PNC Bank 2011 Annual Report Download

Download and view the complete annual report

Please find the complete 2011 PNC Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 238

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196
  • 197
  • 198
  • 199
  • 200
  • 201
  • 202
  • 203
  • 204
  • 205
  • 206
  • 207
  • 208
  • 209
  • 210
  • 211
  • 212
  • 213
  • 214
  • 215
  • 216
  • 217
  • 218
  • 219
  • 220
  • 221
  • 222
  • 223
  • 224
  • 225
  • 226
  • 227
  • 228
  • 229
  • 230
  • 231
  • 232
  • 233
  • 234
  • 235
  • 236
  • 237
  • 238

Accelerating Achievement: PNC Annual Report 2011

Table of contents

  • Page 1
    Accelerating Achievement: PNC Annual Report 2011

  • Page 2
    ... grow the number of customers we serve, manage risk and expenses, and continue to build our already strong capital position. And we succeeded in these turbulent times. By focusing on these strategies, we had a good year in 2011, with net income of $3.1 billion or $5.64 per diluted common share. We...

  • Page 3
    ... basis, no one ever made money on a relative basis. At PNC we manage our business with the goal of creating opportunities for increased shareholder value over the long term. Tier 1 Common Capital Ratio At Year End Meeting Our Highest Capital Priorities 10.3% changes in the global economy. In the...

  • Page 4
    ..., is useful as a tool to help to better evaluate growth of the company's business apart from the amount, on a per share basis, of intangible assets other than servicing rights included in book value. Our book value per share was $61.52 at year-end 2011, a 41% increase over $43.60 at year-end 2007...

  • Page 5
    ... relationships with the bank based on cross-selling other products, such as home equity and mortgage loans. We also decided to continue to offer free checking. At the beginning of 2011, approximately 70 percent of PNC's new checking customers had free checking accounts. By the fourth quarter of 2011...

  • Page 6
    ... annual increase occurring in the fourth quarter. Overall, we grew loans by 6 percent during 2011, with gains in commercial loans, indirect auto and education lending. Tepid growth in the gross domestic product along with low interest rates had a dampening effect on the banking industry in 2011...

  • Page 7
    ... and those who prefer banking on their smart phone device. And in 2011, we introduced PNC Wealth InsightSM, a platform that gives investors a snapshot of their net worth at any time. We already have nearly 10,000 customers using it. Managing Risk As 2012 begins, the U.S. economy is showing signs of...

  • Page 8
    ... currently located, to be the most energy efficient office building in the world when it opens in 2015. PNC earned another "Outstanding" Community Reinvestment Act rating from our regulators in 2011. And we believe we are an outstanding company, working hard for shareholders, customers, employees...

  • Page 9
    ... global banks, which are facing higher capital requirements along with regulations that will limit some business activities. For large regional banks like PNC, regulatory changes represent a considerable work set, but we believe it is manageable. We must move forward to seize this moment, execute...

  • Page 10
    ...the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes The aggregate market value of the registrant's outstanding voting common stock held by nonaffiliates on June 30, 2011, determined using the per share closing price on that date on the New York Stock Exchange of $59.61, was...

  • Page 11
    ... States. We have businesses engaged in retail banking, corporate and institutional banking, asset management, and residential mortgage banking, providing many of our products and services nationally and others in our primary geographic markets located in Pennsylvania, Ohio, New Jersey, Michigan...

  • Page 12
    ... management, disbursement services, funds transfer services, information reporting, and global trade services. Capital markets-related products and services include foreign exchange, derivatives, loan syndications, mergers and acquisitions advisory and related services to middle-market companies...

  • Page 13
    ... markets advisory services include valuation services relating to illiquid securities, dispositions and workout assignments (including long-term portfolio liquidation assignments), risk management and strategic planning and execution. We hold an equity investment in BlackRock. Our investment...

  • Page 14
    .... Applicable laws and regulations restrict our permissible activities and investments and require compliance with protections for loan, deposit, brokerage, fiduciary, investment management and other customers, among other things. They also restrict our ability to repurchase stock or pay dividends...

  • Page 15
    ... loans, deposits and residential mortgages. After this date, the subsidiaries of PNC Bank, N.A. are generally subject to state consumer protection laws. Additionally, new provisions concerning the applicability of state consumer protection laws to national banks became effective on July 21, 2011...

  • Page 16
    ... markets in general. BANKING REGULATION AND SUPERVISION On November 22, 2011, the Federal Reserve adopted a final rule implementing an annual capital plan review process for domestic bank holding companies (BHCs) that have $50 billion or more in total consolidated assets. In addition, on that date...

  • Page 17
    ... stated that it expects plans submitted in 2012 will reflect conservative dividend payout ratios and net share repurchase programs, and that requests that imply common dividend payout ratios above 30% of projected after-tax net income available to common shareholders will receive particularly close...

  • Page 18
    ..., regulatory concerns regarding management, controls, assets, operations or other factors, can all potentially result in practical limitations on the ability of a bank or bank holding company to engage in new activities, grow, acquire new businesses, repurchase its stock or pay dividends, or to...

  • Page 19
    ... Savings and loan associations, • Credit unions, • Treasury management service companies, • Insurance companies, and • Issuers of commercial paper and other securities, including mutual funds. Our various non-bank businesses engaged in investment banking and alternative investment activities...

  • Page 20
    ... file electronically with the SEC. The address of that site is www.sec.gov. You can also inspect reports, proxy statements and other information about us at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. We also make our Annual Report on Form 10-K, Quarterly...

  • Page 21
    ... in the United States. On August 5, 2011, Standard & Poors's Rating Services lowered its long term sovereign credit rating on the United States of America from AAA to AA+. It is possible that the downgrade and continued concerns about U.S. fiscal policy and trajectory of the national debt of the...

  • Page 22
    ...deposits or other investments in accounts with PNC. Competition in our industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions, or otherwise. Increased regulation of compensation at financial services companies...

  • Page 23
    ... standards governing capital, liquidity, risk management, stress testing and related disclosures, and single-counterparty credit exposure limits for bank holding companies and certain foreign banking organizations with $50 billion or more in consolidated total assets ("covered companies"). Dodd...

  • Page 24
    ... of banks, including PNC, to make loans due to balance sheet management requirements. Any of these potential impacts of the Dodd-Frank risk retention rules could affect the way in which PNC conducts its business, including its product offerings, and could also affect PNC's revenue and profitability...

  • Page 25
    ... including PNC's investment in BlackRock), as well as mortgage servicing rights and deferred tax assets, above certain thresholds be deducted from regulatory capital. Basel III also includes new short-term liquidity standards (the Liquidity Coverage Ratio) and long-term funding standards (the Net...

  • Page 26
    ... ability of banks to meet these new requirements, including under stressed conditions, in approving actions that represent uses of capital, such as dividend increases, share repurchases and acquisitions. Our lending and servicing businesses and the value of the loans and debt securities we hold may...

  • Page 27
    ... liquidity position. Inability to access capital markets as needed, or at cost effective rates, could adversely affect our liquidity and results of operations. 18 The PNC Financial Services Group, Inc. - Form 10-K • • • It can affect the value of the assets that we manage or otherwise...

  • Page 28
    ... and these acquisitions present a number of risks and uncertainties related both to the acquisition transactions themselves and to the integration of the acquired businesses into PNC after closing. Acquisitions of other financial services companies, financial services assets and related deposits and...

  • Page 29
    ...we compete for talented employees. Competition could adversely impact our customer acquisition, growth and retention, as well as our credit 20 The PNC Financial Services Group, Inc. - Form 10-K spreads and product pricing, causing us to lose market share and deposits and revenues. We are subject to...

  • Page 30
    ... policies and affect our estimation methods used to prepare the consolidated financial statements. Changes in income tax regulations, revenue rulings, revenue procedures, and other guidance can impact our tax liability and alter the timing of cash flows associated with tax deductions and payments...

  • Page 31
    ... market (e.g. credit, equity, fixed income, foreign exchange) could materially impact the valuation of assets as reported within our consolidated financial statements, and the period-to-period changes in value could vary significantly. We are subject to operational risk. Like all businesses...

