Table of Contents Research and Development Expense (“R&D”) R&D expense increased 34% or $449 million to $1.8 billion in 2010 compared to 2009.
This increase was due primarily to an increase in headcount and related expenses in the current year to support expanded R&D activities.
Also contributing to this increase in R&D expense in 2010 was the capitalization in 2009 of software development costs of $71 million related to Mac OS X Snow Leopard.
Although total R&D expense increased 34% during 2010, it declined as a percentage of net sales given the 52% year-over-year increase in net sales in 2010.
The Company continues to believe that focused investments in R&D are critical to its future growth and competitive position in the marketplace and are directly related to timely development of new and enhanced products that are central to the Company’s core business strategy.
As such, the Company expects to make further investments in R&D to remain competitive.
R&D expense increased 20% or $224 million to $1.3 billion in 2009 compared to 2008.
This increase was due primarily to an increase in headcount in 2009 to support expanded R&D activities and higher stock-based compensation expenses.
Additionally, $71 million of software development costs were capitalized related to Mac OS X Snow Leopard and excluded from R&D expense during 2009, compared to $11 million of software development costs capitalized during 2008.
Although total R&D expense increased 20% during 2009, it remained relatively flat as a percentage of net sales given the 14% increase in revenue in 2009.
Selling, General and Administrative Expense (“SG&A”) SG&A expense increased $1.4 billion or 33% to $5.5 billion in 2010 compared to 2009.
This increase was due primarily to the Company’s continued expansion of its Retail segment, higher spending on marketing and advertising programs, increased stock-based compensation expenses and variable costs associated with the overall growth of the Company’s net sales.
SG&A expenses increased $388 million or 10% to $4.1 billion in 2009 compared to 2008.
This increase was due primarily to the Company’s continued expansion of its Retail segment in both domestic and international markets, higher stock-based compensation expense and higher spending on marketing and advertising.
Other Income and Expense Other income and expense for the three years ended September 25, 2010, are as follows (in millions):
## Table 0 ##
Total other income and expense decreased $171 million or 52% to $155 million during 2010 compared to $326 million and $620 million in 2009 and 2008, respectively.
The overall decrease in other income and expense is attributable to the significant declines in interest rates on a yearover-year basis, partially offset by the Company’s higher cash, cash equivalents and marketable securities balances.
The weighted average interest rate earned by the Company on its cash, cash equivalents and marketable securities was 0.75%, 1.43% and 3.44% during 2010, 2009 and 2008, respectively.
Additionally the Company incurred higher premium expenses on its foreign exchange option contracts, which further reduced the total other income and expense.
During 2010, 2009 and 2008, the Company had no debt outstanding and accordingly did not incur any related interest expense.
Provision for Income Taxes The Company’s effective tax rates were 24%, 32% and 32% for 2010, 2009 and 2008, respectively.
The Company’s effective rates for these periods differ from the statutory federal income tax rate of 35% due
Risk-Based Capital
## Table 1 ##
The declines in capital ratios from December 31, 2006 were primarily due to the impact of acquisitions, which increased risk-weighted assets and goodwill, common share repurchases and organic balance sheet growth.
The access to, and cost of, funding 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.
At December 31, 2007 and December 31, 2006, each of our domestic bank subsidiaries was considered “well capitalized” based on US regulatory capital ratio requirements.
See the Supervision And Regulation section of Item 1 of this Report and Note 22 Regulatory Matters in the Notes To Consolidated Financial Statements in Item 8 of this Report for additional information.
We believe our bank subsidiaries will continue to meet these requirements in 2008.
We refer you to the “Perpetual Trust Securities” and “PNC Capital Trust E Trust Preferred Securities” portions of the Off-Balance Sheet Arrangements And VIEs section of this Item 7 for a discussion of two February 2008 hybrid capital securities issuances totaling $825 million that qualify as Tier 1 regulatory capital.
OFF-BALANCE SHEET ARRANGEMENTS AND VIES We engage in a variety of activities that involve unconsolidated entities or that are otherwise not reflected in our Consolidated Balance Sheet that are generally referred to as “off-balance sheet arrangements.
” The following sections of this Report provide further information on these types of activities: ?
Commitments, including contractual obligations and other commitments, included within the Risk Management section of this Item 7, and ?
