1
PNC BANK CORP.
Quarterly Report on Form 10-Q
For the quarterly period ended September 30, 1996
Page 1 represents a portion of the third quarter 1996 Corporate Financial
Review which is not required by the Form 10-Q report and is not "filed" as part
of the Form 10-Q.
The Quarterly Report on Form 10-Q and cross reference index is on page 32.
2
FINANCIAL HIGHLIGHTS
Three months ended Nine months ended
September 30 September 30
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1996 1995 1996 1995
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FINANCIAL PERFORMANCE (Dollars in thousands, except per share data)
Net interest income (taxable-equivalent basis) $616,938 $538,809 $1,852,972 $1,624,686
Net income 233,953 210,737 720,323 584,237
Fully diluted earnings per common share .68 .62 2.08 1.70
Return on average total assets 1.34% 1.11% 1.35% 1.04%
Return on average common shareholders' equity 16.16 14.43 16.71 13.64
Net interest margin 3.85 3.09 3.77 3.11
After-tax profit margin 24.24 24.03 25.19 22.81
Efficiency ratio 61.68 62.41 60.34 64.15
AVERAGE BALANCES (In millions)
Assets $69,546 $75,266 $71,234 $75,149
Earning assets 63,545 69,458 65,196 69,479
Loans, net of unearned income 48,713 45,646 48,825 44,713
Securities 13,097 22,045 14,214 23,048
Deposits 44,716 45,077 45,214 44,374
Shareholders' equity 5,766 5,802 5,766 5,747
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September 30 June 30 March 31 December 31 September 30
As of or for the three months ended 1996 1996 1996 1995 1995
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PERIOD-END BALANCES (In millions)
Assets $69,662 $71,961 $72,668 $73,404 $75,100
Earning assets 62,533 65,234 66,041 66,772 69,281
Loans, net of unearned income 49,443 49,223 48,800 48,653 45,900
Securities 11,243 14,107 14,692 15,839 21,514
Deposits 45,430 44,852 45,621 46,899 43,870
Shareholders' equity 5,798 5,832 5,786 5,768 5,913
SELECTED DATA
Capital ratios
Risk-based capital
Tier I 8.29% 8.45% 8.18% 8.00% 9.11%
Total 11.79 11.99 11.70 11.56 12.74
Leverage 7.18 6.96 6.90 6.37 6.98
Common shareholders' equity to assets 8.30 8.08 7.94 7.83 7.85
Average common shareholders' equity to average assets 8.27 7.94 8.01 7.76 7.69
Asset quality ratios
Net charge-offs to average loans .30 .29 .28 .45 .15
Nonperforming loans to loans .76 .77 .76 .74 .96
Nonperforming assets to loans and foreclosed assets 1.01 1.03 1.10 1.10 1.37
Nonperforming assets to total assets .72 .71 .74 .73 .84
Allowance for credit losses to loans 2.33 2.42 2.51 2.59 2.80
Allowance for credit losses to nonperforming loans 306.11 312.19 328.88 351.68 291.16
Book value per common share
As reported $17.23 $17.07 $16.88 $16.87 $17.55
Excluding net unrealized securities gains/losses 17.58 17.49 17.16 16.79 17.67
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PNC BANK CORP. 1
3
CORPORATE FINANCIAL REVIEW
This Corporate Financial Review should be read in conjunction with the
unaudited Consolidated Financial Statements of PNC Bank Corp. and subsidiaries
("Corporation" or "PNCBank") included herein and the Corporate Financial Review
and audited Consolidated Financial Statements included in the Corporation's
1995 Annual Report.
TABLE OF CONTENTS Page
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CORPORATE FINANCIAL REVIEW
Overview 2
Line of Business Results 5
Consolidated Income Statement Review 10
Average Balance Sheet Review 13
Balance Sheet Review 13
Risk Management 15
Forward-Looking Statements 18
Financial Derivatives 18
Third Quarter 1996 vs. Third Quarter 1995 22
CONSOLIDATED FINANCIAL STATEMENTS 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 26
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST
ANALYSIS 30
QUARTERLY REPORT ON FORM 10-Q 32
CORPORATE INFORMATION 33
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CORPORATE FINANCIAL REVIEW
OVERVIEW
PNC BANK CORP. The Corporation is one of the largest diversified financial
services companies in the United States. It operates five lines of business:
Consumer Banking, Corporate Banking, Real Estate Banking, Mortgage Banking, and
Asset Management. Each line of business focuses on specific customer segments
and offers financial products and services on a national level and in PNCBank's
primary geographic locations in Pennsylvania, New Jersey, Delaware, Ohio and
Kentucky.
SUMMARY FINANCIAL RESULTS Earnings for the first nine months of 1996 were
$720.3 million or $2.08 per fully diluted share reflecting progress on
strategies designed to increase shareholder value. Changes in balance sheet
composition benefited net interest income and growth businesses such as asset
management, corporate finance, treasury management and brokerage produced
strong results. Earnings were adversely affected by a $35.1 million pre-tax
charge recorded during the third quarter of 1996 for a special one-time deposit
insurance assessment mandated by Congress to recapitalize the Savings
Association Insurance Fund ("SAIF"). Excluding the assessment, earnings for the
first nine months of 1996 were $742.7 million, or $2.15 per fully diluted
share, an increase of 27.1% compared with the prior-year period. The following
table sets forth a summary of financial results for the first nine months of
1996 and 1995.
Nine months ended September 30 1996 1995
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AS REPORTED
Net income (in thousands) $720,323 $584,237
Fully diluted earnings per common share 2.08 1.70
Return on
Average total assets 1.35% 1.04%
Average common shareholders' equity 16.71 13.64
EXCLUDING ONE-TIME SAIF ASSESSMENT
Earnings (in thousands) $742,718 $584,237
Fully diluted earnings per common share 2.15 1.70
Return on
Average total assets 1.39% 1.04%
Average common shareholders' equity 17.23 13.64
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Net interest income increased 14.1% to $1.9 billion and net interest margin
widened 66 basis points to 3.77% compared with the first nine months of 1995.
These increases were primarily due to loan growth, the Chemical Bank, New
Jersey ("Chemical") acquisition and changes in balance sheet composition. The
Corporation expects net interest income and margin to increase reflecting the
impact of continuing changes in balance sheet composition including credit card
portfolio purchases in connection with the American Automobile Association
("AAA") initiative. However, the level of net interest income and margin
depends on numerous factors including the overall level of interest rates,
composition of earning assets, demand for loan and deposit products and related
yields and costs.
At September 30, 1996, total assets were $69.7 billion. Average earning assets
declined $4.3 billion in the period-to-period comparison to $65.2 billion. This
decline was primarily due to the reduction in securities and related wholesale
funding partially offset by a 9.2% increase in loans. Excluding acquisitions,
average loans increased 3.9%.
PNC BANK CORP. 2
4
Noninterest income increased 7.5% to $1.0 billion for the first nine months of
1996. Fee-based revenue growth reflects success of initiatives to expand
noninterest revenue sources and was led by asset management, treasury
management, brokerage and corporate finance. Management expects to continue
initiatives to expand these businesses, however, future growth will depend on
many factors including competitive pressures, as well as financial market and
general economic conditions.
Noninterest expense increased 5.0% to $1.7 billion, substantially due to the
Chemical acquisition and one-time SAIF assessment. Excluding these factors,
noninterest expense declined 2.5%. The efficiency ratio improved to 59.1%,
excluding the SAIF charge, reflecting the cost savings associated with the
Midlantic Corporation ("Midlantic") integration, cost control strategies and
lower Bank Insurance Fund premiums. The conversion of Midlantic's products and
systems was completed on schedule during the third quarter of 1996, with cost
savings ahead of expectations. The level of noninterest expense is expected to
increase modestly for the remainder of 1996 reflecting costs to acquire and
service AAA-affinity credit card portfolios and other AAA-related initiatives.
The Corporation's asset quality and coverage ratios remained strong. Annualized
net charge-offs for the third quarter of 1996 were .30% of average loans
compared with .29% for the second quarter of 1996. The allowance for credit
losses as a percent of nonperforming loans and total loans was 306% and 2.33%,
respectively, at September 30, 1996. Based on the loan portfolio's current risk
profile, management does not expect to record a provision for credit losses
during the remainder of 1996.
BUSINESS STRATEGIES The financial services industry is challenged by intense
competition. Loan pricing and credit standards are under competitive pressure as
lenders seek to deploy capital and access to capital markets is available to a
broader range of borrowers. Traditional deposit activities are subject to
pricing pressures and customer migration as the competition for consumer
investment dollars intensifies among banks and other financial services
companies. In this environment, PNCBank is focused on building businesses
capable of competing independently and producing appropriate returns on invested
capital. The Corporation may exit certain businesses where appropriate returns
cannot be achieved.
Consumer Banking contributes 51% of total line of business earnings. Changes in
consumer preferences and technological advancements are transforming the way the
Corporation delivers consumer products and services. Traditional delivery
channels, such as retail branches, are being downsized and replaced with more
technologically advanced, cost-efficient means such as telebanking, automated
teller machines ("ATM") and on-line banking through personal computers. Since
year-end 1995, the Corporation has reduced its retail branch network by 12% and
anticipates further reductions in its primary geographic markets as telebanking
services and the ATM network are expanded.
The agreement with AAA gives PNCBank the exclusive right to offer a wide range
of financial products and services to the organization's 35 million members.
This agreement represents a unique opportunity for the Corporation to further
expand the national distribution of financial products and services.
Substantially all of these will be offered through alternative delivery channels
thereby leveraging the existing infrastructure. On November 1, 1996 the
Corporation purchased a $771 million AAA-affinity credit card portfolio for a
premium of 15.16% and continues to evaluate opportunities to acquire the
remaining AAA-affinity credit card portfolios totaling approximately $1.5
billion. Management believes these acquisitions will positively impact net
interest income and margin and result in higher consumer charge-offs.
The Corporation's asset management business is among the largest in the
country. Asset Management's initiatives focus on growing internally by expanding
product marketing and distribution channels and through acquisitions. Compass
Capital FundsSM, PNCBank's proprietary mutual fund family, are offered
throughout the Corporation's retail branch network and marketed nationally
through agreements with over 80 brokerage firms. Compass Capital FundsSM consist
of 28 fund portfolios with approximately $11 billion in assets. These funds
provide investors with a full range of equity, bond and money market investment
options.
PNC BANK CORP. 3
5
CORPORATE FINANCIAL REVIEW
The BlackRock Financial Management, L.P. ("BlackRock") acquisition in the first
quarter of 1995 added $25 billion to assets under management and the
establishment of CastleInternational in the first quarter of 1996, expanded
international asset management capabilities. The Corporation is the second
largest U.S. bank manager of mutual funds and one of the largest mutual fund
service providers. During the first nine months of 1996, discretionary assets
under management increased $9 billion to $105 billion and total assets under
administration increased $29 billion to $311 billion. This growth reflects
success in attracting new institutional and mutual fund servicing relationships
as well as growth in the value of assets administered.
Corporate Banking strategies are focused on developing fee-based products and
services as alternatives to traditional balance sheet leverage. These include
syndication, treasury management, employee benefits, private placement, interest
rate risk management and capital markets. Fee-based products and services
are targeted to industry-based segments such as healthcare, communications,
energy, metals and mining and financial institutions. Total fee-based revenues
in Corporate Banking increased 25.4% in the first nine months of 1996 compared
to the prior-year period reflecting these initiatives.
PNCBank is recognized as an industry leader in treasury management providing
collection, disbursement, information management and investment management
services. Treasury management emphasizes the use of technology to facilitate
electronic commerce and improve productivity and customer service.
In the Mortgage Banking line of business, the focus is on consolidating
operations and utilizing technology to enhance origination and operating
platform efficiencies. For example, nine regional production processing centers
have been consolidated into four sites and duplicative and overlapping functions
at the Corporation's two mortgage servicing centers have been centralized.
Mortgage Banking also continues to expand origination capabilities by leveraging
the Corporation's distribution network and private banking capabilities and by
pursuing strategic third party alliances.
The focus in Real Estate Banking is on expanding fee-based revenue by
distributing debt to private and institutional investors through syndication,
private placement and securitization activities. Real Estate Banking is among
the largest real estate syndicators in the country.
As part of the capital management initiatives, the Corporation repurchased
6.2 million shares of common stock in the third quarter of 1996 and, in October
1996, increased the common stock dividend by 5.7%. The Corporation also issued
$300 million of preferred stock, the proceeds of which will be used to purchase
additional common shares.
PNC BANK CORP. 4
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LINE OF BUSINESS RESULTS
For purposes of reporting line of business results, the Corporation has
designated the following five lines of business: Consumer Banking, Corporate
Banking, Real Estate Banking, Mortgage Banking and Asset Management.
