Jan 21, 2011
Executives
Richard Johnson - Chief Financial Officer and Executive Vice President James Rohr - Chairman of the Board, Chief Executive Officer, Member of Executive Committee and Member of Risk Committee William Callihan - Senior Vice President and Director of Investor Relations
Analysts
Matthew Burnell - Wells Fargo Securities, LLC David Hilder - Susquehanna Financial Group, LLLP John McDonald - Bernstein Research Christopher Gamaitoni Paul Miller - FBR Capital Markets & Co. Kenneth Usdin - Jefferies & Company, Inc.
Edward Najarian - ISI Group Inc. Brian Foran - Goldman Sachs Lana Chan - BMO Capital Markets U.S.
Gerard Cassidy - RBC Capital Markets, LLC Heather Wolf - UBS Investment Bank Michael Mayo - Credit Agricole Securities (USA) Inc.
Operator
Good morning. My name is Darlene, and I will be your conference operator today.
At this time, I would like to welcome everyone to the PNC Financial Earnings Conference Call. [Operator Instructions] I would now like to turn our call over to Mr.
Bill Callihan. Sir, you may begin your conference.
William Callihan
Thank you. Good morning, everyone, and welcome to today's conference call for the PNC Financial Services Group.
Participating on this call will be PNC's Chairman and Chief Executive Officer, Jim Rohr; and Rick Johnson, Executive Vice President and Chief Financial Officer. The following statements contain forward-looking information.
Actual results and future events could differ, possibly materially, from those we anticipate in our statements and from our historical performance due to a variety of factors. Those factors include items described in today's conference call, press release and related materials and in our 10-K and 10-Q and various other SEC filings available on our corporate website.
These statements speak only as of January 20, 2011, and PNC undertakes no obligation to update them. We will also provide details of reconciliation to GAAP to various non-GAAP financial measures we may discuss.
These details may be found on today's conference call, press release and our financial supplement, in our presentation slides and appendix and in various other SEC reports and other documents. These are all available on our corporate website at pnc.com in the Investor Relations section.
And now, I'd like to turn the call over to Jim Rohr.
James Rohr
Thank you, Bill. Good morning, everyone, and thank you for joining us.
In our presentation today, I will focus on PNC's strategic accomplishments for 2010, and full-year highlights for our businesses. Rick will provide more detail on our fourth quarter and full-year financial results, and I will close with some of our expectations for 2011.
Overall, PNC delivered exceptional performance in 2010 in a very challenging environment. Financially, we earned $3.4 billion in net income last year, a record for our company.
In the fourth quarter, we earned $820 million or $1.50 per diluted common share. When adjusted for integration costs, our earnings were $871 million or $1.60 per diluted common share.
Operationally, we transitioned to a higher quality balance sheet with excellent liquidity, our credit quality has improved, and we strengthened our capital positions. In fact, our Tier 1 common capital ratio was at a record level as of December 31, 2010.
Importantly, we completed the conversion of National City customers and branches and have already demonstrated success in implementing our sales and service model throughout the expanded franchise. Our employee engagement score is also, even with the new employees for 2010, were up across the company.
And we exceeded our original acquisition-related cost savings goal and ended the year with over $1.8 billion in annualized savings. Both financially and strategically, we executed our business plan effectively through the year and are well-positioned to compete successfully in 2011.
Turning to our businesses, they performed well in 2010. Most importantly, we increased the number of clients we serve, and we have the proven ability to grow in both high potential and mature markets.
And we have the scale to compete successfully in a consolidating industry with leading positions in our major businesses and products. Retail Banking, for example, reported higher profits in 2010, compared to the previous year, solid results given the regulatory changes and a low interest rate environment.
We grew checking relationships by 75,000 in 2010, an impressive gain considering the first half of the year was dominated by the customer-conversion process. In the fourth quarter, our net new checking relationships increased by 27,000, a good result compared to the same period of previous years, reflecting our ability to increase customers throughout our expanded franchise.
Now in addition to adding clients through our branch network, we recognize some customers are best reached where they work or go to school. Together, our Workplace and University Banking channels produced 38% of our full-year customer acquisition.
After customer conversions were complete, client acquisitions through these channels in the second half of the year grew by 20% compared to the same period of 2009. University Banking had an excellent year and increased the agreements with schools by more than 75% in 2010.
And our goal, on the consumer side, is to deepen these relationships, and we saw active online bill payment customers grow by 25% in 2010. Now in response to the new Consumer Banking environment, we will be launching a new integrated payment model in the second quarter that connects credit, debit and rewards and leverages the strength of our Virtual Wallet offering.
Based on extensive research, PNC's strategy is designed to give customers choices and option based on their needs. Rather than optimizing fee revenue, our approach is focused on growing market share and share of wallet.
We believe this approach will provide us the greater flexibility as the regulatory situation unfolds, and it recognizes that interest rates will eventually rise and deposits will become more valuable. Our Corporate & Institutional Bank had record earnings for the year.
We grew average deposits by 17%, and credit and non-interest expenses were well-managed. We had record client growth as customers grew at twice the pace of any previous year.
With more of our clients on one platform, we saw increased sales of Treasury Management and Capital Markets products throughout the franchise, but especially the customers in PNC's Western markets. In this important fee areas, both Treasury Management and Capital Markets delivered record revenue for the year.
Treasury Management revenue increased by 8% in 2010, compared to the previous year and that compares favorably to industry growth, which was projected to be in the range of 1% to 2% annually for the year. Capital markets revenues, customer-related, of course, was up 16% for the full year compared to 2009.
One of the benefits of our increased size is that we now have more opportunities to bid on business, while maintaining our moderate risk profile philosophy. As a result, we booked some of the largest transactions in the history of the company in 2010.
We saw the pace of loan utilization pick up in the fourth quarter, especially among middle market clients. And overall, we are seeing signs of loan growth in many segments.
Another indication that the economy is improving is the activity we see at Harris Williams, which is one of the nation's largest M&A advisory firms for middle market companies. They had a very good year last year and have a strong pipeline of business for 2011.
Now our Asset Management business also had a good year. Full-year earnings were up 34% year-over-year.
We outperformed our sales goals, and ended the year with a record number of new clients, as well as record client satisfaction. These gains were driven by total sales and referrals from other PNC channels with both increasing more than 40% on a linked-quarter basis.
Assets under administration at year-end were $212 billion, and operating expenses remained well-controlled, net of our investments to grow the business. Moving on to Residential Mortgage, they accomplished a great deal this year.
We have re-aligned the sales and servicing aspects of this business, so that it better reflects our moderate risk philosophy and our relationship-based business approach. Full-year mortgage loan originations were $10.5 billion.
