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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________________ to __________________
Commission file number 1-9718
PNC BANK CORP.
(Exact name of registrant as specified in its charter)
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PENNSYLVANIA 25-1435979
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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ONE PNC PLAZA
FIFTH AVENUE AND WOOD STREET
PITTSBURGH, PENNSYLVANIA 15265
(Address of principal executive offices)
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE - (412) 762-2666
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
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Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, par value $5.00 New York Stock Exchange
$1.60 Cumulative Convertible Preferred Stock - Series C, par value $1.00 New York Stock Exchange
$1.80 Cumulative Convertible Preferred Stock - Series D, par value $1.00 New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
$1.80 Cumulative Convertible Preferred Stock - Series A, par value $1.00
$1.80 Cumulative Convertible Preferred Stock - Series B, par value $1.00
8.25% Convertible Subordinated Debentures Due 2008
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (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 (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AMOUNTED TO APPROXIMATELY $6,412,000,000 AT FEBRUARY 28, 1994.
NUMBER OF OUTSTANDING SHARES OF REGISTRANT'S COMMON STOCK AS OF FEBRUARY 28,
1994: 234,871,944.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE PNC BANK CORP. ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1993 ("ANNUAL REPORT TO SHAREHOLDERS") ARE INCORPORATED BY
REFERENCE INTO PARTS I AND II AND PORTIONS OF THE DEFINITIVE PROXY STATEMENT OF
PNC BANK CORP. FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 26,
1994 ("PROXY STATEMENT") ARE INCORPORATED BY REFERENCE INTO PART III OF THIS
FORM 10-K. THE INCORPORATION BY REFERENCE HEREIN OF PORTIONS OF THE PROXY
STATEMENT SHALL NOT BE DEEMED TO SPECIFICALLY INCORPORATE BY REFERENCE THE
INFORMATION REFERRED TO IN ITEM 402(A)(8) OF REGULATION S-K.
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PART I PAGE
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Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . *
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . 11
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
PART III
Item 10 Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . 12
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . 12
Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . 12
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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*Not Applicable.
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PART I
ITEM 1--BUSINESS
INTRODUCTION
PNC Bank Corp. ("Corporation") is a bank holding company registered
under the Bank Holding Company Act of 1956, as amended ("Act"). The
Corporation was incorporated under Pennsylvania law in 1983 with the
consolidation of Pittsburgh National Corporation and Provident National
Corporation. Since 1983, the Corporation has diversified its geographical
presence and product capabilities through numerous strategic acquisitions and
the formation of various non-banking subsidiaries. At December 31, 1993, the
Corporation operated 9 banking subsidiaries ("Banks") in Pennsylvania,
Kentucky, Ohio, Delaware, Massachusetts and Indiana and 78 non-banking
subsidiaries. The Corporation's total assets and total shareholders' equity
were $62.1 billion and $4.3 billion, respectively. Based on 1993 year-end
assets, the Corporation was the 10th largest bank holding company in the nation
as reported by the American Banker. The Corporation employs approximately
21,100 people on a full-time equivalent basis.
In 1993, the Corporation's strategic focus was on refining the
line-of-business organizational structure; strategic growth through
acquisitions and continued investment in targeted businesses; managing the
revenue and expense relationship associated with the Corporation's mature
businesses; and marketing the Corporation under a new unified identity with an
emphasis on customer satisfaction.
On November 30, 1993, the Corporation consummated its acquisition of the
Sears Mortgage Banking Group, which consisted primarily of Sears Mortgage
Corporation, Sears Mortgage Securities Corporation and Sears Savings Bank.
Upon consummation, Sears Savings Bank was converted to a national banking
association and renamed PNC Mortgage Bank, National Association ("PNC
Mortgage"), and the other acquired entities became wholly-owned subsidiaries of
PNC Mortgage. With this acquisition, the Corporation added consumer assets of
$7.6 billion; a mortgage servicing portfolio approximating $27 billion,
including $21 billion serviced for others; and a national residential mortgage
production network consisting of 117 locations in 33 states. Other acquisitions
during the year are described under Item 7 of this Form 10-K.
The Corporation delivers a full range of banking products and services
to its customers through four lines of business: Corporate Banking, Retail
Banking, Investment Management and Trust, and Investment Banking. For the most
part, these products and services are distributed through the Corporation's
retail banking and mortgage origination office networks or its wholesale
banking offices in certain major metropolitan areas located in the U.S.
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Corporate Banking provides financing, liquidity and cash management, and
financial services to businesses and government entities. Corporate Banking's
focus is on serving customers by developing and delivering products and
services specific to their needs. Certain market studies indicate that this
line of business has established one of the largest market shares among middle
market companies in the Corporation's primary markets, which include Delaware,
Indiana, Kentucky, New Jersey, Ohio and Pennsylvania. In addition, Corporate
Banking maintains banking relationships with many of the largest companies in
the U.S. and is a major provider of cash management services.
Retail Banking provides lending, deposit, investment, payment systems
access, and other financial services to consumers and small businesses. Such
services are primarily provided through the Corporation's 550 banking offices
located in Pennsylvania, Kentucky, Ohio, Delaware and Indiana. Certain retail
products, including residential mortgages, student loans and credit cards, are
centrally managed to enhance the Corporation's ability to provide high quality,
low cost products. The primary focus of Retail Banking is on enhancing sales
and service levels by pursuing acquisitions and consolidating certain
operations. Retail Banking serves more than two million households and more
than 70,000 small businesses, operates one of the largest student lending
businesses in the U.S. and maintains a mortgage origination network with
offices in 33 states.
Investment Management and Trust provides investment advice, asset
management, and administrative and custodial services to individuals,
institutions and mutual funds. Additionally, economic and investment research
services are sold to more than 230 institutions, including brokerage firms,
insurance companies, pension funds and other banks. At December 31, 1993, the
market value of trust assets under administration totaled $193 billion, with
discretionary authority over $57 billion. According to published rankings, the
Corporation ranks as the largest bank manager of mutual funds, one of the
largest bank trustees for individuals, the fourth-largest institutional money
fund manager and the seventh-largest bank money manager in the nation.
Investment Banking includes the asset/liability management function of the
Corporation as well as underwriting, brokerage and direct investment services.
Full-service retail brokerage services are provided in selected offices within
the Retail Banking office network through PNC Brokerage Corp and PNC Securities
Corp. In addition, securities underwriting services are provided by PNC
Securities Corp which ranks as one of the largest bank underwriters of revenue
bonds for the health care industry and colleges and universities. Private
equity placements for middle market and smaller companies to finance growth or
ownership transition are provided by PNC Capital Corp, PNC Venture Corp and PNC
Equity Management Corp.
For additional line of business information, see pages 27 through 30 of
the Annual Report to Shareholders, which are incorporated herein by reference.
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Subsidiary Banks
Information as of December 31, 1993 for the Corporation's five largest
Banks is set forth below.
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Dollars in billions APPROXIMATE
PERCENTAGE OF
TOTAL CONSOLIDATED TOTAL NUMBER OF RETAIL
SUBSIDIARY BANK/LOCATION ASSETS TOTAL ASSETS DEPOSITS OFFICES
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PNC Bank, National Association $40.5 65 % $21.0 365
Pittsburgh, PA
PNC Bank, Kentucky, Inc. 5.7 9 3.4 68
Louisville, KY
PNC Mortgage Bank, National Association 5.1 8 3.0 117
Pittsburgh, PA
PNC Bank, Ohio, National Association 4.3 7 2.6 62
Cincinnati, OH
Bank of Delaware 2.9 5 1.7 40
Wilmington, DE
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CREDIT RISK MANAGEMENT
For a description of the Corporation's credit risk management
activities, information concerning the distribution of the loan portfolio and a
discussion and analysis of risk elements in the loan portfolio see pages 31-35
of the Annual Report to Shareholders, incorporated herein by reference.
For additional information regarding the Corporation's business, see
Items 7 and 8 of this Annual Report on Form 10-K.
SUPERVISION AND REGULATION
Bank Holding Companies
As a registered holding company, the Corporation is regulated under the
Act and is subject to supervision and regular inspection by the Board of
Governors of the Federal Reserve System ("Federal Reserve Board"). The Act
requires, among other things, the prior approval of the Federal Reserve Board
in any case where the Corporation proposes to (i) acquire all or substantially
all of the assets of any bank, (ii) acquire direct or indirect ownership or
control of more than 5 percent of the voting shares of any bank or (iii) merge
or consolidate with any other bank holding company.
Bank holding companies and their subsidiary banks are also subject to
the provisions of the Community Reinvestment Act of 1977, as amended ("CRA").
Under the terms of the CRA, each subsidiary bank's record in meeting the credit
needs of the community served by that bank, including low- and moderate-income
neighborhoods is annually assessed by that bank's primary regulatory
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authority. When a bank holding company applies for approval to acquire a bank
or other bank holding company, the Federal Reserve Board will review the
assessment of each subsidiary bank of the applicant bank holding company, and
such records may be the basis for denying the application. The federal banking
agencies have issued a notice of proposed rulemaking that would replace the
current CRA assessment system with a new evaluation system that would primarily
rate institutions based on their actual lending activity in the community.
Under the current proposal, each institution would be evaluated based on the
degree to which it is providing loans, branches and other services and
investments to low- and moderate-income areas.
The Act prohibits the Federal Reserve Board from approving a bank
holding company's application to acquire a bank or bank holding company located
outside the state in which the operations of its banking subsidiaries are
principally conducted, unless such acquisition is specifically authorized by
statute of the state in which the bank or bank holding company to be acquired
is located. Pennsylvania law permits bank holding companies located in any
state to acquire Pennsylvania banks and bank holding companies, provided that
the home state of the acquiring company has enacted "reciprocal" legislation.
In this context, reciprocal legislation is generally defined as legislation
that expressly authorizes Pennsylvania bank holding companies to acquire banks
or bank holding companies located in another state on terms and conditions
substantially no more restrictive than those applicable to such an acquisition
in Pennsylvania by a bank holding company located in the other state.
Under the Act, the Corporation is prohibited, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of any
class of voting shares of any non-banking corporation. Further, the
Corporation may not engage in any business other than managing and controlling
banks or furnishing certain specified services to subsidiaries, and may not
acquire voting control of non-banking corporations except those corporations
engaged in businesses or furnishing services which the Federal Reserve Board
deems to be so closely related to banking as "to be a proper incident thereto".
The Federal Reserve Board has determined that a number of activities meet this
standard and include: making and servicing loans; performing certain fiduciary
functions; leasing real and personal property; underwriting and dealing in
government obligations and certain money market instruments; underwriting and
dealing, to a limited extent, in corporate debt obligations and other
securities that banks may not deal in; providing foreign exchange advisory and
transactional services; and owning, controlling or operating a savings
association, if the savings association engages only in deposit-taking
activities and lending and other activities that are permissible for bank
holding companies. The Board, from time to time, may revise the list of
permitted activities.
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to each of its subsidiary banks and to
commit resources, including capital funds during periods of financial stress,
to support each such bank. Although this "source of strength" policy has been
challenged in litigation, the Federal Reserve Board continues to take the
position that it has the authority to enforce it. Consistent with its "source
of strength" policy for subsidiary banks, the Federal Reserve Board has stated
that, as a matter of prudent banking, a bank holding company generally should
not maintain a rate of cash dividends unless its net income available to common
shareholders has been sufficient to fund fully the dividends, and the
prospective rate of earnings retention appears to be consistent with the
company's capital needs, asset quality and overall financial condition.
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Subsidiary Banks
The Banks are subject to supervision and examination by applicable
federal and state banking agencies, including the Office of the Comptroller of
the Currency ("Comptroller") in the case of subsidiaries that are national
banks. All of the Banks are insured by, and therefore subject to regulations
of, the Federal Deposit Insurance Corporation ("FDIC"), and are also subject to
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Numerous consumer laws and regulations
also affect the operations of the Banks including, among others, disclosure
requirements, antidiscrimination provisions, and substantative contractual
limitations with respect to deposit accounts. The banking agencies, together
with the Departments of Justice and Housing and Urban Development, have
announced that they intend to enforce more rigorously compliance with community
reinvestment, antidiscrimination and other fair lending laws and regulations.
In addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to influence the
economy.
The parent company's principal assets are its loans and advances to, and
investments in, its Banks and other subsidiaries. Dividends from the
Corporation's Banks constitute the principal source of income to the parent
company. The Banks are subject to various statutory restrictions on their
ability to pay dividends to the Corporation. Under such restrictions, the
amount available for payment of dividends to the Corporation by the Banks was
$942.8 million at December 31, 1993. In addition, the Comptroller and the
FDIC, in the case of national bank subsidiaries, and the FDIC or the Federal
Reserve Board, in the case of state bank subsidiaries, have authority to
prohibit any such Bank from engaging in an unsafe or unsound practice in
conducting its business. The payment of dividends, depending upon the
financial condition of the Bank in question, could be deemed to constitute such
an unsafe or unsound practice, and the regulatory agencies have indicated their
view that it generally would be an unsafe and unsound practice to pay dividends
except out of current operating earnings. The ability of the Banks to pay
dividends in the future is presently, and could be further, influenced, among
other things, by applicable capital guidelines or by bank regulatory and
supervisory policies.
The ability of the Banks to make funds available to the parent company
is also subject to restrictions imposed by federal law. For a discussion of
these restrictions see "Regulatory Matters" on pages 56-57 of the Annual Report
to Shareholders, incorporated herein by reference.
The Banks are also subject to the "cross-guarantee" provisions of
federal law which provide that if one depository institution subsidiary of a
multi-bank holding company fails or requires FDIC assistance, the FDIC may
assess a commonly controlled depository institution for the actual or estimated
losses suffered by the FDIC. Such liability could have a material adverse
effect upon the financial condition of any assessed bank and its parent
company. While the FDIC's claim is junior to the claims of depositors, holders
of secured liabilities, general creditors and subordinated creditors, it is
superior to the claims of shareholders and affiliates.
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The amount of FDIC assessments paid by individual insured depository
institutions is based on their relative risk as measured by regulatory capital
ratios and certain other factors. Under this system, in establishing the
insurance premium assessment for each bank, the FDIC will take into
consideration the probability that the deposit insurance fund will incur a loss
with respect to an institution, and will charge an institution with perceived
higher inherent risks a higher insurance premium. The FDIC will also consider
the different categories and concentrations of assets and liabilities of the
institution, the revenue needs of the deposit insurance fund, and any other
factors the FDIC deems relevant. Current regulations provide for a minimum
assessment of 23 cents per $100 of eligible deposits. A significant increase
in the assessment rate or a special additional assessment with respect to
insured deposits could have an adverse impact on the results of operations and
capital levels of the Banks or the Corporation.
The federal banking agencies possess broad powers to take corrective
action as deemed appropriate for an insured depository institution and its
holding companies. The extent of these powers depends upon whether the
institution in question is considered "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." At December 31, 1993, all of the Banks exceeded
the required ratios for classification as well capitalized. Generally, as an
institution is deemed to be less well capitalized, the scope and severity of
the agencies' powers increase. The agencies' corrective powers can include,
among other things, requiring an insured financial institution to adopt a
capital restoration plan which cannot be approved unless guaranteed by the
institution's parent holding company; placing limits on asset growth and
restrictions on activities; placing restrictions on transactions with
affiliates; restricting the interest rate the institution may pay on deposits;
prohibiting the institution from accepting deposits from correspondent banks;
prohibiting the payment of principal or interest on subordinated debt;
prohibiting the holding company from making capital distributions without prior
regulatory approval; and, ultimately, appointing a receiver for the
institution. Business activities may also be influenced by an institution's
capital classification. For instance, only a "well capitalized" depository
institution may accept brokered deposits without prior regulatory approval and
only an "adequately capitalized" depository institution may accept brokered
deposits with prior regulatory approval. For a discussion of the current
capital levels of the Corporation, see "Capital" on page 37 of the Annual
Report to Shareholders, incorporated herein by reference.
Non-bank Subsidiaries
All of the non-bank subsidiaries of the Corporation are subject to
regulatory restrictions imposed by the Federal Reserve Board and other federal
or state regulatory agencies. For example, two subsidiaries of the Corporation
are registered broker-dealers. The activities of these companies are monitored
by the Comptroller in one instance and the Federal Reserve Board in the other
instance and both are subject to rules and regulations promulgated by the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., the Municipal Securities Rulemaking Board, the Securities
Investors Protection Corporation and various state securities commissions.
Several other non-bank affiliates of the Corporation are registered investment
advisors and are subject to the regulations of the Securities and Exchange
Commission and may be subject to one or more state securities commissions.
Additionally, certain of these investment advisors are subsidiaries of national
banks and are subject to supervision by the Comptroller. Other non-bank
subsidiaries of the Corporation are regulated under federal and/or state
mortgage lending, insurance and consumer laws, among others.
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GOVERNMENTAL POLICIES
The operations of financial institutions may be affected by legislative
changes. For example, Congress is presently considering various administration
proposals, including proposals to consolidate the bank regulatory agencies, to
authorize interstate branching and to amend various consumer protection laws.
In addition, Congress is considering various issues relating to the separation
of banking and commerce including, for example, banks' mutual fund activities.
Financial institutions' operations also may be affected by the policies of
various regulatory authorities. In particular, bank holding companies and
their subsidiaries are affected by the credit policies of the Federal Reserve
Board. An important function of the Federal Reserve Board is to regulate the
national supply of bank credit. Among the instruments of monetary policy used
by the Federal Reserve Board to implement its objectives are: open market
operations in U.S. Government securities; changes in the discount rate on bank
borrowings; and changes in reserve requirements on bank deposits.
These instruments of monetary policy are used in varying combinations to
influence the overall level of bank loans, investments and deposits, the
interest rates charged on loans and paid for deposits, the price of the dollar
in foreign exchange markets, and the level of inflation. The monetary policies
of the Federal Reserve Board have had a significant effect on the operating
results of banking institutions in the past and are expected to continue to do
so in the future. It is not possible to predict the nature of future changes
in monetary and fiscal policies, or the effect that they may have on the
Corporation's business and earnings.
COMPETITION
Bank holding companies and their subsidiaries are subject to intense
competition from various financial institutions and other companies or firms
that engage in similar activities. The Banks compete for deposits with other
commercial banks, savings banks, savings and loan associations, insurance
companies, credit unions and issuers of commercial paper and other securities,
such as shares in money market funds. In making loans, the Banks compete with
other commercial banks, savings banks, savings and loan associations, consumer
finance companies, credit unions, leasing companies and other lenders. In
addition, PNC Securities Corp, PNC Brokerage Corp, PNC Capital Corp, PNC
Venture Corp and PNC Equity Management Corp compete with commercial banks,
investment banking firms, insurance companies and venture capital firms. In
providing trust and money management services, the Corporation competes with
other large commercial banks, trust companies, brokerage houses, mutual fund
managers and insurance companies. Many such competitors have substantial
resources and operations which are national or international in scope.
The Corporation and its subsidiaries compete not only with financial
institutions based in the states in which the Banks are located, but also with
a number of large out-of-state and foreign banks, bank holding companies and
other financial institutions which have an established market presence in each
state. Some of the financial institutions operating in these markets are
engaged in local, regional, national and international operations and have more
assets and personnel than the Corporation.
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EXECUTIVE OFFICERS
Information concerning each executive officer of the Corporation as of
February 28, 1994 is set forth below. Each executive officer held the position
indicated or another senior executive position with the same entity or one of
its affiliates or a predecessor corporation for the past five years, except:
Mr. Caldwell whose principal occupation prior to 1990 was Executive Vice
President and Manager of the Trust Division of Harris Trust and Savings Bank,
Chicago; Mr. Haunschild whose principal occupation prior to 1990 was Partner in
the Pittsburgh Office of Ernst & Young; and Ms. Pudlin whose principal
occupation prior to 1989 was Partner in the Philadelphia law firm of Ballard
Spahr Andrews & Ingersoll.
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NAME AGE POSITION WITH PNC BANK CORP. - YEAR EMPLOYED
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Thomas H. O'Brien 57 Chairman and Chief Executive Officer. Employed
in 1962.