  • Page 32
    ... no SEC staff comments regarding PNC's periodic or current reports under the Exchange Act that are pending resolution. ITEM 2 - PROPERTIES Our executive and primary administrative offices are located at One PNC Plaza, Pittsburgh, Pennsylvania. The 30-story structure is owned by PNC Bank, N.A. We...

  • Page 33
    ... included in "Election of Directors (Item 1)" in our proxy statement for the 2012 annual meeting of shareholders. Joseph C. Guyaux was appointed Senior Vice Chairman and Chief Risk Officer in February 2012, prior to which he served as President. 24 The PNC Financial Services Group, Inc. - Form 10-K

  • Page 34
    ... stock is listed on the New York Stock Exchange and is traded under the symbol "PNC." At the close of business on February 17, 2012, there were 77,045 common shareholders of record. Holders of PNC common stock are entitled to receive dividends when declared by the Board of Directors out of funds...

  • Page 35
    ...Year Total Return 200 150 Dollars 100 50 PNC 0 Dec 06 S&P 500 Index Dec 07 Dec 08 S&P 500 Banks Dec 09 Dec 10 Peer Group Dec 11 Assumes $100 investment at Close of 5-Year Market on December 31, 2006 Compound Base Total Return = Price change plus reinvestment Growth Period of dividends Rate...

  • Page 36
    ... the increase in BlackRock's equity resulting from the value of BlackRock shares issued in connection with BlackRock's acquisition of Barclays Global Investors (BGI) on December 1, 2009. (c) Amount for 2008 includes the $504 million conforming provision for credit losses related to our National City...

  • Page 37
    ...Average assets Loans to deposits Dividend payout Tier 1 common Tier 1 risk-based Common shareholders' equity to total assets Average common shareholders' equity to average assets SELECTED STATISTICS Employees Retail Banking branches ATMs Residential mortgage servicing portfolio (billions) Commercial...

  • Page 38
    ...this Report. The PNC Financial Services Group, Inc. - Form 10-K 29 EXECUTIVE SUMMARY KEY STRATEGIC GOALS We manage our company for the long term and focus on operating within a moderate risk profile while maintaining strong capital and liquidity positions, investing in our markets and products, and...

  • Page 39
    ... 1 Business - Supervision and Regulation of this Report. A summary of 2011 capital and liquidity actions follows. On April 7, 2011, consistent with our capital plan submitted to the Federal Reserve earlier in 2011, our Board of Directors approved an increase to PNC's quarterly common stock dividend...

  • Page 40
    .... PNC's US market share for residential servicing is approximately 1.4% according to the National Mortgage News. The vast majority of our servicing business is on behalf of other investors, principally the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal National Mortgage Association...

  • Page 41
    ... in, the capital and other financial markets, • Loan demand, utilization of credit commitments and standby letters of credit, and asset quality, 32 The PNC Financial Services Group, Inc. - Form 10-K • • • • Customer demand for non-loan products and services, Changes in the competitive...

  • Page 42
    ...sheet during 2011 reflected core funding with a loans to deposits ratio of 85% at year end and strong bank and holding company liquidity positions to support growth. We grew common shareholders' equity by $2.8 billion during 2011. The Tier 1 common capital ratio was 10.3% at December 31, 2011, up 50...

  • Page 43
    ...real estate was impacted by portfolio management activities, paydowns and net charge-offs. Commercial loans increased due to a combination of new client acquisition and improved utilization. Loans represented 68% of average interest-earning assets for 2011 and for 2010. Average investment securities...

  • Page 44
    ... preferred securities in the fourth quarter of 2011 and the gain related to the sale of a portion of PNC's BlackRock shares in 2010 partially offset by lower integration costs in 2011. CONSOLIDATED INCOME STATEMENT REVIEW Our Consolidated Income Statement is presented in Item 8 of this Report. Net...

  • Page 45
    .... PRODUCT REVENUE In addition to credit and deposit products for commercial customers, Corporate & Institutional Banking offers other services, including treasury management, capital marketsrelated products and services, and commercial mortgage banking activities for customers in all business...

  • Page 46
    ... deposit balances, totaled $1.2 billion for both 2011 and 2010. Declining deposit spreads were offset by increases in core processing products, such as lockbox and information reporting, and in growth products such as commercial card and healthcare related services. Revenue from capital markets...

  • Page 47
    ... estate loans, $1.5 billion of residential real estate loans and $1.1 billion of home equity loans compared with December 31, 2010. Commercial loans increased due to a combination of new client acquisition and 38 The PNC Financial Services Group, Inc. - Form 10-K Commercial Retail/wholesale trade...

  • Page 48
    ... Consolidated Financial Statements included in Item 8 of this Report. Purchase Accounting Information related to purchased impaired loans, purchase accounting accretion and accretable net interest recognized during 2011, 2010 and 2009 follows. Total Purchase Accounting Accretion Year ended December...

  • Page 49
    ...: Net Unfunded Credit Commitments Dec. 31 2011 Dec. 31 2010 Commercial/commercial real estate (a) Home equity lines of credit Credit card Other Total $ 64,955 18,317 16,216 3,783 $103,271 $59,256 19,172 14,725 2,652 $95,805 (a) Less than 4% of these amounts at each date relate to commercial real...

  • Page 50
    ..., 2010. The decline resulted from principal payments and net sales activity related to US Treasury and government agency and non-agency residential mortgage-backed securities. Investment securities represented 22% of total assets at December 31, 2011 and 24% of total assets at December 31, 2010. We...

  • Page 51
    ... and forecasts. We also consider the severity of the impairment in our assessment. Results of the periodic assessment are reviewed 42 The PNC Financial Services Group, Inc. - Form 10-K by a cross-functional senior management team representing Asset & Liability Management, Finance, and Market Risk...

  • Page 52
    ...Loss) December 31, 2011 Commercial MortgageBacked Securities Net Unrealized Gain (Loss) Asset-Backed Securities (a) Net Unrealized Gain (Loss) Available for Sale Securities (Non-Agency) Fair Value Fair Value Fair Value Credit Rating Analysis AAA Other Investment Grade (AA, A, BBB) Total Investment...

  • Page 53
    ...if market interest rates were to increase appreciably, the valuation of our investment securities portfolio could continue to be adversely affected and we could incur additional OTTI credit losses that would impact our Consolidated Income Statement. 44 The PNC Financial Services Group, Inc. - Form...

  • Page 54
    ... Deposits Money market Demand Retail certificates of deposit Savings Other time Time deposits in foreign offices Total deposits Borrowed funds Federal funds purchased and repurchase agreements Federal Home Loan Bank borrowings Bank notes and senior debt Subordinated debt Other Total borrowed funds...

  • Page 55
    ...plan adjustments Net unrealized securities losses, after-tax Net unrealized gains on cash flow hedge derivatives, after-tax Other Tier 1 risk-based capital Subordinated debt Eligible allowance for credit losses Total risk-based capital Tier 1 common capital Tier 1 risk-based capital Preferred equity...

  • Page 56
    ... information. We believe PNC Bank, N.A., will continue to meet these requirements during 2012. The access to, and cost of, funding for new business initiatives including acquisitions, the ability to engage in expanded business activities, the ability to pay dividends, the level of deposit insurance...

  • Page 57
    ... E Securities sale, we are subject to a replacement capital covenant, which is described in Note 13 Capital Securities of Subsidiary Trusts and Perpetual Trust Securities in the Notes To Consolidated Financial Statements in Item 8 of this Report. 48 The PNC Financial Services Group, Inc. - Form 10...

  • Page 58
    ... Residential mortgage loans held for sale Trading securities Residential mortgage servicing rights Commercial mortgage loans held for sale Equity investments Customer resale agreements Loans Other assets Total assets Level 3 assets as a percentage of total assets at fair value Level 3 assets as...

  • Page 59
    ... related to BlackRock transactions, integration costs, asset and liability management activities including net securities gains or losses, other-than-temporary impairment of investment securities and certain trading activities, exited businesses, alternative investments, including private equity...

  • Page 60
    ... Businesses - Summary (Unaudited) Year ended December 31 - in millions Income (Loss) 2011 2010 Revenue 2011 2010 Average Assets (a) 2011 2010 Retail Banking Corporate & Institutional Banking Asset Management Group Residential Mortgage Banking BlackRock Non-Strategic Assets Portfolio Total business...