Originations in the fourth quarter were $3.5 billion alone, they were up 30% linked-quarter, driven by higher loan refinance volume. Servicing fees for 2010 were up 9% compared to the previous year, and full-year non-interest expense was down 11% year-over-year.
Now with regard to our Distressed Asset Portfolio, we continue to make good progress. We ended the year with fourth quarter average assets of $15 billion, down $5 billion from the same quarter a year ago and down $1.4 billion linked-quarter.
This portfolio has been reduced by 45% since the acquisition of National City. Overall, we've done an excellent job in maximizing the economic value of these assets.
Moving onto BlackRock, they will announce full-year earnings next week, they continue to integrate Barclays Global Investors, an acquisition made in the world's largest publicly-traded asset manager, and at year-end, our economic interest in BlackRock was approximately 20%. Now as a result of these excellent efforts by our employees, last month, we were honored to be named the 2010 Bank of the Year in the United States.
This recognition was given to us by The Banker, which is published by the Financial Times Group in London. This is the first time we've received this prestigious international recognition for our successful business strategy.
But we see it as an important acknowledgment of our continuing commitment to becoming a great company. Let's talk about sales for a moment.
With the completion of our customer conversions this year, we began distributing a broad array of products more consistently. As shown on Slide 6, our Western markets, which are predominately Legacy National City, accounted for about 44% of our sales in corporate banking, wealth management, institutional investments and commercial banking products for the full year.
That's up 42% since 2009. In acquisition, Legacy National City had more clients than Legacy PNC, but product penetration at National City clients was much lower.
By successfully retaining those clients and deepening our relationships with them, we believe our Western markets will eventually account for a larger share of product sales than our Eastern markets, which are predominantly Legacy PNC. In fact, we believe the potential for revenue growth, assuming modest expenses, will be more than $500 million once our sales practices are fully implemented in our Western markets.
In 2010, sales across our franchise were up 20% compared to the previous year. And I'm especially pleased to see in the Western markets, sales were up 26% for the full year compared to 2009 and increased 58% at the second half after all the conversions were completed in June.
This shows that completed conversions had a positive impact on sales and a trend that we expect to continue in 2011. Cross-selling in these markets improved by 5% over year, which is a good indicator that these converted markets are beginning to reflect PNC's approach to sales.
In the fourth quarter of last year, we saw commercial loans increased on a linked-quarter basis for the first time in two years. And we saw a growth in virtually every commercial loan category and that gives us optimism as we begin 2011 that loan growth will continue.
Now Rick will provide you with more detail about our full year and our fourth quarter results.
Richard Johnson
Thank you, Jim, and good morning, everyone. Our fourth quarter earnings per share of $1.50 resulted in a record Tier 1 common capital ratio of an estimated 9.8%.
We have made great progress in strengthening our capital position during the year. As we move into 2011, our focus will shift from accumulating capital to leveraging our capital for the benefit of our shareholders.
Today, I plan to focus on three items: First, our strong earnings, including the steps we have taken to further migrate our balance sheet toward a moderate risk profile; second, the positive impact to our growth initiatives are having on our pretax provision earnings; and finally, the key drivers that we believe will lead to further growth and shareholder value. Now let me begin with our balance sheet as shown on Slide 8, which remains highly liquid and well-capitalized.
Loan balances stabilized this quarter. In fact, balances were up almost $500 million.
As we look ahead to 2011, we expect that the Distressed Assets will run off at a 25% base, which is the same rate as last year, and excluding the distressed run-off, we expect loan growth in 2011. On the deposit side, transaction deposits increased by approximately $8.5 billion compared to the previous year end, a strong sign of our ability to grow our customer deposit franchise and capture our clients' excess liquidity.
At the same time, we significantly reduced our higher cost CDs and other time and savings accounts by $12 billion, while retaining nearly 75% of our relationship accounts. These trends resulted in a loan-to-deposit ratio of 82%, a highly liquid balance sheet.
This discipline resulted in full-year deposit costs decreasing by nearly 50 basis points, which was a strong contributor to our net interest margin growth. Common equity for the full year increased by $7.6 billion, bringing our total to $29.6 billion as of December 31, 2010.
Our capital and liquidity will provide us the capacity to support our clients as the economy gains momentum and give us the flexibility to support further growth and capital management actions. Now Slide 9 shows our credit quality metrics, which overall continue to improve in the fourth quarter and from a year ago.
It starts with early-stage delinquencies, which declined by 5%, and late-stage delinquencies, which were down 10% compared to linked quarter results. This clearly reflects improving credit trends.
Our non-performing loans at the end of the fourth quarter were down $370 million or 8% on a linked-quarter basis, primarily driven by improvements across our commercial lending portfolio, partially offset by modest increases in consumer and residential real estate due to increases in Troubled Debt Restructurings. Fourth quarter provision of $442 million was also down linked-quarter.
Fourth quarter net charge-offs of $791 million were up $177 million linked-quarter, and net charge-offs reflect our actions to reduce credit risk. And we expect charge-off trends to continue to be volatile as they are typically the last credit metric to improve.
Looking to 2011, we anticipate an overall improvement in credit migration and a continued reduction in our non-performing loans assuming modest GDP growth. As a result, I expect the average quarterly provisioning for 2011 to be below the fourth quarter 2010 provision assuming budgeted loan growth projections.
If our expectations hold, this should result in a year-over-year provision decrease of at least $800 million. Now let me turn to our trends and net interest income.
On the left side of Slide 10 shows the 2010 impact by quarter of core net interest income and purchase accounting accretion on our net interest income. It also shows our net interest income by quarter adjusting for our provisioning.
On the right side of the chart, it shows the trends of our net interest margin and our provision-adjusted net interest margin. As you can see, PNC's fourth quarter net interest income held steady from the third quarter driven by better-than-expected cash recoveries on impaired loans and stable core net interest income.
When the impact of purchase accounting accretion is removed, PNC's core net interest income remained stable throughout the year, despite the fact that our average interest-earning assets have generally declined. This has been accomplished by reducing our funding costs rather than by taking undue credit or interest rate risk.
The chart on the right shows our net interest margin trend, which has declined slightly from earlier in the year. We expected this as the benefit of purchase accounting has declined.
However, we are paying particular attention to the provision adjusted net interest margin, which considers the impact of the annualized provision as a percentage of average interest-earning assets and the impact on net interest margin. We use this ratio to help demonstrate our commitment to our moderate risk philosophy and to show the impact of declining net interest income compared to improvements in credit costs as we focus on lowering our balance sheet risk.