James E. Rohr 45 President. Employed in 1972.
Richard C. Caldwell 49 Executive Vice President, Investment Management
and Trust. Employed in 1990.
Walter E. Gregg, Jr. 52 Executive Vice President, Finance and Administration. Employed in 1974.
Robert L. Haunschild 44 Senior Vice President, Planning/Finance. Employed in 1990.
Joe R. Irwin 58 Executive Vice President and Chief Investment Officer. Employed in 1963.
William J. Johns 46 Senior Vice President and Controller. Employed in 1974.
Edward P. Junker, III 57 Vice Chairman. Employed in 1964.
Thomas E. Paisley, III 46 Senior Vice President and Chairman, Corporate Credit Policy Committee.
Employed in 1972.
Helen P. Pudlin 44 Senior Vice President and General Counsel. Employed in 1989.
Bruce E. Robbins 49 President and Chief Executive Officer PNC Bank, National Association -
Pittsburgh. Employed in 1973.
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<CAPTION>
NAME AGE POSITION WITH PNC BANK CORP. - YEAR EMPLOYED
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A. William Schenck, III 50 Executive Vice President, Retail Banking. Employed in 1969.
Richard L. Smoot 53 President and Chief Executive Officer, PNC Bank, National Association -
Philadelphia. Employed in 1987.
Herbert G. Summerfield, Jr. 53 Executive Vice President, Real Estate. Employed in 1970.
Walter L. West 51 Treasurer. Employed in 1966.
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STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES
The statistical information contained on pages 63-72 of the Annual
Report to Shareholders is incorporated herein by reference.
ITEM 2--PROPERTIES
The executive and administrative offices of the Corporation and PNC
Bank, National Association ("PNC Bank, N.A.") are located in One PNC Plaza,
located at Fifth Avenue and Wood Street, Pittsburgh, Pennsylvania. This
thirty-story structure is owned by PNC Bank, N.A. The Corporation and PNC
Bank, N.A. occupy the entire building. In January 1993, PNC Bank, N.A.
purchased a thirty-four story structure adjacent to One PNC Plaza, now known as
Two PNC Plaza, that contains additional office space. PNC Bank, N.A. also owns
a recently-constructed data processing and telecommunications center located in
a suburb of Pittsburgh.
The Corporation's subsidiaries own or lease numerous other premises
for use in conducting banking and non-banking activities. The facilities owned
or occupied under lease by the Corporation's subsidiaries are considered by
management to be adequate. Neither the location of any particular office nor
the unexpired term of any lease is deemed material to the business of the
Corporation.
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ITEM 3 - LEGAL PROCEEDINGS
On December 13, 1993, the United States District Court for the Western
District of Pennsylvania dismissed with prejudice the previously reported
consolidated federal securities law class action lawsuit commenced in April
1990 against the Corporation and certain present and former directors and
executive officers and the previously reported shareholders' derivative suit
against such individuals. The dismissal was entered pursuant to a settlement
agreement approved by the court. The cost of settlement was covered by
insurance and existing litigation reserves.
In January 1992, a lawsuit was filed against PNC National Bank
("PNCNB"), a national bank subsidiary of the Corporation located in Wilmington
Delaware, alleging that PNCNB violated Pennsylvania statutes in connection with
certain fees charged on credit cards issued by PNCNB. The lawsuit is brought
on behalf of a purported class of resident individuals of Pennsylvania who have
contracted for, been charged, had reserved, or have paid these fees, and seeks,
among other things, unquantified compensatory and triple damages and injunctive
relief. In March 1992, PNCNB filed an answer to the amended complaint, denying
liability and raising several affirmative defenses, and in January 1993, PNCNB
filed a motion for judgment on the pleadings seeking dismissal of the suit.
The lawsuit was filed in the Court of Common Pleas of Allegheny County and has
been removed to the United States District Court for the Western District of
Pennsylvania. PNCNB is vigorously defending the lawsuit. The impact of the
final disposition of this litigation on the Corporation cannot be assessed at
the present time. The lawsuit is one of several brought against a number of
banks, challenging whether a credit card issuing bank can impose various types
of fees allowed by the state where the issuer is located on cardholders
residing in other states that allegedly limit or prohibit those fees.
The Corporation, in the normal course of business, is subject to
various other pending and threatened lawsuits in which claims for monetary
damages are asserted. Management, after consultation with legal counsel, does
not anticipate that the ultimate aggregate liability, if any, arising out of
such other lawsuits will have a material adverse effect on the Corporation's
financial position.
At the present time, management is not in a position to determine
whether any pending or threatened litigation will have a material adverse
effect on the Corporation's results of operations in any future reporting
period.
10
<PAGE> 13
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Corporation's common stock is listed on the New York Stock
Exchange and is traded under the symbol "PNC". At the close of business on
February 28, 1994, there were 43,456 shareholders of record.
Holders of common stock are entitled to receive dividends when
declared by the Board of Directors out of funds legally available therefor.
The Board of Directors may not pay or set apart dividends on the common stock
until dividends for all past dividend periods on any series of outstanding
preferred stock have been paid or declared and set apart for payment. The
Board presently intends to continue the policy of paying quarterly cash
dividends. However, the amount of any future dividends will depend upon
earnings, the financial condition of the Corporation and other factors
including applicable government regulations and policies. The ability to
maintain dividends at current levels is affected by the level of core earnings,
economic conditions, credit quality, regulatory policies, capital needs, growth
objectives, the ability of the Banks and non-bank subsidiaries to upstream
dividends to the parent company and other relevant factors. See further
discussion concerning dividend restrictions under Item 1 of this Form 10-K and
in "Regulatory Matters" on pages 56-57 of the Annual Report to Shareholders,
which is incorporated herein by reference.
Additional information relating to the common stock under the caption
"Stock Prices/Dividends Declared" on page 80 of the Annual Report to
Shareholders is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
"Selected Consolidated Financial Data" on page 61 of the Annual Report
to Shareholders is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Corporate Financial Review 1993 versus 1992" and "Management's
Discussion and Analysis 1992 Versus 1991" on pages 24-37 and 73-76,
respectively, of the Annual Report to Shareholders are incorporated herein by
reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Report of Independent Auditors," "Consolidated Financial
Statements" and "Selected Quarterly Financial Data" on pages 38, 39-60 and 62,
respectively, of the Annual Report to Shareholders are incorporated herein by
reference.
11
<PAGE> 14
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the principal occupations of directors of the
Corporation, their ages, directorships in other companies, and respective
terms of office under the heading "Election of Directors - Information
Concerning Nominees" in the definitive proxy statement of the Corporation for
the annual meeting of shareholders to be held on April 26, 1994 ("Proxy
Statement") is incorporated herein by reference. Information regarding timely
filing of initial reports of ownership and reports of changes in ownership of
any equity securities of the Corporation under the heading "Certain Reports" in
the Proxy Statement is incorporated herein by reference.
Information regarding executive officers of the Corporation is
included in Part I of this Form 10-K.
ITEM 11 - EXECUTIVE COMPENSATION
Information regarding compensation of directors and executive officers
under the headings "Election of Directors - Compensation of Directors" and
"Compensation of Executive Officers" in the Proxy Statement is incorporated
herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the beneficial ownership of the equity
securities of the Corporation by each director and nominee for director, each
of the five highest compensated executive officers and all directors and
executive officers of the Corporation as a group under the heading "Security
Ownership of Certain Beneficial Owners and Management - Security Ownership of
Directors and Executive Officers" in the Proxy Statement is incorporated herein
by reference. Information regarding ownership of the equity securities of the
Corporation by certain other beneficial owners under the heading "Security
Ownership of Certain Beneficial Owners and Management - Security Ownership of
Certain Beneficial Owners" in the Proxy Statement is incorporated herein by
reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding transactions and relationships with certain
directors and executive officers of the Corporation and their associates under
the heading "Compensation of Executive Officers - Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement is incorporated
herein by reference.
12
<PAGE> 15
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
The following consolidated financial statements and report of
independent auditors of the Corporation, included in the Annual Report to
Shareholders at the page indicated, are incorporated herein by reference.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS PAGE
- ----------------------------- ----
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Consolidated Balance Sheet as of December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . 39
Consolidated Statement of Income for the three years ended December 31, 1993 . . . . . . . . . . . . . 40
Consolidated Statement of Changes in Shareholders' Equity for the three years ended
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Consolidated Statement of Cash Flows for the three years ended December 31, 1993 . . . . . . . . . . . 42
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Selected Quarterly Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
FINANCIAL STATEMENT SCHEDULES
Not applicable.
REPORTS ON FORM 8-K
A Current Report on Form 8-K ("Current Report") dated as of November 19,
1993 was filed on December 7, 1993 pursuant to Items 2 and 5 to report: (i)
completion of the acquisition of Sears Mortgage Corporation, Sears Mortgage
Securities Corporation and Sears Savings Bank, FSB, and (ii) completion of the
acquisition of Gateway Fed Corporation.
Also, a Current Report dated as of January 19, 1994 was filed on January
26, 1994 pursuant to Item 5 to report: (i) the Corporation's consolidated
financial results for the three months and twelve months ended December 31,
1993, and (ii) completion of the acquisition of United Federal Bancorp, Inc.
No pro forma financial statements were required to be filed with either
such Current Report.
EXHIBITS
The exhibits listed on the Exhibit Index on pages 15-16 of this Form
10-K are filed herewith or are incorporated herein by reference.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, PNC Bank Corp. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PNC BANK CORP.
By /s/ Thomas H. O'Brien
------------------------------
Thomas H. O'Brien
Chairman and Chief Executive Officer
Date: March 16, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of PNC
Bank Corp. and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C>
/s/Thomas H. O'Brien Chairman, Chief Executive March 16, 1994
- --------------------------------- Officer and Director
Thomas H. O'Brien (Principal Executive Officer)
/s/Walter E. Gregg, Jr. Executive Vice President March 16, 1994
- ---------------------------------- (Principal Financial Officer)
Walter E. Gregg, Jr.
/s/William J. Johns Senior Vice President and March 16, 1994
- ---------------------------------- Controller
William J. Johns (Principal Accounting Officer)
Patricia J. Clifford
William G. Copeland
George A. Davidson, Jr.
C.G. Grefenstette A majority of the
Thomas Marshall Directors
W. Craig McClelland
Donald I. Moritz
Jackson H. Randolph By /s/Timothy C. Roach
James E. Rohr -----------------------------------------
Thomas J. Usher Timothy C. Roach, Attorney-in-Fact
Date: March 16, 1994
</TABLE>
14
<PAGE> 17
EXHIBIT INDEX
3.1 Articles of Incorporation of the Corporation as amended, filed herewith.
3.2 By-Laws of the Corporation, as amended, filed herewith.
4.1 Instruments defining the rights of holders of long-term debt of the
Corporation and its subsidiaries are not filed as Exhibits because the
amount of debt under each instrument is less than 10 percent of the
consolidated assets of the Corporation. The Corporation undertakes to
file these instruments with the Commission upon request.
4.2 Designation of Series: $1.80 Cumulative Convertible Preferred Stock --
Series A, incorporated herein as part of Exhibit 3.1.
4.3 Designation of Series: $1.80 Cumulative Convertible Preferred Stock --
Series B, incorporated herein as part of Exhibit 3.1.
4.4 Designation of Series: $1.60 Cumulative Convertible Preferred Stock --
Series C, incorporated herein as part of Exhibit 3.1.
4.5 Designation of Series: $1.80 Cumulative Convertible Preferred Stock --
Series D, incorporated herein as part of Exhibit 3.1.
10.1 Supplemental Executive Retirement Income and Disability Plan of the
Corporation, incorporated herein by reference to Exhibit 10.2 of the
Annual Report on Form 10-K for the year ended December 31, 1990 ("1990
Form 10-K").
10.2 Supplemental Executive Life Insurance and Spouse's Benefit Plan of the
Corporation, incorporated herein by reference to Exhibit 10.3 of the
1990 Form 10-K.
10.3 Description of the Corporation's Senior Executive Compensation Plan,
incorporated herein by reference to Exhibit 10.4 of the Annual Report on
Form 10-K for the year ended December 31, 1992 ("1992 Form 10-K").
10.4 1992 Long-Term Incentive Award Plan of the Corporation, incorporated
herein by reference to Exhibit 4.3 of the Registration Statement on Form
S-8 at File No. 33-54960.
10.5 1992 Director Share Incentive Plan, incorporated herein by reference to
Exhibit 10.6 of the 1992 Form 10-K.
11 Calculation of Primary and Fully Diluted Earnings Per Share, filed
herewith.
15
<PAGE> 18
12.1 Computation of Ratio of Earnings to Fixed Charges, filed herewith.
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends, filed herewith.
13 Annual Report to Shareholders for the year ended December 31, 1993,
filed herewith. Such Annual Report, except for those portions thereof
that are expressly incorporated by reference herein, is furnished for
information of the Securities and Exchange Commission only and is not
deemed to be "filed" as part of this Form 10-K.
21 Major Subsidiaries of the Corporation, filed herewith.
23 Consent of Ernst & Young, independent auditors for the Corporation,
filed herewith.
24 Power of Attorney of certain directors of the Corporation, filed
herewith.
16
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
PNC FINANCIAL CORP
FIRST. The name of the Corporation is PNC FINANCIAL CORP.
SECOND. The location and post office address of its initial registered
office in this Commonwealth is Pittsburgh National Building, Fifth Avenue and
Wood Street, Pittsburgh, Pennsylvania 15222.
THIRD. The Corporation is incorporated under the provisions of the
Business Corporation Law, the Act approved May 5, 1933, P.L. 364, as amended.
The purpose of the Corporation is and it shall have unlimited power to engage
in and to do any lawful act concerning any or all lawful business for which
corporations may be incorporated under such Act.
FOURTH. The term of the Corporations's existence is perpetual.
FIFTH. The authority to make, amend and repeal the by-laws of the
Corporation is hereby vested in the Board of Directors, subject always to the
power of the shareholders to change any such action.
SIXTH. The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is 35,000,000 shares, divided into
two classes consisting of 5,000,000 shares of preferred stock of the par value
of $1 each ("Preferred Stock") and 30,000,000 shares of common stock of the par
value of $5 each ("Common Stock").
SEVENTH. The following is a statement of certain of the designations,
preferences, qualifications, privileges, limitations, restrictions, and special
or relative rights in respect of the Preferred Stock and the Common Stock and a
statement of the authority vested in the Board of Directors to fix by
resolution any designations, preferences, privileges, qualifications,
limitations, restrictions and special or relative rights of any series of
Preferred Stock which are not fixed hereby:
PREFERRED STOCK
1. Issuance in series. The shares of Preferred Stock may be issued
from time to time in series. Each series shall be so designated as to
distinguish the shares thereof from the shares of all other series. All shares
of any particular series shall be identical except, if entitled to cumulative
dividends, as to the date or dates from which dividends thereon shall be
cumulative. The shares of any one series need not be identical or rank equally
with the shares of any other series except as required by law or as provided
hereby. The Board of Directors is expressly vested with authority to establish
and designate any one or more series of Preferred Stock and to fix and
determine by resolution any designations, preferences, qualifications,
privileges, limitations, restrictions or special or relative rights of
additional series which are not fixed hereby, including the following:
(a) The number of shares to constitute the series and the distinctive
designation thereof.
(b) The dividend rate, the dates for payment of dividends, whether
dividends shall be cumulative, and, if so, the date or dates from which and
the extent to which dividends shall be cumulative.
(c) The amount or amounts payable upon voluntary or involuntary
liquidation of the Corporation.
(d) The voting rights, if any, of the holders of shares of the series.
(e) The redemption price or prices, if any, and the terms and
conditions on which shares may be redeemed.
(f) Whether the shares of the series shall be convertible into or
exchangeable for shares of capital stock of the Corporation or other
securities, and, if so, the conversion price or prices or the rate or rates
of conversion or exchange, any adjustments thereof, and any other terms and
conditions of conversion or exchange.
B-5
<PAGE> 2
(g) Whether the shares of the series shall be entitled to the benefit
of any retirement or sinking fund to be applied to the purchase or
redemption of such shares, and, if so, the amount thereof and the terms and
conditions relative to the operation thereof.
(h) The rank of the shares of the series, as to dividends and assets,
in relation to the shares of any other class or series of capital stock of
the Corporation.
(i) Such other preferences, qualifications, privileges, limitations,
restrictions or special or relative rights of any series as are not fixed
hereby and as the Board of Directors may deem advisable and state in such
resolutions.
2. Dividends. The holders of shares of each series of Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors,
dividends at the rate which shall have been fixed hereby or by the Board of
Directors as authorized hereby with respect to such series, and no more except
as shall have been determined by the Board of Directors as authorized hereby.
If dividends on a particular series shall have been determined hereby or by the
Board of Directors as authorized hereby to be cumulative, no dividends shall be
paid or set apart for payment or declared on the Common Stock or on any class
or series of stock of the Corporation ranking as to dividends subordinate to
such series (other than dividends payable in Common Stock or in any class or
series of stock of the Corporation ranking as to dividends and assets
subordinate to such series) and no payment shall be made or set apart for the
purchase, redemption or other acquisition for value of any shares of Common
Stock or of any class or series of stock of the Corporation ranking as to
dividends or assets subordinate to such series, until dividends (to the extent
cumulative) for all past dividend periods on all outstanding shares of such
series have been paid, or declared and set apart for payment, in full. In case
dividends for any dividend period are not paid in full on all shares of
Preferred Stock ranking equally as to dividends, all such shares shall
participate ratably in the payment of dividends for such period in proportion
to the full amounts of dividends to which they are respectively entitled.
3. Liquidation of the Corporation. In the event of voluntary or
involuntary liquidation of the Corporation the holders of shares of each series
of Preferred Stock shall be entitled to receive from the assets of the
Corporation (whether capital or surplus), prior to any payment to the holders
of Common Stock or of any class or series of stock of the Corporation ranking
as to assets subordinate to such series, the amount fixed hereby or by the
Board of Directors as authorized hereby for such series, plus, in case
dividends on such series shall have been determined hereby or by the Board of
Directors as authorized hereby to be cumulative, an amount equal to the accrued
and unpaid dividends thereon (to the extent cumulative) computed to the date on
which payment thereof is made available, whether or not earned or declared.
After such payment to the holders of shares of such series, any remaining
balance shall be paid to the holders of Common Stock or of any class or series
of stock of the Corporation ranking as to assets subordinate to such series, as
they may be entitled. If, upon liquidation of the Corporation, its assets are
not sufficient to pay in full the amounts so payable to the holders of shares
of all series of Preferred Stock ranking equally as to assets, all such shares
shall participate ratably in the distribution of assets in proportion to the
full amounts to which they are respectively entitled. Neither a merger nor a
consolidation of the Corporation into or with any other corporation nor a sale,
transfer or lease of all or part of the assets of the Corporation shall be
deemed a liquidation of the Corporation within the meaning of this paragraph.
4. Voting rights. (a) Except as otherwise required by law, holders of
shares of Preferred Stock shall have only such voting rights, if any, as shall
have been fixed and determined hereby or by the Board of Directors as
authorized hereby. Except as otherwise required by law or as otherwise provided
hereby or by the Board of Directors as authorized hereby, holders of Preferred
Stock having voting rights and holders of Common Stock shall vote together as
one class.
(b) If the Corporation shall have failed to pay, or declare and set
apart for payment, dividends on all outstanding shares of Preferred Stock in an
amount equal to six quarterly dividends at the rates payable upon such shares
(whether or not such dividends are cumulative), the number of directors of the
Corporation shall be increased by two at the first annual meeting of the
shareholders of the Corporation held thereafter, and at such meeting and at
each subsequent annual meeting until cumulative dividends payable for all past
dividend periods and continuous noncumulative dividends for at least one year
on all outstanding shares of Preferred Stock entitled
B-6
<PAGE> 3
thereto shall have been paid, or declared and set apart for payment, in full,
the holders of shares of Preferred Stock of all series shall have the right,
voting as a class, to elect such two additional members of the Board of
Directors to hold office for a term of one year. Upon such payment, or such
declaration and setting apart for payment, in full, the terms of the two
additional directors so elected shall forthwith terminate, and the number of
directors of the Corporation shall be reduced by two, and such voting right of
the holders of shares of Preferred Stock shall cease, subject to increase in
the number of directors as aforesaid and to revesting of such voting right in
the event of each and every additional failure in the payment of dividends in
an amount equal to six quarterly dividends as aforesaid.