The Corporation evaluates the performance of lines of business through a
management accounting process which uses various methods of balance sheet and
income statement allocations, transfers and assignments. Line of business
results presented herein reflect each line of business as if it operated on a
stand-alone basis. Securities or borrowings, and related interest rate spread,
have been assigned to each line of business based on its net asset or liability
position. Consumer Banking was a net generator of funds and, accordingly, was
assigned securities, while the other lines of business received an assignment of
borrowings as net asset generators. These results are not necessarily comparable
to similar results for other financial services institutions and differ from
financial statements prepared in accordance with generally accepted accounting
principles.
Asset/liability management activities reflect the residual of the assignment of
wholesale assets and liabilities to the lines of business. These activities
also include securities transactions and the impact of financial derivatives
used for interest rate risk management. Capital is assigned to each business
unit based on management's assessment of inherent risks and equity levels at
independent companies that provide similar products and services. Capital
assignments are not equivalent to regulatory capital guidelines and the total
amount assigned will vary from consolidated shareholders' equity.
LINE OF BUSINESS
Return on
Nine months ended September 30 Average Assets Revenue* Earnings Assigned Capital
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Dollars in millions 1996 1995 1996 1995 1996 1995 1996 1995
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Consumer Banking $39,221 $36,551 $1,655 $1,506 $368 $332 23% 22%
Corporate Banking 16,959 16,131 633 598 215 180 14 13
Real Estate Banking 3,825 3,866 135 146 69 54 15 12
Mortgage Banking 13,596 12,096 284 295 38 39 8 9
Asset Management 422 321 174 133 36 25 41 40
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Total lines of business 74,023 68,965 2,881 2,678 726 630 17 16
Asset/liability management activities (3,906) 5,222 (10) (126) (13) (99)
Unallocated provision 65 49
SAIF assessment (22)
Other unallocated items 1,117 962 (12) 10 (36) 4
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Total $71,234 $75,149 $2,859 $2,562 $720 $584 17 14
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* Revenue is the sum of fully-taxable equivalent net interest income and
fee-based income
PNC BANK CORP. 5
7
CORPORATE FINANCIAL REVIEW
CONSUMER BANKING
Nine months ended September 30 Community Banking Private Banking Total
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Dollars in millions 1996 1995 1996 1995 1996 1995
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INCOME STATEMENT
Net interest income $1,143 $1,040 $67 $57 $1,210 $1,097
Noninterest income 254 245 191 164 445 409
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Total revenue 1,397 1,285 258 221 1,655 1,506
Provision 81 41 81 41
Noninterest expense 824 798 177 158 1,001 956
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Pretax earnings 492 446 81 63 573 509
Income taxes 175 154 30 23 205 177
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Earnings $317 $292 $51 $40 $368 $332
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AVERAGE BALANCE SHEET
Loans $15,011 $12,996 $2,294 $1,856 $17,305 $14,852
Assigned assets 20,632 20,753 20,632 20,753
Other assets 872 523 412 423 1,284 946
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Total assets $36,515 $34,272 $2,706 $2,279 $39,221 $36,551
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Net deposits $34,368 $32,173 $1,609 $1,441 $35,977 $33,614
Assigned funds 184 126 184 126
Other funds 222 330 650 478 872 808
Assigned equity 1,925 1,769 263 234 2,188 2,003
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Total funds $36,515 $34,272 $2,706 $2,279 $39,221 $36,551
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PERFORMANCE RATIOS
After-tax profit margin 23% 23% 20% 18% 22% 22%
Efficiency 59 62 68 71 60 63
Return on assigned equity 22 22 26 23 23 22
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Consumer Banking includes: Community Banking which serves small business
customers and all other consumers who use traditional branch and direct banking
services; and Private Banking which provides affluent customers with personal
and charitable trust, brokerage and specialized retail banking financial
services.
In January 1996, an agreement was reached with AAA to exclusively offer
financial products and services to the organization's 35 million members. The
agreement provides for an initial term of ten years, with two five-year renewal
options. A full range of consumer products and services will be offered
including credit card, automobile, student, home equity and residential mortgage
loans, as well as deposit accounts and money market mutual funds. These products
and services will be marketed in conjunction with AAA as member clubs enroll and
will be delivered primarily through the Corporation's direct banking channels.
Consumer Banking earnings accounted for 51% of line of business earnings in the
first nine months of 1996 compared with 53% in the year-earlier period. Average
loans increased 17% in the comparison, or 3% excluding the Chemical acquisition.
Consumer loan growth primarily consisted of higher education lending, credit
cards and mortgages in the Private Bank. Net charge-offs were $81 million in the
first nine months of 1996 compared with $41 million in the prior-year period.
The increase was primarily due to higher credit card charge-offs and the impact
of the Chemical acquisition. Consumer net charge-offs and delinquencies were
relatively stable in the third quarter of 1996 compared with the prior two
quarters.
Community Banking earnings, which includes the Direct Bank's alternative
delivery channels, increased 9% to $317 million as revenues grew 9%. Growth in
net interest income was primarily attributable to an increase in earning assets
from loan growth and the Chemical acquisition. Noninterest income increased $9
million or 4% in the comparison primarily due to growth in a broad base of
products and services including deposit accounts, ATM transactions and consumer
insurance products partially offset by the impact of the credit card and
merchant services alliances. Expenses in this segment increased 3% as costs
associated with the Chemical acquisition and AAA were partially offset by the
benefits of the Midlantic integration and lower Federal deposit insurance
premiums.
PNC BANK CORP. 6
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Earnings from Private Banking increased 28% in the first nine months of 1996 as
new trust business and higher brokerage revenue more than offset expense growth
from sales and marketing activities. Return on assigned equity increased to 26%
compared with 23% a year ago.
CORPORATE BANKING
Nine months ended September 30 Middle Market Large Corporate Equity Management Total
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Dollars in millions 1996 1995 1996 1995 1996 1995 1996 1995
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INCOME STATEMENT
Net interest income $320 $337 $83 $79 $(2) $(3) $401 $413
Noninterest income 126 121 46 40 60 24 232 185
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Total revenue 446 458 129 119 58 21 633 598
Provision (1) 25 4 1 3 26
Noninterest expense 225 225 71 55 7 4 303 284
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Pretax earnings 222 208 54 63 51 17 327 288
Income taxes 80 81 14 21 18 6 112 108
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Earnings $142 $127 $40 $42 $33 $11 $215 $180
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AVERAGE BALANCE SHEET
Loans $11,577 $11,447 $4,402 $4,028 $46 $31 $16,025 $15,506
Other assets 553 376 203 94 178 155 934 625
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Total assets $12,130 $11,823 $4,605 $4,122 $224 $186 $16,959 $16,131
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Net deposits $1,725 $1,636 $481 $444 $2,206 $2,080
Assigned funds 8,331 8,332 3,605 3,203 $134 $115 12,070 11,650
Other funds 583 446 1 21 24 15 608 482
Assigned equity 1,491 1,409 518 454 66 56 2,075 1,919
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Total funds $12,130 $11,823 $4,605 $4,122 $224 $186 $16,959 $16,131
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PERFORMANCE RATIOS
After-tax profit margin 32% 28% 31% 35% 58% 56% 34% 30%
Efficiency 50 49 55 46 11 14 48 47
Return on assigned equity 13 12 10 12 68 28 14 13
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Corporate Banking includes: Middle Market customers with annual sales of $5
million to $250 million and those in certain specialized industries; Large
Corporate customers having annual sales of more than $250 million; and Equity
Management which makes private equity investments.
Corporate Banking's earnings contributed 30% and 29% of total line of business
earnings in the first nine months of 1996 and 1995, respectively. Earnings
increased $35 million, or 19%, primarily due to higher venture capital gains and
a lower provision allocation. Net interest income declined in the comparison as
narrower lending spreads offset a $519 million increase in average loans.
Excluding venture capital gains, Corporate Banking fee-based revenue increased
nearly 7% due to expanded treasury management, corporate finance, and retirement
and investment service activities.
Corporate Banking's traditional spread-based lending business is under intense
competition from banks and nonbanks seeking opportunities to extend credit in a
market with declining demand and narrowing spreads.
Corporate Banking is characterized by higher levels of assigned capital related
to the amount of balance sheet leverage. The Corporation expects revenue in
this line of business to be generated increasingly from fee-based sources such
as treasury management, capital markets and employee benefit plan services.
Corporate Banking's capital markets capabilities continue to be expanded to
meet the changing needs of its client base. The Corporation has also expanded
product capabilities in the merger and acquisitions advisory, private
placement, interest rate risk management and leasing product areas. Investments
in the Corporation's syndication capabilities contributed to a 14% increase in
agented transactions and a doubling of fee revenue and volume underwritten over
the same period last year. The Corporation is currently evaluating long-term
opportunities in expanded corporate underwriting activities in order to
complement existing fee based product line and to provide PNCBank's clients
with greater access to the capital markets.
PNC BANK CORP. 7
9
CORPORATE FINANCIAL REVIEW
Treasury management continues to produce revenue growth exceeding national
averages. On a year-to-date basis production revenues, which include net
interest and fee-based revenues, increased 17% over the same period last
year.
REAL ESTATE BANKING
Nine months ended September 30
Dollars in millions 1996 1995
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INCOME STATEMENT
Net interest income $126 $132
Noninterest income 9 14
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Total revenue 135 146
Provision 2 7
Noninterest expense 31 51
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Pretax earnings 102 88
Income taxes 33 34
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Earnings $69 $54
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AVERAGE BALANCE SHEET
Loans $3,901 $3,943
Other assets (76) (77)
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Total assets $3,825 $3,866
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Net deposits $199 $153
Assigned funds 3,035 3,113
Other funds (15) (9)
Assigned equity 606 609
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Total funds $3,825 $3,866
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PERFORMANCE RATIOS
After-tax profit margin 51% 37%
Efficiency 23 35
Return on assigned equity 15 12
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Real Estate Banking contributed 9% of line of business earnings in the first
nine months of 1996 compared with 8% for the first nine months of 1995. Earnings
increased $15 million or 28% primarily due to a decline in workout expenses
related to lower levels of nonperforming assets and gains from disposition of
foreclosed assets.
Real Estate Banking has been driven by balance sheet leverage and required
significant levels of assigned capital. A key initiative in this line of
business is to alter the business mix to reduce balance sheet leverage and
improve returns by expanding fee-based services such as treasury management,
interest rate risk management and debt placement activities. PNCBank is one of
the five largest real estate loan syndicators in the U.S., having a leading role
in over $2 billion of syndication volume in the first nine months of 1996.
MORTGAGE BANKING
Nine months ended September 30
Dollars in millions 1996 1995
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INCOME STATEMENT
Net interest income $154 $121
Noninterest income 130 174
-------------------------
Total revenue 284 295
Provision 12 4
Noninterest expense 211 228
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Pretax earnings 61 63
Income taxes 23 24
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Earnings $38 $39
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AVERAGE BALANCE SHEET
Loans $11,410 $10,365
Other assets 2,186 1,731
-------------------------
Total assets $13,596 $12,096
-------------------------
Net deposits $2,324 $2,665
Assigned funds 8,679 7,929
Other funds 1,927 935
Assigned equity 666 567
-------------------------
Total funds $13,596 $12,096
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PERFORMANCE RATIOS
After-tax profit margin 14% 13%
Efficiency 74 77
Return on assigned equity 8 9
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Mortgage Banking contributed 5% of line of business earnings in 1996 compared
with 6% in the first nine months of 1995. Net interest income increased 27% to
$154 million for the first nine months of 1996 compared with the year-earlier
period, primarily due a $1.0 billion increase in portfolio loans. Noninterest
income from the Corporation's mortgage origination and servicing activities
declined $44 million, primarily due to lower sales of servicing rights.
Mortgage Banking results reflect the impact of significant noncash expense
items such as amortization of MSR. Excluding the effect of these items, cash
returns currently exceed the Corporation's required return for this line of
business.
MORTGAGE SERVICING PORTFOLIO
In millions 1996 1995
- ---------------------------------------------------------------
January 1 $37,299 $40,389
Originations 4,245 4,174
Acquisitions 3,737 148
Repayments (4,717) (3,402)
Sales (133) (4,067)
--------------------
September 30 $40,431 $37,242
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PNC BANK CORP. 8
10
During the first nine months of 1996, the Corporation funded $4.2 billion of
residential mortgages with 69% representing new financings. The comparable
amounts were $4.2 billion and 83%, respectively, in the first nine months of
1995.
At September 30, 1996, the Corporation's mortgage servicing portfolio totaled
$40.4 billion, had a weighted-average coupon of 7.93% and an estimated fair
value of $481 million. The servicing portfolio included $27.8 billion of loans
serviced for others. Capitalized MSR totaled $322 million at September 30, 1996.
The value of MSR is affected, in part, by changes in interest rates. If
interest rates decline and the rate of prepayment increases, the underlying
servicing fee income stream and related MSR fair value would be reduced. In a
period of rising interest rates, a converse relationship would exist. The
Corporation seeks to manage this risk by using financial instruments whose
values move in the opposite direction of MSR value changes.
The mortgage banking business continues to be affected by intense competition
and lower demand for mortgage originations. In this environment, PNCBank
continues to pursue several strategic objectives including the use of advanced,
cost-effective technologies, leveraging processing, underwriting and servicing
capabilities and entering into alliances with third parties to expand the reach
of the distribution network.