As you can see, the provision-adjusted margin has improved throughout 2010. Our focus remains on securing assets that have appropriate risk-adjusted returns.
Similar to our strategy prior to the credit crisis, we do not plan to take credit or interest rate risk that is inconsistent with our moderate risk philosophy. We will continue to remain disciplined to help ensure we get paid for the risk we take.
Looking ahead to 2011, assuming at least modest GDP growth and continued low interest rates, you should expect decreases in purchase accounting accretion by as much as $700 million, which will be more than offset by decreases in our provisioning. At the same time, we expect our core net interest income to increase.
And while the net interest margin should decline, we expect our provision-adjusted margin to remain relatively stable. As you can see on Slide 11, we delivered $3.9 billion in revenue in the fourth quarter and $1.6 billion in pretax pre-provision earnings, compared to our provision of $442 million.
This allowed us to deliver pretax pre-provision earnings that were 3.5x greater than our credit costs. Now let's focus on non-interest income and expenses.
In the fourth quarter, client-related fees, which excludes the other category on Slide 11, increased 13% linked-quarter. Corporate service fees more than doubled compared to the third quarter.
The gain was driven by an increase to the value of commercial mortgage servicing rights and higher merger and acquisition advisory fees. Asset management fees also contributed to the increase and were up 22% in the fourth quarter compared to the third quarter, primarily from higher asset values due to the improvements in the equity markets and equity income from our investment in BlackRock.
As expected, service charges on deposits were down $32 million linked-quarter, mainly due to an additional $55 million impact of Regulation E. And residential mortgage fees were lower by $59 million linked-quarter, largely as a result of lower net hedging gains on mortgage servicing rights.
In the other fee category on Slide 11, net security gains decreased by $53 million, while the amount of improvement in our OTTI charges was $27 million. The remaining other non-interest income increased $201 million linked-quarter.
The fourth quarter included a $160 million gain from our sale of BlackRock stock in November, partially offset by approximately $92 million of recourse reserves primarily in the brokered home equity and multifamily housing spaces. As I look at 2011, we see momentum in our fee-based revenues as a result of our expanded franchise.
At the same time, we will see the continued impact of ongoing regulatory reform. With regard to 2011 non-interest income, excluding the incremental impact of anticipated regulatory changes on fees of approximately $400 million in 2011, we expect non-interest income to be up in the low- to mid-single digits compared to 2010.
Expenses increased by $182 million linked-quarter and included $109 million in higher residential mortgage expenses, largely driven by increased residential foreclosure-related mortgage expenses, as well as higher compensation expenses due to business activity, business volumes and the increase in our stock price. We successfully exceeded our acquisition-related cost savings goal of $1.8 billion on an annualized basis in the fourth quarter, well ahead of our original target amount and scheduled.
As a result, on a full-year basis, our expenses were down 5% year-over-year. And based on our budget, we expect expenses in 2011 will be down as well.
The magnitude of the decline will be dependent on the pace of our investment and growth opportunities. As shown on Slide 12, our Tier 1 common ratio at the end of the fourth quarter is estimated to be 9.8%, which is up 20 basis points linked-quarter, due to fourth quarter earnings partially offset by our higher risk-weighted assets.
Since December 31, 2009, our Tier 1 common ratio has increased by 380 basis points. In addition, our book value per share during the same period has increased 18% to over $56 as we produced further value to our shareholders.
Our Tier 1 ratio at the end of the fourth quarter is estimated to be 12.1%, which means approximately 80% of our Tier 1 capital is comprised of Tier 1 common. This places us up in the top tier among our peer group, while still delivering mid- to upper teen returns on Tier 1 common equity.
However, if we operated near the average of our peer group's Tier 1 common ratio of 8.2%, our return on Tier 1 common equity would be almost three percentage points higher than it is today. We have the proven ability to generate capital, our liquidity is strong, and the overall economy is showing signs of improvement.
This should provide us with greater flexibility in capital management than we have had in the past. As we look ahead, we expect to receive greater clarity from our regulators regarding capital.
And based on what we know today, assuming full implementation of Basel III, the impact to PNC could be as much as 320 basis points, which includes the impact of our BlackRock holdings on an after-tax basis and the portion of our securities portfolio that is sub investment grade. Let's be clear, rules are not yet final, and there is still a possibility the full impact of Basel III will not materialize.
However, even if it does, let's put this in perspective. PNC's 2010 earnings accounted for about 130 basis points towards our estimated Tier 1 common ratio at year end.
And by the time new Basel rules come into effect, we expect sub-investment grade securities to be 30% lower due to pay downs alone. As a result, PNC is well-capitalized today and should be when the rules go into effect in 2013.
Now pending approval from our regulators, our Board of Directors view is increasing the dividend is the key priority along with stock buybacks. Clearly, there should be opportunities for more active capital management this year that will give us another means to enhance shareholder value.
And with that, I'll hand it back to Jim.
James Rohr
Thanks, Rick. By all accounts, 2010 was a year of exceptional achievements for PNC.
We successfully executed our business model and delivered record results. We completed our customer conversions ahead of schedule and exceeded our cost savings goal.
Our accomplishments, in terms of financial performance, balance sheet and capital strengthening, put PNC in a solid position to deliver greater shareholder value this year. Most importantly, our businesses grew and are growing clients.
And as a result of the tremendous sales momentum in the second half of the year, we're optimistic for '11. We saw loan balances increase in the fourth quarter for the first time in two years.
Now we expect continued uncertainty regarding the regulatory environment. However, it appears the economy is beginning to look more promising.
We are assuming that the current recovery will slowly transition into a self-sustaining expansion over the course of the year, and that leads us to some optimism. As we begin '11, we believe that we can build on this momentum and grow our deposits and provide credit in line with our moderate risk philosophy.
And we see opportunities to grow our diverse revenue stream given the innovative products we already have in the market like Virtual Wallet and Healthcare Advantage and we have proven cross-selling capabilities. When I look at the PNC outlook chart, there are a number of items there that are in our control and those are growing clients that I just discussed.
We also have disciplined expense management, you know that, and Rick has been quite detailed in the improving credit quality picture that we have. So when you add to that the fact that we have slightly higher rates and growing loan demand, which we haven't had in years, when we put all that together, we believe that 2011 will be another fine year for PNC.
And with that, we'd be pleased to take your questions. Operator, if you could give participants the instructions please?
Operator
[Operator Instructions] Your next question comes from the line of Brian Foran with Nomura.
Brian Foran - Goldman Sachs
I guess a couple questions on capital. Conceptually, when we think about some of the risk of risk-weighted assets inflation, I guess, more from Basel 2.5, how should we think about the paydowns as well as -- I'm assuming things like your unrealized gain in Visa are not included anywhere in pro forma capital calculations.