  • Page 61
    ... Credit cards Other Total consumer Commercial and commercial real estate Floor plan Residential mortgage Total loans Goodwill and other intangible assets Other assets Total assets Deposits Noninterest-bearing demand Interest-bearing demand Money market Total transaction deposits Savings Certificates...

  • Page 62
    ... their primary checking and transaction relationships with PNC. The business is focused on deepening its share of customers' financial assets, including savings and liquid deposits, investable assets and loans through sales strategies, differentiated product offerings and customer satisfaction. In...

  • Page 63
    ...continued run-off of higher rate certificates of deposit. Currently, our primary focus is on a relationship-based lending strategy that targets specific customer sectors including mass and mass affluent consumers, small businesses and auto dealerships. In 2011, average total loans were $58.3 billion...

  • Page 64
    ...service fees Other Noninterest income Total revenue Provision for credit losses (benefit) Noninterest expense Pretax earnings Income taxes Earnings AVERAGE BALANCE SHEET Loans Commercial Commercial real estate Commercial - real estate related Asset-based lending Equipment lease financing Total loans...

  • Page 65
    ... in 2010. The increase of $83 million was primarily due to valuations associated with the commercial mortgage held-for-sale portfolio, higher revenue from multifamily agency loan production and customer driven capital markets activity. The provision for credit losses was a benefit of $124 million...

  • Page 66
    ... treasury management, capital markets-related products and services, and commercial mortgage banking activities in the Product Revenue section of the Consolidated Income Statement Review. INCOME STATEMENT Net interest income Noninterest income Total revenue Provision for credit losses (benefit...

  • Page 67
    ... Management Group's performance during 2011 include the following: • Positive net flows in both discretionary assets under management and total assets under administration; • Strong sales production, up nearly 40% over the prior year including a 26% increase in the acquisition of new high value...

  • Page 68
    ... MORTGAGE BANKING (Unaudited) Year ended December 31 Dollars in millions, except as noted 2011 2010 OTHER INFORMATION Loan origination volume (in billions) Percentage of originations represented by: Agency and government programs Refinance volume Total nonperforming assets (a) (b) Purchased...

  • Page 69
    ...15 Stock Based Compensation Plans in the Notes To Consolidated Financial Statements in Item 8 of this Report. At December 31, 2011, approximately 1.5 million shares of BlackRock Series C Preferred Stock were available to fund a portion of awards under future BlackRock LTIP programs. PNC accounts for...

  • Page 70
    ... 2011 2010 INCOME STATEMENT Net interest income Noninterest income Total revenue Provision for credit losses Noninterest expense Pretax earnings (loss) Income taxes (benefit) Earnings (loss) AVERAGE BALANCE SHEET Commercial Lending: Commercial/Commercial real estate Lease financing Total commercial...

  • Page 71
    ... by management over the last three years. Approximately 76% of customers have been current with principal and interest payments for the past 12 months. Consumer Lending consists of consumer loans, which are mainly brokered home equity loans and lines of credit, and residential real estate mortgages...

  • Page 72
    ... information on this type of activity: • Fair Value Measurements included within this Item 7, and • Note 8 Fair Value included in the Notes To Consolidated Financial Statements in Item 8 of this Report. Allowances For Loan And Lease Losses And Unfunded Loan Commitments And Letters Of Credit...

  • Page 73
    ...: • Lending, • Securities portfolio, • Asset management, • Customer deposits, • Loan sales and servicing, • Brokerage services, • Sale of loans and securities, • Certain private equity activities, and • Securities and derivatives trading activities including foreign exchange. We...

  • Page 74
    ...are purchased or originated when loans are sold with servicing retained. Commercial MSRs do not trade in an active market with readily observable prices so the precise terms and conditions of sales are not available. Commercial MSRs are initially recorded at fair value and are subsequently accounted...

  • Page 75
    ...(b) Represents modeled prepayment rates considering the effective dates of prepayment penalties. A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented below. These sensitivities do not include the impact of the related hedging...

  • Page 76
    ... acquired by an investment property entity would be required to be recorded at fair value with changes in value recorded in earnings. The effective date has not yet been determined. The comment period ended February 15, 2012. We are evaluating the impact of this proposal on our financial statements...

  • Page 77
    ... a policy of reflecting trust assets at their fair market value. On an annual basis, we review the actuarial assumptions related to the pension plan. The primary assumptions used to measure pension obligations and costs are the discount rate, compensation increase and expected long-term return on...

  • Page 78
    ... activity associated with residential mortgages is reported in the Residential Mortgage Banking segment. PNC's repurchase obligations also include certain brokered home equity loans/lines that were sold to a limited number of private investors in the financial services industry by National City...

  • Page 79
    .... 31 2011 Dec. 31 2010 Residential mortgages: Agency securitizations Private investors (a) Home equity loans/lines: Private investors (b) Total unresolved claims 110 $485 299 $509 $302 73 $110 100 (a) Activity relates to loans sold through Non-Agency securitization and whole-loan sale transactions...

  • Page 80
    ... trend of Agency investors pursuing strategies to aggressively reduce their exposure to losses on purchased loans. This increase, along with an increase in the average time to resolve investor claims, has contributed to the higher balances of unresolved claims for residential mortgages at December...

  • Page 81
    ... risk: credit, operational, model, liquidity, and market. The discussion of market risk is further subdivided into interest rate, trading, and equity and other investment risk areas. Our use of financial derivatives as part of our overall asset and liability risk management process is also addressed...

  • Page 82
    ... risks. Risk reports are produced at the line of business level, the functional level (credit, market, operational), and at the corporate level. Our enterprise risk profile is a point-in-time assessment of corporate-wide risk. The risk profile represents PNC's overall risk position in relation...

  • Page 83
    ... and total nonperforming assets, respectively, as of December 31, 2011. 74 The PNC Financial Services Group, Inc. - Form 10-K Nonperforming Assets By Type In millions Dec. 31 2011 Dec. 31 2010 Nonperforming loans Commercial Retail/wholesale trade Manufacturing Service providers Real estate related...

  • Page 84
    ... Unfunded Loan Commitments and Letters of Credit in the Notes To Consolidated Financial Statements in Item 8 of this Report for additional information. Change in Nonperforming Assets In millions 2011 2010 January 1 New nonperforming assets Charge-offs and valuation adjustments Principal activity...

  • Page 85
    ... Dec. 31 2011 Dec. 31 2010 Commercial Commercial real estate Equipment lease financing Home equity Residential real estate Non government insured Government insured Credit card Other consumer Non government insured Government insured Total 76 The PNC Financial Services Group, Inc. - Form 10-K $ 47...

  • Page 86
    ... position that we may or may not hold, updated FICO scores and original and updated LTVs. This information is used for internal risk management reporting and monitoring. We segment the population into pools based on product type (e.g., home equity loans, brokered home equity loans, home equity lines...

  • Page 87
    ... the success rates and delinquency status of our loan modification programs to assess their effectiveness in serving our customers' needs while mitigating credit losses. The following tables provide the number of accounts and unpaid principal balance of modified consumer real estate related loans as...

  • Page 88
    ... Real Estate Related Loan Modifications December 31, 2011 Number of Accounts Unpaid Principal Balance December 31, 2010 Number of Accounts Unpaid Principal Balance Dollars in millions Home Equity Temporary Modifications Permanent Modifications Total Home Equity Residential Mortgages Permanent...

  • Page 89
    ..., we established certain commercial loan modification and payment programs for small business loans, Small Business Administration loans, and investment real estate loans. As of December 31, 2011 and December 31, 2010, $81 million and $88 million, respectively, in loan balances were covered under...

  • Page 90
    ... lending Total TDRs Nonperforming Accruing (b) Credit card (a) Total TDRs $1,492 291 15 1,798 405 $2,203 $1,141 771 291 $2,203 $1,087 331 4 1,422 236 $1,658 $ 784 543 331 $1,658 Charge-offs Recoveries Net Charge-offs 2011 Commercial Commercial real estate Equipment lease financing Home equity...

  • Page 91
    ...The PNC Financial Services Group, Inc. - Form 10-K • • • Recent macro economic factors, Changes in risk selection and underwriting standards, and Timing of available information. In addition to the ALLL, we maintain an allowance for unfunded loan commitments and letters of credit. We report...