ASSET MANAGEMENT
Nine months ended September 30
Dollars in millions 1996 1995
- ---------------------------------------------------------------
INCOME STATEMENT
Net interest income $(5) $(3)
Noninterest income 179 136
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Total revenue 174 133
Noninterest expense 116 92
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Pretax earnings 58 41
Income taxes 22 16
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Earnings $36 $25
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AVERAGE BALANCE SHEET
Loans $78 $66
Other assets 344 255
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Total assets $422 $321
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Net deposits $157 $126
Assigned funds 114 80
Other funds 34 31
Assigned equity 117 84
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Total funds $422 $321
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PERFORMANCE RATIOS
After-tax profit margin 21% 19%
Efficiency 67 69
Return on assigned equity 41 40
- ---------------------------------------------------------------
Asset Management contributed 5% of line of business earnings in the first nine
months of 1996 compared with 4% in the year-earlier period. Noninterest
income increased 32% due to an increase in assets under administration driven
by strong new business generation and appreciation in value, in addition to the
effect of the BlackRock acquisition. Noninterest expense increased primarily
due to the BlackRock acquisition and incremental costs associated with
servicing new business.
Assets under administration increased $43 billion in the comparison to $311
billion at September 30, 1996. Discretionary assets under management
totaled $105 billion at September 30, 1996 compared with $91 billion a year
ago. At September 30, 1996, the composition of discretionary assets under
administration was 46% fixed income, 28% money market, 25% equity and 1% other
assets.
PNC BANK CORP. 9
11
CORPORATE FINANCIAL REVIEW
ASSETS UNDER ADMINISTRATION
September 30 Non-
In billions Discretionary Discretionary Total
- ---------------------------------------------------------------
1996
Mutual funds $44 $149 $193
Personal and charitable 31 16 47
Institutional 30 41 71
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Total $105 $206 $311
- ------------------------------ ------- ----------- ------------
1995
Mutual funds $41 $123 $164
Personal and charitable 28 14 42
Institutional 22 40 62
--------------------------------
Total $91 $177 $268
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New business resulted, in part, from the strong performance of investment
products relative to respective benchmarks. During the first nine months of
1996, BlackRock's marketing of institutional management capabilities
resulted in the addition of over $7 billion in new business. In addition,
CastleInternational, the Corporation's recently created international equity
manager in Edinburgh, Scotland, manages over $1.5 billion of assets.
The mutual fund servicing business continues to attract new customers in a
consolidating market, benefiting from a long-standing association with
innovative and growing fund families. Mutual fund servicing revenue increased
30% in the comparison.
Revenue from asset management and mutual fund servicing is included in Asset
Management. Revenue from marketing asset management products, trust and
employee benefit services to Consumer Banking and Corporate Banking customers
is included in those lines of business. The following table sets forth total
asset management and trust revenue and earnings included in each line of
business.
ASSET MANAGEMENT AND TRUST REVENUE
AND EARNINGS
Revenue
Nine months ended ---------------------------
September 30 Fees and
In millions Commissions Other Total Earnings
- --------------------------------------------------------------
1996
Asset Management $178 $(4) $174 $36
Consumer Banking 145 7 152 32
Corporate Banking 45 8 53 7
--------------------------------
Total $368 $11 $379 $75
- ---------------------------------------------------------------
1995
Asset Management $138 $(5) $133 $25
Consumer Banking 131 11 142 28
Corporate Banking 40 6 46 8
--------------------------------
Total $309 $12 $321 $61
- ---------------------------------------------------------------
The level of asset management and trust revenue is primarily affected by the
volume of new business and the value of assets managed or serviced, investment
performance and financial market conditions. Revenue may be positively affected
by strong investment performance or improving financial markets. Conversely,
declining performance or deteriorating financial markets may adversely affect
revenue.
CONSOLIDATED INCOME STATEMENT REVIEW
INCOME STATEMENT HIGHLIGHTS
Nine months ended Change
September 30 ------------------
Dollars in millions 1996 1995 Amount Percent
- ---------------------------------------------------------------
Net interest income
(taxable-equivalent $1,853 $1,625 $228 14.1%
basis)
Provision for credit 5 (5) (100.0)
losses
Noninterest income 1,007 937 70 7.5
Noninterest expense 1,725 1,643 82 5.0
Income taxes 387 294 93 31.6
Net income 720 584 136 23.3
- ---------------------------------------------------------------
Consolidated net income increased 23.3% to $720.3 million for the first nine
months of 1996 reflecting the benefits of improved balance sheet composition,
revenue growth and expense control. Total revenue increased 11.6% or $297.7
million to $2.9 billion for the first nine months of 1996 due to a wider net
interest margin and growth in fee-based businesses.
Taxable-equivalent net interest income increased $228.3 million or 14.1%. The
net interest margin widened 66 basis points to 3.77% in the first nine months of
1996 compared with 3.11% in the prior-year period. The net interest income and
margin increases reflect the benefits of the Chemical acquisition, changes in
balance sheet composition and a lower cost of financial derivatives used for
interest rate risk management.
Total interest income declined $254.2 million primarily due to the decline in
securities and lower yields on loans. The cost of interest-bearing liabilities
declined $352.2 million due to a reduction in higher-cost wholesale funds and
an increase in the proportion of retail deposits to total sources of funds. The
cost of financial derivatives used in interest rate risk management declined
$130.3 million in the comparison.
PNC BANK CORP. 10
12
NET INTEREST INCOME ANALYSIS
Taxable-equivalent basis
Nine months ended September 30 Average Balances Interest Income/Expense Average Yields/Rates
----------------------------------------------------------------------------------------
Dollars in millions 1996 1995 Change 1996 1995 Change 1996 1995 Change
- ----------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets
Securities $14,214 $23,048 $(8,834) $680 $1,095 $(415) 6.38% 6.33% 5 bp
Loans, net of unearned income 48,825 44,713 4,112 2,966 2,820 146 8.06 8.38 (32)
Other interest-earning assets 2,157 1,718 439 105 90 15 6.45 6.96 (51)
----------------------------- ------------------------
Total interest-earning assets/
interest income 65,196 69,479 (4,283) 3,751 4,005 (254) 7.64 7.66 (2)
Noninterest-earning assets 6,038 5,670 368
-----------------------------
Total assets $71,234 $75,149 $(3,915)
-----------------------------
Interest-bearing liabilities
Interest-bearing deposits $35,348 $35,439 $(91) 1,072 1,133 (61) 4.05 4.27 (22)
Borrowed funds 7,044 14,017 (6,973) 300 656 (356) 5.66 6.21 (55)
Notes and debentures 11,675 9,504 2,171 515 450 65 5.84 6.29 (45)
----------------------------- ------------------------
Total interest-bearing
liabilities/ interest expense 54,067 58,960 (4,893) 1,887 2,239 (352) 4.64 5.06 (42)
--------------------------------------------------------
Noninterest-bearing liabilities and
shareholders' equity 17,167 16,189 978
-----------------------------
Total liabilities and
shareholders' equity $71,234 $75,149 $(3,915)
-----------------------------
Interest rate spread 1,864 1,766 98 3.00 2.60 40
Impact of noninterest-bearing sources .79 .77 2
----------------------------
Net interest margin before
financial derivatives 3.79 3.37 42
Effect of financial derivatives on
Interest income (10) (120) 110 (.02) (.22) 20
Interest expense 1 21 (20) .04 (4)
----------------------- ----------------------------
Total effect of financial derivatives (11) (141) 130 (.02) (.26) 24
----------------------- ----------------------------
Net interest income $1,853 $1,625 $228 3.77% 3.11% 66 bp
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income and margin depend on a number of factors including the
volume and composition of earning assets and related yields along with the cost
of funding such assets. In the first nine months of 1996, loans comprised 74.9%
of the Corporation's earning assets. Accordingly, loan growth and the related
yields earned have a significant impact on net interest income. During the first
nine months of 1996, loan growth and yields earned were tempered by competitive
pricing pressures, the Corporation's underwriting standards, return on capital
expectations and declining demand. The Corporation expects these conditions to
continue. The cost of funding is affected by the composition of and rates paid
on the various sources of funding. Average deposits comprised 63.5% of the
Corporation's total sources of funding and the remainder is comprised of
wholesale funding obtained at prevailing market rates. The ability to attract
and retain deposits will continue to be affected by competition and customer
preferences for higher yielding products, such as mutual funds.
Noninterest income totaled $1.0 billion in the first nine months of 1996, an
increase of 7.5% compared with the prior-year period. The growth reflects the
Corporation's continuing emphasis on expanding fee-based businesses led by
significant increases in asset management, deposit, corporate finance and
brokerage.
PNC BANK CORP. 11
13
CORPORATE FINANCIAL REVIEW
NONINTEREST INCOME
Nine months ended Change
Septmber 30 -------------------
Dollars in millions 1996 1995 Amount Percent
- ---------------------------------------------------------------
Asset management and trust
Asset management $76 $54 $22 40.7%
Mutual fund 133 112 21 18.8
Trust 159 143 16 11.2
-----------------------
Total asset management
and trust 368 309 59 19.1
Service fees
Deposit 212 177 35 19.8
Corporate finance 49 39 10 25.6
Consumer 45 39 6 15.4
Brokerage 41 30 11 36.7
Credit card and
merchant services 15 36 (21) (58.3)
Insurance 21 18 3 16.7
Other 25 25
-----------------------
Total service fees 408 364 44 12.1
Mortgage banking
Servicing 89 91 (2) (2.2)
Marketing 15 23 (8) (34.8)
Sale of servicing 2 33 (31) (93.9)
-----------------------
Total mortgage banking 106 147 (41) (27.9)
Net securities gains 15 9 6 66.7
Other 110 108 2 1.9
-----------------------
Total $1,007 $937 $70 7.5
- ---------------------------------------------------------------
The decline in credit card and merchant services reflects the impact of
alliances with third parties to provide certain administrative, marketing, data
processing and customer support services for these businesses. Generally, the
third parties receive fee-based revenues and incur operating costs associated
with offering such services. In July 1996, the Corporation canceled one such
agreement and paid a termination fee of $4 million. The costs and fee income
associated with the services provided under that agreement are reflected in the
Corporation's results of operations after the termination date.
NONINTEREST EXPENSE
Nine months ended Change
September 30 ----------------
Dollars in millions 1996 1995 Amount Percent
- ---------------------------------------------------------------
Compensation $695 $641 $54 8.4%
Employee benefits 146 157 (11) (7.0)
--------------------------
Total staff expense 841 798 43 5.4
Net occupancy 147 138 9 6.5
Equipment 128 120 8 6.7
Intangible asset and MSR
amortization 81 73 8 11.0
Taxes other than income 41 39 2 5.1
Federal deposit insurance 10 50 (40) (80.0)
SAIF assessment 35 35 100.0
Other 442 425 17 4.0
--------------------------
Total $1,725 $1,643 $82 5.0
- ---------------------------------------------------------------
Noninterest expense excluding the SAIF assessment increased 2.9% to $1.7
billion for the first nine months of 1996, substantially due to acquisitions
partially offset by lower Federal deposit insurance premiums. On this basis,
the efficiency ratio improved to 59.1% in the first nine months of 1996
compared with 64.2% in the year-earlier period.
Compensation expense increased primarily due to acquisitions and incentive
compensation in fee-based businesses including asset management and brokerage.
Average FTEs totaled 25,200 in the first nine months of 1996 compared with
25,460 in the year-earlier period. Lower staff levels from the integration of
Midlantic and Chemical, and in the Mortgage Banking line of business were
partially offset by additions to support initiatives in telebanking and Asset
Management.
Conversion of Midlantic's products and systems were completed during the third
quarter of 1996 with cost savings ahead of expectations. Remaining integration
efforts will be focused on completing staff reductions and disposal of
duplicative facilities. The Corporation continues to believe it will exceed its
original estimate of $150 million in annual cost savings beginning in 1997 from
the consolidation or elimination of overlapping facilities and operations.
However, the extent and timing of cost savings from the integration of Midlantic
are dependent on several factors, many of which are outside of management's
control.
The Corporation recorded a third quarter charge of $35.1 million for a special
one-time assessment mandated by Congress to recapitalize the SAIF. The
legislation also included provisions that will result in a modest reduction in
future annual deposit insurance costs.
PNC BANK CORP. 12
14
AVERAGE BALANCE SHEET REVIEW
AVERAGE BALANCE SHEET HIGHLIGHTS
Nine months ended Change
September 30 -----------------
Dollars in millions 1996 1995 Amount Percent
- ---------------------------------------------------------------
Assets $71,234 $75,149 $(3,915) (5.2)%
Earning assets 65,196 69,479 (4,283) (6.2)
Loans, net of
unearned income 48,825 44,713 4,112 9.2
Securities 14,214 23,048 (8,834) (38.3)
Deposits 45,214 44,374 840 1.9
Borrowed funds 7,044 14,017 (6,973) (49.7)
Notes and debentures 11,675 9,504 2,171 22.8
Shareholders' equity 5,766 5,747 19 .3
- ---------------------------------------------------------------
Average assets and earning assets totaled $71.2 billion and $65.2 billion,
respectively, for the nine months ended September 30, 1996 compared with $75.1
billion and $69.5 billion, respectively, in the year-earlier period. The
decline was due to reduction in the securities portfolio partially offset by
loan growth and the Chemical acquisition.