And do things like that provide the flexibility to maybe move some of the securities off the balance sheet that drive some of the issues?
Richard Johnson
Brian, I think the key for us is that, as I mentioned, that we're very comfortable that were going to have a lot of capital flexibility. We do today and even when Basel II and Basel III going to play, we're very comfortable we have a lot capital flexibility there as well, even if we do have to provide an additional 3.2% on the ratio, which there's a lot of question still around whether that's going to play out.
So I don't see us in a position where we are going to get rid of value and valued securities that we don't need to as long as we have the capital flexibility, and we believe we will.
Brian Foran - Goldman Sachs
Maybe let me ask the same idea but a slightly different way. Of the 320 bps risk, I kind of think of it as a little bit more than one-third BlackRock, a little bit less than two-thirds the securities book, but will we ever actually see a capital ratio anywhere close to that?
Because I'm assuming by 2013 when this rule goes into effect, that securities number will be much smaller via natural paydowns. And then, if you chose and you thought it was the right thing to do economically, it could be smaller still from selling some of these securities.
So is that the right way to think about it and maybe help us bridge the gap between the maximum impact and the lowest capital ratio we're ever likely to see?
James Rohr
Everyone likes to take the maximum impact. And one, we don't know how BlackRock is going to fare.
They frankly don't fit the leveraged investment. They set up the minority investment rule because they didn't want banks investing in other banks that were highly levered companies.
BlackRock is not a leveraged company at all. And so there's some question as to how that interpretation is yet to play out.
Secondly, the securities book, as Rick had in his presentation, pays down just naturally by 30% before we even get to 2013. So under the current run rate, if you look at where we are at the end of this year and take our earnings and just simply the maturities that we have in 2011, we'll be in excess of the Basel capital requirements in '11 that are required in '13.
And that's without selling any securities or doing anything else. So I think we're very, very well-capitalized and comfortable that we're in a great place going forward.
Richard Johnson
And Brian, your two-thirds/one-third is correct. Keep in mind the two-third on the securities, two things about it: the paydown of 30% will result in a 60 basis point-improvement in the ratio.
So that's pretty substantial. Also today, the way the rules are written they're asking for dollar-for-dollar capital with respect to securities when, in essence, we will get tax credit if those securities are worthless and that's not in the rules yet.
And similar to the BlackRock investment, that should be there. And I think that's one of the challenges we'll want to make.
So you don't know whether that's going to be pre- or after-tax.
Brian Foran - Goldman Sachs
When I try to figure out all the moving parts in expenses, is it fair to assume that the underlying run rate as we head into next year is kind of in the middle of what we saw this quarter and what we saw last quarter? So $2.2 billion is a reasonable starting point?
Richard Johnson
I think it is. We had two significant items in the quarter.
Clearly, residential mortgage, we put up the expenses on foreclosures. We had about $109 million in total.
About $70 million of that was on the foreclosure piece, and so we think we have reserved for that risk as we've started to go back and restart all our foreclosure activities. We also had an impact on compensation, which primarily was driven by the fact that we had a great quarter in business performance, and some of the models pay off based upon directly on that revenue, as well as the stock price was up in the quarter, and that drove compensation expense up as well.
So you had a number of items there which may or may not repeat themselves as we move forward.
Operator
Your next question comes from the line of John McDonald with Sanford Bernstein.
John McDonald - Bernstein Research
Rick, just to clarify that, so it seemed, in the other Other Expense, $100 million extra and about $70 million was mortgage foreclosure, around?
Richard Johnson
Yes, $110 million, John. And about $70 million was foreclosure, that's correct.
John McDonald - Bernstein Research
And the other was just other legal expense?
Richard Johnson
We changed the servicer and had to update our estimates of what the cost was there. We had to take a one-time hit there, which we won't have a problem with, with other services.
John McDonald - Bernstein Research
All right. So generally, the whole $110 million you'd view as hopefully one-time?
Richard Johnson
I do.
John McDonald - Bernstein Research
Okay. And then on the non-interest income, the other, Other Income had a rep and warranty or repurchase kind of contra revenue you said of about $90 million?
Richard Johnson
That's correct, John. We set up about $65 million in our brokered home equity space.
We're very comfortable that we're fully reserved there on that portfolio, as well as we set up about $35 million on our best lender as we decided it was time to start to setup specific reserves on some of our special-mention credits in that space and that, too, is somewhat of a one-time item.
John McDonald - Bernstein Research
And that $35 million is where?
Richard Johnson
In our best lender commercial real estate.
John McDonald - Bernstein Research
Okay. An the $90 million, do you feel like that's going to be a provision that you'll have to take for a few more quarters as you see how this plays out?
Or is that something you're trying to reserve ahead of time?
Richard Johnson
No, reserving ahead of time.
John McDonald - Bernstein Research
Okay. And then the last thing is on the ROA target of 150 basis points, how does this quarter and this year's results leave you feeling about the achievability of the 150 ROA target?
James Rohr
The 150 target, of course, depends upon asset growth. I think we're seeing, the good news is, when you look at the fee income businesses that we have, whether it's Treasury Management or Capital Markets, some of the items that we have in the consumer space, those items are going very well and the cross-selling is the key to that, as you know, John.
To the extent that we're able to cross-sell and deepen our relationships with our customers, we can grow fee income. Now if loan demand comes back, it'll be more difficult to reset because net interest income will grow.
Or if interest rates are higher, given our balance sheet positioning, net interest income will grow and non-interest income will grow because we'll continue to sell those products. So the ratio may not hit the 150, but you won't mind that because both revenue items will be in a growth mode.
So I think we're moving down that path. What we say is things that we control and things we don't control, if there's no loan growth and if interest rates stay where they are today, we'll continue to drive fee income higher, and that ratio will grow as it did in the early 2000s.
However, if loan growth comes back and interest rates are higher, they'll both grow. And the ratio won't.
John McDonald - Bernstein Research
Okay. The Corporate Services was very strong.
You mentioned the increase in the value of commercial mortgage servicing rights was a benefit there. Was the rest of that just kind of a Harris Williams' strength the idea is we'll [ph] pull through to next year?
Richard Johnson
Yes, Harris Williams had a great quarter. And that's up over the prior quarter as well.
TM, Capital Markets, all those areas just had a good quarter, overall, in terms of strong client flows, and I would say particularly Harris Williams. We see the pipeline is very strong there so we expect that to continue.