Note 24 Commitments and Guarantees in the Notes To Consolidated Financial Statements included in Item 8 of this Report.
The following provides a summary of variable interest entities (“VIEs”), including those in which we hold a significant variable interest but have not consolidated and those that we have consolidated into our financial statements as of December 31, 2007 and 2006.
Non-Consolidated VIEs – Significant Variable Interests
## Table 2 ##
(a) PNC’s risk of loss consists of off-balance sheet liquidity commitments to Market Street of $8.8 billion and other credit enhancements of $.2 billion at December 31, 2007.
The comparable amounts at December 31, 2006 were $5.6 billion and $.6 billion, respectively.
These liquidity commitments are included in the Net Unfunded Credit Commitments table in the Consolidated Balance Sheet Review section of this Report.
NOTE 21 REGULATORY MATTERS We are subject to the regulations of certain federal, state, and foreign agencies and undergo periodic examinations by such regulatory authorities.
The ability to undertake new business initiatives (including acquisitions), the access to and cost of funding for new business initiatives, the ability to pay dividends or repurchase shares, the level of deposit insurance costs, and the level and nature of regulatory oversight depend, in large part, on a financial institution’s capital strength.
The minimum US regulatory capital ratios under Basel I are 4% for Tier 1 riskbased, 8% for total risk-based and 4% for leverage.
To qualify as “well capitalized,” regulators require banks to maintain capital ratios of at least 6% for Tier 1 risk-based, 10% for total risk-based and 5% for leverage.
To be “well capitalized,” a bank holding company must maintain capital ratios of at least 6% Tier 1 risk-based and 10% for total risk-based.
At December 31, 2011 and December 31, 2010, PNC and PNC Bank, N. A.  met the “well capitalized” capital ratio requirements based on US regulatory capital ratio requirements under Basel I.
The following table sets forth regulatory capital ratios for PNC and its bank subsidiary, PNC Bank, N. A.
Regulatory Capital
## Table 3 ##
The principal source of parent company cash flow is the dividends it receives from its subsidiary bank, which may be impacted by the following: ?
Capital needs, ?
Laws and regulations, ?
Corporate policies, ?
Contractual restrictions, and ?
Other factors.
Also, there are statutory and regulatory limitations on the ability of national banks to pay dividends or make other capital distributions.
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.
Under federal law, a bank subsidiary generally may not extend credit to the parent company or its non-bank subsidiaries on terms and under circumstances that are not substantially the same as comparable extensions of credit to nonaffiliates.
No extension of credit may be made to the parent company or a non-bank subsidiary which is in excess of 10% of the capital stock and surplus of such bank subsidiary or in excess of 20% of the capital and surplus of such bank subsidiary as to aggregate extensions of credit to the parent company and its non-bank subsidiaries.
Such extensions of credit, with limited exceptions, must be fully collateralized by certain specified assets.
In certain circumstances, federal regulatory authorities may impose more restrictive limitations.
Federal Reserve Board regulations require depository institutions to maintain cash reserves with a Federal Reserve Bank (FRB).
At December 31, 2011, the balance outstanding at the FRB was $407 million.
NOTE 22 LEGAL PROCEEDINGS We establish accruals for legal proceedings, including litigation and regulatory and governmental investigations and inquiries, when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated.
Any such accruals are adjusted thereafter as appropriate to reflect changed circumstances.
When we are able to do so, we also determine estimates of possible losses or ranges of possible losses, whether in excess of any related accrued liability or where there is no accrued liability, for disclosed legal proceedings (“Disclosed Matters,” which are those matters disclosed in this Note 22).
For Disclosed Matters where we are able to estimate such possible losses or ranges of possible losses, as of December 31, 2011, we estimate that it is reasonably possible that we could incur losses in an aggregate amount of up to approximately $550 million.
The estimates included in this amount are based on our analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties.
As new information is obtained we may change our estimates.
Due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to us from the legal proceedings in question.
Thus, our exposure and ultimate losses may be higher, and possibly significantly so, than the amounts accrued or this aggregate amount.
The aggregate estimated amount provided above does not include an estimate for every Disclosed Matter, as we are unable, at this time, to estimate the losses that it is reasonably possible that we could incur or ranges of such losses with respect to some of the matters disclosed for one or more of the following reasons.