AVERAGE LOANS
Nine months ended September 30
Dollars in millions 1996 1995 Change
- ---------------------------------------------------------------
Consumer $13,222 $11,649 13.5%
Residential mortgage 11,944 10,590 12.8
Commercial 16,997 15,559 9.2
Commercial real estate 4,809 5,048 (4.7)
Other 1,853 1,867 (.7)
--------------------
Total, net of unearned $48,825 $44,713 9.2
income
- ---------------------------------------------------------------
Average loans increased $4.1 billion, or 9.2%, to $48.8 billion for the nine
months ended September 30, 1996. Excluding acquisitions, loans increased 3.9% in
the comparison. Loans were 74.9% of earning assets in the first nine months of
1996 compared with 64.4% a year ago. Securities declined $8.8 billion compared
with the year-earlier period. Securities represented 21.8% of earning assets
compared with 33.2% for the first nine months of 1995.
Average deposits increased $840 million, or 1.9%, to $45.2 billion in the first
nine months of 1996 compared with a year ago. The Chemical acquisition, which
was completed in October 1995, added $2.7 billion of retail core deposits. The
ratio of deposits to sources of funds increased to 63.5% compared with 59.0% a
year ago. During the first nine months of 1996, the ratio of wholesale funding
to total sources of funds decreased to 27.8% compared with 34.8% a year ago.
BALANCE SHEET REVIEW
BALANCE SHEET HIGHLIGHTS
Change
September 30 December 31 -------------------
Dollars in millions 1996 1995 Amount Percent
- ----------------------------------------------------------------------
Assets $69,662 $73,404 $(3,742) (5.1)%
Loans, net of
unearned income 49,443 48,653 790 1.6
Securities 11,243 15,839 (4,596) (29.0)
Deposits 45,430 46,899 (1,469) (3.1)
Borrowed funds 5,337 8,665 (3,328) (38.4)
Notes and debentures 11,313 10,398 915 8.8
Shareholders' equity 5,798 5,768 30 .5
- ----------------------------------------------------------------------
Total assets were $69.7 billion at September 30, 1996 compared with $73.4
billion at year-end 1995. The decline was primarily due to a reduced securities
portfolio.
LOANS
September 30 December 31
In millions 1996 1995
- ------------------------------------------------------------------
Consumer
Home equity $4,574 $4,541
Automobile 3,884 4,236
Student 1,760 1,512
Credit card 1,077 1,004
Other 2,046 2,246
------------------------
Total consumer 13,341 13,539
Residential mortgage 12,642 11,689
Commercial
Manufacturing 3,780 3,363
Retail/Wholesale 3,036 3,148
Service providers 2,271 2,402
Communications 1,221 1,083
Financial services 934 1,082
Real estate related 1,370 1,291
Health care 1,100 1,028
Other 3,772 3,415
------------------------
Total commercial 17,484 16,812
Commercial real estate
Commercial mortgage 2,544 2,775
Medium-term financings 1,068 1,250
Construction and development 1,022 889
------------------------
Total commercial real estate 4,634 4,914
Lease financing and other 1,689 2,102
Unearned income (347) (403)
------------------------
Total, net of unearned income $49,443 $48,653
- ------------------------------------------------------------------
PNC BANK CORP. 13
15
CORPORATE FINANCIAL REVIEW
Loans outstanding increased $790 million from year-end 1995 to $49.4 billion at
September 30, 1996. The composition of the loan portfolio remained relatively
consistent in the comparison and continues to be geographically diversified
among numerous industries and types of business. Unfunded commitments, net of
participations and syndications, increased $3.6 billion, or 10.8%, since
year-end 1995. In addition, the Corporation had net outstanding letters of
credit totaling $3.8 billion at September 30, 1996 and $4.0 billion at
December 31, 1995, primarily consisting of standby letters of credit.
NET UNFUNDED COMMITMENTS
TO EXTEND CREDIT
September 30 December 31
In millions 1996 1995
- -----------------------------------------------------------------
Consumer $9,149 $7,335
Residential mortgage 861 554
Commercial 25,766 24,282
Commercial real estate 769 751
Other 915 892
-----------------------
Total $37,460 $33,814
- -----------------------------------------------------------------
SECURITIES
September 30, 1996 December 31, 1995
---------------------------------------
Amortized Fair Amortized Fair
In millions Cost Value Cost Value
- ---------------------------------------------------------------
Debt securities
U.S. Treasury $2,460 $2,460 $3,211 $3,280
U.S. Government
agencies and
corporations
Mortgage-related 5,725 5,556 7,510 7,453
Other 421 409 1,030 1,034
Asset-backed
Private placement 250 250 1,597 1,604
Other 1,105 1,106 426 428
State and municipal 223 233 343 367
Other debt
Mortgage-related 776 765 1,121 1,113
Other 101 106 99 97
Corporate stocks and other 356 358 455 457
Associated derivatives 6
---------------------------------------
Total $11,417 $11,243 $15,792 $15,839
- ---------------------------------------------------------------
The securities portfolio declined $4.6 billion from year-end 1995 to $11.2
billion at September 30, 1996, reflecting the impact of management's actions to
reduce investment assets and related wholesale funding. The expected weighted
average life of the securities portfolio was 3 years and 4 months at September
30, 1996 compared with 2 years and 8 months at year-end 1995.
Securities classified as available for sale may be sold as part of the overall
asset/liability management process. Realized gains and losses resulting from
such sales would be reflected in the results of operations and would include
gains or losses on associated financial derivatives. As part of the overall
asset/liability management process, PNCBank sold $5.3 billion of securities,
primarily U.S. Treasury and asset-backed private placements, during the first
nine months of 1996. The transactions, including the effect of associated
financial derivatives, resulted in a net gain of $14.6 million. In the same
period a year ago, $1.8 billion of securities were sold at a net gain of $9.3
million.
The securities portfolio included collateralized mortgage obligations and
mortgage-backed securities with a fair value of $5.2 billion and $1.1 billion,
respectively at September 30, 1996. The characteristics of these securities
include principal guarantees, primarily by U.S. Government agencies, and
marketability. Expected lives of such securities can vary as interest rates
change. In a declining interest rate environment, prepayments on the underlying
mortgage securities may accelerate and, therefore, shorten the expected lives.
Conversely, expected lives would lengthen in a rising interest rate
environment. The Corporation monitors the impact of this risk through the use
of an income simulation model as part of the asset/liability management
process.
At September 30, 1996 and December 31, 1995, $5.5 billion and $6.1 billion,
respectively, notional value of financial derivatives were associated with
securities available for sale.
FUNDING SOURCES
September 30 December 31
In millions 1996 1995
- ----------------------------------------------------------------
Deposits
Demand, savings and money market $26,664 $27,145
Time 18,091 18,661
Foreign 675 1,093
----------------------
Total deposits 45,430 46,899
Borrowed funds
Federal funds purchased 1,523 3,817
Repurchase agreements 909 2,851
Commercial paper 400 753
Treasury, tax and loan 2,079 567
Other 426 677
----------------------
Total borrowed funds 5,337 8,665
Notes and debentures
Bank notes 7,715 6,256
Federal Home Loan Bank 1,939 2,393
Other 1,659 1,749
----------------------
Total notes and debentures 11,313 10,398
----------------------
Total $62,080 $65,962
- ----------------------------------------------------------------
PNC BANK CORP. 14
16
Total deposits decreased 3.1% to $45.4 billion at September 30, 1996 compared
with $46.9 billion at year-end 1995. Demand, savings and money market deposits
declined $481 million as consumers sought more attractive yields.
Total borrowed funds and notes and debentures declined $2.4 billion in the
comparison due to initiatives to reposition the balance sheet. The change in
composition of these categories reflects actions to utilize the most
cost-effective alternatives.
CAPITAL The access to and cost of funding new business initiatives including
acquisitions, deposit insurance costs, and the level and nature of expanded
regulatory oversight depend, in large part, on a financial institution's capital
strength. The Corporation manages its capital position through balance sheet
size and composition, issuance of debt and equity instruments, treasury stock
activities, dividend policies and retained earnings.
The board of directors authorized a 24 million common share repurchase plan in
January 1995. All purchases under that plan were discontinued with the
initiation of the Midlantic merger in July 1995 and during the second quarter of
1996, the board of directors formally rescinded the plan. In August 1996, the
board of directors authorized the purchase of up to 10 million common shares
before the end of 1996 in addition to purchases for employee benefit and
dividend reinvestment plans. During the third quarter, the Corporation purchased
4.4 million shares under the 10 million share program. In October 1996, the
Corporation issued $300 million of nonconvertible preferred stock, the proceeds
of which are to be used to purchase additional common shares.
RISK-BASED CAPITAL
September 30 December 31
Dollars in millions 1996 1995
- ---------------------------------------------------------------
Capital components
Shareholders' equity $5,798 $5,768
Goodwill and other intangibles (976) (980)
Net unrealized securities (gains) 115 (26)
losses
----------------------
Tier I risk-based capital 4,937 4,762
Subordinated debt 1,335 1,370
Eligible allowance for credit losses 750 750
----------------------
Total risk-based capital $7,022 $6,882
----------------------
Assets
Risk-weighted assets and
off-balance-sheet instruments $59,560 $59,539
Average tangible assets 68,724 74,756
----------------------
Capital ratios
Tier I risk-based 8.29% 8.00%
Total risk-based 11.79 11.56
Leverage 7.18 6.37
- ---------------------------------------------------------------
The minimum regulatory capital ratios are 4% for Tier I, 8% for total
risk-based and 3% for leverage. However, regulators may require higher capital
levels when a bank's particular circumstances warrant. To be classified as well
capitalized, regulators require capital ratios of at least 6% for Tier I, 10%
for total risk-based and 5% for leverage. At September 30, 1996, the
Corporation and each of its bank affiliates were classified as well
capitalized.
RISK MANAGEMENT
The Corporation's ordinary course of business involves varying degrees of risk
taking, the most significant of which are credit, liquidity and interest rate
risk. To manage these risks, the Corporation has risk management processes
designed to provide for risk identification, measurement, monitoring and
control.
CREDIT RISK MANAGEMENT Credit risk represents the possibility that a customer
or counterparty may not perform in accordance with contractual terms. Credit
risk is inherent in the financial services business and results from extending
credit to customers, purchasing securities and entering into certain
off-balance-sheet financial derivative transactions. The Corporation seeks to
manage credit risk through diversification, utilizing exposure limits to any
single industry or customer, requiring collateral and selling participations to
third parties.
NONPERFORMING ASSETS
September 30 December 31
Dollars in millions 1996 1995
- ---------------------------------------------------------------
Nonaccrual loans
Commercial $176 $118
Commercial real estate
Commercial mortgage 118 108
Real estate project 21 45
Consumer 5 10
Residential mortgage 54 54
-------------------
Total nonaccrual loans 374 335
Restructured loans 3 23
-------------------
Total nonperforming loans 377 358
Foreclosed assets
Commercial real estate 79 105
Residential mortgage 22 24
Other 23 49
-------------------
Total foreclosed assets 124 178
-------------------
Total nonperforming assets $501 $536
-------------------
Nonperforming loans to loans .76% .74%
Nonperforming assets to loans and
foreclosed assets 1.01 1.10
Nonperforming assets to assets .72 .73
- ---------------------------------------------------------------
PNC BANK CORP. 15
17
CORPORATE FINANCIAL REVIEW
Nonperforming assets declined $35 million since year-end 1995 to $501 million
at September 30, 1996. Lower foreclosed assets and restructured loans were
partially offset by higher nonaccrual loans. Nonperforming assets and
nonperforming loans are expected to decline in the fourth quarter of 1996.
At September 30, 1996, $94 million of nonperforming loans were current as to
principal and interest compared with $89 million at December 31, 1995.
CHANGE IN NONPERFORMING ASSETS
In millions 1996 1995
- ---------------------------------------------------------------
January 1 $536 $757
Transferred from accrual 346 273
Acquisitions 14
Returned to performing (36) (56)
Principal reductions (192) (210)
Sales (101) (74)
Charge-offs and valuation adjustments (52) (73)
-------------------
September 30 $501 $631
- ---------------------------------------------------------------
ACCRUING LOANS CONTRACTUALLY
PAST DUE 90 DAYS OR MORE
Amount Percent of Loans
--------------------------------------------------------
Dollars in September 30 December 31 September 30 December 31
millions 1996 1995 1996 1995
- ----------------------------------------------------------------------
Consumer
Guaranteed
student loans $52 $44 2.95% 2.90%
Other 54 51 .48 .44
--------------------
Total consumer 106 95 .82 .72
Residential mortgage 58 63 .45 .54
Commercial 32 22 .18 .13
Commercial real 35 45 .75 .92
estate
--------------------
Total $231 $225 .47 .46
- ----------------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES In determining the adequacy of the allowance for
credit losses, the Corporation allocates reserves to specific problem loans
based on discounted cash flow analyses or collateral valuations for impaired
loans and to pools of watchlist and non-watchlist loans for various credit risk
factors.