James Rohr
Just to give you a sense, one of the things that's happened is that both National City and PNC had very, very strong relationships with their commercial customers across their franchises. However, their ability to become the agent bank for a lot of the middle market companies was restricted by the fact that the size of each individual company couldn't really position themselves and take a large enough bite to become the agent.
As we see the trends across the franchise now, it's the ability to become agent. And when you become agent, you capture 80% of all the ancillary income for middle market companies has dramatically grown because of our ability to take a larger size.
And so, that's one of the benefits of the merger that I don't think we adequately estimated when we started.
John McDonald - Bernstein Research
Okay. And so the only specialized...
James Rohr
It shows up in the Treasury Management and Capital Markets.
John McDonald - Bernstein Research
Okay. So the only special item there was that $24 million, was it, in the commercial mortgage write-up?
Richard Johnson
In the quarter, John, that was about $40 million.
Operator
Your next question comes from the line of Paul Miller with FBR Capital Markets.
Paul Miller - FBR Capital Markets & Co.
What target would you guys use on that on your retained earnings? Would you shoot for 50%, 60%, 70% payout ratios?
James Rohr
Well, I think we have to wait until we hear back from the regulators. Capital is very important.
We think we have excess capital. We'd love to raise the dividend.
We're hopeful of hearing back in March from the regulators. We hope that we hear back that we can increase the dividend.
And we hope that we're also in a position to do some share buyback as well because of the capital position that we have. I think capital is an evolutionary thing.
It's good to have a lot of capital in an environment like this, and hopefully we'll be able to use it for loan growth. But we've shown in the past that we've been more than happy to return a great deal of capital to the shareholders if we don't have an alternate use for it with the appropriate risk-adjusted return.
So I think it's, given the regulatory environment now, it's hard to come up with a targeted number because we still have work with the regulators.
Paul Miller - FBR Capital Markets & Co.
And moving onto M&A, I mean, are you out there looking? A lot of guys have you circled buying some of these bigger banks out there and we're seeing some of the pricing get a little bit rich on some of these deals that were announced this week.
What's your outlook on M&A? Would you rather return to capital shareholders or would you like to use it for M&A?
James Rohr
Well, everything we've done for the last decade has been about risk-adjusted returns. And for the most part, we've gotten that right.
And if you don't get the right risk-adjusted return, then you probably shouldn't make the loan or buy the company. And I think we've been disciplined about that.
And we've taken advantages of opportunities. But we've been careful.
I mean, we looked at 40-plus, I don't know what the number is anymore, Rick, it's way over that, FDIC transactions and bid on none. And I think the opportunities for us to buy large banks is, to a great extent, limited, not that any of them are for sale.
But a lot of that's quite limited. So first of all, what we want to do is grow this franchise.
And I think that numbers in the cross-sell and all the things that are in the presentation, that's really number one, two and three for us. We have a tremendous opportunity to do that.
Secondly, if there are fill-in acquisitions, they're typically small and you've seen us in the past buy banks that are in and around our franchise where we can take out the cost in a shareholder-friendly manner and leverage the brand and the technology. That really works for us and gives us high returns.
So I think we want to do those things. But as I said in the last question, increasing the dividend and buying back a few of our shares, I think, has a very high return and is what we want to do for the shareholders in the immediate future.
Operator
Your next question comes from the line of Ed Najarian with ISI Group.
Edward Najarian - ISI Group Inc.
Just a quick clarification question on Rick's comment in terms of accretable yield, down I guess over $700 million year-over-year. I take it that you're including in that number the cash recoveries on the commercial loans?
Richard Johnson
Yes, that's correct, Ed. And what I said was actually it could be up to $700 million decline.
Edward Najarian - ISI Group Inc.
I'm sorry, up to $700 million, okay.
Richard Johnson
Yes. I mean, Ed, the wildcard, obviously, the scheduled accretion is pretty clear, right?
You just map that out. The wildcard is how much we continue to get on the cash recoveries on the impaired loans and as you know, we've been outperforming on that almost every quarter.
And what we're finding is that the marks on the commercial side are giving us good opportunity to either get paydowns and you're seeing those recoveries in that. If you look at the consumer side, I'm really pleased with how that's going.
I would say that well over 80% of that portfolio is performing today. And in fact, we're just about to move about $250 million of that book in the home equity space into the retail bank because it's performing so well and it's with existing customers.
So feeling pretty good about the marks and how that book has played out for us.
Edward Najarian - ISI Group Inc.
Okay. And then just a follow-up, in terms of that 20 basis point move on Tier 1 common under the strictest definition of Basel III, do you have any sense from your federal regulators about how they're thinking of that yet?
Are they thinking they should be applying the strictest definition? Have they given you any insight on that in terms of how they would think about that for return of capital during 2011?
Richard Johnson
They haven't given us any insight on the final rules. But they certainly would like us to get over that hurdle as we go through the current discussions around capital.
And we're fine.
Edward Najarian - ISI Group Inc.
Anyway, I guess, just a follow-up, I think we've discussed in the past that those are high-yielding securities. Would you ever consider selling those, or do you really want to hold onto them because of their net interest income benefit?
I'm talking about the non-investment grade securities.
Richard Johnson
Yes, Ed, if we saw an opportunity to get value out of selling them, we would. But I think for the most part these are good high-yielding securities and we like the credit risk in the book.
And again, like most other things we look at, it's risk and return and we like those securities today.
Edward Najarian - ISI Group Inc.
Okay. And then just finally, any comments on future expense save initiatives sort of throughout the whole franchise now that you're sort of beyond the integration?
I think you guys talked previously about potentially circling back and doing sort of maybe another look at expense saves. Any thoughts on that?
James Rohr
Expense saves are always important to us. And when you look at that outlook chart, continuous improvement is something that we've had, I don't think there's any question.
We've got a number of organizational changes that we're in the process of implementing right now and there's a number of things that we'll do over the course of the year to take additional expense out of the company. So I think you can trust us to manage our expenses.
That's a very, very important piece. We have a lot of the ideas from OnePNC that are still around that we haven't implemented across the entire franchise.
And there's a lot of new ideas. I really have to admit that the continuous improvement area has been able to gin up an awful lot of ideas coming from the businesses and the staff functions have become more efficient.
So that's just now part of the culture of the company.
Operator
Your next question comes from the line of Gerard Cassidy with RBC.
Gerard Cassidy - RBC Capital Markets, LLC
Rick, on the TDRs that you guys include in your non-performing assets, what dollar amount of those should come off TDR status after the first quarter since they've come through the year end? And I'm assuming they would have six months of performance at the new level?
Richard Johnson
Gerard, if you look at Page 8 of our supplement, we show you how much is returning to performing each quarter. I'm not expecting that trend to change, it's somewhere between $100 million and $150 million a quarter.