5. Action by Corporation requiring approval of Preferred Stock. The
Corporation shall not, without the affirmative vote at a meeting, or the
written consent with or without a meeting, of the holders of at least
two-thirds of the then outstanding shares of Preferred Stock of all series (a)
create or increase the authorized number of shares of any class of stock
ranking as to dividends or assets prior to the Preferred Stock; or (b) change
the preferences, qualifications, privileges, limitations, restrictions or
special or relative rights granted to or imposed upon the shares of Preferred
Stock in any material respect adverse to the holders thereof, provided that if
any such change will affect any particular series materially and adversely as
contrasted with the effect thereof upon any other series, no such change may be
made without, in addition, such vote or consent of the holders of at least
two-thirds of the then outstanding shares of the particular series which would
be so affected.
6. Redemption and acquisition (a) Except as otherwise provided by the
Board of Directors as authorized hereby, the Corporation, at its option to be
exercised by its Board of Directors, may redeem the whole or any part of the
Preferred Stock or of any series thereof at such times and at the applicable
amount for each share which shall have been fixed and determined hereby or by
the Board of Directors as authorized hereby with respect thereto, plus, in case
dividends shall have been determined hereby or by the Board of Directors as
authorized hereby to be cumulative, an amount equal to the accrued and unpaid
dividends thereon (to the extent cumulative) computed to the date fixed for
redemption, whether or not earned or declared (hereinafter collectively called
the "redemption price"). If at any time less than all of the Preferred Stock
then outstanding is to be called for redemption, the Board may select one or
more series to be redeemed, and if less than all the outstanding Preferred
Stock of any series is to be called for redemption, the shares to be redeemed
may be selected by lot or by such other equitable method as the board in its
discretion may determine. Notice of every redemption, stating the redemption
date, the redemption price, and the place of payment thereof, and, if less than
all of the Preferred Stock then outstanding is called for redemption,
identifying the shares to be redeemed, shall be published at least once in a
newspaper printed in the English language and of general circulation in the
City of Philadelphia, Pennsylvania, or in the Borough of Manhattan, the City of
New York, New York, the first publication to be not less than 30 nor more than
60 days prior to the date fixed for redemption. Copies of such notice shall be
mailed at least 30 days and not more than 60 days prior to the date fixed for
redemption to the holders of record of the shares to be redeemed at their
addresses as the same shall appear on the books of the Corporation, but failure
to give such additional notice by mail or any defect therein or failure of any
addressee to receive it shall not affect the validity of the proceedings for
redemption. The Corporation, upon publication of the first notice of redemption
as aforesaid or upon irrevocably authorizing the bank or trust company
hereinafter mentioned to publish such notice as aforesaid, may deposit or cause
to be deposited in trust with a bank or trust company in the City of
Philadelphia, Pennsylvania, or in the Borough of Manhattan, the City of New
York, New York an amount equal to the redemption price of the shares to be
redeemed, which amount shall be payable to the holders thereof upon surrender
of certificates therefor on or after the date fixed for redemption or prior
thereto if so directed by the Board of Directors. Upon such deposit, or if no
such deposit is made then from and after the date fixed for redemption unless
the Corporation shall default in making payment of the redemption price upon
surrender of certificates as aforesaid, the shares called for redemption shall
cease to be outstanding and the holders thereof shall cease to be shareholders
with respect to such shares and shall have no interest in or claim against the
Corporation with respect to such shares other than the right to receive the
redemption price form such bank or trust company or from the Corporation, as
the case may be, without interest thereon, upon surrender of certificates as
aforesaid; provided that conversion rights of shares called for redemption
shall terminate at the close of business on the date fixed for redemption or at
such earlier time as shall have been fixed by the board of Directors as
authorized hereby. Any funds so deposited which shall not be required for such
redemption because of the exercise of conversion rights subsequent to the date
of such deposit shall be returned to the Corporation. In case any holder of
shares called for redemption shall not, within
B-7
<PAGE> 4
six years after the date of such deposit, have claimed the amount deposited
with respect to the redemption thereof, such bank or trust company, upon
demand, shall pay over to the Corporation such unclaimed amount and shall
thereupon be relieved of all responsibility in respect thereof to such holder,
and thereafter such holder shall look only to the Corporation for payment
thereof. Any interest which may accrue on funds so deposited shall be paid to
the Corporation from time to time.
(b) Except as otherwise provided by the Board of Directors as
authorized hereby, the Corporation shall have the right to acquire Preferred
Stock from time to time at such price or prices as the Corporation may
determine, provided that unless dividends (to the extent cumulative) payable
for all past quarterly dividend periods on all outstanding shares of Preferred
Stock entitled to cumulative dividends have been paid, or declared and set
apart for payment, in full, the Corporation shall not acquire for value any
shares of Preferred Stock except in accordance with an offer (which may vary as
to terms offered with respect to shares of different series but not with
respect to shares of the same series) made in writing or by publication (as
determined by the Board of Directors) to all holders of record of shares of
Preferred Stock.
(c) Except as otherwise provided by the Board of Directors as
authorized hereby, Preferred Stock redeemed or acquired by the Corporation
otherwise than by conversion shall not be cancelled or retired except by action
of the Board and shall have the status of authorized and unissued Preferred
Stock which may be reissued by the Board as shares of the same or any other
series until cancelled and retired by action of the Board, but, at the option
of the Board, Preferred Stock acquired otherwise than by redemption or
conversion may be held as treasury shares which may be reissued by the Board
until cancelled and retired by action of the Board.
$1.80 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
7. Designation. A series of Preferred Stock designated $1.80 Cumulative
Convertible Preferred Stock, Series A (Redeemable) (herein called "Series A
Preferred Stock") is hereby established, consisting of 98,583 shares subject to
increase or decrease in the number of shares in accordance with law.
8. Dividends. The dividend rate of shares of this series shall be $1.80
per share per year, payable quarterly on the tenth day of each March, June,
September and December. Dividends shall be cumulative from the March 10, June
10, September 10 or December 10 next preceding the date of issue of each share,
unless the date of issue is a quarterly dividend payment date or a date between
the record date for the determination of holders of $1.80 Cumulative
Convertible Preferred Stock or Provident National Corporation, a predecessor of
the Corporation (such stock having been converted into the Series A Preferred
Stock), entitled to receive a quarterly dividend and the date of payment of
such quarterly dividend, in either of which events such dividends shall be
cumulative from such quarterly dividend payment date.
9. Liquidation. The amount payable upon shares of Series A Preferred
Stock in the event of voluntary or involuntary liquidation of the Corporation,
prior to any payment to the holders of Common Stock or of any class or series
of stock of the Corporation ranking as to assets subordinate to the Series A
Preferred Stock, shall be $40.00 per share plus an amount equal to accrued and
unpaid dividends thereon computed to the date on which payment thereof is made
available, whether or not earned or declared.
10. Redemption. Shares of Series A Preferred Stock shall be redeemable
at any time at $40.00 per share plus an amount equal to accrued and unpaid
dividends thereon computed to the date fixed for redemption, whether or not
earned or declared.
11. Voting rights. Each holder of record of Series A Preferred Stock
shall have the right to a number of votes equal to the number of full shares of
Common Stock into which the share or shares of Series A Preferred Stock
standing in his name on the books of the Corporation are at the time
convertible.
B-8
<PAGE> 5
12. Conversion provisions. (a) Shares of Series A Preferred Stock may,
at the option of the holder, be converted into Common Stock of the Corporation
(as such stock may be constituted on the conversion date) at the rate of two
shares of Common Stock for each share of Series A Preferred Stock, subject to
adjustment as provided herein; provided that, as to any shares of Series A
Preferred Stock which shall have been called for redemption, the conversion
right shall terminate at the close of business on the date fixed for
redemption.
(b) The holder of a share or shares of Series A Preferred Stock may
exercise the conversion right as to any thereof by delivering to the
Corporation, during regular business hours, at its principal office or at the
office of any of its transfer agents for the Series A Preferred Stock or at
such other place as may be designated by the Corporation, the certificate or
certificates for the shares to be converted, duly endorsed or assigned in blank
or to the Corporation (if required by it), accompanied by written notice
stating that the holder elects to convert such shares and stating the name or
names (with address) in which the certificate or certificates for Common Stock
are to be issued. Conversion shall be deemed to have been effected on the date
when such delivery is made, and such date is referred to herein as the
"conversion date". As promptly as practicable thereafter the Corporation shall
issue and deliver to or upon the written order of such holder, at such office
or other place designated by the Corporation, a certificate or certificates for
the number of full shares of Common Stock to which he is entitled and a check,
cash, scrip certificate or other adjustment in respect of any fraction of a
share as provided in section 12(d) below. The person in whose name the
certificate or certificates for Common Stock are to be issued shall be deemed
to have become a holder of such Common Stock of record on the conversion date
unless the transfer books of the Corporation are closed on that date, in which
event he shall be deemed to have become a holder of such Common Stock of record
on the next succeeding date on which the transfer books are open, but the
conversion rate shall be that in effect on the conversion date.
(c) No payment or adjustment shall be made for dividends accrued on any
shares of Series A Preferred Stock converted or for dividends on any shares of
Common Stock issuable on conversion.
(d) The Corporation shall not be required to issue any fraction of a
share upon conversion of any share or shares of Series A Preferred Stock. If
more than one share of Series A Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
total number of shares of Series A Preferred Stock so surrendered. If any
fractional interest in a share of Common Stock would be deliverable upon
conversion, the Corporation shall make an adjustment therefor in cash unless
its Board of Directors shall have determined to adjust fractional interest by
issuance of scrip certificates or in some other manner. Adjustment in cash
shall be made on the basis of the current market value of one share of Common
Stock, which shall be taken to be the last reported sale price of the
Corporation's Common Stock on the principal stock exchange on which the Common
Stock is then listed on the last business day before the conversion date or, if
there was no reported sale on that day, the average of the closing bid and
asked quotations on that exchange on that day or, if the Common Stock is not
then listed on any stock exchange, the average of the lowest bid and the
highest asked quotations in the over-the-counter market on that day.
(e) The issuance of Common Stock on conversion of Series A Preferred
Stock shall be without charge to the converting holder of Series A Preferred
Stock for any tax in respect of the issuance thereof, but the Corporation shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares in any name other than that of
the holder of record on the books of the Corporation of the shares of Series A
Preferred Stock converted, and the Corporation shall not be required to issue
or deliver any certificate for shares of Common Stock unless and until the
person requesting the issuance thereof shall have paid to the Corporation the
amount of such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
(f) The conversion rate provided in section 12(a) shall be subject to
the following adjustments, which shall be made to the nearest one-hundredth of
a share of Common Stock or, if none, to the next lower one-hundredth:
(1) If the Corporation shall pay to the holders of its Common Stock a
dividend in shares of Common Stock, the conversion rate in effect
immediately prior to the record date fixed for the determination of the
holders of Common Stock entitled to such dividend shall be proportionately
increased, effective at the opening of business on the next following full
business day.
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<PAGE> 6
(2) If the Corporation shall split the outstanding shares of its Common
Stock into a greater number of shares or combine the outstanding shares into
a smaller number, the conversion rate in effect immediately prior to such
action shall be proportionately increased in the case of a split or
decreased in the case of a combination, effective at the opening of business
on the full business day next following the day such action becomes
effective.
(3) If the Corporation shall issue to the holders of its Common Stock
rights or warrants to subscribe for or purchase shares of its Common Stock
at a price less than 90% of the Current Market Price (as defined below in
this paragraph) of the Corporation's Common Stock at the record date fixed
for the determination of the holders of Common Stock entitled to such rights
or warrants, the conversion rate in effect immediately prior to said record
date shall be increased, effective at the opening of business on the next
following full business day, to an amount determined by multiplying such
conversion rate by a fraction the numerator of which is the number of shares
of Common Stock of the Corporation outstanding immediately prior to said
record date plus the number of additional shares of its Common Stock offered
for subscription or purchase and the denominator of which is said number of
shares outstanding immediately prior to said record date plus the number of
shares of Common Stock of the Corporation which the aggregate subscription
or purchase price of the total number of shares so offered would purchase at
the Current Market Price of the Corporation's Common Stock at said record
date. The term "Current Market Price" at said record date shall mean the
average of the daily last reported sale prices per share of the
Corporation's Common Stock on the principal stock exchange on which the
Common Stock is then listed during the 20 consecutive full business days
commencing with the 30th full business day before said record date, provided
that if there was no reported sale on any such day or days there shall be
substituted the average of the closing bid and asked quotations on that
exchange on that day, and provided further that if the Common Stock was not
listed on any stock exchange on any such day or days there shall be
substituted the average of the lowest bid and the highest asked quotations
in the over-the-counter market on that day.
(g) No adjustment of the conversion rate provided in section 12(a)
shall be made by reason of the issuance of Common Stock for cash except as
provided in section 12(f)(3), or by reason of the issuance of Common Stock for
property or services. Whenever the conversion rate is adjusted pursuant to
section 12(f) the Corporation shall (1) promptly place on file at its principal
office and at the office of each of its transfer agents for the Series A
Preferred Stock a statement signed by the Chairman of the Board, the President
or a Vice President of the Corporation and by its Treasurer or an Assistant
Treasurer showing in detail the facts requiring such adjustment and the
conversion rate after such adjustment, and shall make such statement available
for inspection by shareholders of the Corporation, and (2) cause a notice to be
published at least once in a newspaper printed in the English language and of
general circulation in the City of Philadelphia, Pennsylvania, or in the
Borough of Manhattan, the City of New York, New York, stating that such
adjustment has been made and the adjusted conversion rate.
(h) If the Corporation shall issue to the holders of its Common Stock
rights or warrants to subscribe for or purchase shares of its Common Stock or
any other security, or if the Corporation shall distribute to the holders of
its Common Stock any evidences of indebtedness or any other assets (excluding
dividend and distributions in cash), the Corporation shall mail to each holder
of record of a share or shares of Series A preferred Stock, at his address as
it shall appear on the books of the Corporation, a notice stating the record
date fixed or to be fixed for the determination of the holders of Common Stock
of record entitled to such issuance or distribution. Such notice shall be
mailed at least 10 days before such record date. Failure to mail such notice or
any defect therein or failure of any addressee to receive it shall not affect
the validity of such issuance or distribution or any vote thereon.
(i) In case of any reclassification or change in the outstanding shares
of Common Stock of the Corporation (except a split or combination of shares) or
in case of any consolidation or merger to which the Corporation is a party
(except a merger in which the Corporation is the surviving Corporation and
which does not result in any reclassification of or change in the outstanding
Common Stock of the Corporation except a split or combination of shares) or in
case of any sale or conveyance to another corporation of all or substantially
all of the property of the Corporation, effective provision shall be made by
the Corporation or by the successor or purchasing corporation (1) that the
holder of each share of Series A Preferred Stock then outstanding shall
thereafter have the right to convert such share into the kind and amount of
stock and other securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock of the Corporation into which such share of Series A
Preferred Stock might have been converted immedi-
B-10
<PAGE> 7
ately prior thereto, and (2) that there shall be subsequent adjustments of the
conversion rate which shall be equivalent, as nearly as practicable, to the
adjustment provided for inspection 12(f). The provisions of this section 12(i)
shall similarly apply to successive reclassifications, changes, consolidations,
mergers, sales or conveyances.
(j) Shares of Common Stock issued on conversion of shares of Series A
Preferred Stock shall be issued as fully paid shares and shall be nonassessable
by the Corporation. The Corporation shall at all times reserve and keep
available for the purpose of effecting the conversion of Series A Preferred
Stock, such number of its duly authorized shares of Common Stock as shall be
sufficient to effect the conversion of all outstanding shares of Series A
Preferred Stock.
(k) Shares of Series A Preferred Stock converted as provided herein
shall not be reissued.
$1.80 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B
13. Designation. A series of Preferred Stock designated $1.80
Cumulative Convertible Preferred Stock, Series B (Nonredeemable) (herein called
"Series B Preferred Stock") is hereby established consisting of 38,542 shares
subject to increase or decrease in the number of shares in accordance with law.
14. Dividends. The dividend rate of shares of Series B Preferred Stock
shall be $1.80 per share per year, payable quarterly on the tenth day of each
March, June, September and December. Dividends shall be cumulative from the
March 10, June 10, September 10 or December 10 next preceding the date of issue
of each share, unless the date of issue is a quarterly dividend payment date or
a date between the record date for the determination of holders of $1.80
Cumulative Convertible Preferred Stock, 1971 Series, of Provident National
Corporation, a predecessor of the Corporation (such stock having been converted
into the Series B Preferred Stock), entitled to receive a quarterly dividend
and the date of payment of such quarterly dividend, in either of which events
such dividends shall be cumulative from such quarterly dividend payment date.
15. Liquidation. The amount payable upon shares of Series B Preferred
Stock in the event of voluntary or involuntary liquidation of the Corporation,
prior to any payment to the holders of Common Stock or of any class or series
of stock of the Corporation ranking as to assets subordinate to the Series B
Preferred Stock, shall be $40.00 per share plus an amount equal to accrued and
unpaid dividends thereon computed to the date on which payment thereof is made
available, whether or not earned or declared.
16. Rank. The Series B Preferred Stock shall rank, as to dividends and
assets, equally with the series of Preferred Stock of the Corporation
designated $1.80 Cumulative Convertible Preferred Stock, Series A (Redeemable).
17. Redemption. Shares of Series B Preferred Stock shall not be
redeemable.
18. Voting rights. Each holder of record of Series B Preferred Stock
shall have the right to a number of votes equal to the number of full shares of
Common Stock into which the share or shares of Series B Preferred Stock
standing in his name on the books of the Corporation are at the time
convertible.
19. Conversion provision. (a) Shares of Series B Preferred Stock may,
at the option of the holder, be converted into Common Stock of the Corporation
(as such stock may be constituted on the conversion date) at the rate of two
shares of Common Stock for each share of Series B Preferred Stock, subject to
adjustment as provided herein.
B-11
<PAGE> 8
(b) the holder of a share or shares of Series B Preferred Stock may
exercise the conversion right as to any thereof by delivering to the
Corporation during regular business hours, at its principal office or at the
office of any of its transfer agents for the Series B Preferred Stock or at
such other place as may be designated by the Corporation, the certificate or
certificates for the shares to be converted, duly endorsed or assigned in blank
or to the Corporation (if required by it), accompanied by written notice
stating that the holder elects to convert such shares and stating the name or
names (with address) in which the certificate or certificates for Common Stock
are to be issued. Conversion shall be deemed to have been effected on the date
when such delivery is made, and such date is referred to herein as the
"conversion date". As promptly as practicable thereafter the Corporation shall
issue and deliver to or upon the written order of such holder, at such office
or other place designated by the Corporation, a certificate or certificates for
the number of full shares of Common Stock to which he entitled and a check,
cash, scrip certificate or other adjustment in respect of any fraction of a
share as provided in section 19(d) below. The person in whose name the
certificate or certificates for Common Stock are to be issued shall be
deemed to have become a holder of such Common Stock of record on the conversion
date unless the transfer books of the Corporation are closed on that date, in
which event he shall be deemed to have become a holder of such Common Stock of
record on the next succeeding date on which the transfer books are open, but
the conversion rate shall be that in effect on the conversion date.
(c) No payment or adjustment shall be made for dividends accrued on any
shares of Series B Preferred Stock converted or for dividends on any shares of
Common Stock issuable on conversion.