  • Page 92
    ...to consumer loans and lines of credit not secured by residential real estate and purchased impaired loans, which are both excluded from nonperforming loans, totaled $1.4 billion at both December 31, 2011, and 2010. See the Nonperforming Assets By Type table within this Credit Risk Management section...

  • Page 93
    ... the pricing of various products, grading and granting loans, measuring interest rate risks and other market risks, predicting losses, and assessing capital adequacy, as well as to estimate the value of financial instruments and balance sheet items. There are risks involved in the use of models as...

  • Page 94
    ... mix of short and long-term funding sources. At December 31, 2011, our liquid assets consisted of shortterm investments (Federal funds sold, resale agreements, trading securities, and interest-earning deposits with banks) totaling $5.9 billion and securities available for sale totaling $48.6 billion...

  • Page 95
    ... its cash and short-term investments. We can also generate liquidity for the parent company and PNC's non-bank subsidiaries through the issuance of debt securities and equity securities, including certain capital securities, in public or private markets and commercial paper. We have effective shelf...

  • Page 96
    ...financial condition. Credit ratings as of December 31, 2011 for PNC and PNC Bank, N.A. follow: Standard & Poor's Moody's Fitch The PNC Financial Services Group, Inc. Senior debt Subordinated debt Preferred stock PNC Bank, N.A. Subordinated debt Long-term deposits Short-term deposits A3 Baa1 Baa3...

  • Page 97
    ... interest rate risk set forth in our risk management policies approved by management's Asset and Liability Committee and the Risk Committee of the Board. 88 The PNC Financial Services Group, Inc. - Form 10-K Sensitivity results and market interest rate benchmarks for the fourth quarters of 2011 and...

  • Page 98
    ... to changing interest rates and market conditions. MARKET RISK MANAGEMENT - TRADING RISK Our trading activities are primarily customer-driven trading in fixed income securities, derivatives, and foreign exchange contracts. They also include the underwriting of fixed income and equity securities. 90...

  • Page 99
    ...Services Group, Inc. - Form 10-K BlackRock Tax credit investments Private equity Visa Other Total $ 5,291 2,646 1,491 456 250 $10,134 $5,017 2,054 1,375 456 318 $ 9,220 BlackRock PNC owned approximately 36 million common stock equivalent shares of BlackRock equity at December 31, 2011, accounted...

  • Page 100
    ... derivatives is presented in Note 1 Accounting Policies and Note 16 Financial Derivatives in the Notes To Consolidated Financial Statements in Item 8 of this Report, which is incorporated here by reference. Not all elements of interest rate, market and credit risk are addressed through the use of...

  • Page 101
    ...swaps Total commercial mortgage banking activities Derivatives used for customer-related activities: Interest rate contracts Swaps (d) Caps/floors Sold Purchased Swaptions Futures Commitments related to residential mortgage assets (d) Foreign exchange contracts Equity contracts Credit contracts Risk...

  • Page 102
    ... January 1, 2010 consolidation of the securitized credit card portfolio. Corporate services revenue totaled $1.1 billion in 2010 and $1.0 billion in 2009. The increase was largely the result of higher merger and acquisition advisory and ancillary commercial mortgage servicing fees partially offset...

  • Page 103
    ... the customer and branch conversions to our technology platforms and integrated the businesses and operations of National City with those of PNC. Effective Tax Rate Our effective tax rate was 25.5% for 2010 and 26.9% for 2009. CONSOLIDATED BALANCE SHEET REVIEW Loans Loans decreased $6.9 billion...

  • Page 104
    ... Loan-to-value ratio (CLTV) - This is the aggregate principal balance(s) of the mortgages on a property divided by its appraised value or purchase price. Commercial mortgage banking activities - Includes commercial mortgage servicing, originating commercial mortgages for sale and related hedging...

  • Page 105
    ... banks in the London wholesale money market (or interbank market) borrow unsecured funds from each other. LIBOR rates are used as a benchmark for interest rates on a global basis. PNC's product set includes loans priced using LIBOR as a benchmark. Loan-to-value ratio (LTV) - A calculation of a loan...

  • Page 106
    ...(including loans and lines of credit secured by residential real estate), and residential real estate (including mortgages and construction) customers as well as certain non-accrual troubled debt restructured loans. Nonperforming loans do not include loans held for sale or OREO and foreclosed assets...

  • Page 107
    ... for sale debt securities and net unrealized holding gains (losses) on cash flow hedge derivatives are excluded from total shareholders' equity for Tier 1 risk-based capital purposes. Tier 1 risk-based capital ratio - Tier 1 risk-based capital divided by period-end risk-weighted assets. Total equity...

  • Page 108
    ... underlying asset. Total risk-based capital - Tier 1 risk-based capital plus qualifying subordinated debt and trust preferred securities, other noncontrolling interest not qualified as Tier 1, eligible gains on available for sale equity securities and the allowance for loan and lease losses, subject...

  • Page 109
    ...Business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through 100 The PNC Financial Services Group, Inc. - Form 10-K - effective use of third-party insurance, derivatives, and capital management...

  • Page 110
    ...DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of The PNC Financial Services Group, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in equity, and cash flows present...

  • Page 111
    ...PNC FINANCIAL SERVICES GROUP, INC. In millions, except per share data Year ended December 31 2011 2010 2009 Interest Income Loans Investment securities Other Total interest income Interest Expense Deposits Borrowed funds Total interest expense Net interest income Noninterest Income Asset management...

  • Page 112
    ... funds Allowance for unfunded loan commitments and letters of credit Accrued expenses (includes $155 and $88 for VIEs) (a) Other (includes $734 and $456 for VIEs) (a) Total liabilities Equity Preferred stock (c) Common stock ($5 par value, authorized 800 shares, issued 537 and 536 shares) Capital...

  • Page 113
    ... (loss) Cash dividends declared Common Preferred Preferred stock discount accretion Supervisory Capital Assessment Program issuance Common stock activity Treasury stock activity (c) Other Balance at December 31, 2009 (a) Cumulative effect of adopting ASU 2009-17 Balance at January 1, 2010 Net income...

  • Page 114
    ... funds to redeem the Series N (TARP) Preferred Stock, for a $3.4 billion net increase in total equity. (e) 10,000 Series O preferred shares with a $1 par value were issued on July 20, 2011. See accompanying Notes To Consolidated Financial Statements. The PNC Financial Services Group, Inc. - Form...

  • Page 115
    ... (used) by operating activities Provision for credit losses Depreciation and amortization Deferred income taxes Net gains on sales of securities Net other-than-temporary impairments Mortgage servicing rights valuation adjustment Gain on sale of PNC Global Investment Servicing Gains on BlackRock...

  • Page 116
    ... Net change in Noninterest-bearing deposits Interest-bearing deposits Federal funds purchased and repurchase agreements Federal Home Loan borrowings Other borrowed funds Sales/issuances Federal Home Loan borrowings Bank notes and senior debt Other borrowed funds Preferred stock Supervisory Capital...

  • Page 117
    ... fund a portion of certain BlackRock long-term incentive plan (LTIP) programs. Since these preferred shares are not deemed to be in substance common stock, we have elected to account for these preferred shares at fair value and the changes in fair value will offset the impact of marking-to-market...

  • Page 118
    ...(Market Street), a credit card securitization trust, and certain Low Housing Tax Credit (LIHTC) investments. REVENUE RECOGNITION We earn interest and noninterest income from various sources, including: • Lending, • Securities portfolio, • Asset management, • Customer deposits, • Loan sales...

  • Page 119
    ... equity investments under one of the following methods: • Marketable equity securities are recorded on a tradedate basis and are accounted for based on the securities' quoted market prices from a national securities exchange. Those purchased with the intention of recognizing short-term profits...

  • Page 120
    ... influence over the operations of the investee and when the net asset value of our investment reflects our economic interest in the underlying investment. Under the equity method, we record our equity ownership share of net income or loss of the investee in noninterest income. We use the cost method...

  • Page 121
    ..., a form of financing lease, are carried net of nonrecourse debt. We recognize income over the term of the lease using the constant effective yield method. Lease residual values are reviewed for other-than-temporary impairment on an annual basis. Gains or losses on the sale of leased assets are...