In our experience, legal proceedings are inherently unpredictable.
In many legal proceedings, various factors exacerbate this inherent unpredictability, including,
FINANCIAL ASSETS ACCOUNTED FOR UNDER FAIR VALUE OPTION Refer to the Fair Value Measurement section of this Note 9 regarding the fair value of customer resale agreements, trading loans, residential mortgage loans held for sale, commercial mortgage loans held for sale, certain portfolio loans, BlackRock Series C Preferred Stock and other borrowed funds.
Customer Resale Agreements Interest income on structured resale agreements is reported on the Consolidated Income Statement in Other interest income.
Changes in fair value due to instrument-specific credit risk for 2013 and 2012 were not material.
Residential Mortgage-Backed Agency Securities with Embedded Derivatives Interest income on these securities is reported on the Consolidated Income Statement in Other interest income.
Trading Loans Interest income on trading loans is reported on the Consolidated Income Statement in Other interest income.
Residential Mortgage Loans Held for Sale Interest income on these loans is recorded as earned and reported on the Consolidated Income Statement in Other interest income.
Throughout 2013 and 2012, certain residential mortgage loans for which we elected the fair value option were subsequently reclassified to portfolio loans.
Changes in fair value due to instrument-specific credit risk for 2013 and 2012 were not material.
Commercial Mortgage Loans Held for Sale Interest income on these loans is recorded as earned and reported on the Consolidated Income Statement in Other interest income.
The impact on earnings of offsetting economic hedges is not reflected in these amounts.
Changes in fair value due to instrument-specific credit risk for both 2013 and 2012 were not material.
Residential Mortgage Loans – Portfolio Interest income on these loans is recorded as earned and reported on the Consolidated Income Statement in either Loan interest income or Other interest income.
Interest income on the Home Equity Lines of Credit for which we have elected the fair value option during first quarter 2013 is reported on the Consolidated Income Statement in Loan interest income.
Other Borrowed Funds Interest expense on the Other borrowed funds for which we have elected the fair value option during first quarter 2013 is reported on the Consolidated Income Statement in Borrowed funds interest expense.
The changes in fair value included in Noninterest income for items for which we elected the fair value option follow.
Table 92: Fair Value Option – Changes in Fair Value (a)
## Table 4 ##
(a) The impact on earnings of offsetting hedged items or hedging instruments is not reflected in these amounts.
(b) At both December 31, 2013 and December 31, 2012, the balance of residential mortgage-backed agency securities with embedded derivatives carried in Trading securities was zero.
and Washington, DC.
Certain of the Jade loans have been identified in an indictment and subsequent superseding indictment charging persons associated with Jade with conspiracy to commit bank fraud, substantive violations of the federal bank fraud statute, and money laundering.
PNC is cooperating with the U. S.  Attorney’s Office for the District of Maryland.
Our practice is to cooperate fully with regulatory and governmental investigations, audits and other inquiries, including those described in this Note 21.
Other In addition to the proceedings or other matters described above, PNC and persons to whom we may have indemnification obligations, in the normal course of business, are subject to various other pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted.
We do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material adverse effect on our financial position.
However, we cannot now determine whether or not any claims asserted against us or others to whom we may have indemnification obligations, whether in the proceedings or other matters described above or otherwise, will have a material adverse effect on our results of operations in any future reporting period, which will depend on, among other things, the amount of the loss resulting from the claim and the amount of income otherwise reported for the reporting period.
See Note 22 Commitments and Guarantees for additional information regarding the Visa indemnification and our other obligations to provide indemnification, including to current and former officers, directors, employees and agents of PNC and companies we have acquired.
NOTE 22 COMMITMENTS AND GUARANTEES Credit Extension Commitments Table 148: Credit Commitments
## Table 5 ##
(a) Net outstanding standby letters of credit include $5.2 billion and $6.6 billion which support remarketing programs at December 31, 2014 and December 31, 2013, respectively.
Net Unfunded Loan Commitments Commitments to extend credit represent arrangements to lend funds or provide liquidity subject to specified contractual conditions.
These commitments generally have fixed expiration dates, may require payment of a fee, and contain termination clauses in the event the customer’s credit quality deteriorates.