So I think you can expect that to continue.
Gerard Cassidy - RBC Capital Markets, LLC
Okay. In regards to the outlook for mergers and acquisitions, Jim, obviously, the National City deal that you guys did and the Wachovia deal that Wells Fargo did were phenomenal deals for your shareholders.
But it seems like the M&A market has shifted back to a seller's market. Do you expect, should you do smaller deals as you've done in the past as you pointed out, that you're going to have to pay prices that may be dilutive to your own shareholders temporarily?
James Rohr
We have to look at each one, one at a time, Gerard. I think this could be an interesting environment.
I think there's going to be a lot of selling going on. I think that when you look at the troubled bank list, that's gone from 19 to 860 at the FDIC, I think there's going to be a lot of opportunities and I think there'll be more sellers than buyers.
So I think over time, I think it's a buyer's market. And I think you just have to be patient.
I think you have to do the right thing for your shareholders. And I think that's what we're going to do.
Gerard Cassidy - RBC Capital Markets, LLC
Okay. And Rick, in terms of asset sensitivity, how's the balance sheet look going into 2011, assuming possibly there's going to be a rate increase later this year or maybe early 2012?
Richard Johnson
At the end of the year, we're still short about a year and a half. The only reason why it changed from where we were before was because rates have gone up a little bit.
And as you know that kind of extends some of your assets and pulls in some of your deposits, so that was more rate-driven than any action on our part. I think at least for the moment, we kind of like where that is and we'll be watching rates as we go forward.
Gerard Cassidy - RBC Capital Markets, LLC
Great. And, Jim, just one final question, I know you don't give future guidance and stuff, but I have to put you on the spot.
What score are you predicting for the Steelers-Jets game this weekend?
James Rohr
I just made my bet with Fink [ph] and Capito [ph] yesterday and those guys are tough negotiators. I got the three point, I have to give the three points to those guys, but if the Jets win, I have to fly to New York and buy both of those guys dinner.
If the Steelers win, I still have to fly to New York because they won't eat dinner in Pittsburgh. So they're going to buy me dinner.
Operator
Your next question comes from the line of Mike Mayo with CLSA.
Michael Mayo - Credit Agricole Securities (USA) Inc.
Charge-offs were up 29% linked-quarter going back to the level of almost a couple quarters ago. Can you give any guidance on charge-offs?
And did you do any special cleanup? What's going on there?
Richard Johnson
There's still obviously commercial real estate that moving into that portfolio and charge-offs there are up. We're also looking at other asset categories where we feel we ought to sell them and move out of those categories, so we moved assets, I'd say about, I think about $100 million of that is on assets we moved into held-for-sale, which we'll be selling at the later day.
But it won't be volatile, Mike. As you know, if we take the actions we should around the book given the reserve levels we have, you have to have charge-offs over time.
Michael Mayo - Credit Agricole Securities (USA) Inc.
So we shouldn't expect that level to continue?
Richard Johnson
It could be lower, it could be higher, depending on the credit actions we take in any particular quarter.
James Rohr
Most importantly, we're very comfortable with the provisioning and the reserve that we have to take care of the problem assets.
Michael Mayo - Credit Agricole Securities (USA) Inc.
Moving onto capital, the Basel III hits, a lot of it's from the sub-investment grade securities. How much were those sub-investment grade securities in the fourth quarter?
Richard Johnson
I'm going to say the number is about $7.6 billion, Mike. One thing about that rule, which I really feel that they're going to have to take notice of, to expect somebody to show dollar-for-dollar capital on something that you can absorb the deferred tax asset on by being able to -- we're not going to lose dollar-for-dollar on those securities.
So that's way over the top on the capital side. So I think that's something like we did with BlackRock stake, where we're going to have some intense discussions around how that should be handled.
And…
Michael Mayo - Credit Agricole Securities (USA) Inc.
If you had to give a number right now, what's your Tier 1 common ratio under Basel III after mitigating actions, that number would be what?
Richard Johnson
Well, we've given you our actual Tier 1 common today, is $9.8 billion. If we were to retroactively implement Basel III today according to the way the rules have defined right now, which again, it's hard to say and we said it's $3.2 billion, we'd be at $6.6 billion.
Michael Mayo - Credit Agricole Securities (USA) Inc.
But then you would take some actions that could mitigate that?
Richard Johnson
No.
James Rohr
Well, we could but if you don't take any action and you just have the earnings roll forward that we expect and the maturing of the securities in over the course of 2011, we'd become in complete compliance of the 2013 requirement sometime during '11. Just we're doing nothing just by earning money and letting the securities roll out.
And in Rich's presentation, 30% of those securities just pay-off over the next two years before we get into 2013.
Richard Johnson
And that's about 60 basis points right there.
Michael Mayo - Credit Agricole Securities (USA) Inc.
Okay. And then still on capital, systemically important financial institutions might need to have more capital than all the other banks.
Do you think you'll be in that category? And if you don't think you're in that category, would that potentially keep you from pursuing acquisitions?
James Rohr
I think there's probably seven answers to that question. One is, I don't know yet how they're going to define systemically important financial institutions.
One is just basically by size. In that case, we might be included.
The other one is the systemic people who take on a lot of systemic risk that have a lot of international connections as well as an enormous amount of counterparty risk, they clearly have a systemic profile that's different than ours. And with an 82% loan-to-deposit ratio and the capital ratio we have, the risk profile we have versus those is clearly different.
So I don't know where that would be. Secondly, if they were systemically, I'd would guess that if you were systemically risky, and additional capital was required, I would think that we would end up in the low end of that scheme if there were additional capital required.
So secondly, if there were additional capital required, we already have more capital than almost everybody else in the industry on a ratio basis, so that doesn't bother me. And thirdly, I think the capital ratios we have would allow us the flexibility to be in the acquisition game for anybody that we would see might come up on the horizon.
So we're very, very comfortable with our capital position, Mike.
Operator
Your next question comes from the line of Ken Usdin with Jefferies.
Kenneth Usdin - Jefferies & Company, Inc.
A bunch of clarifications just to make sure we're all hearing the right messages. So first, Rick, I think you mentioned that even after the up to $700 million decline in accretion-related income, that you expect net interest income to net grow in 2011, is that correct?
Richard Johnson
I expect the core net interest income to grow. In other words, the net interest income without the impact of purchase accounting.
Kenneth Usdin - Jefferies & Company, Inc.
But so you're not necessarily saying that NII would be up, just that under…
Richard Johnson
No, definitely not making that prediction, that's correct. But the provision, I believe, will be down by $800 million-plus.