(d) The Corporation shall not be required to issue any fraction of a
share upon conversion of any share or shares of Series B Preferred Stock. If
more than one share of Series B Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
total number of shares of Series B Preferred Stock so surrendered. If any
fractional interest in a share of Common Stock would be deliverable upon
conversion, the Corporation shall make an adjustment therefor in cash unless
its Board of Directors shall have determined to adjust fractional interests by
issuance of scrip certificates or in some other manner. Adjustment in cash
shall be made on the basis of the current market value of one share of Common
Stock, which shall be taken to the last reported sale price of the
Corporation's Common Stock on the principal stock exchange on which the Common
Stock is then listed on the last business day before the conversion date or, if
there was no reported sale on that day, the average of the closing bid and
asked quotations on that exchange on that day or, if the Common Stock is not
then listed on any stock exchange, the average of the lowest bid and the
highest asked quotations in the over-the-counter market on that day.
(e) The issuance of Common Stock on conversion of Series B Preferred
Stock shall be without charge to the converting holder of Series B Preferred
Stock for any tax in respect of the issuance thereof, but the Corporation shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares in any name other than that of
the holder of record on the books of the Corporation of the shares of Series B
Preferred Stock converted, and the Corporation shall not be required to issue
or deliver any certificate for shares of Common Stock unless and until the
person requesting the issuance thereof shall have paid to the Corporation the
amount of such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
(f) The conversion rate provided in section 19(a) above shall be
subject to the following adjustments, which shall be made to the nearest
one-hundredth of a share of Common Stock or, if none, to the next lower
one-hundredth:
(1) If the Corporation shall pay to the holders of its Common Stock a
dividend in shares of Common Stock, the conversion rate in effect
immediately prior to the record date fixed for the determination of the
holders of Common Stock entitled to such dividend shall be proportionately
increased, effective at the opening of business on the next following full
business day.
(2) If the Corporation shall split the outstanding shares of its Common
Stock into a greater number of shares or combine the outstanding shares into
a smaller number, the conversion rate in effect immediately prior to such
action shall be proportionately increased in the case of a split or
decreased in the case of a combination, effective at the opening of business
on the full business day next following the day such action becomes
effective.
B-12
<PAGE> 9
(3) If the Corporation shall issue to the holders of its Common Stock
rights or warrants to subscribe for or purchase shares of its Common Stock at a
price less that 90% of the Current Market Price (as defined below in this
paragraph) of the Corporation's Common Stock at the record date fixed for the
determination of the holders of Common Stock entitled to such rights or
warrants, the conversion rate in effect immediately prior to said record date
shall be increased, effective at the opening of business on the next following
full business day, to an amount determined by multiplying such conversion rate
by a fraction the numerator of which is the number of shares of Common Stock of
the Corporation outstanding immediately prior to said record date plus the
number of additional shares of its Common Stock offered for subscription or
purchase and the denominator of which is said number of shares outstanding
immediately prior to said record date plus the number of shares of Common Stock
of the Corporation which the aggregate subscription or purchase price of the
total number of shares so offered would purchase at the Current Market Price of
the Corporation's Common Stock at said record date. The term "Current Market
Price" at said record date shall mean the average of the daily last reported
sale prices per share of the Corporation's Common Stock on the principal stock
exchange on which the Common Stock is then listed during the 20 consecutive
full business days commencing with the 30th full business day before said
record date, provided that if there was no reported sale on any such day or
days there shall be substituted the average of the closing bid and asked
quotations on that exchange on that day, and provided further that if the
Common Stock was not listed on any stock exchange on any such day or days there
shall be substituted the average of the lowest bid and the highest asked
quotations in the over-the-counter market on that day.
(g) No adjustment of the conversion rate provided in section 19(a)
above shall be made by reason of the issuance of Common Stock for cash except
as provided in section 19(f)(3) above, or by reason of the issuance of Common
Stock for property or services. Whenever the conversion rate is adjusted
pursuant to section 19(f) above the Corporation shall (1) promptly place on
file at its principal office and at the office of each of its transfer agents
for the Series B Preferred Stock a statement signed by the Chairman of the
Board, the President or a Vice President of the Corporation and by its
Treasurer or an Assistant Treasurer showing in detail the facts requiring such
adjustment and the conversion rate after such adjustment, and shall make such
statement available for inspection by shareholders of the Corporation, and (2)
cause a notice to be published at least once in a newspaper printed in the
English language and of general circulation in the City of Philadelphia,
Pennsylvania, or in the Borough of Manhattan, the City of New York, New York,
stating that such adjustment has been made and the adjusted conversion rate.
(h) If the Corporation shall issue to the holders of its Common Stock
rights or warrants to subscribe for or purchase shares of its Common Stock or
any other security, or if the Corporation shall distribute to the holders of
its Common Stock any evidences of indebtedness or any other assets (excluding
dividends and distributions in cash), the Corporation shall mail to each holder
of record of a share or shares of Series B Preferred Stock, at his address as
it shall appear on the books of the Corporation, a notice stating the record
date fixed or to be fixed for the determination of the holders of Common Stock
of record entitled to such issuance or distribution. Such notice shall be
mailed at least 10 days before such record date. Failure to mail such notice or
any defect therein or failure of any addressee to receive it shall not affect
the validity of such issuance or distribution or any vote thereon.
(i) In case of any reclassification or change of the outstanding shares
of Common Stock of the Corporation (except a split or combination of shares) or
in case of any consolidation or merger to which the Corporation is a party
(except a merger in which the Corporation is the surviving corporation and
which does not result in any reclassification of or change in the outstanding
Common Stock of the Corporation except a split or combination of shares) or in
case of any sale or conveyance to another corporation of all substantially all
of the property of the Corporation, effective provision shall be made by the
Corporation or by the successor or purchasing corporation (i) that the holder
of each share of Series B Preferred Stock then outstanding shall thereafter
have the right to convert such share into the kind and amount of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock of the Corporation into which such share of Series B Preferred
Stock might have been converted immediately prior thereto, and (2) that there
shall be subsequent adjustments of the conversion rate which shall be
equivalent, as nearly as practicable, to the adjustments provided for in
section 19(f) above. The provisions of this section 19(i) shall similarly apply
to successive reclassifications, changes, consolidations, mergers, sales or
conveyances.
B-13
<PAGE> 10
(j) Shares of Common Stock issued on conversion of shares of Series B
Preferred Stock shall be issued as fully paid shares and shall be nonassessable
by the Corporation. The Corporation shall at all times reserve and keep
available for the propose of effecting the conversion of Series B Preferred
Stock, such number of its duly authorized shares of Common Stock as shall be
sufficient to effect the conversion of all outstanding shares of Series B
Preferred Stock.
(k) Shares of Series B Preferred Stock converted as provided herein
shall not be reissued.
20. Retirement or sinking fund. The shares of Series B Preferred Stock
shall not be entitled to the benefit of any retirement or sinking fund to be
applied to the purchase or redemption of such shares.
COMMON STOCK
21. Each holder of record of Common Stock shall have the right to one
vote for each share of Common Stock standing in his name on the books of the
Corporation.
PROVISIONS APPLICABLE TO ALL CLASSES OF CAPITAL STOCK
22. No holder of any class of capital stock of the Corporation shall be
entitled to cumulate his votes for the election of directors.
23. No holder of any class of capital stock of the Corporation shall
have preemptive rights, and the Corporation shall have the right to issue and
to sell to any person or persons any shares of its capital stock or any option
rights or any securities having conversion or option rights, without first
offering such shares, rights or securities to any holders of any class of
capital stock of the Corporation.
B-14
<PAGE> 11
RESOLVED, that a third series of Preferred Stock, par value $1.00, of
PNC Financial Corp ("Corporation") is hereby established and that the shares of
said series shall have, in addition to the preferences, qualifications,
privileges, limitations, restrictions and special or relative rights in respect
of Preferred Stock granted or created by law and by the Corporation's Articles
of Incorporation, the following preferences, qualifications, privileges,
limitations, restrictions and special or relative rights which are hereby fixed
and determined:
1. Designation. A series of Preferred Stock designated "$1.60
Cumulative Convertible Preferred Stock, Series C" (herein called "Series C
Preferred Stock") is hereby established, consisting of 1,417,149 shares subject
to increase or decrease in the number of shares in accordance with law.
2. Rank. Series C Preferred Stock shall rank, as to dividends and
assets, equally with the Series A Preferred Stock and the Series B Preferred
Stock and every other share of capital stock from time to time outstanding
which is not Common Stock of the Corporation and which is not specifically made
senior or subordinate to the Series C Preferred Stock as to dividends or
assets.
3. Dividends. The dividend rate of shares of this series shall be $1.60
per share per year, payable in equal quarterly installments on the first day of
each January, April, July and October. Dividends shall be cumulative from the
January 1, April 1, July 1 and October 1 next preceding the date of issue of
each share, unless the date of issue is a quarterly dividend payment date or a
date between the record date for the determination of holders of record of
Series C Preferred Stock entitled to receive a quarterly dividend and the date
of payment of such quarterly dividend, in either of which events such dividends
shall be cumulative from such dividend payment date.
4. Liquidation. The amount payable upon shares of Series C Preferred
Stock in the event of voluntary or involuntary liquidation of the Corporation,
prior to any payment to the holders of Common Stock or of any class or series
of stock of the Corporation ranking as to assets subordinate to the Series C
Preferred Stock, shall be $20.00 per share plus an amount equal to accrued and
unpaid dividends thereon computed to the date on which payment thereof is made
available, whether or not earned or declared.
5. Redemption. Shares of Series C Preferred Stock shall be redeemable
at any time after [insert first day of the month following the fifth
anniversary of the Effective Date of the Merger] at $20.00 per share plus an
amount equal to accrued and unpaid dividends thereon computed to the date fixed
for redemption, whether or not earned or declared.
6. Voting rights. Each holder of record of Series C Preferred Stock
shall have the right to a number of votes equal to the number or full shares of
Common Stock into which the share or shares of Series C Preferred Stock
standing in his name on the books of the Corporation are at the time
convertible.
7. Conversion provisions. (a) Shares of Series C Preferred Stock may,
at the option of the holder, be converted into Common Stock of the Corporation
(as such stock may be constituted on the conversion date) at the conversion
price, determined as hereinafter provided, in effect at the time of conversion,
subject to adjustment as provided herein; provided that, as to any shares of
Series C Preferred Stock, which shall have been called for redemption, the
conversion right shall terminate at the close of business on the date fixed for
redemption. The value of each share of Series C Preferred Stock for the purpose
of such conversion shall be $20,00. The price at which shares of Common Stock
of the Corporation shall be delivered upon conversion (herein called the
"conversion price") shall initially be $48.00 per share of Common Stock of the
Corporation.
(b) The holder of a share or shares of Series C Preferred Stock may
exercise the conversion right as to any thereof by delivering to the
Corporation, during regular business hours, at its principal office or at the
office of any of its transfer agents for the Series C Preferred Stock or at
such other place as may be designated by the Corporation, the certificate or
certificates for the shares to be converted, duly endorsed or assigned in blank
or to
<PAGE> 12
the Corporation (if required by it), accompanied by written notice stating that
the holder elects to convert such shares and stating the name or names (with
address) in which the certificate or certificates for Common Stock are to be
issued. Conversion shall be deemed to have been effected on the date when such
delivery is made, and such date is referred to herein as the "conversion date".
As promptly as practicable thereafter the Corporation shall issue and deliver
to or upon the written order of such holder, at such office or other place
designated by the Corporation, a certificate or certificates for the number of
full shares of Common Stock to which he is entitled and cash, scrip certificate
or other adjustment in respect of any fraction of a share as provided in
section 7(d) below. The person in whose name the certificate or certificates
for Common Stock are to be issued shall be deemed to have become a holder of
such Common Stock of record on the conversion date unless the transfer books of
the Corporation are closed on that date, in which event he shall be deemed to
have become a holder of such Common Stock of record on the next succeeding date
on which the transfer books are open, but the conversion price shall be that in
effect on the conversion date.
(c) No payment or adjustment shall be made for dividends accrued on any
shares of Series C Preferred Stock converted or for dividends on any shares of
Common Stock issuable on conversion.
(d) The Corporation shall not be required to issue any fraction of a
share upon conversion of any share or shares of Series C Preferred Stock. If
more than one share of Series C Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
total number or shares of Series C Preferred Stock so surrendered. If any
fractional interest in a share of Common Stock would be deliverable upon
conversion, the Corporation shall make an adjustment therefor in cash unless
its Board of Directors shall have determined to adjust fractional interests by
issuance of scrip certificates or in some other manner. Adjustment in cash
shall be made on the basis of the current market value of one share of Common
Stock, which shall be taken to be the last reported sale price of the
Corporation's Common Stock on the principal stock exchange on which the Common
Stock is then listed (or if not so listed, on the over-the-counter market) for
the last business day before the conversion date or, if there was no reported
sale on that day, the last reported sales price on the first preceding day for
which such price is available.
(c) The issuance of Common Stock on conversion of Series C Preferred
Stock shall be without charge to the converting holder of Series C Preferred
Stock for any tax in respect of the issuance thereof, but the Corporation shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares in any name other than that of
the holder of record on the books of the Corporation of the shares of Series C
Preferred Stock converted, and the Corporation shall not be required to issue
or deliver any certificate for shares of Common Stock unless and until the
person requesting the issuance thereof shall have paid to the Corporation the
amount of such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
(f) The conversion price provided in section 7(a) shall be subject to
the following adjustments, which shall be made to the nearest cent:
(1) If the Corporation shall pay to the holders of its Common Stock
a dividend in shares of Common Stock, the conversion price in effect
immediately prior to the record date fixed for the determination of the
holders of Common Stock entitled to such dividend shall be proportionately
decreased, effective at the opening of business on the next following full
business day.
(2) If the Corporation shall split the outstanding shares of its
Common Stock into a greater number of shares or combine the outstanding
shares into a smaller number, the conversion price in effect immediately
prior to such action shall be proportionately decreased in the case of a
split or increased in the case of a combination, effective at the opening
of business on the full business day next following the day such action
becomes effective.
(3) If the Corporation shall issue to the holders of its Common
Stock rights or warrants to subscribe for or purchase shares of its Common
Stock at a price less than 90% of the Current Market Price (as defined
below in this paragraph) of the Corporation's Common Stock at the record
date fixed for the determination of the holders of Common Stock entitled
to such rights or warrants, the conversion price in effect immediately
prior to said record date shall be adjusted, effective at the opening of
business on the next following full business day, to an amount determined
by multiplying such conversion price by a fraction the numerator of
<PAGE> 13
which is the number of shares of Common Stock of the corporation
outstanding immediately prior to said record date plus the number of
shares of Common Stock of the Corporation which the aggregate subscription
or purchase price of the total number of shares so offered would purchase
at the Current Market Price of the Corporation's Common Stock at said
record date and the denominator of which is said number of shares
outstanding immediately prior to said record date plus the number of
additional shares of its Common Stock offered for subscription or
purchase. The term "Current Market Price" at said record date shall mean
the average of the daily last reported sale prices per share of the
Corporation's Common Stock on the principal stock exchange on which the
Common Stock is then listed (or if not so listed, then on the
over-the-counter market) during the 20 consecutive full business days
commencing with the 30th full business day before said record date,
provided that if there was no reported sale on any such day or days there
shall be substituted the average of the closing bid and asked quotations
on that day obtained from the market specialist assigned to the
Corporation (or a market maker in the case of the over-the-counter
market).
4. The Corporation may make such reductions in the conversion
price, in addition to those required by the foregoing provisions, as it
considers to be advisable in order that any event treated for federal
income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
(g) No adjustment of the conversion price provided in section 7(a)
shall be made by reason of the issuance of Common Stock for cash except as
provided in section 7(f)(3), or by reason of the issuance of Common Stock for
property or services. Whenever the conversion price is adjusted pursuant to
section 7(f) the Corporation shall (1) promptly place on file at its principal
office and at the office of each of its transfer agents for the Series C
Preferred Stock a statement signed by the Chairman of the Board, the President
or a Vice President of the Corporation and by its Treasurer or an Assistant
Treasurer showing in detail the facts requiring such adjustment and the
conversion price after such adjustment, and shall make such statement available
for inspection by shareholders of the Corporation, and (2) cause a notice to be
published at least once in a newspaper printed in the English language and of
general circulation in the City of Erie, Pennsylvania, and in the Borough of
Manhattan, the City of New York, New York, stating that such adjustment has
been made and the adjusted conversion price.
(h) If the Corporation shall issue to the holders of its Common Stock
rights or warrants to subscribe for or purchase shares of its Common Stock or
any other security, or if the Corporation shall distribute to the holders of
its Common Stock any evidences of indebtedness or any other assets (excluding
dividends and distributions in cash), the Corporation shall mail to each holder
of record of a share or shares of Series C Preferred Stock, at his address as
it shall appear on the books of the Corporation, a notice stating the record
date fixed or to be fixed for the determination of the holders of Common Stock
of record entitled to such issuance or distribution. Such notice shall be
mailed at least 10 days before such record date. Failure to mail such notice or
any defect therein or failure of any addressee to receive it shall not affect
the validity of such issuance or distribution or any vote thereon.
(i) In case of any reclassification or change in the outstanding shares
of Common Stock of the Corporation (except a split or combination of shares) or
in case of any consolidation or merger to which the Corporation is a party
(except a merger in which the Corporation is the surviving corporation and
which does not result in any reclassification of or change in the outstanding
Common Stock of the Corporation except an increase in the number of outstanding
shares or a split or combination of shares) or in case of any sale or
conveyance to another corporation of all or substantially all of the property
of the Corporation, effective provision shall be made by the Corporation or by
the successor or purchasing corporation (1) that the holder of each share of
Series C Preferred Stock then outstanding shall thereafter have the right to
convert such share into the kind and amount of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock of the
Corporation into which such share of Series C Preferred Stock might have been
converted immediately prior thereto, and (2) that there shall be subsequent
adjustments of the conversion price which shall be equivalent, as nearly as
practicable, to the adjustments provided for in section 7(f). The provisions of
this section 7(i) shall similarly apply to successive reclassification,
changes, consolidations, mergers, sales or conveyances.
(j) Shares of Common Stock issued on conversion of shares of Series C
Preferred Stock shall be issued as fully paid shares and shall be
non-assessable by the Corporation. The Corporation shall at all times reserve
and keep available for the purpose of effecting the conversion of Series C
Preferred Stock, such number of its duly authorized
<PAGE> 14
shares of Common Stock as shall be sufficient to effect the conversion of all
outstanding shares of Series C Preferred Stock.
(k) Shares of Series C Preferred Stock converted as provided herein
shall not be reissued.
<PAGE> 15
RESOLVED, that a fourth series of Preferred Stock, par value $1.00, of
PNC Financial Corp ("Corporation") is hereby established and that the shares of
said series shall have, in addition to the preferences, qualifications,
privileges, limitations, restrictions and special or relative rights in
respect of Preferred Stock granted or created by law and by the Corporation's
Articles of Incorporation, the following preferences, qualifications,
privileges, limitations, restrictions and special or relative rights which are
hereby fixed and determined:
1. Designation. A series of Preferred Stock designated "$1.80
Cumulative Convertible Preferred Stock, Series D" (herein called "Series D
Preferred Stock") is hereby established, consisting of 1,775,302* shares
subject to increase or decrease in the number of shares in accordance with law.
2. Rank. Series D Preferred Stock shall rank, as to dividends and
assets, equally with the Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock and every other share of capital stock from
time to time outstanding which is not Common Stock of the Corporation and which
is not specifically made senior or subordinate to the Series D Preferred Stock
as to dividends or assets.
3. Dividends. The dividend rate of shares of this series shall be
$1.80 per share per year, payable in equal quarterly installments on the first
day of each January, April, July and October. Dividends shall be cumulative
from the January 1, April 1, July 1 and October 1 next preceding the date of
issue of each share, unless the date of issue is a quarterly dividend payment
date or a date between the record date for the determination of holders of
record of Series D Preferred Stock entitled to receive a quarterly dividend and
the date of payment of such quarterly dividend, in either of which events such
dividends shall be cumulative from such dividend payment date.
