PNC Bank 2011 Annual Report Download - page 56

Federal banking regulators have stated that they expect all
bank holding companies to have a level and composition of
Tier 1 capital well in excess of the 4% regulatory minimum,
and they have required the largest US bank holding
companies, including PNC, to have a capital buffer sufficient
to withstand losses and allow them to meet credit needs of
their customers through estimated stress scenarios. They have
also stated their view that common equity should be the
dominant form of Tier 1 capital. As a result, regulators are
now emphasizing the Tier 1 common capital ratio in their
evaluation of bank holding company capital levels, although a
formal ratio for this metric is not provided for in current
regulations. We seek to manage our capital consistent with
these regulatory principles, and believe that our December 31,
2011 capital levels were aligned with them.
Dodd-Frank requires the Federal Reserve Board to establish
capital requirements that would, among other things, eliminate
the Tier 1 treatment of trust preferred securities following a
phase-in period expected to begin in 2013. Accordingly, PNC
will evaluate its alternatives, including the potential for
redemption on the first call date of some or all of its trust
preferred securities, based on such considerations it may
consider relevant, including dividend rates, the specifics of the
future capital requirements, capital market conditions,
replacement capital covenants with respect to certain trust
preferred securities, and other factors. See Capital and
Liquidity Actions in the Executive Summary section of this
Item 7 for additional information regarding our November
2011 redemption of trust preferred securities and Note 13
Capital Securities of Subsidiary Trusts and Perpetual Trust
Securities in the Notes To Consolidated Financial Statements
in Item 8 of this Report for additional information on trust
preferred securities.
Our Tier 1 common capital ratio was 10.3% at December 31,
2011, an increase of 50 basis points compared with 9.8% at
December 31, 2010. Our Tier 1 risk-based capital ratio
increased 50 basis points to 12.6% at December 31, 2011 from
12.1% at December 31, 2010. The Tier 1 common capital ratio
increased when compared with December 31, 2010 due to the
retention of earnings partially offset by higher risk-weighted
assets primarily from loan growth. The increase in the Tier 1
risk-based capital ratio compared with December 31, 2010
resulted from the issuance of preferred stock in July 2011 and
retention of earnings somewhat offset by the redemption of
trust preferred securities in November 2011 and higher risk-
weighted assets. See Note 18 Equity in the Notes To
Consolidated Financial Statements in Item 8 of this Report for
additional information regarding the Series O Preferred Stock
issuance.
At December 31, 2011, PNC Bank, N.A., our domestic bank
subsidiary, was considered “well capitalized” based on US
regulatory capital ratio requirements under Basel I. To qualify
as “well-capitalized”, regulators currently require banks to
maintain capital ratios of at least 6% for Tier 1 risk-based,
10% for total risk-based, and 5% for leverage. See the
“Supervision and Regulation” section of Item 1 and Note 21
Regulatory Matters in the Notes To Consolidated Financial
Statements in Item 8 of this Report for additional 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 costs, and the level and nature of regulatory
oversight depend, in part, on a financial institution’s capital
strength.
We provide additional information regarding enhanced capital
requirements and some of their potential impacts on PNC in
Item 1A Risk Factors of this Report.
The PNC Financial Services Group, Inc. – Form 10-K 47