Based on our historical experience, some commitments expire unfunded, and therefore cash requirements are substantially less than the total commitment.
Net Outstanding Standby Letters of Credit We issue standby letters of credit and have risk participations in standby letters of credit issued by other financial institutions, in each case to support obligations of our customers to third parties, such as insurance requirements and the facilitation of transactions involving capital markets product execution.
Internal credit ratings related to our net outstanding standby letters of credit were as follows: Table 149: Internal Credit Ratings Related to Net Outstanding Standby Letters of Credit

Tables referenced above, in order (Table 0 first):
<table><tr><td></td><td>2010</td><td>2009</td><td>2008</td></tr><tr><td>Interest income</td><td>$311</td><td>$407</td><td>$653</td></tr><tr><td>Other income (expense), net</td><td>-156</td><td>-81</td><td>-33</td></tr><tr><td>Total other income and expense</td><td>$155</td><td>$326</td><td>$620</td></tr></table>
<table><tr><td>December 31 - dollars in millions</td><td>2007</td><td>2006</td></tr><tr><td>Capital components</td><td></td><td></td></tr><tr><td>Shareholders’ equity</td><td></td><td></td></tr><tr><td>Common</td><td>$14,847</td><td>$10,781</td></tr><tr><td>Preferred</td><td>7</td><td>7</td></tr><tr><td>Trust preferred capital securities</td><td>572</td><td>965</td></tr><tr><td>Minority interest</td><td>985</td><td>494</td></tr><tr><td>Goodwill and other intangibles</td><td>-8,853</td><td>-3,566</td></tr><tr><td>Eligible deferred income taxes on intangible assets</td><td>119</td><td>26</td></tr><tr><td>Pension, other postretirement and postemployment benefit plan adjustments</td><td>177</td><td>148</td></tr><tr><td>Net unrealized securities losses, after tax</td><td>167</td><td>91</td></tr><tr><td>Net unrealized losses (gains) on cash flow hedge derivatives, after tax</td><td>-175</td><td>13</td></tr><tr><td>Equity investments in nonfinancial companies</td><td>-31</td><td>-30</td></tr><tr><td>Other, net</td><td></td><td>-5</td></tr><tr><td>Tier 1 risk-based capital</td><td>7,815</td><td>8,924</td></tr><tr><td>Subordinated debt</td><td>3,024</td><td>1,954</td></tr><tr><td>Eligible allowance for credit losses</td><td>964</td><td>681</td></tr><tr><td>Total risk-based capital</td><td>$11,803</td><td>$11,559</td></tr><tr><td>Assets</td><td></td><td></td></tr><tr><td>Risk-weighted assets, including off-balance sheet instruments and market risk equivalent assets</td><td>$115,132</td><td>$85,539</td></tr><tr><td>Adjusted average total assets</td><td>126,139</td><td>95,590</td></tr><tr><td>Capital ratios</td><td></td><td></td></tr><tr><td>Tier 1 risk-based</td><td>6.8%</td><td>10.4%</td></tr><tr><td>Total risk-based</td><td>10.3</td><td>13.5</td></tr><tr><td>Leverage</td><td>6.2</td><td>9.3</td></tr><tr><td>Tangible capital</td><td></td><td></td></tr><tr><td>Common shareholders’ equity</td><td>$14,847</td><td>$10,781</td></tr><tr><td>Goodwill and other intangibles</td><td>-8,853</td><td>-3,566</td></tr><tr><td>Eligible deferred income taxes on intangible assets</td><td>119</td><td>26</td></tr><tr><td>Tangible capital</td><td>$6,113</td><td>$7,241</td></tr><tr><td>Total assets excluding goodwill and other intangible assets, net of eligible deferred income taxes</td><td>$130,185</td><td>$98,280</td></tr><tr><td>Tangible common equity</td><td>4.7%</td><td>7.4%</td></tr></table>