4. Liquidation. The amount payable upon shares of Series D Preferred
Stock in the event of voluntary or involuntary liquidation of the Corporation,
prior to any payment to the holders of Common Stock or of any class or series
of stock of the Corporation ranking as to assets subordinate to the Series D
Preferred Stock, shall be $20.00 per share plus an amount equal to accrued and
unpaid dividends thereon computed to the date on which payment thereof is made
available, whether or not earned or declared.
5. Redemption. Shares of Series D Preferred Stock shall be redeemable
at any time after [insert first day of the month following the fifth
anniversary of the Effective Date of the Merger] at $20.00 per share plus an
amount equal to accrued and unpaid dividends thereon computed to the date fixed
for redemption, whether or not earned or declared.
6. Voting rights. Each holder of Series D Preferred Stock shall have
the right to a number of votes equal to the number of full shares of Common
Stock into which the share or shares of Series D Preferred Stock standing in
his name on the books of the Corporation are at the time convertible.
7. Conversion provisions. (a) Shares of Series D Preferred Stock may,
at the option of the holder, be converted into Common Stock of the Corporation
(as such stock may be constituted on the conversion date) at the conversion
price, determined as hereinafter provided, in effect at the time of conversion,
subject to adjustment as provided herein; provided that, as to any shares of
Series D Preferred Stock which shall have been called for redemption, the
conversion right shall terminate at the close of business on the date fixed for
redemption. The value of each share of Series D Preferred Stock for the
purpose of such conversion shall be $20.00. The price at which shares of
Common Stock of the Corporation shall be delivered upon conversion (herein
called the "conversion price") shall initially be $48.00 per share of Common
Stock of the Corporation.
(b) The holder of a share or shares of Series D Preferred Stock may
exercise the conversion right as to any thereof by delivering to the
Corporation, during regular business hours, at its principal office or at the
office of any of its transfer agents for the Series D Preferred Stock or at
such other place as may be designated by the Corporation, the certificate or
certificates for the shares to be converted, duly endorsed or assigned in blank
or to the Corporation (if required by it), accompanied by written notice
stating that the holder elects to convert such shares and stating the name or
names (with address) in which the certificate or certificates for Common Stock
are
- --------
* This number shall be the number of shares of Series D Preferred Stock to be
issued in connection with the Merger of Northeastern Bancorp, Inc. with and
into PNC Financial Corp pursuant to the terms of a Plan of Merger by and
between Northeastern Bancorp, Inc. and PNC Financial Corp dated as of August
16, 1984.
1
<PAGE> 16
to be issued. Conversion shall be deemed to have been effected on the date
when such delivery is made, and such date is referred to herein as the
"conversion date". As promptly as practicable thereafter the Corporation shall
issue and deliver to or upon the written order of such holder, at such office
or other place designated by the Corporation, a certificate or certificates for
the number of full shares of Common Stock to which he is entitled and cash,
scrip certificate or other adjustment in respect of any fraction of a share as
provided in section 7(d) below. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
holder of such Common Stock of record on the conversion date unless the
transfer books of the Corporation are closed on that date, in which event he
shall be deemed to have become a holder of such Common Stock of record on the
next succeeding date on which the transfer books are open, but the conversion
price shall be that in effect on the conversion date.
(c) No payment or adjustment shall be made for dividends accrued on
any shares of Series D Preferred Stock converted or for dividends on any shares
of Common Stock issuable on conversion.
(d) The Corporation shall not be required to issue any fraction of a
share upon conversion of any share or shares of Series D Preferred Stock. If
more than one share of Series D Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
total number of shares of Series D Preferred Stock so surrendered. If any
fractional interest in a share of Common Stock would be deliverable upon
conversion, the Corporation shall make an adjustment therefor in cash unless
its Board of Directors shall have determined to adjust fractional interests by
issuance of scrip certificates or in some other manner. Adjustment in cash
shall be made on the basis of the current market value of one share of Common
Stock, which shall be taken to be the last reported sale price of the
Corporation's Common Stock on the principal stock exchange on which the Common
Stock is then listed (or if not so listed, on the over-the-counter market) for
the last business day before the conversion date or, if there was no reported
sale on that day, the last reported sales price on the first preceding day for
which such price is available.
(e) The issuance of Common Stock on conversion of Series D Preferred
Stock shall be without charge to the converting holder of Series D Preferred
Stock for any tax in respect of the issuance thereof, but the Corporation shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares in any name other than that of
the holder of record on the books of the Corporation of the shares of Series D
Preferred Stock converted, and the Corporation shall not be required to issue
or deliver any certificate for shares of Common Stock unless and until the
person requesting the issuance thereof shall have paid to the Corporation the
amount of such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
(f) The conversion price provided in section 7(a) shall be subject to
the following adjustments, which shall be made to the nearest cent:
(1) If the Corporation shall pay to the holders of its Common
Stock a dividend in shares of Common Stock, the conversion price in
effect immediately prior to the record date fixed for the
determination of the holders of Common Stock entitled to such dividend
shall be proportionately decreased, effective at the opening of
business on the next following full business day.
(2) If the Corporation shall split the outstanding shares of its
Common Stock into a greater number of shares or combine the
outstanding shares into a smaller number, the conversion price in
effect immediately prior to such action shall be proportionately
decreased in the case of a split or increased in the case of a
combination, effective at the opening of business on the full business
day next following the day such action becomes effective.
(3) If the Corporation shall issue to the holders of its Common
Stock rights or warrants to subscribe for or purchase shares of its
Common Stock at a price less than 90% of the Current Market Price (as
defined below in this paragraph) of the Corporation's Common Stock at
the record date fixed for the determination of the holders of Common
Stock entitled to such rights or warrants, the conversion price in
effect immediately prior to said record date shall be adjusted,
effective at the opening of business on the next following full
business day, to an amount determined by multiplying such conversion
price by a fraction the numerator of which is the number of shares of
Common Stock of the Corporation outstanding immediately prior to said
record date plus the number of shares of Common Stock of the
Corporation which the aggregate subscription
2
<PAGE> 17
or purchase price of the total number of shares so offered would
purchase at the Current Market Price of the Corporation's Common Stock
at said record date and the denominator of which is said number of
shares outstanding immediately prior to said record date plus the
number of additional shares of its Common Stock offered for
subscription or purchase. The term "Current Market Price" at said
record date shall mean the average of the daily last reported sale
prices per share of the Corporation's Common Stock on the principal
stock exchange on which the Common Stock is then listed (or if not so
listed, then on the over-the-counter market) during the 20 consecutive
full business days commencing with the 30th full business day before
said record date, provided that if there was no reported sale on any
such day or days there shall be substituted the average of the closing
bid and asked quotations on that day obtained from the market
specialist assigned to the Corporation (or a market maker in the case
of the over-the-counter market).
4. The Corporation may make such reductions in the conversion
price, in addition to those required by the foregoing provisions, as
it considers to be advisable in order that any event treated for
federal income tax purposes as a dividend of stock or stock rights
shall not be taxable to the recipients.
(g) No adjustment of the conversion price provided in section 7(a)
shall be made by reason of the issuance of Common Stock for cash except as
provided in section 7(f)(3), or by reason of the issuance of Common Stock for
property or services. Whenever the conversion price is adjusted pursuant to
section 7(f) the Corporation shall (1) promptly place on file at its principal
office and at the office of each of its transfer agents for the Series D
Preferred Stock a statement signed by the Chairman of the Board, the President
or a Vice President of the Corporation and by its Treasurer or an Assistant
Treasurer showing in detail the facts requiring such adjustment and the
conversion price after such adjustment, and shall make such statement available
for inspection by shareholders of the Corporation, and (2) cause a notice to be
published at least once in a newspaper printed in the English language and of
general circulation in the City of Scranton, Pennsylvania, and in the Borough
of Manhattan, the City of New York, New York, stating that such adjustment has
been made and the adjusted conversion price.
(h) If the Corporation shall issue to the holders of its Common Stock
rights or warrants to subscribe for or purchase shares of its Common Stock or
any other security, or if the Corporation shall distribute to the holders of
its Common Stock any evidences of indebtedness or any other assets (excluding
dividends and distributions in cash), the Corporation shall mail to each holder
a record of a share or shares of Series D Preferred Stock, at his address as it
shall appear on the books of the Corporation, a notice stating the record date
fixed or to be fixed for the determination of the holders of Common Stock of
record entitled to such issuance or distribution. Such notice shall be mailed
at least 10 days before such record date. Failure to mail such notice or any
defect therein or failure of any addressee to receive it shall not affect the
validity of such issuance or distribution or any vote thereon.
(i) In case of any reclassification or change in the outstanding
shares of Common Stock of the Corporation (except a split or combination of
shares) or in case of any consolidation or merger to which the Corporation is a
party (except a merger in which the Corporation is the surviving corporation
and which does not result in any reclassification of or change in the
outstanding Common Stock of the Corporation except an increase in the number of
outstanding shares or a split or combination of shares) or in case of any sale
or conveyance to another corporation of all or substantially all of the
property of the Corporation, effective provision shall be made by the
Corporation or by the successor or purchasing corporation (1) that the holder
of each share of Series D Preferred Stock then outstanding shall thereafter
have the right to convert such share into the kind and amount of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock of the Corporation into which such share of Series D Preferred
Stock might have been converted immediately prior thereto, and (2) that there
shall be subsequent adjustments of the conversion price which shall be
equivalent, as nearly as practicable, to the adjustments provided for in
section 7(f). The provisions of this section 7(i) shall similarly apply to
successive reclassifications, changes, consolidations, mergers, sales or
conveyances.
(j) Shares of Common Stock issued on conversion of shares of Series D
Preferred Stock shall be issued as fully paid shares and shall be
non-assessable by the Corporation. The Corporation shall at all times reserve
and keep available for the purpose of effecting the conversion of Series D
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall be sufficient to effect the conversion of all outstanding shares of
Series D Preferred Stock.
(k) Shares of Series D Preferred Stock converted as provided herein
shall not be reissued.
3
<PAGE> 18
Microfilm Number Filed with the Department of State on FEB 08 1993
---------------
Entity Number 754401 /s/ Brenda K. Mitchell
---------------- Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB: 15-1915 (Rev 90)
In compliance with the requirement of 15 Pa.C.S. Section 1915
(relating to articles of amendment), the undersigned business corporation,
desiring to amend its Articles, hereby states that:
1. The name of the corporation is: PNC Financial Corp
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
Pittsburgh National Building
(a) Fifth Avenue and Wood Street Pittsburgh, Pennsylvania 15265 Allegheny
-----------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o
-----------------------------------------------------------------------
Name of Commercial Registered Office Provider
For a corporation represented by a commercial registered office provider,
the county in (b) shall be deemed the county in which the corporation is
located for venue and official publication purposes.
3. The statute by or under which it was incorporated is: Pennsylvania Business
Corporation Law of 1933
4. The date of its incorporation is: January 19, 1983
5. (Check, and if appropriate complete, one of the following):
The amendment shall be effective upon filing these Articles of
---- Amendment in the Department of State.
X The amendment shall be effective on: February 8, 1993 at 12:01 am
---- -----------------------------
Date Hour
6. (Check one of the following):
The amendment was adopted by the shareholders (or members) pursuant
---- to 15 Pa.C.S. Section 1914 (a) and (b).
X The amendment adopted by the board of directors pursuant to 15
---- Pa.C.S. Section 1914 (c).
7. (Check, and if appropriate complete, one of the following):
X The amendment adopted by the corporation, set forth in full, is
---- as follows:
RESOLVED, that Article 1 of the Articles of Consolidation of
this Corporation which presently reads as follows:
"1. The name of the Corporation is:
PNC Financial Corp"
be and the same amended to read as follows:
"1. The name of the Corporation is:
PNC Bank Corp."
The amendment adopted by the corporation as set forth in full in
---- Exhibit A attached hereto and made a part hereof.
<PAGE> 19
DSCB:15-1915 (Rev. 90)-2
8. (Check if the amendment restates the Articles):
The restated Articles of Incorporation supersede the original
---- Articles and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by duly authorized officer thereof this
21st day of January 1993.
PNC Financial Corp
---------------------------------------------
(Name of Corporation)
By /s/ William F. Strome
------------------------------------------
TITLE: Managing General Counsel and Secretary
--------------------------------------
<PAGE> 20
Microfilm Number 9335-1354 Filed with the Department of State on MAY 10 1993
Entity Number 754401 /s/ Brenda K. Mitchell
-----------------------------
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB: 15-1915 (Rev 90)
In compliance with the requirement of 15 Pa.C.S. Section 1915
(relating to articles of amendment), the undersigned business corporation,
desiring to amend its Articles, hereby states that:
1. The name of the corporation is: PNC Bank Corp.
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
(a) Fifth Avenue and Wood Street Pittsburgh, Pennsylvania 15265 Allegheny
-----------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o
-----------------------------------------------------------------------
Name of Commercial Registered Office Provider
For a corporation represented by a commercial registered office provider,
the county in (b) shall be deemed the county in which the corporation is
located for venue and official publication purposes.
3. The statute by or under which it was incorporated is: Pennsylvania Business
Corporation Law of 1933
4. The date of its incorporation is: January 19, 1983
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing these Articles of
---- Amendment in the Department of State.
The amendment shall be effective on: at
---- ------------------------------
Date Hour
6. (Check one of the following):
X The amendment was adopted by the shareholders (or members) pursuant
---- to 15 Pa.C.S. Section 1914 (a) and (b).
The amendment was adopted by the board of directors pursuant to
---- 15 Pa.C.S. Section 1914 (c).
7. (Check, and if appropriate complete, one of the following):
X The amendment adopted by the corporation, set forth in full, is
---- as follows:
RESOLVED, that Article VI of the Articles of Incorporation be
amended so as to read as follows:
"The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is 470,000,000 shares
divided into two classes consisting of 20,000,000 shares of
preferred stock of the par value of $1 each ("Preferred Stock")
and 450,000,000 shares of common stock of the par value of $5
each ("Common Stock")".
The amendment adopted by the corporation as set forth in full
---- in Exhibit A attached hereto and made a part hereof.
<PAGE> 21
DSCB:15-1915 (Rev. 90)-2
8. (Check if the amendment restates the Articles):
The restated Articles of Incorporation supersede the original
---- Articles and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof this
4th day of May 1993.
PNC Bank Corp.
---------------------------------------------
(Name of Corporation)
By /s/ William F. Strome
---------------------------------------------
William F. Strome (Signature)
TITLE Senior Vice President, Managing
-----------------------------------------
General Counsel and Secretary
<PAGE> 1
EXHIBIT 3.2
BY-LAWS OF
PNC BANK CORP.
Article I. PRINCIPAL OFFICE
The principal office of the Corporation shall be located at One PNC
Plaza, Pittsburgh, Pennsylvania.
Article II. SHAREHOLDERS
1. Annual Meeting
An annual meeting of the shareholders for the election of directors and
the transaction of such other business as may properly come before the meeting
shall be held at 11 a.m. on the fourth Tuesday in April of each year, or on
such other date or hour as may be fixed by the Board of Directors.
2. Special Meetings
Special meetings of the shareholders may be called at any time by the
Board of Directors, the Chairman of the Board, the President, a Vice Chairman
of the Board, or when requested in writing by shareholders entitled to cast at
least one-fifth of the votes which all shareholders are entitled to cast at the
meeting.
3. Place of Meetings
Meetings of the shareholders shall be held at the principal office of
the Corporation or at such other place as the Board of Directors may designate.
4. Notice of Meetings
Written notice of every meeting of the shareholders shall be given to
each shareholder of record entitled to vote at the meeting at least five days
prior to the day named for the meeting, unless a greater period of notice is
required by law. The notice shall state the day, time and place of such meeting
and the general nature of the business to be transacted. Notice of a meeting
may be waived in writing and attendance at a meeting shall itself constitute a
waiver of notice of the meeting.
<PAGE> 2
By-Laws - PNC Bank Corp.
Page 2
5. Quorum
The presence, in person or by proxy, of shareholders entitled to cast at
least a majority of the votes which all shareholders are entitled to cast on
the particular matter shall constitute a quorum for the purpose of considering
such matter. At a duly organized meeting, except as may be otherwise specified
in the Articles of Incorporation or provided by law, each matter shall be
decided by a majority of the votes entitled to be cast on such matters by the
shareholders present at the meeting in person or by proxy.
6. Record Date
The Board of Directors may fix a record date not more than ninety days
prior to the date of any meeting of shareholders, or the date fixed for the
payment of any dividend or distribution, or the date for the allotment of
rights or the date when any change or conversion or exchange of shares will be
made or go into effect. Only such shareholders as shall be shareholders of
record at the close of business on the record date shall be entitled to notice
of, or to vote at such meeting or to receive such allotment of rights or to
exercise such rights, as the case may be.
Article III. DIRECTORS
1. Board of Directors
The business and offices of the Corporation shall be managed by the
Board of Directors, which shall consist of not less than five nor more than
thirty-six members as shall be established from time to time by the Board of
Directors.
2. Term of Office
After elected by the shareholders, directors shall hold office until the
next succeeding annual meeting and until their successors shall have been
elected and qualified.
3. Vacancy
Vacancies in the Board of Directors, including vacancies resulting from
an increase in the number of directors, may be filled by a majority of the
remaining directors though less than a quorum, and any director so elected
shall serve until the next annual meeting of the shareholders and until a
successor shall have been elected and qualified.
<PAGE> 3
By-Laws - PNC Bank Corp.
Page 3
4. Organization
As soon as practicable after the annual meeting of shareholders at which
they were elected, the Board of Directors shall meet for the purpose of
electing officers and the transaction of such other business as may be properly
brought before the meeting.
5. Regular Meetings
Regular meetings of the Board of Directors may be held without notice at
such times and at such places as the Board of Directors, by resolution, shall
establish. When a regular meeting falls on a business holiday, it shall be held
on the preceding or next following business day, as the Chief Executive Officer
shall select.
6. Special Meetings
Special meetings of the Board of Directors may be called by the Chairman
of the Board, the President, a Vice Chairman, or at the written request of any
three directors. Notice of special meetings shall be given to each director
personally or in writing, or by telephone, not later than during the day
immediately preceding the day of such meeting and shall include the general
nature of the business to be transacted at the meeting.
7. Quorum
A majority of the directors shall constitute a quorum for the
transaction of business, and the acts of a majority of the directors present at
a meeting at which a quorum is present shall be the acts of the Board of
Directors. One or more directors may participate in a meeting of the Board of
Directors, or in a meeting of a Committee of the Board of Directors by means of
communication facilities enabling all persons participating in the meeting to
hear each other.
8. Action Without a Meeting
Any action which may be taken at a meeting of the Board of Directors may
be taken without a meeting if a written consent or consents setting forth the
action so taken is signed by all the directors and filed with the Secretary of
the Corporation.
9. Compensation of Directors
Directors shall be compensated for their services and reimbursed for
their meeting attendance expenses, in such manner and at such time as the Board
of Directors may determine.
<PAGE> 4
By-Laws - PNC Bank Corp.
Page 4
Article IV. OFFICERS
1. Designation
The officers of the Corporation shall be a Chairman of the Board, a
President, one or more Vice Chairmen, one or more Vice Presidents of whom one
or more may be designated Executive Vice President or Senior Vice President, a
Secretary, a Treasurer, a Controller, a General Auditor and such other
officers, as the Board of Directors, the Chairman, the President, or the Vice
Chairman may from time to time designate. The Board of Directors shall
designate from among the Chairman of the Board, President, and Vice Chairmen,
one of those officers to be the Chief Executive Officer. All officers having
the rank of Vice President or higher shall be elected by the Board of Directors
and shall hold office during the pleasure of the Board of Directors. All other
officers shall be appointed by the Chief Executive Officer, or, in his absence,
by such other officer or officers as may be designated by the Board of
Directors, and such appointments shall be reported to the Board of Directors.