  • Page 122
    ...collateral in the form of liens on (or pledges of) real or personal property, including marketable securities, has a realizable value sufficient to discharge the debt in full, including accrued interest. Home equity installment loans and lines of credit and residential real estate loans that are not...

  • Page 123
    ... transfer the loan to other real estate owned included in Other assets on our Consolidated Balance Sheet. Property obtained in satisfaction of a loan is recorded at estimated fair value less cost to sell. We estimate fair values primarily based on appraisals, when available, or sales agreements with...

  • Page 124
    ... Lease Losses and Unfunded Loan Commitments and Letters of Credit for additional information. MORTGAGE AND OTHER SERVICING RIGHTS We provide servicing under various loan servicing contracts for commercial, residential and other consumer loans. These contracts are either purchased in the open market...

  • Page 125
    ... market conditions. Revenue from the various loan servicing contracts for commercial, residential and other consumer loans is reported on the Consolidated Income Statement in line items Corporate services, Residential mortgage and Consumer services. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value...

  • Page 126
    ... and commercial mortgage loans for sale. We also enter into commitments to purchase or sell commercial and residential real estate loans. These commitments are accounted for as freestanding derivatives which are recorded at fair value in Other assets or Other liabilities on the Consolidated Balance...

  • Page 127
    ... will adopt the new disclosure requirements on January 1, 2013. 118 The PNC Financial Services Group, Inc. - Form 10-K In December 2011, the FASB also finalized ASU 2011-10 - Property, Plant, and Equipment (Topic 360) - Derecognition of in Substance Real Estate - a Scope Clarification (a consensus...

  • Page 128
    .... This ASU required purchases, sales, issuances and settlements to be reported separately in the Level 3 fair value measurement rollforward beginning with the first quarter 2011 reporting. See Note 8 Fair Value for additional information. The PNC Financial Services Group, Inc. - Form 10-K 119

  • Page 129
    ... of deposits associated with these branches. A $39.0 million deposit premium was paid and no loans were acquired in the transaction. Our Consolidated Income Statement includes the impact of the branch activity subsequent to our June 6, 2011 acquisition. SALE OF PNC GLOBAL INVESTMENT SERVICING On...

  • Page 130
    ... transactions. Rather, our limited holdings of these securities occur through subsequent purchases in the secondary market. PNC does not retain any credit risk on its Agency mortgage-backed security positions as FNMA, FHLMC, and the US Government (for GNMA) guarantee losses of principal and interest...

  • Page 131
    ... following table provides information related to the cash flows associated with PNC's loan sale and servicing activities: Residential Mortgages Commercial Mortgages (a) Home Equity Loans/ Lines (b) In millions CASH FLOWS - Year ended December 31, 2011 Sales of loans (i) Repurchases of previously...

  • Page 132
    ... Value (a) December 31, 2011 In millions Market Street Credit Card Securitization Trust Tax Credit Investments (b) Total Assets Cash and due from banks Interest-earning deposits with banks Investment securities Loans Allowance for loan and lease losses Equity investments Other assets Total assets...

  • Page 133
    ... Assets Aggregate Liabilities PNC Risk of Loss Carrying Value of Assets Carrying Value of Liabilities In millions December 31, 2011 Tax Credit Investments (a) Commercial Mortgage-Backed Securitizations (b) Residential Mortgage-Backed Securitizations (b) Collateralized Debt Obligations Total...

  • Page 134
    ... default. Market Street creditors have no direct recourse to PNC Bank, N.A. PNC Bank, N.A. provides program-level credit enhancement to cover net losses in the amount of 10% of commitments, excluding explicitly rated AAA/Aaa facilities. PNC Bank, N.A. provides 100% of the enhancement in the form of...

  • Page 135
    ... to loss as a result of our involvement with these SPEs is the carrying value of the mortgage-backed securities, servicing assets, and servicing advances. Creditors of the securitization SPEs have no recourse to PNC's assets or general credit. 126 The PNC Financial Services Group, Inc. - Form 10...

  • Page 136
    ... Net Unfunded Credit Commitments In millions December 31 2011 December 31 2010 Commercial and commercial real estate Home equity lines of credit Credit card Other Total (a) $ 64,955 18,317 16,216 3,783 $103,271 $59,256 19,172 14,725 2,652 $95,805 Commercial lending Commercial Commercial real...

  • Page 137
    ... (a) Nonperforming Loans Purchased Impaired Total Loans December 31, 2011 Commercial Commercial real estate Equipment lease financing Home equity Residential real estate (b) Credit card Other consumer (c) Total Percentage of total loans December 31, 2010 Commercial Commercial real estate Equipment...

  • Page 138
    ... estate excludes loans of $61 million accounted for under the fair value option as of December 31, 2011. The comparable balance at December 31, 2010 was not material. (c) Effective in the second quarter 2011, the commercial nonaccrual policy was applied to certain small business credit card balances...

  • Page 139
    ... are influenced by a number of credit related items, which include but are not limited to: estimated collateral values, receipt of additional collateral, secondary trading prices, circumstances of possible and/or ongoing liquidation, capital availability, business operations and payment patterns. We...

  • Page 140
    ...management reports, which are utilized to monitor the risk in the loan classes. LTV (inclusive of combined loan-to-value (CLTV) ratios for second lien positions): At least annually, we update the property values of real estate collateral and calculate an updated LTV ratio. For open-end credit lines...

  • Page 141
    ... - purchased impaired loans (a) Government insured or guaranteed residential real estate mortgages (a) Purchase accounting, deferred fees and other accounting adjustments Total home equity and residential real estate loans (b) (a) Represents outstanding balance. (b) Represents recorded investment...

  • Page 142
    ...purchased impaired loans were included in our 2010 Table. Additionally, please see the Home Equity and Residential Real Estate Balances table for a reconciliation of outstanding balances to recorded investment utilized in the 2011 Tables and 2010 Table, respectively. The PNC Financial Services Group...

  • Page 143
    ... to 649 Less than 620 No FICO score available or required (c) Total loans using FICO credit metric Consumer loans using other internal credit metrics (b) Total loan balance Weighted-average current FICO score (d) 134 The PNC Financial Services Group, Inc. - Form 10-K $2,016 1,100 184 284 392 3,976...

  • Page 144
    ...2011 Dollars in millions Pre-TDR Post-TDR Number Recorded Recorded of Loans Investment (b) Investment (c) Commercial lending Commercial Commercial real estate Equipment lease financing (d) TOTAL COMMERCIAL LENDING Consumer lending Home equity Residential real estate Credit card Other consumer TOTAL...

  • Page 145
    ...the year ended December 31, 2011 Dollars in millions Post-TDR Recorded Investment Principal Rate Forgiveness Reduction Other Total Commercial lending Commercial Commercial real estate TOTAL COMMERCIAL LENDING (a) Consumer lending Home equity Residential real estate Credit card Other consumer TOTAL...

  • Page 146
    ... of the loan, updated borrower FICO credit scores, geographic information, historical loss experience, and updated LTVs, as well as best estimates for unemployment rates, home prices and other economic factors to determine estimated cash flows. The PNC Financial Services Group, Inc. - Form 10-K 137

  • Page 147
    ... Lease Losses and Associated Loan Data In millions Commercial Lending Consumer Lending Total December 31, 2011 ALLOWANCE FOR LOAN AND LEASE LOSSES January 1 Charge-offs Recoveries Net charge-offs Provision for credit losses Net change in allowance for unfunded loan commitments and letters of credit...

  • Page 148
    ...Lease Losses and Associated Loan Data (continued from previous page) In millions Commercial Lending Consumer Lending Total December 31, 2009 ALLOWANCE FOR LOAN AND LEASE LOSSES January 1 Charge-offs Recoveries Net charge-offs Provision for credit losses Acquired allowance - National City Net change...

  • Page 149
    ... Principal Balance Recorded Investment (a) Associated Allowance (b) Average Recorded Investment (a) In millions December 31, 2011 Impaired loans with an associated allowance Commercial Commercial real estate Home equity Residential real estate Credit card Other consumer Total impaired loans with...

  • Page 150
    ... with common risk characteristics. We account for commercial and commercial real estate loans individually. Purchased Impaired Loans December 31, 2011 December 31, 2010 Recorded Outstanding Recorded Outstanding Investment Balance Investment Balance from contractual interest rate changes on variable...