Kenneth Usdin - Jefferies & Company, Inc.
Right, so I got your point on the adjusted margin. Your point is that should still be up.
And then can you talk about the net driver of that core improvement, what's the core margin going to be doing underneath, again, as the accretion rolls off?
Richard Johnson
Well, we're probably starting to see close to the bottom on the deposit side, but we will have some potential further repricing throughout the year. The real opportunity here is rates have started to go up.
Asset growth is starting to improve. I think those together is going to help us to keep core just where it is.
And I think what you really want to take is core from the fourth quarter and take a look at what's happened with rates recently and our ability to be able to lever into that just a little bit.
Kenneth Usdin - Jefferies & Company, Inc.
Okay. So it's going to be mostly earning asset growth that's going to drive the core NII growth then?
Richard Johnson
Yes.
Kenneth Usdin - Jefferies & Company, Inc.
Okay. The second confirmation is just on expenses.
Again, you made the comment that you thought that expenses will be down in '11 versus '10. Part of that is obviously the absence of restructuring costs.
So can you just confirm again, versus the fourth quarter run rate, how much of that fourth quarter run rate would you consider to be one-time in dollar terms and in earnings per share?
Richard Johnson
Well, I think the numbers I mentioned on residential mortgage, which was primarily the foreclosure number, that one-time event there relates to the recent ceasing of foreclosure. And so, I think we have adequately reserved for that component.
I'm not expecting anything in that space to come in the future, and I also will not have an additional charge related to a servicer, which is another $35 million to $40 million. So I think that $110 million is something that I don't expect to see repeated.
And on the comp side, hey, if business performance continues to go, obviously that'll go up, but this is a very high adjustment in this quarter, so I don't see it being that high in the future.
Kenneth Usdin - Jefferies & Company, Inc.
And then the $90 million contra for the repurchase, is that also one-time as well?
Richard Johnson
I see that as getting our life-the-date reserves to where they need to be today. And I think that will be adequate to cover our exposure in those areas.
Kenneth Usdin - Jefferies & Company, Inc.
So if I add all of that up, that's about $0.30. Does that sound about right?
Richard Johnson
It's quite a bit, yes.
Kenneth Usdin - Jefferies & Company, Inc.
Okay. And then so then when we think about the run rate then, the run rate should not necessarily be off the $2.2 billion you mentioned earlier in the call, right?
Because if it's a $2.2 billion expense run rate times four, that's $8.8 billion and last year, it was $8.6 billion of total expenses?
Richard Johnson
Yes, I think that's correct. And let me just kind of double-check where you're at on those numbers.
James Rohr
One clarification, the $90 million that Rick mentioned was in other non-interest income, not expenses.
Kenneth Usdin - Jefferies & Company, Inc.
Okay, understand. So the bigger question then is just in regards to the expense run rate.
You said that, in response to Brian's question, that the run rate looks more like than $2.2 billion, but that would imply a higher expense base in 2011 versus 2010?
Richard Johnson
Well, I think a couple of things. One is, I think the third quarter is probably better indication of what the running rate is, given all the unusual items of the fourth.
And then secondly, we're not done trying to take costs out of the franchise. And so we'll continue to try to lower that running rate as we move forward.
Kenneth Usdin - Jefferies & Company, Inc.
Okay, got it. And my last clarification then is just on the capital side, there's been a lot of questions about what the pro forma Basel III would look like.
But where do you guys think that you're going to be able to live? So some other of your peers have said that 7% is a reasonable level over the longer term?
Do you think you'll be able to live on 7% adjusted? Or how much above do you think that you're just going to either need to or be told to live above that level?
James Rohr
Well, I would love to know the answer to that question, because then we could just set a share buyback and go with that number. I mean, that's going to change in different economic environments right now.
I think we're very happy to have more capital than less. But clearly, we believe that all the forecasts that we have show us having more capital than we need.
So I think we have to wait to hear what the regulators say to us in the first round. Hopefully, we'll hear that in the next couple months.
Kenneth Usdin - Jefferies & Company, Inc.
Can you just talk about your preferred return of capital to shareholders either in terms of, again, this is long-term and you might not have the answer today, but desired proportion of earnings you'd like to return over time and the split between dividend and share buybacks?
James Rohr
We don't have a target for that, Ken. And one of the reasons is that it depends on what opportunity is for us to use the capital.
And if you look back to where we were in 2004, '05, '06, where investing in acquisitions and because of the pricing and investing and if the loan growth that people had, which had low economic returns, we basically didn't grow the loan book and everybody else was growing HLT loans and subprime loans and all the risk. And we just thought the risk-adjusted return wasn't right, so our dividend payout ratio at that time was in the 60s, I believe, and we were buying back a lot of shares at the same time.
And yet if we find an opportunity where loan growth and good customer growth is available, I mean, we'd rather, you would want us to leverage that capital with a good economic return. So I think the payout ratio that the Board has been comfortable with in the past has been 30% to 40%.
But right now, everything we see going forward, we've got way more capital than would be required by the normal growth of our customers.
Operator
Your next question comes from the line of Matt Burnell with Wells Fargo Securities.
Matthew Burnell - Wells Fargo Securities, LLC
In terms of the fee revenue estimate that you put out for 2011, I'm presuming that your commentary about the potential for fee reduction of about $400 million related to regulatory issues assumes the Durbin amendment goes through currently or basically as it currently stated, correct?
Richard Johnson
That's exactly right. And that would assume that, that goes into full effect in July 1.
Matthew Burnell - Wells Fargo Securities, LLC
Okay, great. And then, I guess, a bigger picture comment on…
James Rohr
There's a lot of questions around that. And the industry is very active in terms of trying to mitigate that.
There's no question that, that ruling has turned that business into a negative business for the entire industry. Now our costs are in-line so we're not particularly worried about that.
But take away an entire line of business that has benefited the retailer probably more than anything else without even reviewing it in the Congress is really something that's kind of amazing. And so, we're working hard to hopefully have a study done and postpone the implementation.
Matthew Burnell - Wells Fargo Securities, LLC
Just on the risk, you probably won't answer this question. I'm just curious what you think the chances of success of repealing at least part of the Durbin amendment might be?
James Rohr
I'd rather bet on a Steelers game. But I think there's going to be a lot of activity.
I mean there are a number of things in the financial services bill that have to be reconciled, and I think the Durbin amendment hopefully will be one of those.
Matthew Burnell - Wells Fargo Securities, LLC
Okay. And then just one bigger picture question, one of your competitors noted that they are taking some of the deposit inflow and given the current loan environment, are moving those dollars into buying purchasing securities ahead of Basel III requirements for the liquidity coverage ratio.