2. Responsibilities of the Senior Officers
2.1 Chief Executive Officer
The Chief Executive Officer of the Corporation shall preside at all
meetings of the shareholders and the Board of Directors, and shall be ex
officio a member of all Committees except the Audit Committee, the Nominating
Committee, and the Personnel and Compensation Committee; subject to the
direction of the Board of Directors, the Chief Executive Officer shall have the
general supervision of the policies, business and operations of the
Corporation, and of the other officers, agents and employees of the Corporation
and, except as otherwise provided in these By-Laws or by the Board of
Directors, shall have all the other powers and duties as are usually incident
to the Chief Executive Officer of a corporation. In the absence of the Chief
Executive Officer, his rights and duties shall be performed by such other
officer or officers as shall be designated by the Board of Directors.
2.2 Chairman, President and Vice Chairman
The Chairman, the President and the Vice Chairman if not designated as
the Chief Executive Officer shall have such duties and powers as may be
assigned to them from time to time by the Board of Directors or the Chief
Executive Officer.
<PAGE> 5
By-Laws - PNC Bank Corp.
Page 5
2.3 Vice Presidents
The Executive Vice Presidents, Senior Vice Presidents and the Vice
Presidents, if such are elected, shall have the duties and powers as may from
time to time be assigned to them by the Board of Directors, or by the Chief
Executive Officer in the absence of any assignment by the Board of Directors.
Any reference in these By-Laws to a Vice President will apply equally to an
Executive Vice President or a Senior Vice President unless the context requires
otherwise.
2.4 Treasurer
Treasurer shall be responsible for the funding of the Corporation and
for all moneys, funds, securities, fidelity and indemnity bonds and other
valuables belonging to the Corporation; and shall perform such other duties as
may be assigned to him from time to time by the Board of Directors or the Chief
Executive Officer.
2.5 Secretary
The Secretary shall: attend the meetings of the shareholders, of the
Board of Directors, of the Executive Committee, and of such other committees,
and shall keep minutes thereof in suitable minute books; have charge of the
corporate records, papers and the corporate seal; have charge of the stock and
transfer records of the Corporation and shall keep a record of all shareholders
and give notices of all meetings of shareholders, special meetings of the Board
of Directors and of its Committees; and have such other duties as the Board of
Directors or the Chief Executive Officer shall assign.
2.6 Controller
The Controller, if a Controller is elected, shall cause to be kept
proper records of the transactions of the Corporation; shall be responsible for
the preparation of financial and tax reports required of the Corporation; and
shall perform such other duties as may be assigned to him from time to time by
the Board of Directors or the Chief Executive Officer.
2.7 General Auditor
The General Auditor shall have charge of auditing the books, records and
accounts and shall report directly to the Board of Directors or the Audit
Committee thereof.
2.8 Assistant Officers
Each assistant officer as shall be elected shall assist in the
performance of the duties of the officer to whom he is assistant and shall
perform such duties in the
<PAGE> 6
By-Laws - PNC Bank Corp.
Page 6
absence of the officer. He shall perform such additional duties as the Board of
Directors, the Chief Executive Officer, or the officer to whom he is assistant,
may from time to time assign to him.
3. Incumbency
Any officer elected by the Board of Directors may be removed by the
Board of Directors whenever, in its best judgment, the best interest of the
Corporation will be served thereby, without prejudice however to any contract
rights the person so removed may have with the Corporation or any of its
subsidiaries.
Article V. COMMITTEES
1. Standing Committees
The Standing Committees which shall be appointed from time to time by
the Board of Directors shall be the Executive Committee, the Audit Committee,
the Loan and Investment Committee, the Nominating Committee and the Personnel
and Compensation Committee. The Board of Directors may appoint such other
Committees as the Board of Directors shall deem advisable.
1.1 Executive Committee
The Executive Committee shall consist of its Chairman and Chief
Executive Officer and such other directors, not less than five, all of whom
shall from time to time be appointed by the Board of Directors or the Chief
Executive Officer. The Committee shall meet at such time or times as may be
fixed by the Board of Directors, or upon call of its Chairman or the Chief
Executive Officer. In the absence of the Chairman of the Committee, the Chief
Executive Officer shall act as Chairman of the Executive Committee, unless the
Board of Directors shall appoint some other person. The Executive Committee
shall have and exercise in the intervals between the meetings of the Board of
Directors all the powers of the Board of Directors so far as may be permitted
by law. All acts done and powers conferred by the Executive Committee from
time to time shall be deemed to be, and may be certified as being, done and
conferred under authority of the Board of Directors. Five directors shall
constitute a quorum.
1.2 Audit Committee
The Board of Directors shall appoint annually the Audit Committee
consisting of not less than five directors, nor more than eight, none of whom
shall be an officer, or a former officer of the Corporation. The Committee
shall select a chairman from its membership, and may appoint a secretary who
need not be a director. The Committee shall meet on call of its Chairman. The
duties and responsibilities of the Committee shall be established by the Board
of Directors.
<PAGE> 7
By-Laws - PNC Bank Corp.
Page 7
1.3 Nominating Committee
The Board of Directors shall appoint annually the Nominating Committee,
consisting of not less than five directors, none of whom shall be an officer.
The Committee shall select a chairman from its membership, and may appoint a
secretary, who need not be a director. The Committee shall meet on the call of
its Chairman or the Chief Executive Officer. The duties and responsibilities
of the Committee shall be to select the persons to be candidates for nomination
for election as directors of the Corporation and make recommendations with
respect thereto to the Board of Directors.
1.4 Personnel and Compensation Committee
The Board of Directors shall appoint annually the Personnel and
Compensation Committee consisting of not less than five directors, none of whom
shall be an officer. The Committee shall select a chairman from its membership
and may appoint a secretary who need not be a director. The Committee shall
meet on call of its Chairman or the Chief Executive Officer. The duties and
responsibilities of the Committee shall be 1) to receive reports on management
succession from the Chief Executive Officer; 2) to approve the terms of
employment and compensation of the Chairman of the Board, President and Vice
Chairmen of the Corporation, and equivalent officers of all subsidiaries of the
Corporation, and all other officers of the Corporation above the rank of Vice
President; 3) to review and recommend to the Board of Directors for its
approval, employee benefit, bonus, incentive compensation or similar plans
relating to the attraction and retention of employees; 4) to administer,
construe and interpret any such plans in accordance with their provisions, and
to perform such other duties in connection with such plans as may from time to
time be assigned to it by the Board of Directors or under the provisions of
such plans; and 5) to review and recommend to the Board of Directors for its
approval, persons to be elected as Chairman of the Board, President and Vice
Chairmen of the Corporation and its Banking subsidiaries.
1.5 Loan and Investment Committee
The Board of Directors shall appoint annually the Loan and Investment
Committee consisting of not less than six directors, including no more than
three officer-directors. The Committee shall select a chairman from its
membership, who shall not be an officer, and may appoint a secretary who need
not be a director or a member of the Committee. The Committee shall meet on
call of its Chairman or of the Chairman of the Board, or, without notice at
such times as the Board of Directors, by resolution, shall stipulate. The
duties and responsibilities of the Committee shall be 1) to review and approve
(when appropriate) loan and asset and liability management policies and reports
of compliance therewith; 2) review Credit Policy and Asset and
<PAGE> 8
By-Laws - PNC Bank Corp.
Page 8
Liability Management Committee activities; 3) review reports on significant
credit commitments, loan portfolio distribution, total credit commitment and
usage, delinquent and nonperforming loans, loan loss reserves, investment
portfolio and liability management activity, interest rate risk positions and
liquidity positions; 4) review reports on significant activity of PNC Funding
Corp and PNC Securities Corp; 5) review on behalf of the Board of Directors
reports of Supervisory Activity directed to the Board by bank regulatory
agencies; 6) approve the issuance of debt securities by the Corporation or its
wholly-owned subsidiaries; and 7) to report to the Board of Directors its
activities.
2. Other Committees
The Board of Directors may authorize the appointment of such other
Committees as it shall deem advisable.
3. Minutes
The Executive Committee and the Audit Committee shall keep minutes of
their meetings, and such minutes shall be submitted at a regular meeting of the
Board of Directors, and any action taken by the Board of Directors with respect
thereto shall be entered in the minutes of the Board of Directors. All other
Committees shall keep minutes of their meetings which shall be accessible to
inspection by the Board of Directors at all times.
4. Procedure
Except as otherwise expressly provided for herein, each Committee may
appoint a secretary, adopt its own rules of procedure and, unless the Board of
Directors has acted with respect thereto, determine the date, place and hour
for its meetings. In the absence of any other provision herein to the contrary,
a majority of the members of any Committee shall constitute a quorum, and the
action of a majority of the members in attendance at a meeting shall constitute
the action of the body. Notice of meetings shall be given to each member
personally, or in writing addressed to the address of the director appearing on
the books of the Corporation on or before the day preceding the meeting.
5. Attendance
In the absence or disqualification of any member of a Committee, the
members thereof present at any meeting and not disqualified from voting,
whether or not they constitute a quorum, may unanimously appoint another
director to act at the meeting in place of any absent or disqualified member.
<PAGE> 9
By-Laws - PNC Bank Corp.
Page 9
Article VI. STOCK CERTIFICATES
1. Signatures
Certificates of stock of the Corporation shall be signed by the Chairman
of the Board, or the President, or any Vice Chairman, or any Vice President and
countersigned by the Secretary or the Treasurer or by any Assistant Secretary
or Assistant Treasurer, and sealed with the seal of the Corporation, which may
be a facsimile. Where any such certificate is signed manually by a transfer
agent or a registrar, the signatures of the officers may be facsimiles.
2. Transfers
The shares of stock of the Corporation shall be transferable only on its
books upon surrender of the stock certificate for such shares properly
endorsed. The Board of Directors shall have power to appoint one or more
Transfer Agents and Registrars for the transfer and registration of
certificates of stock of any class, and may require that stock certificates
shall be countersigned and registered by one or more such Transfer Agents and
Registrars.
3. Lost or Destroyed Certificates
If a stock certificate shall be lost, stolen or destroyed, the
shareholder may file with the Corporation an affidavit stating the
circumstances of the loss, theft or destruction and may request the issuance of
a new certificate. He shall give to the Corporation a bond which shall be in
such sum, contain such terms and provisions and have such surety or sureties as
the Board of Directors may direct. The Corporation may thereupon issue a new
certificate replacing the certificate lost, stolen or destroyed.
Article VII. DIRECTOR LIABILITY LIMITATION AND INDEMNIFICATION
1. Limitation of Director Liability
A director of the Corporation shall, to the maximum extent permitted by
the laws of the Commonwealth of Pennsylvania, have no personal liability for
monetary damages for any action taken, or any failure to take any action as a
director, provided that this Section 1, Article VII shall not eliminate the
liability of a director in any case where such elimination is not permitted by
law.
2. Indemnification
Each person who at any time is or shall have been a director or officer of
the Corporation, or is serving or shall have served at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, and his heirs, executors
and administrators, shall be indemnified
<PAGE> 10
By-Laws - PNC Bank Corp.
Page 10
by the Corporation in accordance with and to the full extent permitted by the
laws of the Commonwealth of Pennsylvania as in effect at the time of such
indemnification. The foregoing right of indemnification shall constitute a
contract between the Corporation and each of its directors and officers and
shall not be deemed exclusive of other rights to which any director, officer,
employee, agent or other person may be entitled in any capacity as a matter of
law or under any by-law, agreement, vote of shareholders or directors, or
otherwise. If authorized by the Board of Directors, the Corporation may
purchase and maintain insurance on behalf of any person to the full extent
permitted by the laws of the Commonwealth of Pennsylvania.
Article VIII. APPLICATION OF STATUTORY ANTI-TAKEOVER PROVISIONS
The following provisions of Title 15 of the Pennsylvania consolidated
statutes shall not be applicable to the Corporation: (1) Subsections (d)
through (f) of Section 511; (2) Subsections (e) through (g) of Section 1721;
(3) Subchapter G of Chapter 25; and (4) Subchapter H of Chapter 25.
Article IX. EXERCISE OF AUTHORITY DURING EMERGENCIES
The Board of Directors or the Executive Committee may from time to time
adopt resolutions authorizing certain persons and entities to exercise
authority on behalf of this Corporation in time of emergency, and in the time
of emergency any such resolutions will be applicable, notwithstanding any
provisions as to the contrary contained in these By-Laws.
Article X. CHARITABLE CONTRIBUTIONS
The Board of Directors may authorize contributions to community funds, or
to charitable, philanthropic, or benevolent instrumentalities conducive to
public welfare in such sums as the Board of Directors may deem expedient and in
the interest of the Corporation.
Article XI. AMENDMENTS
These By-Laws may be altered, amended, added to or repealed by a vote of
a majority of the Board of Directors at any regular meeting of the Board of
Directors, or at any special meeting of the Board of Directors called for that
purpose.
<PAGE> 1
EXHIBIT 11
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
PNC BANK CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------
In Thousands, except per share data 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRIMARY AVERAGE COMMON SHARES OUTSTANDING
Weighted average shares of common stock outstanding 233,782 221,408 195,372 189,520 186,440
Weighted average common shares to be issued
using average market price and assuming:
Exercise of stock options 2,556 2,498 1,370 76 658
Exercise of warrants 48 117 130 118 172
- --------------------------------------------------------------------------------------------------------------------------------
Primary weighted average common shares 236,386 224,023 196,872 189,714 187,270
- --------------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED AVERAGE COMMON SHARES OUTSTANDING
Weighted average shares of common stock outstanding 233,782 221,408 195,372 189,520 186,440
Weighted average common shares to be issued
using average market price or period-end market
price, whichever is higher, and assuming:
Conversion of preferred stock Series A & B 256 296 328 370 424
Conversion of preferred stock Series C 748 870 944 1,482
Conversion of preferred stock Series D 946 1,186 1,354 2,316
Conversion of debentures 85 206 478 1,402
Exercise of stock options 2,556 3,037 2,696 76 660
Exercise of warrants 48 122 152 118 172
- --------------------------------------------------------------------------------------------------------------------------------
Fully diluted weighted average common shares 238,421 227,125 201,324 190,084 192,896
- --------------------------------------------------------------------------------------------------------------------------------
PRIMARY EARNINGS PER COMMON SHARE
Income before cumulative effect of changes in
accounting principles $745,263 $529,440 $389,786 $70,912 $377,440
Cumulative effect of changes in
accounting principles,
net of tax benefit of $5,343 and $52,804 (19,393) (102,501)
- --------------------------------------------------------------------------------------------------------------------------------
Net income $725,870 $426,939 $389,786 $70,912 $377,440
Add: ESOP dividends tax benefit 2,680 1,985 2,195
Less: Preferred dividends declared 1,832 3,056 3,295 3,458 4,794
- --------------------------------------------------------------------------------------------------------------------------------
Net income applicable to primary earnings
per common share $724,038 $426,563 $388,476 $69,649 $372,646
Primary before cumulative effect of
changes in accounting principles $3.14 $2.36 $1.97 $.37 $1.99
Cumulative effect of changes in
accounting principles (.08) (.46)
- --------------------------------------------------------------------------------------------------------------------------------
Primary earnings per common share $3.06 $1.90 $1.97 $.37 $1.99
- --------------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS PER COMMON SHARE
Income before cumulative effect of changes
in accounting principles $745,263 $529,440 $389,786 $70,912 $377,440
Cumulative effect of changes in
accounting principles,
net of tax benefit of $5,343 and $52,804 (19,393) (102,501)
- --------------------------------------------------------------------------------------------------------------------------------
Net income $725,870 $426,939 $389,786 $70,912 $377,440
Add: Interest expense on convertible
debentures (net of tax) 57 142 368 971
ESOP dividends tax benefit 2,680 1,985 2,195
Less: Dividends declared on non-convertible
preferred stock 34 879 879 879 879
Convertible preferred dividends 2,499
- --------------------------------------------------------------------------------------------------------------------------------
Net income applicable to fully diluted
earnings per common share $725,893 $428,882 $391,260 $69,729 $377,532
Fully diluted before cumulative effect
of changes in accounting principles $3.13 $2.34 $1.94 $.37 $1.96
Cumulative effect of changes in
accounting principles (.09) (.45)
- --------------------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per common share $3.04 $1.89 $1.94 $.37 $1.96
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
With respect to the 1990 fully diluted earnings per share calculation,
preferred stock series C and D, and the convertible debentures were excluded
since the conversion of these securities would have the effect of increasing
the earnings per share amount for the year.
<PAGE> 1
EXHIBIT 12.1
PNC BANK CORP.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and cumulative
effect of changes in accounting principles $1,116,612 $ 778,122 $ 548,201 $ 29,425 $ 485,264
Fixed charges excluding interest
on deposits ......................... 649,897 517,423 513,370 918,698 867,083
---------- ---------- ---------- ---------- ----------
Subtotal............................ 1,766,509 1,295,545 1,061,571 948,123 1,352,347
Interest on deposits ................ 742,772 1,063,422 1,727,765 1,973,087 1,907,769
---------- ---------- ---------- ---------- ----------
Total............................... $2,509,281 $2,358,967 $2,789,336 $2,921,210 $3,260,116
========== ========== ========== ========== ==========
Fixed charges:
Interest on notes and debentures..... $ 265,352 $ 145,124 $ 95,207 $ 84,045 $ 61,590
Interest on borrowed funds........... 362,995 352,162 398,779 816,448 788,520
Amortization of notes and debentures. 967 970 584 538 506
Interest component of rentals ....... 20,583 19,167 18,800 17,667 16,467
---------- ---------- ---------- ---------- ----------
Subtotal............................ 649,897 517,423 513,370 918,698 867,083
Interest on deposits................. 742,772 1,063,422 1,727,765 1,973,087 1,907,769
---------- ---------- ---------- ---------- ----------
Total............................... $1,392,669 $1,580,845 $2,241,135 $2,891,785 $2,774,852
========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits ..... 2.72x 2.50x 2.07x 1.03x 1.56x
Including interest on deposits....... 1.80 1.49 1.24 1.01 1.17
</TABLE>
<PAGE> 1
EXHIBIT 12.2
PNC BANK CORP.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and cumulative
effect of changes in accounting principles.. $1,116,612 $ 778,122 $ 548,201 $ 29,425 $ 485,264
Fixed charges and preferred stock dividends
excluding interest on deposits ............. 652,432 521,907 518,005 922,156 873,248
---------- ---------- ---------- ---------- ----------
Subtotal.................................... 1,769,044 1,300,029 1,066,206 951,581 1,358,512
Interest on deposits ........................ 742,772 1,063,422 1,727,765 1,973,087 1,907,769
---------- ---------- ---------- ---------- ----------
Total ...................................... $2,511,816 $2,363,451 $2,793,971 $2,924,668 $3,266,281
========== ========== ========== ========== ==========
Fixed charges:
Interest on notes and debentures............. $ 265,352 $ 145,124 $ 95,207 $ 84,045 $ 61,590
Interest on borrowed funds................... 362,995 352,162 398,779 816,448 788,520
Amortization of notes and debentures ........ 967 970 584 538 506
Interest component of rentals ............... 20,584 19,167 18,800 17,667 16,467
Preferred stock dividend requirements........ 2,534 4,484 4,634 3,458 6,165
---------- ---------- ---------- ---------- ----------
Subtotal.................................... 652,432 521,907 518,005 922,156 873,248
Interest on deposits......................... 742,772 1,063,422 1,727,765 1,973,087 1,907,769
---------- ---------- ---------- ---------- ----------
Total....................................... $1,395,204 $1,585,329 $2,245,770 $2,895,243 $2,781,017
========== ========== ========== ========== ==========
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends:
Excluding interest on deposits .............. 2.71x 2.49x 2.06x 1.03x 1.56x
Including interest on deposits............... 1.80 1.49 1.24 1.01 1.17
</TABLE>
<PAGE> 1
EXHIBIT 13
Index to Financial Information 23
CORPORATE FINANCIAL REVIEW
1993 VERSUS 1992
24 Overview
24 Mergers and Acquisitions
25 Income Statement Review
27 Line of Business Results
30 Balance Sheet Review
31 Risk Management
37 Capital
38 Management's Report on the Financial Reporting Internal Control Structure
38 Report of Ernst & Young, Independent Auditors
CONSOLIDATED FINANCIAL STATEMENTS
39 Consolidated Balance Sheet
40 Consolidated Statement of Income
41 Consolidated Statement of Changes in Shareholders' Equity
42 Consolidated Statement of Cash Flows
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
43 Accounting Policies
45 Merger Agreement
45 Sears Mortgage Acquisition
46 Other Acquisitions and Divestitures
46 Cash Flows
47 Securities
48 Loans
48 Nonperforming Assets
49 Allowance for Credit Losses
49 Financial Instruments with Off-Balance-Sheet Risk and Concentrations of
Credit Risk
51 Premises, Equipment and Leasehold Improvements
51 Mortgage Banking
51 Repurchase Agreements
52 Notes and Debentures
52 Shareholders' Equity
53 Employee Benefit Plans
55 Stock Option Plans
55 Income Taxes
56 Regulatory Matters
57 Litigation
57 Parent Company Financial Statements
59 Unused Lines of Credit
59 Fair Value of Financial Instruments
STATISTICAL INFORMATION
61 Selected Consolidated Financial Data
62 Selected Quarterly Financial Data
63 Analysis of Year-to-Year Changes in Net Interest Income
64 Average Consolidated Balance Sheet and Net Interest Analysis
66 Securities
68 Loan Portfolio
69 Nonperforming Assets
69 Past Due Loans
70 Allowance for Credit Losses
71 Maturity of Time Deposits of $100,000 or more
72 Borrowed Funds
72 Taxable-Equivalent Adjustment
MANAGEMENT'S DISCUSSION AND ANALYSIS
1992 VERSUS 1991
73 Mergers and Acquisitions
73 Common Stock Split
73 Income Statement Review
74 Balance Sheet Review
<PAGE> 2
24 CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992
The Corporate Financial Review should be read in conjunction with the PNC Bank
Corp. and subsidiaries ("Corporation") Consolidated Financial Statements
beginning on page 39, the Statistical Information beginning on page 61 and
Management's Discussion and Analysis beginning on page 73.