  • Page 151
    ...municipal Other debt Total debt securities Corporate stocks and other Total securities available for sale SECURITIES HELD TO MATURITY Debt securities Commercial mortgage-backed (non-agency) Asset-backed Other debt Total securities held to maturity 142 The PNC Financial Services Group, Inc. - Form 10...

  • Page 152
    ... Gains Losses Fair Value December 31, 2009 SECURITIES AVAILABLE FOR SALE Debt securities US Treasury and government agencies Residential mortgage-backed Agency Non-agency Commercial mortgage-backed Agency Non-agency Asset-backed State and municipal Other debt Total debt securities Corporate stocks...

  • Page 153
    ... Value Unrealized loss position 12 months or more Unrealized Fair Loss Value In millions Total Unrealized Loss Fair Value December 31, 2011 Debt securities Residential mortgage-backed Agency Non-agency Commercial mortgage-backed Agency Non-agency Asset-backed State and municipal Other debt Total...

  • Page 154
    ... of net operating income (NOI) by property type which, in turn, is based on the analysis of NOI performance over the past several business cycles combined with PNC's economic outlook. Loss severities are based on property price projections, which are calculated using capitalization rate projections...

  • Page 155
    ... were as follows: Summary of OTTI Credit Losses Recognized in Earnings Year ended December 31 In millions 2011 2010 Available for sale securities: Non-agency residential mortgage-backed Non-agency commercial mortgage-backed Asset-backed Other debt Total (21) (1) $(152) $(325) $(130) $(242) (5) (78...

  • Page 156
    ...5 Years through 10 Years After 10 Years Total SECURITIES AVAILABLE FOR SALE US Treasury and government agencies Residential mortgage-backed Agency Non-agency Commercial mortgage-backed Agency Non-agency Asset-backed State and municipal Other debt Total debt securities available for sale Fair value...

  • Page 157
    ... for sale and trading securities, commercial mortgage loans held for sale, private equity investments, residential mortgage servicing rights, BlackRock Series C Preferred Stock and certain financial derivative contracts. The available for sale and trading securities within Level 3 include non-agency...

  • Page 158
    ... market activity for highly liquid assets such as U.S. Treasury and agency securities and agency residential mortgage-backed securities, and matrix pricing for other asset classes, such as commercial mortgage and other asset-backed securities. Another vendor primarily uses pricing models considering...

  • Page 159
    ..., or the pricing used to value the entity in a recent financing transaction. We value indirect investments in private equity funds based on net asset value as provided in the financial statements that we receive from their managers. Due to the time lag in our receipt of the financial information and...

  • Page 160
    ... (f) Equity Total trading securities Residential mortgage servicing rights (g) Commercial mortgage loans held for sale (c) Equity investments Direct investments Indirect investments (h) Total equity investments Customer resale agreements (i) Loans (j) Other assets BlackRock Series C Preferred Stock...

  • Page 161
    ...-agency Asset-backed State and municipal Other debt Corporate stocks and other Total securities available for sale Financial derivatives Trading securities - Debt Residential mortgage servicing rights Commercial mortgage loans held for sale Equity investments Direct investments Indirect investments...

  • Page 162
    ...non-agency Commercial mortgage-backed non-agency Asset-backed State and municipal Other debt Corporate stocks and other Total securities available for sale Financial derivatives Trading securities - Debt Residential mortgage servicing rights Commercial mortgage loans held for sale Equity investments...

  • Page 163
    ... or changes in property conditions. Fair Value Measurements - Nonrecurring (a) Fair Value December 31 December 31 2011 2010 Gains (Losses) Year ended December 31 December 31 2011 2010 In millions Assets Nonaccrual loans Loans held for sale Equity investments Commercial mortgage servicing rights...

  • Page 164
    ... (Losses) 2011 2010 2009 Assets Customer resale agreements Residential mortgage-backed agency securities with embedded derivatives (b) Commercial mortgage loans held for sale Residential mortgage loans held for sale Residential mortgage loans - portfolio BlackRock Series C Preferred Stock (a) The...

  • Page 165
    ... Value Aggregate Unpaid Principal Balance Difference December 31, 2011 Customer resale agreements Residential mortgage-backed agency securities with embedded derivatives (a) Residential mortgage loans held for sale Performing loans Loans 90 days or more past due Nonaccrual loans Total Commercial...

  • Page 166
    ...represent the total market value of PNC's assets and liabilities as the table excludes the following: • real and personal property, • lease financing, • loan customer relationships, • deposit customer intangibles, • retail branch networks, • fee-based businesses, such as asset management...

  • Page 167
    ... ALLL recorded for these loans. See Note 6 Purchased Impaired Loans for additional information. For revolving home equity loans and commercial credit lines, this fair value does not include any amount for new loans or the related fees that will be generated from the existing customer relationships...

  • Page 168
    ...line basis, certain core deposit intangibles are amortized on an accelerated basis. For customer-related and other intangibles, the estimated remaining useful lives range from 1 year to 10 years, with a weighted-average remaining useful life of 8 years. The PNC Financial Services Group, Inc. - Form...

  • Page 169
    ...services on our Consolidated Income Statement. 160 The PNC Financial Services Group, Inc. - Form 10-K We recognize mortgage servicing right assets on residential real estate loans when we retain the obligation to service these loans upon sale and the servicing fee is more than adequate compensation...

  • Page 170
    ... others. Fees from commercial MSRs, residential MSRs and other loan servicing are reported on our Consolidated Income Statement in the line items Corporate services, Residential mortgage, and Consumer services, respectively. Fair value Weighted-average life (years) Prepayment rate range (a) Decline...

  • Page 171
    ... any shares of its common stock for any conversion value. Continuing operations: Discontinued operations: $357 $379 10 $372 16 Required minimum annual rentals that we owe on noncancelable leases having initial or remaining terms in excess of one year totaled $2.5 billion at December 31, 2011...

  • Page 172
    ... TRUST SECURITIES At December 31, 2011, capital securities totaling $2.7 billion represented non-voting preferred beneficial interests in the assets of the following Trusts: Capital Securities of Subsidiary Trusts Trust Date Formed Description of Capital Securities Redeemable PNC Capital Trust...

  • Page 173
    ... tax rules, the capital securities are redeemable in whole. In accordance with GAAP, the financial statements of the Trusts are not included in PNC's consolidated financial statements. At December 31, 2011, PNC's junior subordinated debt with a carrying value of $2.4 billion represented debentures...

  • Page 174
    ... the applicable PNC REIT Corp. holders in exchange for a cash payment representing the market value of such in-kind dividend, and PNC has committed to contribute such in-kind dividend to PNC Bank, N.A. (e) Except for: (i) purchases, redemptions or other acquisitions of shares of capital stock of PNC...

  • Page 175
    ... beginning of year Service cost Interest cost Actuarial losses and changes in assumptions Participant contributions Federal Medicare subsidy on benefits paid Early Retirement Reinsurance Program payments received Benefits paid Projected benefit obligation at end of year Fair value of plan assets at...

  • Page 176
    ...(a) of the Code. Plan assets consist primarily of listed domestic and international equity securities and US government, agency, and corporate debt securities and real estate investments. Plan assets as of December 31, 2011 and 2010 include common stock of PNC. PNC Common Stock was $11 million and...

  • Page 177
    ... at December 31, 2010: • Money market and mutual funds are valued at the net asset value of the shares held by the pension plan at year-end. • US government securities, corporate debt, common stock and preferred stock are valued at the closing price reported on the active market on which the...

  • Page 178
    ... Prices in Other Significant Active Markets Observable Unobservable For Identical Inputs Inputs Assets (Level 1) (Level 2) (Level 3) In millions December 31 2011 Fair Value Cash Money market funds US government and agency securities Corporate debt (a) Common stock Preferred stock Mutual funds...

  • Page 179
    ... 2011 and 2010: Rollforward of Pension Plan Level 3 Assets Interest in Common Collective Funds In millions Corporate Debt Limited Partnership Other Preferred Stock January 1, 2011 Net realized gain on sale of investments Net unrealized gain/(loss) on assets held at end of year Purchases Sales...

