PNC Bank 2006 Annual Report Download - page 62

activities. Other borrowed funds come from a diverse mix of
short and long-term funding sources. Liquid assets and unused
borrowing capacity from a number of sources are also
available to maintain our liquidity position. Liquid assets
consist of short-term investments (federal funds sold, resale
agreements and other short-term investments, including
trading securities) and securities available for sale. At
December 31, 2006, our liquid assets totaled $28.1 billion,
with $10.6 billion pledged as collateral for borrowings, trust,
and other commitments.
Bank Level Liquidity
PNC Bank, N.A. is a member of FHLB-Pittsburgh and as such
has access to advances from FHLB-Pittsburgh secured
generally by residential mortgages, other real estate related
loans, and mortgage-backed securities. At December 31, 2006,
we maintained significant unused borrowing capacity from the
FHLB-Pittsburgh under current collateral requirements.
We can also obtain funding through alternative forms of
borrowing, including federal funds purchased, repurchase
agreements, and short and long-term debt issuances. In July
2004, PNC Bank, N.A. established a program to offer up to
$20 billion in senior and subordinated unsecured debt
obligations with maturities of more than nine months.
Through December 31, 2006, PNC Bank, N.A. had issued
$2.9 billion of debt under this program, including
$500 million of 18-month floating rate notes, due January
2008, issued during the second quarter of 2006. None of the
2006 issuances outlined above is redeemable or subject to
repayment at the option of the holder prior to maturity.
In December 2004, PNC Bank, N.A. established a program to
offer up to $3.0 billion of its commercial paper. As of
December 31, 2006, there were no issuances outstanding
under this program.
Parent Company Liquidity
Our parent company’s routine funding needs consist primarily
of dividends to PNC shareholders, share repurchases, debt
service, the funding of non-bank affiliates, and acquisitions.
Parent company liquidity guidelines are designed to help
ensure that sufficient liquidity is available to meet these
requirements over the succeeding 12-month period. In
managing parent company liquidity we consider funding
sources, such as expected dividends to be received from PNC
Bank, N.A. and potential debt issuance, and discretionary
funding uses, the most significant of which is the external
dividend to be paid on PNC’s stock.
The principal source of parent company cash flow is the
dividends it receives from PNC Bank, N.A., which may be
impacted by the following:
• Capital needs,
• Laws and regulations,
• Corporate policies,
• Contractual restrictions, and
• Other factors.
Also, there are statutory and regulatory limitations on the
ability of national banks to pay dividends or make other
capital distributions or to extend credit to the parent company
or its non-bank subsidiaries. We provide additional
information on these limitations in Note 4 Regulatory Matters
in the Notes To Consolidated Financial Statements included in
Item 8 of this Report and include such information here by
reference. Dividends may also be impacted by the bank’s
capital needs and by contractual restrictions. The amount
available for dividend payments to the parent company by
PNC Bank, N.A. without prior regulatory approval was
approximately $625 million at December 31, 2006.
In addition to dividends from PNC Bank, N.A., other sources
of parent company liquidity include cash and short-term
investments, as well as dividends and loan repayments from
other subsidiaries and dividends or distributions from equity
investments. As of December 31, 2006, the parent company
had approximately $1.4 billion in funds available from its cash
and short-term investments. During 2006, BlackRock
dividends of approximately $74 million were paid to our
intermediate bank holding company and were available for
payment to the parent company.
We can also generate liquidity for the parent company and
PNC’s non-bank subsidiaries through the issuance of
securities in public or private markets.
• In October 2006, we issued $450 million of floating
rate senior notes that mature in October 2008.
Interest will be reset monthly to 1-month LIBOR plus
2 basis points and will be paid monthly.
• In December 2006, we issued $1 billion of floating-
rate exchangeable senior notes due December 2036
through a private placement. Interest is reset
quarterly to 3-month LIBOR less 40 basis points and
is paid quarterly. See Note 13 Borrowed Funds in the
Notes To Consolidated Financial Statements in
Item 8 of this Report for further information on this
issuance.
During 2006, $1.1 billion of parent company senior debt
matured, all during the third quarter. As of December 31,
2006, there were $566 million of parent company obligations
with maturities of less than one year.
In December 2006, we elected to redeem all of the underlying
Capital Securities related to the following trusts, totaling
$453 million:
• PNC Capital Trust A ($350 million),
• Riggs Trust I ($73 million), and
• UNB Trust II ($30 million).
At December 31, 2006, we had unused capacity under
effective shelf registration statements of approximately
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