Is that something you've been giving some thought to? And if so, how are you thinking about the liquidity coverage ratio effect on PNC?
Richard Johnson
Our loan-to-deposit ratio at 82%, we're in great shape as it relates to Basel III. So we're not trying to prepare ourselves.
Obviously, we're trying to roll our debt out longer and have, I think, over a year and a half to two years of capacity on that front right now and we're just very liquid institution.
Operator
Your next question comes from the line of Heather Wolf with UBS.
Heather Wolf - UBS Investment Bank
Just a quick question on credit. It looks like the commercial real estate and resi real estate were really driving the increases in the charge-offs this quarter.
And I'm wondering, was there some kind of a valuation review or appraisal review or are these new loans, new frequency or new defaults coming in?
Richard Johnson
No, just normal credit management actions to try to clean up what's in the portfolio that we previously reserved for and charging off what we think we're not going to recover.
James Rohr
And we sold 339 properties in the quarter and we're pleased about that. And when you look at our OREO, OREO properties or OREO expense went down.
So we were pleased with those marks.
Heather Wolf - UBS Investment Bank
It smells a bit like a fourth quarter cleanup to me, is that the right way to think about it?
Richard Johnson
No, we've been cleaning it up all year long. I mean this is just an exercise.
And we believe that we'll continue to see that kind of charge-offs level in the commercial real estate space probably through midyear. And then at that point, I think, we're starting to feel optimistic that we'll start to grow the commercial real estate exposure.
So we've got a little bit more to do here in terms of cleaning up.
James Rohr
But the reserving has been done.
Richard Johnson
Yes.
Operator
Your next question comes from the line of David Hilder with Susquehanna.
David Hilder - Susquehanna Financial Group, LLLP
Just, I guess, a follow-up on the charge-off question. So Rick, is it fair to say that $100 million was moved into held-for-sale in the quarter?
Was there any other actions that resulted in charge-offs that would have in effect accelerated charge-offs from a future period?
Richard Johnson
Not really. Just normal credit activity.
Operator
Your next question comes from the line of Lana Chan with BMO Capital Markets.
Lana Chan - BMO Capital Markets U.S.
In regards to the revenue opportunities as you cross-sell more into the National City franchise, the potential for $500 million of revenue growth that you guys cited any time frame in terms of how we should think about that coming in?
James Rohr
Well, we hope we're trying to get it in as fast as we possibly can. I think it's kind of something that should evolve over the next two to three years.
But a fair amount of it should come in, in 2011. If you look at the trend that we showed about the growth in revenue and the cross-sell and the referral networks, I think we're highly optimistic that we're going to continue to grow customers and grow share wallet.
And by the way, the sales ratios in the East are not exactly where we want them to be either. And so we want those to continue growing, which they are.
And just the opportunity -- the bigger delta is in the West. So you saw the percentage increase as we showed in sales especially after the conversions were completed in the second quarter where actually, if you're converting a market, a lot of people are involved in that conversion process.
Once that was finished, you saw people go back to the customer space. And I think the growth in sales in the second half as we have on the chart, pretty impressive.
Lana Chan - BMO Capital Markets U.S.
Great. And just a follow-up, you cited that the pace of line utilizations picked up in the fourth quarter.
Could you give any more color on that in terms of specific numbers or what you're seeing there more in terms of the trend?
James Rohr
Well, the spot numbers are in the appendix of the release. And the interesting thing, I think, is that we saw increases in virtually every commercial category.
And I think that's going to continue going forward. And if you think of the manufacturing folks where that's been so soft for a long period of time, now you have a lot of activity has picked up in the manufacturing side.
And the steel prices, for example, are up almost 100% in the last three months. And so, for asset-based lending and some of our middle market companies, their inventory levels now just became twice as expensive as they were three months ago.
So as they work through the old inventory costs and are replacing that, I think you're going to see borrowing requirements in the manufacturing space pick up as well, assuming the economy continues. And so, I think that's when you'll see utilization rates change to some extent.
But every category was up spot-to-spot. I mean almost every category was up spot-to-spot in the quarter.
Operator
Your next question comes from the line of Chris Gamaitoni with Compass Point.
Christopher Gamaitoni
Quickly, the only NPLs that seemed to increase quarter-to-quarter were in residential real estate and residential mortgage and home equity. Is there any trend there regionally?
I mean it's small for you guys, but just wondering what the dynamics are.
Richard Johnson
Yes, that's the Troubled Debt Restructurings. As we continue to do modifications, as you know, and when we get the principal or interest, we have to put it in non-performing.
And if it performs for six months, then we take it off the list. Right now, I would say that probably 50% of the residential mortgage comes off the list in six months.
And about, I want to say, about 70% of the home equity comes off the list in six months. So that's the way it's been performing.
Christopher Gamaitoni
Can you remind me of the general terms of those restructurings?
Richard Johnson
Well, it could be any number, but we make them a troubled debt restructure when either we get forgiveness of principal or we give a below-market interest rate.
Christopher Gamaitoni
And then just back onto the sub-investment grade RMBS, that $7.6 billion that you referenced when Mike asked, was that on pay principal balance or fair value?
Richard Johnson
Good question. Fair value.
Christopher Gamaitoni
It was fair value? Do you know the unpaid principal balance on that?
James Rohr
We’d have to get back to you.
Richard Johnson
Yes, we'll get back to you on that.
Christopher Gamaitoni
And I was just trying to go through the math of the relative capital holding accretion of responsible earnings. Do you expect a credit recapture there?
Or market [ph] fair value?
Richard Johnson
Well, yes, a lot of the information you're looking for is obviously in our Qs and our Ks. So we'll be updating that with the filing of the K this time around, but we'll try to get back to you on specifics before then.
Operator
Your follow-up question is from Brian Foran with Nomura.
Brian Foran - Goldman Sachs
. Can you just remind us, on Visa, is the limiting factor the March 25 IPO three-year anniversary, or is the limiting factor now the lawsuit?
Richard Johnson
The lawsuit.
Brian Foran - Goldman Sachs
And for those of us who don't follow it closely, is there a timeline for that? Or is it just kind of TBD when it gets settled?
Richard Johnson
TBD. Yes, we really don't have an estimate on it.
Operator
There are no further questions at this time. Do you have any closing remarks?
James Rohr
No, just thank you very much for joining us. 2010 closes out as an exceptional year, I think, for PNC.
And we're looking forward to 2011 being another fine year. Thank you for joining us.
Richard Johnson
Thank you.
Operator
This concludes today's conference call. You may now disconnect.