  • Page 180
    ... Year ended December 31 At December 31 2011 2010 Discount rate Qualified pension Nonqualified pension Postretirement benefits Rate of compensation increase (average) Assumed health care cost trend rate Initial trend Ultimate trend Year ultimate reached Expected long-term return on plan assets...

  • Page 181
    ... limit before the end of a calendar year, PNC makes a true-up matching contribution to ensure that such participants receive the full company match available. The plan is a 401(k) Plan 172 The PNC Financial Services Group, Inc. - Form 10-K NOTE 15 STOCK BASED COMPENSATION PLANS We have long-term...

  • Page 182
    ... the year ended December 31 2011 2010 2009 Risk-free interest rate Dividend yield Volatility Expected life Grant date fair value 2.8% 0.6 34.7 5.9 yrs. $ 22.82 2.9% 0.7 32.7 6.0 yrs. $ 19.54 $ 1.9% 3.5 27.3 5.6 yrs. 5.73 Stock Option Rollforward - 2011 PNC Options Converted From National City...

  • Page 183
    ... of market value in 2011, 2010 or 2009. Shares of common stock available during the next year for the granting of options and other awards under the Incentive Plans were 33,775,543 at December 31, 2011. Total shares of PNC common stock authorized for future issuance under equity compensation plans...

  • Page 184
    ... value on the last day of each six-month offering period. No charge to earnings is recorded with respect to the ESPP. Employee Stock Purchase Plan - Summary Year ended December 31 Shares Issued Purchase Price Per Share As previously reported, PNC entered into an Exchange Agreement with BlackRock...

  • Page 185
    ... swaps to hedge changes in the fair value of fixed rate and zero-coupon investment securities caused by fluctuations in market interest rates. The specific products hedged include US Treasury, government agency and other debt securities. For these hedge relationships, we use statistical regression...

  • Page 186
    ... market as part of our commercial mortgage banking activities and the loans, and the related loan commitments, which are considered derivatives, are accounted for at fair value. Derivatives used to economically hedge these loans and commitments from changes in fair value due to interest rate risk...

  • Page 187
    ... value. We generally have established agreements with our major derivative dealer counterparties that provide for exchanges of marketable securities or cash to collateralize either party's positions. At December 31, 2011, we held cash, US government securities and mortgage-backed securities totaling...

  • Page 188
    ... rate contracts Loan sales Interest rate contracts Subtotal Derivatives used for commercial mortgage banking activities: Interest rate contracts Credit contracts: Credit default swaps Subtotal Derivatives used for customer-related activities: Interest rate contracts Foreign exchange contracts Equity...

  • Page 189
    ... Related (Loss) on Hedged Derivatives Items Recognized Recognized in Income in Income Amount Amount Year ended In millions Hedged Items Location Interest rate contracts US Treasury and Government Agencies Securities Other Debt Securities Federal Home Loan Bank borrowings Subordinated debt Bank...

  • Page 190
    ... commercial mortgage banking activities (b) Derivatives used for customer-related activities: Interest rate contracts Foreign exchange contracts Equity contracts Credit contracts Gains (losses) from customer-related activities (b) Derivatives used for other risk management activities: Interest rate...

  • Page 191
    ...default. 99% 1% 95% 5% Corporate Debt Loans December 31, 2011 December 31, 2010 59% 62% 20% 28% 21% 10% We enter into credit default swaps under which we buy loss protection from or sell loss protection to a counterparty for the occurrence of a credit event related to a referenced entity or...

  • Page 192
    ... share data 2011 2010 2009 Basic Net income from continuing operations Less: Net income (loss) attributable to noncontrolling interests Dividends distributed to common shareholders Dividends distributed to preferred shareholders Dividends distributed to nonvested restricted shares Preferred stock...

  • Page 193
    ... relating to the capitalization or the financial condition of PNC Bank, N.A. and upon the direction of the Office of the Comptroller of the Currency. The Series preferred stock of PNC REIT Corp. is also automatically exchangeable under similar conditions into shares of PNC Series H preferred stock...

  • Page 194
    ... of preferred stock and PNC common stock may participate in the plan, which provides that additional shares of common stock may be purchased at market value with reinvested dividends and voluntary cash payments. Common shares issued pursuant to this plan were: 379,459 shares in 2011, 149,088 shares...

  • Page 195
    ...gains on non-OTTI securities Net increase in OTTI losses on debt securities Less: Net losses realized on sales of securities Less: OTTI losses realized in net income Net unrealized losses on OTTI securities Balance at December 31, 2011 186 The PNC Financial Services Group, Inc. - Form 10-K 317 (117...

  • Page 196
    ... loan and lease losses Net unrealized securities losses Compensation and benefits Unrealized losses on loans Loss and credit carryforward Other Total gross deferred tax assets Valuation allowance Total deferred tax assets Deferred tax liabilities Leasing Goodwill and intangibles Mortgage servicing...

  • Page 197
    ... for Unrecognized Tax Benefits In millions 2011 2010 2009 Statutory tax rate Increases (decreases) resulting from State taxes net of federal benefit Tax-exempt interest Life insurance Dividend received deduction Tax credits IRS letter ruling and settlements Other Effective tax rate 35.0% 35...

  • Page 198
    ... are statutory and regulatory limitations on the ability of national banks to pay dividends or make other capital distributions. The amount available for dividend payments to the parent company by PNC Bank, N.A. without prior regulatory approval was approximately $1.7 billion at December 31, 2011.

  • Page 199
    ... securities laws 190 The PNC Financial Services Group, Inc. - Form 10-K regarding public statements and disclosures relating to, among other things, the nature, quality, performance, and risks of National City's non-prime, residential construction, and National Home Equity portfolios, its loan loss...

  • Page 200
    .... PNC Bank, N.A. is not named a defendant in any of the Visa or MasterCard related antitrust litigation nor was it initially a party to the judgment or loss sharing agreements, but it has been subject to these indemnification obligations and became responsible for National City Bank's position in...

  • Page 201
    ... customers for the common law claims described below (covering all states in which PNC and National City had retail branch operations during the class period), and subclasses of PNC Bank customers with accounts in Pennsylvania and New Jersey branches and of National City Bank customers with accounts...

  • Page 202
    ..., against numerous financial companies, including The PNC Financial Services Group, Inc., as successor in interest to National City Corporation, and PNC Investments LLC, as successor in interest to NatCity Investments, Inc. (Federal Home Loan Bank of Chicago v. Bank of America Funding Corp., et al...

  • Page 203
    .... The court has not yet ruled on this motion. Weavering Macro Fixed Income Fund In July 2010, PNC completed the sale of PNC Global Investment Servicing ("PNC GIS") to The Bank of New York Mellon Corporation ("BNY-Mellon"), pursuant to a stock purchase agreement dated February 1, 2010. In July 2009...

  • Page 204
    ... Litigation In December 2011, a lawsuit (White, et al. v. The PNC Financial Services Group, Inc., et al. (Civil Action No. 11-7928)) was filed against PNC (as successor in interest to National City Corporation and several of its subsidiaries) and several mortgage insurance companies in the United...

  • Page 205
    ..., documents concerning, among other things, National City's capital-raising activities, loan underwriting experience, allowance for loan losses, marketing practices, dividends, bank regulatory matters and the sale of First Franklin Financial Corporation. The SEC has been conducting an investigation...

  • Page 206
    ... third The PNC Financial Services Group, Inc. - Form 10-K 197 NOTE 23 COMMITMENTS AND GUARANTEES EQUITY FUNDING AND OTHER COMMITMENTS Our unfunded commitments at December 31, 2011 included private equity investments of $247 million, and other investments of $3 million. STANDBY LETTERS OF CREDIT We...

  • Page 207
    ... the loaned securities. In addition, the purchaser of GIS, BNY-Mellon, has entered into an agreement to indemnify PNC with respect to such exposure on the terms set forth in such indemnification agreement. Effective July 18, 2011, PNC Bank, National Association assigned its securities lending agent...

  • Page 208
    ... activity associated with residential mortgages is reported in the Residential Mortgage Banking segment. PNC's repurchase obligations also include certain brokered home equity loans/lines that were sold to a limited number of private investors in the financial services industry by National City...