OVERVIEW
In 1993, the Corporation's strategic focus was on refining the line-of-business
organizational structure; strategic growth through acquisitions and continued
investment in targeted businesses; managing the revenue and expense
relationship associated with the Corporation's mature businesses; and marketing
the Corporation under a new unified identity with an emphasis on customer
satisfaction.
The economy experienced strong growth during the fourth quarter of 1993,
following moderate growth for the first nine months. One of the lowest
inflation levels in nearly two decades was experienced in 1993 and contributed
to continued low short-term interest rates and a decline in long-term interest
rates.
Even though the economy did not gain significant momentum until the fourth
quarter, the Corporation's financial performance continued to improve. Net
interest income and noninterest income were higher, favorable asset quality
trends continued and noninterest expenses remained relatively flat.
Net income for 1993 was $725.9 million or $3.04 per fully diluted common
share, compared with $426.9 million or $1.89 per share in 1992. Return on
assets and return on common shareholders' equity were 1.44 percent and 18.40
percent, respectively, in 1993. The corresponding 1992 returns were .95 percent
and 12.47 percent, respectively.
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," and
changed its accounting method for certain intangible assets. Such assets are
comprised primarily of purchased mortgage servicing rights. The cumulative
effect of these changes reduced net income by $9.0 million and $10.4 million,
respectively.
The results for 1992 include the cumulative effect of adopting SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
which reduced net income by $102.5 million.
Income before the cumulative effect of the changes in accounting principles
was $745.3 million, or $3.13 per share in 1993 compared with $529.4 million, or
$2.34 per share in 1992. Return on assets and return on common shareholders'
equity before the accounting changes were 1.48 percent and 18.89 percent,
respectively, in 1993 compared with 1.18 percent and 15.03 percent in 1992.
Management expects improved economic conditions in 1994 characterized by a
modest increase in short- term interest rates and loan demand. Should economic
conditions deteriorate or differ from management's expectations, the
Corporation's financial performance may be adversely impacted.
MERGERS AND ACQUISITIONS
The Corporation continues to evaluate acquisition opportunities where
management believes strategic growth potential exists. Key elements of the
Corporation's acquisition process include a dedicated staff for evaluating and
directing acquisitions, special management teams comprised of line-of-business
managers to plan and execute due diligence activities and approval by a
committee of senior executive officers, as well as the board of directors.
Various valuation and financial models are used to assess the impact of
potential acquisitions. These models are utilized in structuring the
transactions and in planning for post-merger market, operational and financial
integration. The post-merger plan includes actions to preserve or enhance the
underlying economics of the transaction and is refined as new information
becomes available. Subsequent to consummation, post-merger integration is
monitored to determine if objectives, both qualitative and quantitative, are
being achieved.
On November 30, 1993, the Corporation consummated its acquisition of the
Sears Mortgage Banking Group
<PAGE> 3
CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992 25
("Sears Mortgage"), which consisted of Sears Mortgage Corporation, Sears
Mortgage Securities Corporation and Sears Savings Bank. The purchase price was
$328 million in cash and is subject to certain post-closing adjustments. Upon
consummation, Sears Savings Bank was converted to a national banking
association and renamed PNC Mortgage Bank, National Association ("PNC
Mortgage"), and the other acquired entities became wholly-owned subsidiaries of
PNC Mortgage.
With this acquisition, the Corporation added consumer assets of $7.6
billion; a mortgage servicing portfolio approximating $27 billion, including
$21 billion serviced for others; and a national residential mortgage production
network consisting of 117 locations in 33 states. This acquisition will
increase net interest income, noninterest income and the ratio of fee income to
total revenue in 1994. The overhead ratio will increase due to higher relative
operating expenses in the mortgage banking business. The net interest margin
will narrow further in 1994 due to the full period impact of the acquisition
and the maturity structure of the liabilities assumed relative to the assets
acquired.
During 1993, the Corporation also acquired The Massachusetts Company,
Boston, Massachusetts and Gateway Fed Corporation, Cincinnati, Ohio for cash.
The aggregate purchase price was $107 million and the combined assets of these
companies totaled $1.4 billion at closing.
On January 21, 1994, the Corporation consummated the acquisition of United
Federal Bancorp, Inc. ("United"), State College, Pennsylvania for $156 million
in cash. United's assets totaled $900 million at closing.
In addition, the Corporation has a pending agreement to acquire First
Eastern Corp. ("First Eastern"), Wilkes-Barre, Pennsylvania, which had total
assets of $2.0 billion at December 31, 1993. The transaction has an indicated
value of approximately $330 million and is subject to the approval of certain
regulatory agencies and First Eastern's shareholders. Closing is currently
anticipated in the second quarter of 1994.
INCOME STATEMENT REVIEW
<TABLE>
<CAPTION>
INCOME STATEMENT HIGHLIGHTS
- -------------------------------------------------------------------------------------------------
Change
Year ended December 31 -----------------------------
In millions 1993 1992 Amount Percent
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income-
taxable-equivalent
basis $1,869 $1,700 $ 169 9.9%
Provision for
credit losses 204 324 (120) (37.0)
Noninterest income 945 887 58 6.5
Noninterest expenses 1,454 1,442 12 .8
Income before cumulative
effect of changes in
accounting principles 745 529 216 40.8
Net income 726 427 299 70.0
- -------------------------------------------------------------------------------------------------
</TABLE>
NET INTEREST INCOME AND NET INTEREST MARGIN Net interest income is interest
income, dividends and fees on earning assets, less interest expense incurred
for funding sources used to support such assets. Earning assets primarily
include loans and securities. Sources used to fund such assets include
deposits, borrowed funds and capital. Net interest margin is net interest
income on a fully taxable-equivalent basis as a percentage of average earning
assets.
On a fully taxable-equivalent basis, net interest income for 1993 increased
$168.5 million, or 9.9 percent due to an increase in average earning assets.
<TABLE>
<CAPTION>
VOLUME/RATE ANALYSIS
- -------------------------------------------------------------------------------
1993 versus 1992 Increase/(Decrease)
Due To Changes In:
-------------------------------
In millions Volume Rate Rate/Volume Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $398 $(371) $(48) $ (21)
Interest expense 184 (332) (41) (189)
Net interest income 207 (34) (4) 169
- -------------------------------------------------------------------------------
</TABLE>
The net interest margin narrowed during the year due to the reduced benefit
of noninterest-bearing funds in the lower interest rate environment; the sale
of higher coupon mortgage-backed securities to reduce prepayment risk; the
issuance of longer-term liabilities to provide stability to funding costs; and
the impact of the Sears Mortgage acquisition. Partially offsetting these
factors was the impact of interest rate swaps, which were used to reduce
exposure to changes in interest rates.
<PAGE> 4
26 CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992
<TABLE>
<CAPTION>
NET INTEREST MARGIN COMPARISON
- ---------------------------------------------------------------------------
Year ended December 31
Taxable-equivalent basis 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Book-basis yield on earning assets 6.51% 7.46%
Effect of loan fees .14 .16
Taxable-equivalent adjustment .08 .10
- ---------------------------------------------------------------------------
Taxable-equivalent yield on earning assets 6.73 7.72
Rate on interest-bearing liabilities 3.81 4.63
- ---------------------------------------------------------------------------
Interest rate spread 2.92 3.09
Net benefit of interest rate swaps .43 .23
Net benefit of noninterest-bearing funds .60 .71
- ---------------------------------------------------------------------------
Net interest margin 3.95% 4.03%
- ---------------------------------------------------------------------------
</TABLE>
PROVISION FOR CREDIT LOSSES The provision for credit losses for 1993 was $203.9
million compared with $323.5 million in 1992. Continued improvement in
economic conditions combined with management's ongoing efforts to improve asset
quality resulted in lower nonperforming asset and charge-off levels, and a
higher reserve coverage of nonperforming loans. The continued improvement in
asset quality experienced over the past several years is expected to result in
a lower provision in 1994.
NONINTEREST INCOME Excluding net securities gains, total noninterest income
increased $64.3 million or 9.3 percent to $757.6 million in 1993. Net
securities gains totaled $187.7 million in 1993 compared with $193.5 million in
1992.
New business derived from strong investment performance and new product
initiatives accounted for the increase in trust revenue. In 1992, gross revenue
from an index-oriented investment advisory company was reported as trust
income. In 1993, a portion of that company was sold and the Corporation's
remaining share of the entity's net income is included in the other noninterest
income category. Excluding the impact of this sale, trust revenue increased 7.9
percent. Trust assets totaled $114 billion at December 31, 1993 compared with
$101 billion a year ago. The Corporation exercised discretionary investment
authority over $33 billion of trust assets at December 31, 1993 compared with
$31 billion a year ago.
Mutual fund accounting and administrative services fees increased $12.6
million or 26.6 percent to $60.0 million in 1993 as a result of new business.
This increase was partially offset by a decline in advisory fees derived from
the level of managed money market mutual fund assets. Various administrative
services are provided for mutual funds which totaled $79 billion at December
31, 1993, including $24 billion over which the Corporation exercised
discretionary investment authority. The comparable December 31, 1992 amounts
were $69 billion and $27 billion, respectively.
Acquisitions, increased transaction volume related to new business and a
change in fee structures accounted for the growth in deposit account and
corporate services revenue. The Sears Mortgage acquisition accounted for the
increase in loan servicing revenue.
Within other services revenue, mortgage origination, brokerage and loan
syndication fees increased $8.6 million, $7.3 million and $6.0 million,
respectively. The Sears Mortgage acquisition accounted for 55 percent of the
increase in mortgage origination fees.
NONINTEREST EXPENSES Staff expense increased 2.5 percent to $685.4 million.
Higher compensation expense resulted from adding employees in targeted
businesses, completing acquisitions, and merit pay increases. Despite the
significant employee additions related to acquisitions and targeted businesses,
average full-time equivalent employees only increased 4.8 percent in the
comparison to 18,000. This amount includes the one-month impact of the Sears
Mortgage acquisition, which was consummated on November 30, 1993 and added
approximately 3,300 employees.
The decline in employee benefits expense was primarily due to lower
postretirement costs resulting from plan amendments. Pension and incentive
savings plan costs were also lower. Pension expense is expected to
significantly increase in 1994 due to a change in the discount rate used to
compute the benefit obligation.
<PAGE> 5
CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992 27
<TABLE>
<CAPTION>
NONINTEREST INCOME
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31 Change
---------------------
In thousands 1993 1992 Amount Percent
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment management and trust
Trust $ 184,286 $ 174,161 $ 10,125 5.8%
Mutual funds 89,563 85,952 3,611 4.2
- ------------------------------------------------------------------------------------------------------------
Total investment management and trust 273,849 260,113 13,736 5.3
- ------------------------------------------------------------------------------------------------------------
Service charges, fees and commissions
Deposit account and corporate services 156,468 145,601 10,867 7.5
Credit card and merchant services 55,529 54,887 642 1.2
Letters of credit and acceptances 29,477 29,686 (209) (.7)
Loan servicing 41,284 30,409 10,875 35.8
Other services 120,255 99,976 20,279 20.3
- ------------------------------------------------------------------------------------------------------------
Total service charges, fees and commissions 403,013 360,559 42,454 11.8
- ------------------------------------------------------------------------------------------------------------
Trading account profits 6,785 1,717 5,068 NM
Net securities gains 187,694 193,503 (5,809) (3.0)
Other 73,908 70,884 3,024 4.3
- ------------------------------------------------------------------------------------------------------------
Total $ 945,249 $ 886,776 $ 58,473 6.6%
- ---------------------------------------------------------------------------------------------------------------------------
NM-Not meaningful
</TABLE>
Acquisitions accounted for half of the increase in net occupancy and
equipment expenses. The remainder of the increase was attributable to the full
year impact of the consolidation of three data centers into a newly-constructed
data processing and telecommunications center and the opening of full-service
regional banking centers.
Other noninterest expense declined 5.6 percent in the comparison to $473.5
million. A decline of $76.6 million in net foreclosed asset expense was
partially offset by an increase in expenses related to acquisitions and the
amortization of purchased mortgage servicing rights resulting from higher
prepayment experience.
<TABLE>
<CAPTION>
NONINTEREST EXPENSES
- ------------------------------------------------------------------------------
Year ended December 31 Change
----------------
In thousands 1993 1992 Amount Percent
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Compensation $ 582,181 $ 541,304 $ 40,877 7.6%
Employee benefits 103,207 127,099 (23,892) (18.8)
- --------------------------------------------------------------------
Total staff expense 685,388 668,403 16,985 2.5
Net occupancy 115,354 104,407 10,947 10.5
Equipment 113,954 102,153 11,801 11.6
Federal deposit insurance 65,488 65,629 (141) (.2)
Other 473,542 501,823 (28,281) (5.6)
- --------------------------------------------------------------------
Total $1,453,726 $1,442,415 $ 11,311 .8%
- ----------------------------------------------------------------------------
</TABLE>
Line of Business Results
The management accounting process uses various methods of balance sheet and
income statement allocations, transfers and assignments to evaluate the
performance of various business units. Unlike financial accounting, there is no
comprehensive, authoritative body of guidance for management accounting
equivalent to generally accepted accounting principles. The following
information is based on management accounting practices which conform to and
support the management structure of the Corporation and is not necessarily
comparable with similar information for any other financial institution.
Designations, assignments, and allocations may change from time to time as
management accounting systems are enhanced or product lines change. During
1993, certain methodologies were changed and, accordingly, results for 1992 are
presented on a consistent basis.
For management reporting purposes, the Corporation has designated four
distinct lines of business: Corporate Banking, Retail Banking, Investment
Management and Trust, and Investment Banking. Within these lines of business,
management categorizes its businesses based on their mature or growth nature.
The growth or targeted businesses include Cash Management, Mortgage Banking,
Mutual
<PAGE> 6
28 CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992
<TABLE>
<CAPTION>
LINE OF BUSINESS RESULTS
- ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31 Return on
Earnings Average Assets Profit Margin Overhead Assigned Equity
-------------- -------------- ------------- -------------- ----------------
Dollars in millions 1993 1992 1993 1992 1993 1992 1993 1992 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Banking $290 $162 $12,886 $12,646 42% 23% 34% 43% 17% 9%
Retail Banking 311 262 27,489 24,959 22 21 63 62 21 20
Investment Management and Trust 69 69 480 389 23 24 64 63 53 58
Investment Banking 208 190 8,880 6,201 55 56 16 16 64 82
- -----------------------------------------------
Total Lines of Business 878 683
Cumulative effect of
accounting changes (19) (102)
Unallocated provision (96) (55)
Unallocated expenses (37) (99)
- -----------------------------------------------
Total $726 $427
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Funds and Securities Brokerage and Underwriting. Management believes these
targeted businesses have attractive growth potential and continues to make
significant investments in them. For the more mature business units, such as
Corporate Banking and Consumer Banking, the emphasis is on managing the revenue
and expense relationship to enhance profitability.
The financial results presented in this section reflect each of these
lines of business as if they operated on a stand-alone basis. Securities and
borrowings have been assigned to the lines of business based on their net asset
or liability position. The remaining securities and borrowings emanating from
management of the Corporation's overall asset/liability position are included
in Portfolio Management.
Net income contributed by the lines of business totaled $878.0 million in
1993 compared with $683.1 million in 1992. These results exceeded reported
consolidated net income by $152.2 million and $256.1 million, respectively, due
to the cumulative effect of changes in accounting principles, the provision for
credit losses in excess of specific reserve allocations and certain unassigned
corporate expenses.
Profit margin represents after-tax earnings expressed as a percentage of
revenues. Revenues include net interest income on a fully-taxable equivalent
basis and noninterest income. The overhead ratio is the percentage of
noninterest expenses to revenues.
Capital is assigned to each business unit based on management's assessment
of inherent risk. Equity levels at independent companies that provide products
and services similar to those provided by the respective business unit are also
considered. Capital assignments are not equivalent to risk-based capital
guidelines.
CORPORATE BANKING Corporate Banking provides financing, liquidity and cash
management, and financial services to businesses and government entities.
Corporate Banking includes: Large Corporate--customers having annual sales of
more than $250 million; and Middle Market--annual sales of $5 to $250 million,
including customers in certain specialized industries such as real estate,
communications, healthcare, natural resources and leasing.
Average loan growth during 1993 was modest. However, lending activity
increased substantially during the fourth
<TABLE>
<CAPTION>
CORPORATE BANKING
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31 Return on
Earnings Profit Margin Overhead Assigned Equity
--------------- --------------- ---------------- ----------------
Dollars in millions 1993 1992 1993 1992 1993 1992 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Large Corporate $ 67 $ 61 47% 44% 38% 33% 19% 19%
Middle Market 223 101 40 18 33 46 16 7
- -------------------------------------------------------
Total $ 290 $162 42 23 34 43 17 9
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992 29
<TABLE>
<CAPTION>
RETAIL BANKING
- ----------------------------------------------------------------------------------------------------------------------------
Year ended December 31 Return on
Earnings Profit Margin Overhead Assigned Equity
--------------- --------------- ---------------- ----------------
Dollars in millions 1993 1992 1993 1992 1993 1992 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer Banking $ 277 $215 22% 19% 62% 64% 22% 18%
Mortgage Banking 34 47 20 34 70 46 18 33
- -------------------------------------------------------
Total $ 311 $262 22 21 63 62 21 20
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
quarter as a result of stronger economic growth. The increase in year-end
outstandings was primarily in money market and short-term working capital loans
that are typically repaid shortly after year end.
During 1993, Corporate Banking benefited from a reduced provision for
credit losses, lower collection costs related to problem assets and increased
revenue from non-credit activities. Operating expenses did not increase from
the prior year.
Approximately 50 percent of the increase in Middle Market earnings was
derived from real estate. This increase resulted from a reduction in the
provision for credit losses, lower net foreclosed asset costs and higher gains
on the disposition of real estate assets. Further reductions of nonperforming
real estate assets are expected in 1994 which may require a reduction in
overall reserve levels associated with problem real estate assets.
The cash management business continued to grow as investments in technology
provided for expanded electronic processing capabilities and enhanced customer
service.