<table><tr><td>In millions</td><td>Aggregate Assets</td><td>Aggregate Liabilities</td><td>PNC Riskof Loss</td><td></td></tr><tr><td> December 31, 2007</td><td></td><td></td><td></td><td></td></tr><tr><td>Market Street</td><td>$5,304</td><td>$5,330</td><td>$9,019</td><td> (a)</td></tr><tr><td>Collateralized debt obligations</td><td>255</td><td>177</td><td>6</td><td> </td></tr><tr><td>Partnership interests in low income housing projects</td><td>50</td><td>34</td><td>8</td><td> </td></tr><tr><td>Total</td><td>$5,609</td><td>$5,541</td><td>$9,033</td><td> </td></tr><tr><td>December 31, 2006</td><td></td><td></td><td></td><td></td></tr><tr><td>Market Street</td><td>$4,020</td><td>$4,020</td><td>$6,117</td><td><sup>(a)</sup></td></tr><tr><td>Collateralized debt obligations</td><td>815</td><td>570</td><td>22</td><td></td></tr><tr><td>Partnership interests inlow income housing projects</td><td>33</td><td>30</td><td>8</td><td></td></tr><tr><td>Total</td><td>$4,868</td><td>$4,620</td><td>$6,147</td><td></td></tr></table>
<table><tr><td></td><td colspan="2">Amount</td><td colspan="2">Ratios</td></tr><tr><td>December 31 Dollars in millions</td><td> 2011</td><td>2010</td><td>2011</td><td>2010</td></tr><tr><td>Risk-based capital</td><td></td><td></td><td></td><td></td></tr><tr><td>Tier 1</td><td></td><td></td><td></td><td></td></tr><tr><td>PNC</td><td>$29,073</td><td>$26,092</td><td>12.6%</td><td>12.1%</td></tr><tr><td>PNC Bank, N.A.</td><td>25,536</td><td>24,722</td><td>11.4</td><td>11.8</td></tr><tr><td>Total</td><td></td><td></td><td></td><td></td></tr><tr><td>PNC</td><td>36,548</td><td>33,724</td><td>15.8</td><td>15.6</td></tr><tr><td>PNC Bank, N.A.</td><td>32,322</td><td>31,662</td><td>14.4</td><td>15.1</td></tr><tr><td>Leverage</td><td></td><td></td><td></td><td></td></tr><tr><td>PNC</td><td>29,073</td><td>26,092</td><td>11.1</td><td>10.2</td></tr><tr><td>PNC Bank, N.A.</td><td>25,536</td><td>24,722</td><td>10.0</td><td>10.0</td></tr></table>
<table><tr><td></td><td colspan="3">Gains (Losses)</td></tr><tr><td>Year ended December 31In millions</td><td>2013</td><td>2012</td><td>2011</td></tr><tr><td>Assets</td><td></td><td></td><td></td></tr><tr><td>Customer resale agreements</td><td>$-7</td><td>$-10</td><td>$-12</td></tr><tr><td>Residential mortgage-backed agency securities with embedded derivatives (b)</td><td></td><td>13</td><td>24</td></tr><tr><td>Trading loans</td><td>3</td><td>2</td><td></td></tr><tr><td>Residential mortgage loans held for sale</td><td>247</td><td>-180</td><td>172</td></tr><tr><td>Commercial mortgage loans held for sale</td><td>-10</td><td>-5</td><td>3</td></tr><tr><td>Residential mortgage loans – portfolio</td><td>27</td><td>-36</td><td>-17</td></tr><tr><td>BlackRock Series C Preferred Stock</td><td>122</td><td>33</td><td>-14</td></tr><tr><td>Liabilities</td><td></td><td></td><td></td></tr><tr><td>Other borrowed funds</td><td>-9</td><td></td><td></td></tr></table>
<table><tr><td>In millions</td><td>December 312014</td><td>December 312013</td></tr><tr><td>Net unfunded loan commitments</td><td></td><td></td></tr><tr><td>Total commercial lending</td><td>$99,837</td><td>$90,104</td></tr><tr><td>Home equity lines of credit</td><td>17,839</td><td>18,754</td></tr><tr><td>Credit card</td><td>17,833</td><td>16,746</td></tr><tr><td>Other</td><td>4,178</td><td>4,266</td></tr><tr><td>Total net unfunded loan commitments</td><td>139,687</td><td>129,870</td></tr><tr><td>Net outstanding standby letters of credit (a)</td><td>9,991</td><td>10,521</td></tr><tr><td>Total credit commitments</td><td>$149,678</td><td>$140,391</td></tr></table>

Question: As As the chart 1 shows,in what year is the value of Leverage on December 31 the lowest?
Answer: 2007