets, LLC 2018 - Member SIPC Copyright © RBC Dominion Securities Inc. 2018 - Member Canadian Investor Protection Fund Copyright © RBC Europe Limited 2018 Copyright © Royal Bank of Canada 2018 All rights reserved

March 23, 2018 Gerard Cassidy, (207) 780-1554; [email protected] 48