REGULATORY MATTERS

12 Months Ended

Dec. 31, 2018

As a bank holding company, the Company is subject to regulation and supervision by the FRB. As of December 31, 2018, the Company’s primary subsidiaries were CBNA, a national banking association whose primary federal regulator is the OCC, and CBPA, a Pennsylvania-chartered savings bank regulated by the Department of Banking of the Commonwealth of Pennsylvania and supervised by the FDIC as its primary federal regulator. On January 2, 2019, the Company consolidated its banking subsidiaries via a merger of CBPA into CBNA in order to streamline governance and enterprise risk management, improve CBNA’s risk profile and gain operational efficiencies. CBNA is now the Company’s primary subsidiary and sole banking subsidiary.

Under the U.S. Basel III capital framework, the Company and CBNA must meet specific minimum requirements for the following ratios: common equity tier 1 capital, tier 1 capital, total capital, and tier 1 leverage. In addition, the Company must not be subject to a written agreement, order or capital directive with any of its regulators. Failure to meet minimum capital requirements can result in the initiation of certain actions that, if undertaken, could have a material effect on the Company’s Consolidated Financial Statements.

The following table presents the Company’s capital and capital ratios under U.S. Basel III Standardized rules. The Company has declared itself as an “AOCI opt-out” institution, which means the Company is not required to recognize in regulatory capital the impacts of net unrealized gains and losses included within AOCI for securities that are available for sale or held to maturity, accumulated net gains and losses on cash-flow hedges and certain defined benefit pension plan assets.



	Actual				Minimum Capital Adequacy
(in millions, except ratio data)	Amount		Ratio		Amount		Ratio⁽⁵⁾
As of December 31, 2018
Common equity tier 1 capital ⁽¹⁾		$14,485	10.6			$8,683	6.375	%
Tier 1 capital ⁽²⁾	15,325		11.3		10,726		7.875
Total capital ⁽³⁾	18,157		13.3		13,450		9.875
Tier 1 leverage ⁽⁴⁾	15,325		10.0		6,121		4.000
As of December 31, 2017
Common equity tier 1 capital ⁽¹⁾		$14,309	11.2	%		$7,342	5.750	%
Tier 1 capital ⁽²⁾	14,556		11.4		9,258		7.250
Total capital ⁽³⁾	17,781		13.9		11,812		9.250
Tier 1 leverage ⁽⁴⁾	14,556		10.0		5,824		4.000

⁽¹⁾“Common equity tier 1 capital ratio” represents CET1 capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.

⁽²⁾“Tier 1 capital ratio” is tier 1 capital, which includes CET1 capital plus non-cumulative perpetual preferred equity that qualifies as additional tier 1 capital, divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.

⁽³⁾“Total capital ratio” is total capital divided by total risk-weighted assets as defined under U.S. Basel III Standardized approach.

⁽⁴⁾ “Tier 1 leverage ratio” is tier 1 capital divided by quarterly average total assets as defined under U.S. Basel III Standardized approach.

⁽⁵⁾“Minimum Capital ratio” includes capital conservation buffer of 1.875% for 2018 and 1.25% for 2017; N/A to Tier 1 leverage.

Under the FRB’s Capital Plan Rule, the Company may only make capital distributions, including payment of dividends and share repurchases, in accordance with a capital plan that has been reviewed by the FRB with no objection or as otherwise authorized by the FRB.

On April 5, 2018, the Company submitted its 2018 Capital Plan, Capital Policy and annual stress test results to the FRB as part of the 2018 CCAR process. On June 28, 2018, the FRB did not object to the Company’s 2018 Capital Plan including its proposed capital actions for the period beginning July 1, 2018 and ending June 30, 2019. The Company’s 2018 Capital Plan includes quarterly common dividends of $0.27 per share in third and fourth quarter 2018, increasing to $0.32 per share in first and second quarter 2019, and common share repurchases of up to $1.02 billion through the second quarter of 2019. The timing and exact amount of future dividends and share repurchases will depend on various factors, including the Company’s capital position, financial performance and market conditions. All future capital distributions are subject to consideration and approval by the Board of Directors prior to execution.

For the year ended December 31, 2018, the Company redeemed $333 million of its 5.158% fixed-to-floating callable subordinated debt due 2023, issued Series B and Series C preferred stock for $296 million and $297 million, respectively and repurchased outstanding common shares for $1.025 billion compared to $820 million for the year ended December 31, 2017.

For the year ended December 31, 2018, the Company declared and paid common dividends of $471 million, declared and paid semi-annual Series A preferred dividends of $14 million, and declared semi-annual Series B and quarterly Series C preferred dividends of $11 million and $4 million, respectively. This compared to $322 million of common dividends declared and paid and $14 million of semi-annual Series A preferred dividend declared and paid for the year ended December 31, 2017.

Dividends payable by CBNA, as a national bank subsidiary, are limited to the lesser of the amount calculated under a “recent earnings” test and an “undivided profits” test. Under the recent earnings test, a dividend may not be paid if the total of all dividends declared by a bank in any calendar year is in excess of the current year’s net income combined with the retained net income of the two preceding years, less any required transfers to surplus, unless the national bank obtains the approval of the OCC. Under the undivided profits test, a dividend may not be paid in excess of the entity’s “undivided profits” (generally, accumulated net profits that have not been paid out as dividends or transferred to surplus). Federal bank regulatory agencies have issued policy statements which provide that FDIC-insured depository institutions and their holding companies should generally pay dividends only out of their current operating earnings.

- Definition

The entire disclosure for banks, savings institutions, and credit unions, for regulatory capital requirements imposed by the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS) or for any state imposed capital requirements, as applicable. The disclosure may include (1) a description of regulatory capital requirements (a) for capital adequacy purposes and (b) established by the prompt corrective action provisions of Section 38 of the Federal Depository Insurance Act; (2) the actual or possible material effects of noncompliance with such requirements; (3) whether the entity is in compliance with the regulatory capital requirements including (a) required and actual ratios and amounts of Tier 1 leverage, Tier 1 risk-based, and total risk-based capital, tangible capital (for savings institutions), and Tier 3 capital for market risk (for certain banks and bank holding companies), (b) factors that may significantly affect capital adequacy; (4) the prompt corrective action category in which the entity was classified as of its most recent notification; (5) whether management believes any conditions or events since notification have changed the entity's category. Also may include additional information that might be disclosed in situations where substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time.

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