ALLOWANCE FOR CREDIT LOSSES
In millions 1996 1995
- ---------------------------------------------------------------
January 1 $1,259 $1,352
Charge-offs (168) (163)
Recoveries 61 84
--------------------
Net charge-offs (107) (79)
Provision for credit losses 5
Acquisitions 7
--------------------
September 30 $1,152 $1,285
- ---------------------------------------------------------------
The allowance as a percent of nonperforming loans and period-end loans was 306%
and 2.33%, respectively, at September 30, 1996. The comparable year-end 1995
amounts were 352% and 2.59%, respectively.
PROVISION FOR CREDIT LOSSES Favorable economic conditions, combined with
management's ongoing attention to asset quality, resulted in a stable level of
nonperforming assets and net charge-offs. Based on the loan portfolio's current
risk profile, management does not expect to record a provision for credit
losses during the remainder of 1996. Should the risk profile of the loan
portfolio or the economy deteriorate, asset quality may be adversely impacted
and a provision for credit losses may be required. Credit card growth and
portfolio acquisitions are expected to increase consumer charge-offs and may
effect the level of provision for credit losses.
CHARGE-OFFS AND RECOVERIES
Percent
Nine months ended Net of
September 30 Charge- Charge- Average
Dollars in millions offs Recoveries offs Loans
- ---------------------------------------------------------------
1996
Consumer
Credit card $43 $5 $38 5.12%
Other 73 26 47 .52
-------------------------
Total consumer 116 31 85 .86
Residential mortgage 7 1 6 .07
Commercial 36 22 14 .11
Commercial real estate 9 7 2 .06
-------------------------
Total $168 $61 $107 .29
- ---------------------------------------------------------------
1995
Consumer
Credit card $21 $4 $17 2.70%
Other 52 28 24 .30
-------------------------
Total consumer 73 32 41 .47
Residential mortgage 7 1 6 .08
Commercial 55 41 14 .12
Commercial real estate 28 10 18 .48
-------------------------
Total $163 $84 $79 .24
- ---------------------------------------------------------------
Consumer net charge-offs increased $44 million in the comparison primarily due
to acquisitions and an increase in credit card charge-offs.
LIQUIDITY Liquidity represents an institution's ability to generate cash or
otherwise obtain funds at reasonable rates to satisfy commitments to borrowers
and demands of depositors and debtholders, and invest in other strategic
initiatives. Liquidity risk represents the likelihood the Corporation would be
unable to generate cash or otherwise obtain funds at reasonable rates to
satisfy commitments to borrowers, as well as the obligations to depositors and
debtholders. Liquidity is managed through the coordination of the relative
maturities of assets, liabilities and off-balance-sheet positions and is
enhanced by the ability to raise funds in capital markets through direct
borrowing or securitization of assets such as automobile and credit card loans.
The ability to raise funds in the capital markets depends on market conditions,
capital considerations, credit ratings and investor demand, among other
factors.
PNC BANK CORP. 16
18
During the first nine months of 1996, cash and due from banks decreased $68
million to $3.6 billion compared with a decrease of $456 million during the
year-earlier period. Net cash provided by operating activities decreased $114
million in the comparison, primarily due to increases in loans held for
sale associated with the Corporation's mortgage banking activities and trading
account securities. Cash provided by investing activities increased to $4.7
billion compared with $2.8 billion provided a year ago. Net cash used by
financing activities totaled $4.9 billion in the first nine months of 1996
compared with $3.5 billion used a year earlier.
Liquid assets consist of cash and due from banks, short-term investments, loans
held for sale and securities available for sale. At September 30, 1996, such
assets totaled $16.7 billion, of which $7.4 billion was pledged as collateral.
Liquidity is also provided by residential mortgages which may be used as
collateral for funds obtained through the Federal Home Loan Bank ("FHLB")
system. At September 30, 1996, approximately $6.8 billion of residential
mortgages were available as collateral for borrowings from the FHLB.
The principal source of the parent company's revenues and cash flow is
dividends from its subsidiary banks. PNC Bancorp, Inc. is a wholly-owned
subsidiary of the parent company and is the holding company for all bank
subsidiaries. There are legal limitations on the ability of the bank
subsidiaries to pay dividends and make other distributions to PNC Bancorp, Inc.
and in turn the parent company. Without regulatory approval, the amount
available for payment of dividends to PNC Bancorp, Inc. by all bank
subsidiaries was $522 million at September 30, 1996. Dividends may also be
impacted by capital needs, regulatory requirements and policies, and other
factors.
Liquidity for the parent company and its affiliates is also generated through
the issuance of securities in public or private markets and lines of credit.
Under effective shelf registration statements at September 30, 1996, the
Corporation had available $140 million of debt, $300 million of preferred stock
and $350 million of securities that may be issued as either debt or preferred
stock. In addition, the Corporation had a $500 million unused committed line of
credit. Funds obtained from any of these sources can be used for both bank and
nonbank activities.
In October 1996, PNCBank issued $300 million of preferred stock under the
existing preferred stock shelf registration statement. The proceeds will be
used to purchase shares of PNCBank common stock.
Management believes the Corporation has sufficient liquidity to meet its
current obligations to customers, debtholders and others. The impact of
replacing maturing liabilities is reflected in the income simulation model used
in the Corporation's overall asset/liability management process.
INTEREST RATE RISK Interest rate risk arises primarily through the
Corporation's normal business activities of extending loans and taking
deposits. Many factors, including economic and financial conditions, general
movements in market interest rates, and consumer preferences, affect the spread
between interest earned on assets and interest paid on liabilities. Financial
derivatives, primarily interest rate swaps, caps and floors, are used to alter
the interest rate characteristics of assets and liabilities. For example,
receive-fixed interest rate swaps effectively convert variable-rate assets to
fixed-rate assets.
In managing interest rate risk, the Corporation seeks to minimize the reliance
on a particular interest rate scenario as a source of earnings. Accordingly,
wholesale activities including securities, funding, financial derivatives and
capital markets activities are used in managing core business exposures within
specified guidelines. Interest rate risk is centrally managed by asset and
liability management.
An income simulation model is the primary tool used to assess the direction and
magnitude of changes in net interest income resulting from changes in interest
rates. Key assumptions employed in the model include prepayment speeds on
mortgage-related assets, cash flows and maturities of financial instruments,
changes in market conditions, loan volumes and pricing, deposit sensitivity,
customer preferences, and management's financial and capital plans. These
assumptions are inherently uncertain and, as a result, the model cannot
precisely estimate net interest income or precisely predict the impact of
higher or lower interest rates on net interest income.
The Corporation's guidelines provide that net interest income should not
decrease by more than 3% if interest rates gradually increase or decrease from
current rates by 100 basis points over a twelve month period. At September 30,
1996, based on the results of the simulation model, the Corporation was within
these guidelines. Actual results will differ from simulated results due to
timing, magnitude and frequency of interest rate changes and changes in market
conditions and management strategies, among other factors.
PNC BANK CORP. 17
19
CORPORATE FINANCIAL REVIEW
The Corporation also employs interest sensitivity (gap) analyses to assess
interest rate risk. A gap analysis represents a point-in-time net position of
assets, liabilities and off-balance-sheet instruments subject to repricing in
specified time periods. Gap analysis alone does not accurately measure the
magnitude of changes in net interest income since changes in interest rates
over time do not impact all categories of assets, liabilities and
off-balance-sheet instruments equally or simultaneously. The Corporation's
limit for the cumulative one-year gap position is 10%. A cumulative
asset-sensitive gap position indicates assets are expected to reprice more
quickly than liabilities. Alternatively, a cumulative liability-
sensitive gap position indicates liabilities are expected to reprice more
quickly than assets. At September 30, 1996, the cumulative liability
sensitivity of the one-year gap position was 4.0%.
FORWARD-LOOKING STATEMENTS
The Corporation has made, and may continue to make, various forward-looking
statements with respect to earnings per share, costs savings related to the
Midlantic acquisition, the AAA agreement, credit quality and other financial and
business matters. The Corporation cautions that these forward-looking statements
are subject to numerous assumptions, risks and uncertainties, and that
statements for periods subsequent to 1996 are subject to greater uncertainty
because of the increased likelihood of changes in underlying factors and
assumptions. Actual results could differ materially from forward-looking
statements.
In addition to factors previously disclosed by the Corporation and factors
identified elsewhere herein, the following factors, among others, could cause
actual results to differ materially from such forward-looking statements:
continued pricing pressures on loan and deposit products; success and timing of
business strategies; extent and timing of capital management actions,
competition; changes in economic conditions; the extent and timing of actions of
the Federal Reserve Board; continued customer disintermediation; customers'
acceptance of the Corporation's products and services; and the extent and timing
of legislative and regulatory actions and reforms.
The Corporation's forward-looking statements are effective only on the date
such statements are made. By making any forward-looking statements, the
Corporation assumes no duty to update them to reflect new, changing or
unanticipated events or circumstances.
FINANCIAL DERIVATIVES
The Corporation uses a variety of off-balance-sheet financial derivatives as
part of its overall interest rate risk management process to manage the
interest rate risk inherent in the Corporation's line of business activity.
Financial derivatives involve, to varying degrees, interest rate and credit
risk in excess of the amount recognized in the balance sheet, but less than the
notional amount of the contract. For interest rate swaps, caps and floors, only
periodic cash payments and, with respect to caps and floors, premiums, are
exchanged. Therefore, cash requirements and exposure to credit risk are
significantly less than the notional value.
Interest rate swaps are agreements to exchange fixed and floating interest rate
payments calculated on a notional principal amount. The floating rate is based
on a money market index, primarily short-term LIBOR indices. Interest rate caps
and floors are agreements where, for a fee, the counterparty agrees to pay the
Corporation the amount, if any, by which a specified market interest rate
exceeds or is less than a defined rate applied to a notional amount. Forward
contracts provide for the delivery of financial instruments at a specified
future date and at a specified price or yield.
PNC BANK CORP. 18
20
At September 30, 1996, $20.0 million of deferred losses are being amortized as
an adjustment to net interest income over remaining periods of up to 41 months.
During the third quarter of 1996, gains of $6.6 million were recognized in
connection with the sale of securities. The following table sets forth the
changes in off-balance-sheet financial derivatives during the first nine months
of 1996.
FINANCIAL DERIVATIVES ACTIVITY
January 1 September 30
In millions 1996 Additions Maturities Terminations 1996
- -------------------------------------------------------------------------------------------------------------------------------
Interest rate risk management
Interest rate swaps
Receive fixed $2,785 $7,202 $(1,276) $(1,250) $7,461
Receive-fixed index amortizing 3,211 (1,039) (2,117) 55
Pay fixed 2,629 409 (1,264) (1,148) 626
Basis swaps 765 310 (765) 310
Interest rate caps 5,510 175 (10) 5,675
Interest rate floors 2,500 2,500
-------------------------------------------------------------------
Total interest rate risk management 14,900 10,596 (4,354) (4,515) 16,627
Mortgage banking activities
Forward contracts - commitments to purchase loans 431 2,982 (2,920) 493
Forward contracts - commitments to sell loans 751 4,351 (4,442) 660
Interest rate floors - MSR 500 1,350 (800) 1,050
Receive-fixed interest rate swaps - MSR 125 (125)
-------------------------------------------------------------------
Total mortgage banking activities 1,807 8,683 (7,362) (925) 2,203
-------------------------------------------------------------------
Total $16,707 $19,279 $(11,716) $(5,440) $18,830
- --------------------------------------------------------------------------------------------------------------------------------
PNC BANK CORP. 19
21
CORPORATE FINANCIAL REVIEW
The following table sets forth the maturity distribution and weighted average
interest rates of financial derivatives used for interest rate risk management.
The expected maturity distribution is based on contractual terms, except with
respect to receive-fixed index amortizing swaps, which are based on implied
forward rates. Implied forward rates are derived from the fair value of the
underlying financial instrument. Weighted average interest rates represent
implied forward rates and contractual rates in effect at September 30, 1996
based on the average outstanding notional amount.