  • Page 209
    .... (b) Repurchase obligation associated with sold loan portfolios of $4.5 billion and $6.5 billion at December 31, 2011 and December 31, 2010, respectively. PNC is no longer engaged in the brokered home equity lending business, which was acquired with National City. Management believes our...

  • Page 210
    ...2011 2010 Operating Revenue Dividends from: Bank subsidiaries and bank holding company Non-bank subsidiaries Interest income Noninterest income Total operating revenue OPERATING EXPENSE Interest expense Other expense Total operating expense Income before income taxes and equity in undistributed net...

  • Page 211
    ... (used) by operating activities INVESTING ACTIVITIES Net capital returned from (contributed to) subsidiaries Investment securities: Sales and maturities Purchases Net cash received from acquisitions Net change in Restricted deposits with banking subsidiary Other Net cash provided (used) by investing...

  • Page 212
    ... management, disbursement services, funds transfer services, information reporting, and global trade services. Capital markets-related products and services include foreign exchange, derivatives, loan syndications, mergers and acquisitions advisory and related services to middle-market companies...

  • Page 213
    ... home equity loans, retail mortgages, non-prime mortgages, and residential construction loans. We obtained the majority of these non-strategic assets through acquisitions of other companies, and most of these assets fall outside of our core business strategy. 204 The PNC Financial Services Group...

  • Page 214
    ... millions Retail Banking Corporate & Institutional Banking Asset Management Group Residential Mortgage Banking Non-Strategic Assets Portfolio BlackRock Other Consolidated 2011 Income Statement Net interest income Noninterest income Total revenue Provision for credit losses (benefit) Depreciation...

  • Page 215
    ...52 1.52 1.50 Private equity gains/(losses) Net gains on sales of securities $ 4 62 $46 68 $42 82 $53 37 $40 68 $63 121 $75 147 $41 90 (b) Includes results of operations for PNC Global Investment Servicing Inc. (GIS) and the related after-tax gain on sale. We sold GIS effective July 1, 2010...

  • Page 216
    ... deposits Money market Demand Savings Retail certificates of deposit Other time Time deposits in foreign offices Total interest-bearing deposits Borrowed funds Federal funds purchased and repurchase agreements Federal Home Loan Bank borrowings Bank notes and senior debt Subordinated debt Other Total...

  • Page 217
    ... deposits Money market Demand Savings Retail certificates of deposit Other time Time deposits in foreign offices Total interest-bearing deposits Borrowed funds Federal funds purchased and repurchase agreements Federal Home Loan Bank borrowings Bank notes and senior debt Subordinated debt Other Total...

  • Page 218
    ...NONPERFORMING ASSETS AND RELATED INFORMATION December 31 - dollars in millions 2011 (a) 2010 (a) 2009 (a) 2008 (a) 2007 Nonperforming loans Commercial Commercial real estate Equipment lease financing TOTAL COMMERCIAL LENDING Consumer (b) Home equity Residential real estate (c) Credit card (d) Other...

  • Page 219
    ... estate excludes loans of $61 million accounted for under the fair value option as of December 31, 2011. The comparable balances for prior periods presented were not material. (d) Effective in the second quarter 2011, the commercial nonaccrual policy was applied to certain small business credit card...

  • Page 220
    ... forth by quarter the range of high and low sale and quarter-end closing prices for The PNC Financial Services Group, Inc. common stock and the cash dividends declared per common share. Cash Dividends Declared High Low Close 2011 Quarter First Second Third Fourth Total 2010 Quarter First Second...

  • Page 221
    ... participation of our management, including the Chairman and Chief Executive Officer and the Executive Vice President and 212 The PNC Financial Services Group, Inc. - Form 10-K 9B - OTHER INFORMATION None. PART III ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Certain of the...

  • Page 222
    ...Ownership of Directors and Executive Officers" in our Proxy Statement to be filed for the 2012 annual meeting of shareholders and is incorporated herein by reference. Information regarding our compensation plans under which PNC equity securities are authorized for issuance as of December 31, 2011 is...

  • Page 223
    ... number of any shares used in payment of bonuses under the 1996 Executive Incentive Award Plan. The plan was most recently amended and restated incorporating amendments adopted by the Board and approved by PNC's shareholders at the 2011 annual meeting of shareholders, effective as of March 11, 2011...

  • Page 224
    ... to fund certain BlackRock long-term incentive programs. Although the size of awards under the plan is dollar-denominated, payment may be made in cash, in stock, or in a combination of cash and stock. Note 7 - The purchase price for shares sold under the plan represents 95% of the fair market value...

  • Page 225
    ... Chairman, Chief Executive Officer and Director (Principal Executive Officer) Executive Vice President and Chief Financial Officer (Principal Financial Officer) Senior Vice President and Controller (Principal Accounting Officer) Directors 216 The PNC Financial Services Group, Inc. - Form 10-K

  • Page 226
    ... 3.2 of the Corporation's Current Report on Form 8-K filed February 19, 2009 3.1 3.2 Statement with Respect to Shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series O dated July 21, 2011 By-Laws of the Corporation, as amended and restated effective as of February...

  • Page 227
    ... therein Stock Purchase Contract between National City Corporation and National City Preferred Capital Trust I acting through the Bank of New York Trust Company, N.A. as Property Trustee, dated January 30, 2008 Form of PNC Bank, National Association Global Bank Note for Fixed Rate Global Senior Bank...

  • Page 228
    ...-1 to the Corporation and Affiliates Deferred Compensation Plan, as amended and restated May 5, 2009 Amendment 2011-1 to the Corporation and Affiliates Deferred Compensation Plan, as amended and restated May 5, 2009 10.19 10.20 10.21 10.22 10.23 PNC Financial Services Group, Inc. - Form 10-K E-3

  • Page 229
    ...Investment Corp., as settlor, and PNC Bank, National Association, as trustee Certificate of Corporate Action for Grantor Trusts effective January 1, 2012 The Corporation's Employee Stock Purchase Plan, as amended and restated as of January 1, 2009 Amendment 2011-1 to the Corporation's Employee Stock...

  • Page 230
    ...forms of employee stock option, restricted stock and restricted deferral agreements Incorporated herein by reference to Exhibit 10.30 of the Corporation's 3rd Quarter 2004 Form 10-Q* Incorporated herein by reference to Exhibit 10.28 of the Corporation's Annual Report on Form 10-K for the year ended...

  • Page 231
    ... 2005 form of director stock option agreement 10.61 10.62 Form of time sharing agreements between the Corporation and certain executives Form of change of control employment agreements 10.63 The National City Corporation 2004 Deferred Compensation Plan, as amended and restated effective January...

  • Page 232
    ... BlackRock, Inc. PNC Bank, National Association US $20,000,000,000 Global Bank Note Program for the Issue of Senior and Subordinated Bank Notes with Maturities of more than Nine Months from Date of Issue Distribution Agreement dated July 30, 2004 Stock Purchase Agreement, dated as of June 19, 2011...

  • Page 233
    ... Services Group, Inc. and the Board of Governors of the Federal Reserve System Consent order between PNC Bank, National Association and the Office of the Comptroller of the Currency Interactive Data File (XBRL) Incorporated herein by reference to Exhibit 99.1 of the Corporation's Current Report...

  • Page 234
    ... certification does not relate to Interactive Data Files as defined in Rule 11 of Regulation S-T. CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, James E. Rohr, certify that: 1. 2. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2011 of The PNC Financial Services Group...

  • Page 235
    ...does not relate to Interactive Data Files as defined in Rule 11 of Regulation S-T. CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Richard J. Johnson, certify that: 1. 2. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2011 of The PNC Financial Services Group, Inc.; Based...

  • Page 236
    ...with the Annual Report on Form 10-K for the year ended December 31, 2011 of The PNC Financial Services Group, Inc. (Corporation) as filed with the Securities and Exchange Commission on the date hereof (Report), I, James E. Rohr, Chairman and Chief Executive Officer of the Corporation, hereby certify...

  • Page 237
    ... with the Annual Report on Form 10-K for the year ended December 31, 2011 of The PNC Financial Services Group, Inc. (Corporation) as filed with the Securities and Exchange Commission on the date hereof (Report), I, Richard J. Johnson, Executive Vice President and Chief Financial Officer of the...

  • Page 238