MATURITY DISTRIBUTION AND WEIGHTED AVERAGE
INTEREST RATES OF FINANCIAL DERIVATIVES
Weighted Average Rates
----------------------------------------------
Expected Based on
Notional Value Implied Forward At September 30, 1996
------------------------------------------------------------------------
Average
Dollars in millions Maturing Outstanding Paid Received Paid Received
- --------------------------------------------------------------------------------------------------------------------------------
Interest rate swaps (1)
Receive fixed
1996 $600 $7,127 5.67% 5.90% 5.53% 5.90%
1997 1,061 6,726 6.12 5.90 5.53 5.90
1998 4,600 2,349 6.53 6.37 5.50 6.37
1999 and beyond 1,200 884 6.86 6.71 5.50 6.71
---------
Total $7,461
----------------------------------------------------------------------
Receive-fixed index amortizing
1996 $56 5.69% 5.05% 5.62% 5.05%
1997 $43 30 6.00 5.15 5.59 5.15
1998 12 9 6.52 5.45 5.50 5.45
---------
Total $55
---------------------------------------------------------------------
Pay fixed
1996 $626 7.19% 5.71% 7.19% 5.58%
1997 $90 591 7.08 6.15 7.08 5.58
1998 80 498 7.12 6.62 7.12 5.61
1999 and beyond 456 337 7.08 6.91 7.08 5.61
---------
Total $626
--------------------------------------------------------------------
Basis swaps
1996 $310 5.60% 5.60% 5.44% 5.51%
1997 $280 240 6.03 6.01 5.45 5.51
1998 30 13 6.48 6.49 5.49 5.59
---------
Total $310
--------------------------------------------------------------------
Interest rate caps (2)
1996 $5,675 NM NM NM NM
1997 $5,500 4,681 NM NM NM NM
1998 93 133 NM NM NM NM
1999 and beyond 82 40 NM NM NM NM
---------
Total $5,675
--------------------------------------------------------------------
Interest rate floors (3)
1996 $2,500 NM NM NM NM
1997 2,500 NM NM NM NM
1998 $1,000 1,648 NM NM NM NM
1999 and beyond 1,500 559 NM NM NM NM
---------
Total $2,500
- -----------------------------------------------------------------------------------------------------------------------------
(1) The floating rate portion of interest rate contracts is based on
money-market indices. As a percent of notional value, 61% were
based on 3-month LIBOR, 35% on 1-month LIBOR and the remainder on
other short-term indices.
(2) Interest rate caps with notional values of $5.645 billion and $30
million require the counterparty to pay the Corporation the
excess, if any, of 3-month LIBOR over a weighted average strike
of 6.50% and 1-month LIBOR over 6.75%, respectively. At
September 30, 1996, 3-month LIBOR was 5.63% and 1-month LIBOR was
5.44%.
(3) Interest rate floors with notional values of $1 billion and $1.5
billion require the counterparty to pay the Corporation the
excess, if any, of 4.80% and 5.00%, respectively, over 3-month
LIBOR. At September 30, 1996, 3-month LIBOR was 5.63%.
NM - not meaningful
PNC BANK CORP. 20
22
The following table sets forth by designated assets and liabilities, the
notional value, weighted average interest rates exchanged, and the estimated
fair value of financial derivatives used for interest rate risk management and
mortgage banking activities. Weighted average interest rates on the variable
portion of the contracts are based on implied forward rates.
FINANCIAL DERIVATIVES
September 30, 1996 Weighted Average Rates Estimated
Notional -------------------------- Fair
Dollars in millions Value Paid Received Value
- --------------------------------------------------------------------------------------------------------------------------------
Interest rate risk management
Asset rate conversion
Interest rate swaps (1)
Receive fixed designated to loans $6,570 6.10% 5.86% $(8)
Pay fixed designated to loans 576 7.33 6.44 (12)
Interest rate caps designated to (2)
Securities 5,500 NM NM 3
Loans 175 NM NM 1
Interest rate floors designated to loans (3) 2,500 NM NM 3
--------- ------
Total asset rate conversion 15,321 (13)
Liability rate conversion
Interest rate swaps (1)
Receive fixed designated to
Notes and debentures and borrowed funds 116 5.93 5.82 2
Interest-bearing deposits 775 6.15 6.23 4
Receive-fixed index amortizing designated to interest-bearing 55 5.93 5.05 (1)
deposits
Pay fixed designated to notes and debentures 50 5.63 5.93
Basis swaps designated to notes and debentures 310 5.92 5.91
--------- ------
Total liability rate conversion 1,306 5
--------- ------
Total interest rate risk management 16,627 (8)
Mortgage banking activities
Forward contracts - commitments to purchase loans 493 NM NM
Forward contracts - commitments to sell loans 660 NM NM (1)
Interest rate floors - MSR 1,050 NM NM 8
--------- ------
Total mortgage banking activities 2,203 7
--------- ------
Total financial derivatives $18,830 $ (1)
- --------------------------------------------------------------------------------------------------------------------------------
(1) The floating rate portion of interest rate contracts is based on
money-market indices. As a percent of notional value, 61% were
based on 3-month LIBOR, 35% on 1-month LIBOR and the remainder on
other short-term indices.
(2) Interest rate caps with notional values of $5.645 billion and $30
million require the counterparty to pay the Corporation the
excess, if any, of 3-month LIBOR over a weighted average strike
of 6.50% and 1-month LIBOR over 6.75% , respectively. At
September 30, 1996, 3-month LIBOR was 5.63% and 1-month LIBOR was
5.44%.
(3) Interest rate floors with notional values of $2.5 billion and
$1.1 billion require the counterparty to pay the Corporation the
excess, if any, weighted average strike of 4.92% over 3-month
LIBOR and weighted average strike of 5.88% over 10-year CMT. At
September 30, 1996, 3-month LIBOR was 5.63% and 10-year CMT was
6.65%.
NM - not meaningful
PNC BANK CORP. 21
23
CORPORATE FINANCIAL REVIEW
THIRD QUARTER 1996 VS. THIRD QUARTER 1995
Earnings for the third quarter of 1996 excluding the SAIF assessment totaled
$256.3 million or $.75 per fully diluted share, compared with $210.7 million or
$.62 per fully diluted share a year ago. On this basis, returns on average
assets and average common shareholders' equity were 1.47% and 17.71%,
respectively, in the third quarter of 1996 compared with 1.11% and 14.43% in
the third quarter of 1995. The Corporation recorded a third quarter pre-tax
charge of $35.1 million for the special one-time SAIF assessment. Including the
SAIF assessment, net income totaled $234.0 million or $.68 per fully diluted
share. Returns on average assets and average common shareholders' equity
improved to 1.34% and 16.16%, respectively.
Taxable-equivalent net interest income for the third quarter of 1996 increased
$78.1 million to $616.9 million and net interest margin widened to 3.85%
compared with $538.8 million and 3.09%, respectively, in the year-earlier
period. The increase in net interest income was due to loan growth, the
Chemical acquisition and the balance sheet repositioning. The improvement in
net interest margin is primarily due to a higher proportion of loans to earning
assets and an increase in lower-cost consumer deposits relative to total
sources of funds.
Noninterest income totaled $348.4 million in the third quarter of 1996 compared
with $338.3 million in the prior-year period. Noninterest income increased
$38.2 million or 12.3%, excluding gains from the sale of 12 branches in Dayton,
Ohio in the prior year. Asset management and trust revenue increased $13.2
million or 12.1%, to $122.3 million due to growth in mutual fund and personal
trust services and an increase in the value of assets under administration.
Discretionary assets totaled $104.5 billion at September 30, 1996 compared with
$91.3 billion a year ago.
Service fees increased 17.2% to $144.4 million in the third quarter of 1996.
Deposit fees increased $13.4 million primarily due to growth in treasury
management revenue and acquisitions. Brokerage and corporate finance fees
increased 22.9% and 49.6%, respectively. Credit card and merchant services
declined $4.0 million in the quarter-to-quarter comparison as a result of
alliances with third parties for these businesses. Excluding this impact
service fees increased 22.1%.
Mortgage banking revenue declined in the comparison primarily due to lower
servicing sales and the impact of an increasingly competitive market for
mortgage originations. Other noninterest income decreased $14.8 million to
$39.5 million, as higher venture capital income partially offset the impact of
gains from branch sales in 1995.
Noninterest expense totaled $595.4 million in the third quarter of 1996
compared with $547.4 million in the same period of 1995. Excluding the SAIF
assessment and the Chemical acquisition, noninterest expense declined 2.5% in
the comparison. The efficiency ratio improved to 58.1% for the third quarter of
1996 compared with 62.4% a year ago, excluding the impact of the SAIF
assessment in the current period.
Average earning assets declined $5.9 billion to $63.5 billion compared to the
third quarter of 1995 due to initiatives to downsize the securities portfolio
and reduce associated wholesale funding. Average securities declined $8.9
billion to $13.1 billion which represents 20.6% of average earning assets
compared with 31.7% a year ago. Average loans increased $3.1 billion to $48.7
billion, representing 76.7% of average earning assets compared with 65.7% a
year ago. Excluding acquisitions, average loans increased 0.7% in the
comparison reflecting declining demand and the Corporation's continued
commitment to generating loans with acceptable yield and risk characteristics.
Average deposits declined $361 million to $44.7 billion for the third quarter
of 1996. Higher levels of retail deposits from acquisitions were partially
offset by lower wholesale liabilities. Excluding acquisitions and wholesale
deposits, average deposits decreased 2.0% in the comparison. Average deposits
represented 64.3% of total sources of funds in the third quarter of 1996
compared with 59.9% a year ago.
PNC BANK CORP. 22
24
CONSOLIDATED STATEMENT OF INCOME
Three months ended Nine months ended
September 30 September 30
-------------------------------------------------------
In thousands, except per share data 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans and fees on loans $979,050 $944,819 $2,931,715 $2,759,610
Securities 207,729 316,227 677,422 999,226
Other 29,851 32,463 105,973 90,593
-------------------------------------------------------
Total interest income 1,216,630 1,293,509 3,715,110 3,849,429
INTEREST EXPENSE
Deposits 350,912 402,379 1,073,786 1,150,854
Borrowed funds 80,133 220,005 300,292 657,251
Notes and debentures 176,655 144,106 514,465 452,203
-------------------------------------------------------
Total interest expense 607,700 766,490 1,888,543 2,260,308
-------------------------------------------------------
Net interest income 608,930 527,019 1,826,567 1,589,121
Provision for credit losses 1,500 4,500
-------------------------------------------------------
Net interest income less provision for credit losses 608,930 525,519 1,826,567 1,584,621
NONINTEREST INCOME
Asset management and trust 122,299 109,117 367,691 308,636
Service fees 144,446 123,283 408,313 363,846
Mortgage banking 34,400 51,609 106,140 147,190
Net securities gains 7,722 44 14,569 9,264
Other 39,507 54,273 109,808 108,197
-------------------------------------------------------
Total noninterest income 348,374 338,326 1,006,521 937,133
NONINTEREST EXPENSE
Staff expense 277,761 269,279 840,699 798,095
Net occupancy and equipment 90,229 86,730 275,694 258,001
Intangible asset and MSR amortization 29,012 26,094 80,738 73,284
Federal deposit insurance 38,324 1,470 44,949 50,007
Other 160,066 163,862 483,280 464,062
-------------------------------------------------------
Total noninterest expense 595,392 547,435 1,725,360 1,643,449
-------------------------------------------------------
Income before income taxes 361,912 316,410 1,107,728 878,305
Applicable income taxes 127,959 105,673 387,405 294,068
-------------------------------------------------------
Net income $233,953 $210,737 $720,323 $584,237
-------------------------------------------------------
EARNINGS PER COMMON SHARE
Primary $.69 $.62 $2.10 $1.71
Fully diluted .68 .62 2.08 1.70
CASH DIVIDENDS DECLARED PER COMMON SHARE .35 .35 1.05 1.05
AVERAGE COMMON SHARES OUTSTANDING
Primary 340,535 338,983 342,143 339,220
Fully diluted 345,173 344,145 346,958 345,165
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP. 23
25
CONSOLIDATED BALANCE SHEET
September 30 December 31
Dollars in millions, except par values 1996 1995
- --------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $3,611 $3,679
Short-term investments 920 1,611
Loans held for sale 915 659
Securities available for sale 11,243 15,839
Loans, net of unearned income of $347 and $403 49,443 48,653
Allowance for credit losses (1,152) (1,259)
---------------------------------
Net loans 48,291 47,394
Goodwill and other intangibles 999 997
Mortgage servicing rights 322 268
Other 3,361 2,957
---------------------------------
Total assets $69,662 $73,404
---------------------------------
LIABILITIES
Deposits
Noninterest-bearing $10,900 $10,707
Interest-bearing 34,530 36,192
---------------------------------
Total deposits 45,430 46,899
Borrowed funds
Federal funds purchased 1,523 3,817
Repurchase agreements 909 2,851
Commercial paper 400 753
Other 2,505 1,244
---------------------------------
Total borrowed funds 5,337 8,665
Notes and debentures 11,313 10,398
Other 1,784 1,674
---------------------------------
Total liabilities 63,864 67,636
SHAREHOLDERS' EQUITY
Preferred stock - $1 par value
Authorized: 17,471,629 and 17,529,342 shares
Issued and outstanding: 808,829 and 848,784 shares
Aggregate liquidation value: $17 and $17 1 1
Common stock - $5 par value
Authorized: 450,000,000 shares
Issued: 343,316,174 and 340,863,348 shares 1,717 1,704
Capital surplus 590 545
Retained earnings 3,931 3,571
Deferred benefit expense (77) (79)
Net unrealized securities gains (losses) (115) 26
Common stock held in treasury at cost: 7,831,321 shares (249)
---------------------------------
Total shareholders' equity 5,798 5,768
---------------------------------
Total liabilities and shareholders' equity $69,662 $73,404
- --------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP. 24
26
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine months ended September 30
In millions 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $720 $584
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses 5
Depreciation, amortization and accretion 211 187
Deferred income taxes 92 122
Net securities gains (15) (9)
Net gain on sales of assets (71) (74)
Valuation adjustments (12) (1)
Net change in
Loans held for sale (256) (414)
Other (450) (67)
--------------------
Net cash provided by operating activities 219 333
INVESTING ACTIVITIES
Net change in loans (526) (1,574)
Repayment
Securities available for sale 3,676 864
Investment securities 1,554
Sales
Securities available for sale 5,326 1,763
Loans 218 153
Foreclosed assets 116 81
Purchases
Securities available for sale (4,630) (1,646)
Investment securities (149)
Loans (722) (520)
Net cash received in acquisitions 460 8
Other 744 2,219
--------------------
Net cash provided by investing activities 4,662 2,753
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits 184 (664)
Interest-bearing deposits (2,133) (1,532)
Federal funds purchased (2,294) 1,239
Sale/issuance
Repurchase agreements 54,438 60,734
Commercial paper 1,872 3,234
Other borrowed funds 64,085 80,973
Notes and debentures 9,567 8,506
Common stock 58 48
Redemption/maturity
Repurchase agreements (56,380) (58,686)
Commercial paper (2,225) (3,969)
Other borrowed funds (62,874) (82,030)
Notes and debentures (8,638) (10,829)
Preferred stock (50)
Acquisition of treasury stock (249) (225)
Cash dividends paid to shareholders (360) (291)
--------------------
Net cash used by financing activities (4,949) (3,542)
--------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (68) (456)
Cash and due from banks at beginning of year 3,679 3,412
--------------------
Cash and due from banks at end of period $3,611 $2,956
- ---------------------------------------------------------------------------------------------------------------------------
CASH ITEMS
Interest paid $2,009 $2,266
Income taxes paid 147 93
NONCASH ITEMS
Transfers from loans to foreclosed assets 54 72
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP. 25
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES
BUSINESS PNC Bank Corp. provides a broad range of banking and financial
services through its subsidiaries. PNC Bank Corp. is subject to intense
competition from other financial services companies with respect to these
services and customers and is also subject to the regulations of certain
federal and state agencies and undergoes periodic examinations by certain
regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION The unaudited consolidated interim
financial statements have been prepared in accordance with generally accepted
accounting principles and include the accounts of PNC Bank Corp. and its
subsidiaries ("Corporation"), substantially all of which are wholly owned. In
the opinion of management, the financial statements reflect all adjustments,
which are of a normal recurring nature, necessary for a fair statement of the
results for the interim periods presented. The merger between PNC Bank Corp.
and Midlantic Corporation ("Midlantic") was completed December 31, 1995 and
accounted for as a pooling of interests. Accordingly, all financial information
has been restated as if the companies were combined for all periods presented.
In preparing the unaudited consolidated interim financial statements,
management is required to make estimates and assumptions that affect the
amounts reported in the financial statements. Actual results will differ from
such estimates and such differences may be material to the financial
statements.
The notes included herein should be read in conjunction with the audited
consolidated financial statements included in the Corporation's 1995 Annual
Report.
ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is maintained at a
level believed by management to be sufficient to absorb estimated potential
credit losses. Management's determination of the adequacy of the allowance is
based on periodic evaluations of the credit portfolio and other relevant
factors. This evaluation is inherently subjective as it requires material
estimates, including the amounts and timing of expected future cash flows on
impaired loans, which may be susceptible to significant change. The allowance
for credit losses on impaired loans is one component of the methodology for
determining the allowance for credit losses. The remaining components of the
allowance for credit losses provide for estimated losses on consumer loans and
residential mortgages, and general amounts for historical loss experience,
uncertainties in estimating losses and inherent risks in the various credit
portfolios.
EARNINGS PER COMMON SHARE Primary earnings per common share is calculated by
dividing net income adjusted for preferred stock dividends declared by the sum
of the weighted average number of shares of common stock outstanding and the
number of shares of common stock which would be issued assuming the exercise of
stock options during each period. Fully diluted earnings per common share is
based on net income adjusted for interest expense, net of tax, on outstanding
convertible debentures and dividends declared on nonconvertible preferred
stock. The weighted average number of shares of common stock outstanding is
increased by the assumed conversion of outstanding convertible preferred stock
and convertible debentures from the beginning of the year or date of issuance,
if later, and the number of shares of common stock which would be issued
assuming the exercise of stock options. Such adjustments to net income and the
weighted average number of shares of common stock outstanding are made only
when such adjustments dilute earnings per common share.
PNC BANK CORP. 26
28
RECENT ACCOUNTING PRONOUNCEMENT In June 1996, Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" ("SFAS No. 125") was issued, effective for
transactions entered into after December 31, 1996. SFAS No. 125 establishes
rules distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. Management does not expect this standard to have a
material impact on the Corporation's financial position or results of
operations.
CASH FLOWS
For the statement of cash flows, the Corporation defines cash and cash
equivalents as cash and due from banks. The table below sets forth information
pertaining to acquisitions and divestitures which affect cash flows.
Nine months ended September 30
In millions 1996 1995
- -------------------------------------------------------------
Assets acquired $538 $694
Liabilities assumed 501 485
Cash paid 37 168
Cash and due from banks received 497 176
- --------------------------------------------------------------
MERGERS AND ACQUISITIONS
On December 31, 1995, Midlantic merged with the Corporation. Each share of
Midlantic common stock outstanding on such date was converted into 2.05 shares
of the Corporation's common stock. The Corporation issued approximately 112
million shares of common stock in connection with the merger. The transaction
was accounted for as a pooling of interests and, accordingly, all financial
data prior to the merger has been restated as if the entities were combined for
all such periods.
On October 6, 1995, the Corporation acquired Chemical New Jersey Holdings,
Inc., and its wholly-owned subsidiary Chemical Bank New Jersey, N.A. with total
assets of $3.2 billion and retail core deposits of $2.7 billion. The
Corporation paid $492 million in cash and the transaction was accounted for
under the purchase method.
In February 1995, the Corporation acquired BlackRock Financial Management L.P.,
a fixed-income investment management firm with approximately $25 billion in
assets under management at closing. The Corporation paid $71 million in cash
and issued $169 million of unsecured notes.
PNC BANK CORP. 27
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECURITIES
The following table sets forth the amortized cost and fair value of the
Corporation's securities portfolio, all of which are available for sale, and
the fair value of financial derivatives designated to such instruments.
At September 30, 1996 and December 31, 1995, $5.5 billion and $6.1 billion,
respectively, notional value of financial derivatives were associated with
securities available for sale.
SECURITIES AVAILABLE FOR SALE September 30, 1996 December 31, 1995
---------------------------------------------------------------------------------------
Amortized Unrealized Fair Amortized Unrealized
---------------------- ---------------------- Fair
In millions Cost Gains Losses Value Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------------
Debt securities
U.S. Treasury $2,460 $16 $16 $2,460 $3,211 $69 $3,280
U.S. Government agencies and
corporations
Mortgage-related 5,725 5 174 5,556 7,510 18 $75 7,453
Other 421 12 409 1,030 5 1 1,034
Asset-backed
Private placement 250 250 1,597 7 1,604
Other 1,105 2 1 1,106 426 2 428
State and municipal 223 10 233 343 25 1 367
Other debt
Mortgage-related 776 2 13 765 1,121 2 10 1,113
Other 101 7 2 106 99 1 3 97
Corporate stocks and other 356 2 358 455 4 2 457
Associated derivatives 6 6
-----------------------------------------------------------------------------------------
Total securities available for sale $11,417 $44 $218 $11,243 $15,792 $139 $92 $15,839
- -----------------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
Nonperforming assets were as follows:
September 30 December 30
In millions 1996 1995
- ---------------------------------------------------------------
Nonaccrual loans $374 $335
Restructured loans 3 23
-------------------
Total nonperforming loans 377 358
Foreclosed assets 124 178
-------------------
Total nonperforming assets $501 $536
- ---------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES
The following table presents changes in the allowance for credit losses:
In millions 1996 1995
- ---------------------------------------------------------------
January 1 $1,259 $1,352
Charge-offs (168) (163)
Recoveries 61 84
--------------------
Net charge-offs (107) (79)
Provision for credit losses 5
Acquisitions 7
--------------------
September 30 $1,152 $1,285
- ---------------------------------------------------------------
SHAREHOLDERS' EQUITY
On October 9, 1996, the Corporation issued 6 million shares of nonconvertible
Series F preferred stock totaling $300 million. Noncumulative dividends are
payable quarterly commencing December 31, 1996, at 6.05%, to September 30, 2001.
Thereafter, the dividend rate will be .35% plus the highest of the three-month
Treasury Bill rate, 10-year Constant Maturity rate or the 30-year Constant
Maturity rate. However, the dividend rate after September 30, 2001 will not be
less than 6.55% or greater than 12.55%. The Series F preferred stock is
redeemable in whole between October 9, 1996 and September 29, 2001 in the event
of certain amendments to the Internal Revenue Code relating to the dividend
received deduction at a declining redemption price from $52.50 to $50.50 per
share. After September 29, 2001 the Series F preferred stock may be redeemed, in
whole or in part, at $50 per share.
PNC BANK CORP. 28
30
FINANCIAL DERIVATIVES
The following table sets forth notional and fair values of financial
derivatives.
Positive Negative
Notional Fair Notional Fair
In millions Value Value Value Value
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1996
Interest rate swaps $4,871 $41 $3,581 $(56)
Interest rate caps 5,675 4
Interest rate floors 2,500 3
Mortgage banking
activities 1,543 8 660 (1)
------------------------------------------
Total $14,589 $56 $4,241 $(57)
- -----------------------------------------------------------------------------
DECEMBER 31, 1995
Interest rate swaps $4,249 $77 $5,141 $(48)
Interest rate caps 5,510 6
Mortgage banking
activities 769 16 1,038 (4)
------------------------------------------
Total $10,528 $99 $6,179 $(52)
- ------------------------------------------------------------------------------
SPECIAL CHARGES
In connection with the Midlantic merger, the Corporation recorded special
charges totaling $260 million in 1995. These charges represented estimated
costs of integrating and consolidating branch networks, back office and
administrative facilities, professional services and the cost to terminate an
interest rate cap position. The following table sets forth changes in accrued
special charges:
1996 Balance at Balance at
In millions January 1 Incurred September 30
- --------------------------------------------------------------
Staff related $42 $20 $22
Net occupancy 72 35 37
Equipment 17 10 7
Professional services 31 29 2
Other 18 15 3
Interest rate cap termination 80 80
-----------------------------
Total $260 $189 $71
- --------------------------------------------------------------
OTHER FINANCIAL INFORMATION
In connection with the Midlantic merger, notes and debentures of Midlantic with
a remaining aggregate principal amount of $363 million have been jointly and
severally assumed by the parent company and its wholly-owned subsidiary, PNC
Bancorp, Inc. Summarized financial information for PNC Bancorp, Inc. and
subsidiaries is as follows:
PNC BANCORP. INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30 December 30
In millions 1996 1995
- ----------------------------------------------------------------------
ASSETS
Cash and due from banks $3,616 $3,678
Securities 11,059 15,683
Loans, net of unearned income 49,397 48,583
Allowance for credit losses (1,152) (1,259)
-------------------------------
Net loans 48,245 47,324
Other assets 5,737 6,053
-------------------------------
Total assets $68,657 $72,738
-------------------------------
LIABILITIES
Deposits $45,525 $47,024
Borrowed funds 4,970 8,093
Notes and debentures 10,644 9,726
Other liabilities 1,182 1,167
-------------------------------
Total liabilities 62,321 66,010
SHAREHOLDER'S EQUITY 6,336 6,728
-------------------------------
Total liabilities and
shareholder's equity $68,657 $72,738
- ----------------------------------------------------------------------
PNC BANCORP. INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Nine months ended September 30
In millions 1996 1995
- -----------------------------------------------------------------------
Interest income $3,688 $3,825
Interest expense 1,827 2,212
----------------------------
Net interest income 1,861 1,613
Provision for credit losses 19
----------------------------
Net interest income less provision
for credit losses 1,861 1,594
Noninterest income 895 873
Noninterest expense 1,657 1,592
----------------------------
Income before income taxes 1,099 875
Applicable income taxes 390 293
----------------------------
Net income $709 $582
- ----------------------------------------------------------------------
The amount of dividends that may be paid by bank subsidiaries to PNC Bancorp,
Inc., a first-tier holding company, and in turn to the parent company, are
subject to certain legal limitations. Without regulatory approval, the amount
available for payment of dividends by all subsidiary banks to PNC Bancorp, Inc.
was $522 million at September 30, 1996. Dividends may also be impacted by
capital needs, regulatory requirements and policies, and other factors.
PNC BANK CORP. 29
31
STATISTICAL INFORMATION
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
Nine months ended September 30
--------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------
Average
Taxable-equivalent basis Average Average Average Yields/
Average balance in millions, interest in thousands Balances Interest Yields/Rates Balances Interest Rates
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets
Short-term investments $1,020 $46,648 6.11% $1,062 $53,013 6.68%
Loans held for sale 1,127 58,895 6.97 644 37,043 7.68
Securities
U.S. Treasury 2,652 131,196 6.61 4,333 166,164 5.13
U.S. Government agencies and corporations 8,123 372,169 6.11 14,183 603,397 5.67
State and municipal 276 20,796 10.03 366 27,730 10.09
Other debt 2,820 143,810 6.76 3,853 198,090 6.82
Corporate stocks and other 343 16,225 6.32 313 16,071 6.86
-------------------------- -------------------------
Total securities 14,214 684,196 6.41 23,048 1,011,452 5.85
Loans, net of unearned income
Consumer 13,222 873,152 8.82 11,649 784,678 9.01
Residential mortgage 11,944 668,784 7.47 10,590 594,304 7.48
Commercial 16,997 994,873 7.69 15,559 955,103 8.09
Commercial real estate 4,809 322,329 8.88 5,048 353,376 9.29
Other 1,853 92,039 6.63 1,867 95,362 6.82
-------------------------- -------------------------
Total loans, net of unearned income 48,825 2,951,177 8.02 44,713 2,782,823 8.27
Other interest-earning assets 10 599 7.76 12 663 7.18
-------------------------- -------------------------
Total interest-earning assets/interest income 65,196 3,741,515 7.62 69,479 3,884,994 7.44
Noninterest-earning assets
Allowance for credit losses (1,216) (1,325)
Cash and due from banks 3,169 3,028
Other assets 4,085 3,967
------------- ------------
Total assets $71,234 $75,149
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand and money market $12,588 246,662 2.62 $12,073 263,105 2.91
Savings 3,522 53,852 2.04 3,768 68,074 2.42
Other time 18,410 739,428 5.36 17,443 719,430 5.51
Deposits in foreign offices 828 33,844 5.37 2,155 100,245 6.13
-------------------------- -------------------------
Total interest-bearing deposits 35,348 1,073,786 4.06 35,439 1,150,854 4.34
Borrowed funds
Federal funds purchased 2,784 112,015 5.37 2,838 127,857 6.02
Repurchase agreements 2,448 98,885 5.31 7,083 325,596 6.06
Commercial paper 467 19,272 5.51 728 32,459 5.96
Other 1,345 70,120 6.95 3,368 171,339 6.75
-------------------------- -------------------------
Total borrowed funds 7,044 300,292 5.66 14,017 657,251 6.21
Notes and debentures 11,675 514,465 5.83 9,504 452,203 6.32
-------------------------- -------------------------
Total interest-bearing liabilities/interest
expense 54,067 1,888,543 4.64 58,960 2,260,308 5.10
Noninterest-bearing liabilities and shareholders'
equity
Demand and other noninterest-bearing deposits 9,866 8,935
Accrued expenses and other liabilities 1,535 1,507
Shareholders' equity 5,766 5,747
------------- ------------
Total liabilities and shareholders' equity $71,234 $75,149
------------- ------------ ------------ ---------
Interest rate spread 2.98 2.34
Impact of noninterest-bearing liabilities .79 .77
------------------------- ----------------------
Net interest income/margin on earning assets $1,852,972 3.77% $1,624,686 3.11%
- ------------------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans are included in loans, net of unearned income. The impact of
financial derivatives used in interest rate risk management is included in the
interest income/expense and average yields/rates of the related assets and
liabilities.
PNC BANK CORP. 30
32
1996 1995
--------------------------------------------------------------------------------------------------------------------
Third Quarter Second Quarter Third Quarter
--------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balances Interest Yields/Rates Balances Interest Yields/Rates Balances Interest Yields/Rates
--------------------------------------------------------------------------------------------------------------------
$807 $12,241 6.04% $1,155 $17,196 5.99% $815 $14,623 7.12%
918 17,442 7.60 1,260 21,725 6.90 939 17,667 7.52
2,875 47,066 6.51 2,821 46,571 6.64 4,276 54,689 5.07
7,427 114,011 6.14 8,385 126,314 6.03 13,415 186,608 5.56
216 5,397 10.01 285 7,261 10.21 361 8,978 9.94
2,249 37,681 6.67 2,906 48,960 6.71 3,678 64,575 6.95
330 5,371 6.47 343 5,512 6.46 315 5,454 6.87
------------------------- ------------------------- -------------------------
13,097 209,526 6.39 14,740 234,618 6.37 22,045 320,304 5.79
13,054 290,456 8.85 13,243 289,072 8.78 11,822 266,234 8.93
12,325 231,271 7.51 11,883 219,395 7.40 11,066 211,464 7.64
17,049 332,167 7.62 17,190 331,768 7.64 15,914 323,724 7.96
4,712 105,338 8.85 4,831 104,582 8.62 5,096 120,759 9.39
1,573 26,003 6.60 2,044 33,711 6.48 1,748 30,292 6.90
------------------------- ------------------------- -------------------------
48,713 985,235 8.01 49,191 978,528 7.94 45,646 952,473 8.25
10 194 7.24 10 221 8.69 13 232 7.39
------------------------- ------------------------- -------------------------
63,545 1,224,638 7.64 66,356 1,252,288 7.53 69,458 1,305,299 7.45
(1,179) (1,216) (1,306)
3,216 3,196 2,996
3,964 4,104 4,118
------------ ------------ ------------
$69,546 $72,440 $75,266
------------ ------------ ------------
$12,520 81,321 2.58 $12,635 80,422 2.56 $11,899 86,404 2.88
3,407 16,931 1.98 3,582 17,796 2.00 3,635 21,484 2.35
18,172 243,340 5.33 18,407 243,554 5.32 17,974 255,883 5.65
695 9,320 5.25 759 10,119 5.27 2,437 38,608 6.20
------------------------- ------------------------- -------------------------
34,794 350,912 4.01 35,383 351,891 4.00 35,945 402,379 4.44
1,930 26,041 5.37 2,892 37,586 5.23 3,637 54,227 5.91
1,551 21,461 5.41 3,063 40,465 5.23 6,426 99,360 6.05
423 5,878 5.53 431 5,686 5.31 492 7,396 5.96
1,606 26,753 6.62 1,430 23,965 6.71 3,461 59,022 6.71
------------------------- ------------------------- -------------------------
5,510 80,133 5.76 7,816 107,702 5.50 14,016 220,005 6.18
12,048 176,655 5.77 11,904 172,769 5.78 8,829 144,106 6.44
------------ ------------ ------------ ------------ ------------ ------------
52,352 607,700 4.60 55,103 632,362 4.59 58,790 766,490 5.15
9,922 9,996 9,132
1,506 1,574 1,542
5,766 5,767 5,802
------------ ------------ ------------
$69,546 $72,440 $75,266
------------ ------------------------- ------------------------- ------------
3.04 2.94 2.30
.81 .78 .79
------------------------- ------------------------- -------------------------
$616,938 3.85% $619,926 3.72% $538,809 3.09%
--------------------------------------------------------------------------------------------------------------------
PNC BANK CORP. 31
33
QUARTERLY REPORT ON FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 1996.
Commission File Number 1-9718
PNC BANK CORP.
Incorporated in the Commonwealth of Pennsylvania
IRS Employer Identification No. 25-1435979
Address: One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Telephone: (412) 762-1553
As of October 31, 1996, PNC Bank Corp. had 334,024,799 shares of common stock
($5 par value) outstanding.
PNC Bank Corp. (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
The following sections of the Corporate Financial Review set forth in the
cross-reference index are incorporated in the Quarterly Report on Form 10-Q.
Cross-Reference Page(s)
----------------------------------------------------
PART I FINANCIAL INFORMATION
Item 1 Consolidated Statement of Income for the
three months and nine months ended
September 30, 1996 and 1995 23
Consolidated Balance Sheet as of
September 30, 1996 and December 31, 24
1995
Consolidated Statement of Cash Flows for
the nine months ended September 30,
1996 and 1995 25
Notes to Consolidated Financial
Statements 26-29
Average Consolidated Balance Sheet and
Net Interest Analysis 30-31
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 2-22
- ---------------------------------------------------------------
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
The following exhibit index lists Exhibits to the Quarterly Report on Form
10-Q:
10.1 Directors Deferred Compensation Plan.*
10.2 1996 Executive Incentive Award Plan.*
11 Calculation of primary and fully diluted earnings per
common share.
12.1 Computation of Earnings to Fixed Charges.
12.2 Computation of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
27 Financial Data Schedule.
- -------- -------------------------------------------------------
* Denotes management contract or compensatory plan.
Copies of these Exhibits will be furnished without charge upon written request
to Glenn Davies, Vice President, Financial Reporting, at corporate
headquarters. Requests may also be directed to (412) 762-1553 or to
gdavies@usaor.net on the Internet.
Since June 30, 1996, the Corporation filed the following current reports on
Form 8-K:
Form 8-K dated as of July 15, 1996, reporting the Corporation's consolidated
financial results for the three months and six months ended June 30, 1996,
filed pursuant to Item 5.
Form 8-K dated as of October 7, 1996, reporting a public offering of 6,000,000
shares by the Corporation of a newly authorized series of Preferred Stock,
filed pursuant to Item 5.
Form 8-K dated as of October 10, 1996, reporting the Corporation's consolidated
financial results for the three and nine months ended September 30, 1996, filed
pursuant to Item 5.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on November 14, 1996, on
its behalf by the undersigned thereunto duly authorized.
PNC Bank Corp.
Robert L. Haunschild
Senior Vice President and Chief Financial Officer
PNC BANK CORP. 32
34
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
PNC Bank Corp.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
INQUIRIES
Inquiries or comments concerning PNC Bank Corp. are welcome.
Individual shareholders should contact:
Shareholder Relations at 800-843-2206 or
the PNC Bank Hotline at 800-982-7652.
Analysts and institutional investors should contact:
William H. Callihan, Vice President,
Investor Relations, at 412-762-8257.
News media representatives and others seeking general
information should contact:
Jonathan Williams, Vice President,
Media Relations, at 412-762-4550.
FINANCIAL INFORMATION
Copies of the Corporation's filings with the Securities and Exchange
Commission, including Exhibits thereto, may be obtained without charge upon
written request to Glenn Davies, Vice President, Financial Reporting, at
corporate headquarters. Requests may also be directed to (412) 762-1553 or to
gdavies@usaor.net on the Internet.
STOCK LISTING
PNC Bank Corp. common stock is traded on the New York Stock Exchange under the
symbol PNC.
COMMON STOCK PRICES/DIVIDENDS DECLARED
The table below sets forth by quarter the high, low and quarter-end closing
sale prices for PNC Bank Corp. common stock and the cash dividends declared per
common share.
Cash
Dividends
1996 Quarter High Low Close Declared
- ---------------------------------------------------------------
First $32.625 $28.375 $30.750 $.35
Second 31.500 28.375 29.750 .35
Third 33.875 27.500 33.375 .35
-------
Total $1.05
- ---------------------------------------------------------------
1995 Quarter
- ---------------------------------------------------------------
First $25.750 $21.125 $24.375 $.35
Second 28.125 24.250 26.375 .35
Third 28.625 23.625 27.875 .35
Fourth 32.375 26.125 32.250 .35
-------
Total $1.40
- ---------------------------------------------------------------
On October 3, 1996, the board of directors of PNC Bank Corp. approved an
increase in the quarterly cash dividend on common stock to a new rate of $.37
per common share. This increased dividend was paid on October 24, 1996 to
shareholders of record at the close of business on October 15, 1996.
REGISTRAR AND TRANSFER AGENT
The Chase Manhattan Bank
P.O. Box 590
Ridgefield Park, NJ 07660
800-982-7652
TO EXCHANGE MIDLANTIC STOCK CERTIFICATES
The Chase Manhattan Bank
P.O. Box 396
Bowling Green Station
New York, NY 10274
Attn: Reorganization Department
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The PNC Bank Corp. dividend reinvestment and stock purchase plan enables
holders of common and preferred stock to purchase additional shares of common
stock conveniently and without paying brokerage commissions or service charges.
A prospectus and enrollment card may be obtained by writing to Shareholder
Relations at corporate headquarters.
PNC BANK CORP. 33
35
EXHIBIT INDEX
10.1 Directors Deferred Compensation Plan.*
10.2 1996 Executive Incentive Award Plan.*
11 Calculation of primary and fully diluted earnings per common share for
the three months and nine months ended September 30, 1996 and 1995.
12.1 Computation of Earnings to Fixed Charges for the nine months ended
September 30, 1996 and for each of the five years in the period ended
December 31, 1995.
12.2 Computation of Earnings to Combined Fixed Charges and Preferred Stock
Dividends for the nine months ended September 30, 1996, and for each of
the five years in the period ended December 31, 1995.
27 Financial Data Schedule.
* Denotes management contract or compensatory plan.