RETAIL BANKING Retail Banking provides lending, deposit, investment, payment
systems access, and other financial services to consumers and small businesses.
Retail Banking includes: Consumer Banking--all lending and deposit gathering
services provided to individuals and small businesses; and Mortgage
Banking--residential mortgage loans held in portfolio, and loan origination,
acquisition and servicing activities.
Increased loans and deposits contributed to higher earnings in 1993. The
benefit provided to Consumer Banking for relatively low cost deposits also
increased in the comparison. Consumer Banking's average loans increased by 6
percent during 1993, primarily due to acquisitions completed in the second half
of 1992.
Asset quality improvement led to a decline in the provision for credit
losses. Operating expenses increased in 1993 due to acquisitions and system
conversion costs related to enhancing and standardizing the retail distribution
systems throughout the Corporation's markets.
The decline in Mortgage Banking's earnings resulted from lower yields on
loans and higher amortization of purchased mortgage servicing rights resulting
from loan prepayments. Nonrecurring gains realized from sales of mortgages in
1992 also negatively impacted the comparison. These adverse impacts were
partially offset by an increase in average loan outstandings.
The acquisition of Sears Mortgage significantly changes the magnitude
and characteristics of this business unit. Mortgage originations were $2.5
billion in 1993. On a combined basis, mortgage originations for 1993 would have
been $13 billion. At December 31, 1993, the mortgage servicing portfolio
totaled $36 billion, including $27 billion serviced for others.
<TABLE>
<CAPTION>
INVESTMENT MANAGEMENT & TRUST
- ----------------------------------------------------------------------------------------------------------------------------
Year ended December 31 Return on
Earnings Profit Margin Overhead Assigned Equity
--------------- --------------- ---------------- ----------------
Dollars in millions 1993 1992 1993 1992 1993 1992 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Trust $ 45 $ 41 22% 22% 66% 67% 52% 52%
Mutual Funds 24 28 25 30 61 54 54 71
- -------------------------------------------------------
Total $ 69 $ 69 23 24 64 63 53 58
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 8
30 CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992
<TABLE>
<CAPTION>
INVESTMENT BANKING
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31 Return on
Earnings Profit Margin Overhead Assigned Equity
--------------- --------------- ---------------- ----------------
Dollars in Millions 1993 1992 1993 1992 1993 1992 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio Management $ 176 $169 60% 60% 7% 10% 69% 96%
Brokerage and Underwriting 32 21 37 35 43 47 48 37
- -------------------------------------------------------
TOTAL $ 208 $190 55 56 16 16 64 82
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT MANAGEMENT AND TRUST INVESTMENT Management and Trust ("IM&T")
provides investment advice, asset management, and administrative and custodial
services to individuals, institutions and mutual funds. IM&T includes:
Trust--investment management and fiduciary services provided to individuals and
non-profit institutions, pension and employee benefit plans, and corporations
and Mutual Funds--products and services in support of mutual funds for other
banks, brokerage houses, insurance companies and mutual fund complexes,
including the PNC Family of Funds.
Trust earnings increased 9.8 percent in the year-to-year comparison as a
result of new business driven by strong investment performance and new product
initiatives.
Mutual Funds earnings declined by $4 million in 1993. Increased revenues
from higher levels of accounting and administrative services were offset by a
decline in advisory fees as the level of managed money market mutual fund
assets declined year to year. Management also continued to invest heavily in
this targeted business.
INVESTMENT BANKING Investment Banking includes the asset/liability management
function, as well as underwriting, brokerage and direct investment services.
Investment Banking includes: Portfolio Management--management of on- and
off-balance sheet positions; and Brokerage and Underwriting--equity
investments, corporate and public finance and brokerage services.
Portfolio Management's earnings include the impact of securities gains and
the interest rate spread on the securities portfolio not assigned to other lines
of business. Net securities gains were $188 million in 1993 and $194 million in
1992. During the last two years, gains have been significantly higher than
historical averages as certain mortgage-backed securities were sold in the
higher prepayment environment. The year-to-year comparison benefited from
higher asset levels resulting from leveraging the Corporation's capital position
and a 24 percent reduction in operating expenses due to the continued
centralization of the asset/liability management function.
Fees from Brokerage and Underwriting increased 27 percent over the prior
year. This increase was offset by additional expenses for personnel and
marketing costs related to product distribution initiatives, as management
continued to aggressively invest in this targeted business.
Earnings for 1993 from the Corporation's private equity investment
activities increased to $21 million compared with $9 million in 1992. At
December 31, 1993, the private equity investment portfolio totaled $160
million.
BALANCE SHEET REVIEW
Total assets increased approximately $10.7 billion in the year-to-year
comparison primarily as a result of acquisitions.
During 1993, proceeds from sales, maturities and prepayments of securities
were reinvested in shorter-term securities which management believes are less
susceptible to prepayment risk. As a result, the weighted-average expected
maturity of all securities was reduced to two years and 10 months at December
31, 1993 compared with three years and three months at December 31, 1992. In a
rising interest rate environment, management currently does not anticipate that
the expected maturity will increase significantly.
<PAGE> 9
CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992 31
<TABLE>
<CAPTION>
BALANCE SHEET HIGHLIGHTS
- -----------------------------------------------------------------------------
December 31 Change
------------------
In millions 1993 1992 Amount Percent
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Loans held for sale $ 1,392 $ 220 $ 1,172 532.7%
Securities
available for sale 11,388 7,414 3,974 53.6
Investment securities 11,672 13,327 (1,655) (12.4)
Loans, net of
unearned income 33,308 25,817 7,491 29.0
Other 4,320 4,602 (282) (6.1)
- --------------------------------------------------------------------
Total Assets $62,080 $51,380 $ 10,700 20.8%
Liabilities
Deposits $33,115 $29,470 $ 3,645 12.4%
Borrowed funds 11,662 11,811 (149) (1.3)
Notes and debentures 9,585 4,297 5,288 123.1
Other 3,393 2,056 1,337 65.0
- -------------------------------------------------------------------
Total liabilities 57,755 47,634 10,121 21.2
Shareholders' Equity 4,325 3,746 579 15.5
- -------------------------------------------------------------------
Total liabilities and
shareholders' equity $62,080 $51,380 $ 10,700 20.8%
- -----------------------------------------------------------------------------
</TABLE>
Effective December 31, 1993, the Corporation adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." As a
result, $7.2 billion of investment securities were reclassified as available
for sale. SFAS No. 115 requires that the after-tax net unrealized gain or loss
on securities available for sale be reflected in shareholders' equity. At
December 31, 1993, such net unrealized gains totaled $88 million.
Deposits increased primarily as a result of acquisitions. Notes and
debentures were higher in the comparison reflecting the Corporation's increased
use of bank notes.
RISK MANAGEMENT
In the normal course of business, the Corporation is subject to credit,
interest rate and liquidity risk. The Corporation's objective is to maximize
profitability while maintaining acceptable levels of risk.
Credit risk represents the possibility that a customer may not perform in
accordance with contractual terms. Credit risk results from extending credit to
customers as well as entering into certain financial instrument transactions.
Interest rate risk represents the impact of repricing frequencies for
assets, liabilities and off-balance-sheet positions. This risk includes
prepayment risk associated with certain assets (e.g., mortgage-backed
securities and consumer loans) and withdrawal characteristics of certain
funding sources (e.g., demand, money market and savings deposits). Prepayment
risk is defined as the receipt of assets in advance of expected repayments.
Liquidity risk represents the inability to generate cash or otherwise obtain
funds at reasonable rates to satisfy commitments to borrowers, as well as the
demands of depositors and debtholders.
CREDIT RISK MANAGEMENT AND ADMINISTRATION CREDIT risk is inherent in the
lending business. 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. A certain
amount of diversification occurs as a result of the distinct customer segments
served by the Corporate Banking and Retail Banking lines of business.
Credit Administration, which includes credit policy, loan review and loan
workout, manages and monitors credit risk by promulgating and enforcing uniform
credit polices and exercising centralized oversight, review and approval
procedures. Credit Policy, at the direction of the board of directors,
establishes uniform underwriting standards that set forth the criteria that
must be met in extending credit.
To assist in the consistent application of underwriting standards, credit
officers work with lending officers in
<PAGE> 10
32 CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992
<TABLE>
<CAPTION>
LOANS
- -------------------------------------------------------------------------------------------------------------
December 31 1993 1992
--------------------------- ---------------------------------
Unfunded Unfunded
In millions Outstandings Commitments Outstandings Commitments
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial
Manufacturing $ 2,765 $ 4,351 $ 2,757 $ 3,784
Retail/Wholesale 1,789 1,570 1,668 1,362
Services 1,586 1,599 1,406 877
Financial services 872 1,666 523 1,270
Communications 1,337 732 1,274 771
Real estate related 557 177 538 125
Investment/Holding Co. 454 264 671 635
Other 3,103 3,089 2,148 2,272
- -------------------------------------------------------------------------------------------------------------
Total commercial 12,463 13,448 10,985 11,096
- -------------------------------------------------------------------------------------------------------------
Consumer
Automobile 2,428 2,282
Home equity 2,238 1,360 1,926 1,044
Student 1,103 27 990 18
Credit card 725 3,065 727 2,763
Other 2,031 214 2,025 242
- -------------------------------------------------------------------------------------------------------------
Total consumer 8,525 4,666 7,950 4,067
- -------------------------------------------------------------------------------------------------------------
Real estate mortgage
Residential 8,036 1,521 3,235 150
Commercial 905 6 879 5
- -------------------------------------------------------------------------------------------------------------
Total real estate mortgage 8,941 1,527 4,114 155
- -------------------------------------------------------------------------------------------------------------
Real estate project
Residential construction and development 70 72 68 57
Commercial construction and development 280 221 277 195
Medium-term financings
Standing 875 142 883 124
Other 505 68 727 106
- -------------------------------------------------------------------------------------------------------------
Total real estate project 1,730 503 1,955 482
- -------------------------------------------------------------------------------------------------------------
Other 1,871 400 1,105 556
Unearned income (222) (292)
- -------------------------------------------------------------------------------------------------------------
Total, net of unearned income $33,308 $ 20,544 $25,817 $ 16,356
- -------------------------------------------------------------------------------------------------------------
</TABLE>
evaluating the creditworthiness of borrowers and structuring transactions.
Credit decisions are made at the specific affiliate or market level. However,
credit requests that are above certain limits or that involve exceptions to
credit policies require additional corporate approvals.
The Corporation uses a lender-initiated system of rating credits to provide
timely credit quality information to management. Lenders assign risk ratings at
inception with periodic updates thereafter. Loan review performs periodic
reviews to determine adherence with credit policies, the propriety of risk
ratings assigned to individual credits and the effectiveness of the credit
management process. Adversely rated credits are included on a watchlist and
reviewed monthly.
Total commercial outstandings and unfunded commitments increased $3.8
billion to $25.9 billion at December 31, 1993, reflecting the higher level of
lending activity during the fourth quarter which resulted primarily from
stronger economic growth. The increase in year-end outstandings was primarily
in money market and short-term working capital loans that are typically repaid
shortly after year-end.
<PAGE> 11
CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992 33
Total consumer outstandings increased $575 million and residential
mortgages increased $4.8 billion as a result of the Sears Mortgage acquisition.
Residential construction and development loans rely upon unit sales of
residential properties as the primary source of repayment. Medium-term
financings have remaining terms up to five years. This category includes
completed construction projects which are in the leasing phase, and
tenant-occupied commercial and residential real estate which are dependent upon
sale or permanent take-out for ultimate repayment of the loan. Medium-term
financings collateralized by projects where rental income exceeds debt service
and operating costs are classified as standing loans.
Retail and office projects accounted for 32 percent and 25 percent,
respectively, of total real estate project exposure at December 31, 1993.
Multi-family and hotel/motel projects each accounted for 9 percent. No other
project type accounted for more than 7 percent. Projects in the Corporation's
primary markets, which include Delaware, Indiana, Kentucky, New Jersey, Ohio
and Pennsylvania, accounted for 68 percent of the total outstandings. The
southeast region of the United States accounted for 17 percent and no other
geographic region accounted for more than 5 percent.
Highly leveraged transactions (HLTs) are included in various commercial
loan categories. Consistent with the federal bank regulators' uniform
definition, HLTs include financing transactions involving the buyout,
acquisition or recapitalization of an existing business and credits extended to
highly leveraged industries.
At December 31, 1993, HLT outstandings and unfunded commitments totaled
$953 million and $186 million, respectively. The comparable December 31, 1992
amounts were $1.1 billion and $202 million, respectively. The communications,
manufacturing and retail/wholesale industries accounted for 73 percent, 13
percent and 12 percent, respectively, of total HLT exposure at December 31,
1993. HLT outstandings represented 2.9 percent of total loans at December 31,
1993 compared with 4.3 percent at December 31, 1992. During 1993, $117 million
of loans and $35 million of unfunded commitments were no longer classified as
HLTs.
At December 31, 1993, the Corporation had 60 customers with loans
designated as HLT. The ten largest HLT outstandings and unfunded commitments
totaled $485 million and $56 million, respectively, none of which were
classified as nonperforming. During 1993, the Corporation originated and/or
participated in $166 million of commitments to new HLT customers compared with
$155 million in 1992. HLT loan fees recognized in income during 1993 totaled
$4.4 million and deferred HLT loan fees totaled $4.9 million at December 31,
1993. The yield on the HLT portfolio, including loans classified as
nonperforming, was 6.1 percent during 1993.
RISK ELEMENTS During 1993, asset quality continued to improve. Assuming modest
economic growth and excluding the impact of acquisitions, management
anticipates the favorable trends will continue during 1994.
At December 31, 1993, $102 million of nonperforming loans were current as
to principal and interest compared with $144 million at December 31, 1992.
Nonperforming HLT loans totaled $25 million at December 31, 1993, compared with
$41 million a year ago.
CHANGE IN NONPERFORMING ASSETS
<TABLE>
<CAPTION>
In millions 1993 1992
- -----------------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $ 820 $ 1,084
- -----------------------------------------------------------------------
Transferred from accrual 296 529
Acquisitions 104 57
Returned to performing (59) (45)
Principal reductions (306) (370)
Sales (131) (124)
Charge-offs and valuation adjustments (170) (311)
- -----------------------------------------------------------------------
Balance at December 31 $ 554 $ 820
- -----------------------------------------------------------------------
</TABLE>
<PAGE> 12
34 CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
- -----------------------------------------------------------------------
December 31
In millions 1993 1992
- -----------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans
Commercial $ 181 $ 316
Real estate project 91 185
Real estate mortgage 84 28
- -----------------------------------------------------------------------
Total nonaccrual loans 356 529
- -----------------------------------------------------------------------
Restructured loans
Commercial 6 11
Real estate project 17 13
Real estate mortgage 5 1
- -----------------------------------------------------------------------
Total restructured loans 28 25
- -----------------------------------------------------------------------
Total nonperforming loans 384 554
- -----------------------------------------------------------------------
Foreclosed assets
Real estate project 108 223
Other 62 43
- -----------------------------------------------------------------------
Total foreclosed assets 170 266
- -----------------------------------------------------------------------
Total nonperforming assets $ 554 $ 820
- -----------------------------------------------------------------------
Nonperforming loans to total loans 1.15% 2.14%
Nonperforming assets to total
loans and foreclosed assets 1.65 3.14
Nonperforming assets to total assets .89 1.60
- -----------------------------------------------------------------------
</TABLE>
At December 31, 1993, office, retail, land and multi-family projects
accounted for 70 percent of total nonperforming real estate project assets. The
Corporation's primary markets accounted for 57 percent and the southeast region
of the United States 31 percent of the total.
Accruing loans contractually past due 90 days or more as to the payment of
principal or interest totaled $135 million at December 31, 1993, compared with
$192 million at December 31, 1992. Residential mortgage and other consumer
loans of $116 million were included in the total at December 31, 1993, compared
with $123 million at the prior year end.
Loans not included in the past due, nonaccrual or restructured categories,
but where known information about possible credit problems causes management to
be uncertain as to the ability of the borrowers to comply with the present loan
repayment terms over the next six months totaled $121 million at December 31,
1993, all of which were current as to principal and interest payments.
ALLOWANCE FOR CREDIT LOSSES In determining the adequacy of the allowance for
credit losses, the Corporation allocates reserves to specific problem loans
based on a collectibility review and pools of watchlist and non-watchlist loans
for various credit risk factors. The allocations to pools of loans are
developed by risk rating and industry classification and are based on
management's judgment concerning historical loss trends and other relevant
factors. These factors may include, among others, local, regional, and national
economic conditions; portfolio concentrations; the level of industry
competition and consolidation; the impact of government regulation; and the
possibility of technological obsolescence.
Residential mortgage and consumer loan allocations are based on historical
loss experience adjusted for portfolio activity and current trends.
The allowance for credit losses was $972 million at December 31, 1993,
representing 2.92 percent of total loans compared with $897 million and 3.47
percent a year ago. As a percentage of period-end nonperforming loans, the
allowance for credit losses was 253 percent at December 31, 1993 compared with
162 percent at December 31, 1992.
<TABLE>
<CAPTION>
CHARGE-OFFS AND RECOVERIES
- -----------------------------------------------------------------------------------------------------------------------------
Year ended December 31 1993 1992
------------------------------------ --------------------------------------
Net Net
In millions Charge-offs Recoveries Charge-offs Charge-offs Recoveries Charge-offs
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 101 $ 41 $ 60 $ 213 $ 37 $ 176
Real estate project 60 4 56 39 1 38
Real estate mortgage 2 2 2 2
Consumer 82 29 53 82 22 60
Other 1 1 7 2 5
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 246 $ 74 $ 172 $ 343 $ 62 $ 281
- -----------------------------------------------------------------------------------------------------------------------------
Net charge-offs as a percentage of average loans .66% 1.15%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992 35
During 1993, $7 million of HLT credits were charged-off and $3 million
of previously charged-off HLT loans were recovered. The comparable 1992
amounts were $46 million and $9 million, respectively.
ASSET/LIABILITY MANAGEMENT The primary objective of asset/liability management
is to provide maximum levels of net interest income while maintaining
acceptable levels of interest rate and liquidity risk and facilitating the
Corporation's funding needs. To achieve this objective, asset/liability
management uses a variety of investment alternatives, funding sources and
off-balance-sheet instruments in managing the overall interest rate risk
profile of the Corporation. ALCO policies include limits on the amounts of
various financial instruments and types of funding, and the level of interest
rate sensitivity. Asset/Liability management seeks to minimize the credit risk
associated with its activities. This is primarily accomplished by entering
into transactions with only a selected number of high quality institutions,
establishing credit limits with counterparties and, where applicable, requiring
segregated collateral.
Interest rate sensitivity refers to the impact of changes in interest
rates on net interest income. A dynamic income simulation model is used as the
primary mechanism in assessing that impact. Various assumptions related to
interest rates, mortgage prepayments, and loan and deposit growth are used in
the model.
The simulation model projects an increase in net interest income in
management's most likely interest rate scenario over the next twelve months. At
December 31, 1993, this scenario assumes a gradual increase in interest rates
accompanied by a modest narrowing of the spread between the prime and federal
funds rates. In addition, management develops interest rate scenarios with
rates higher and lower than the most likely case based on rate movements that
could occur given current and projected economic conditions. As of December 31,
1993, the model projected net interest income would decrease 2.0 percent if the
Federal Funds rate and longer-term rates fell gradually by 100 and 150 basis
points, respectively, over the next year. Similarly, it projected a 1.8 percent
decrease if the Federal Funds rate and longer-term rates rose gradually by 250
and 230 basis points, respectively. These net interest income fluctuations from
the most likely scenario are well within management's policy limits. These
projections are based on current on- and off-balance-sheet positions and do not
reflect actions management could take to mitigate the impact of changes in
interest rates.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1993 Rate Sensitive
------------------------------------------------------------------
1 to 91 to 181 to 1 to 5 Beyond
In millions 90 Days 180 Days 365 Days Years 5 Years Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 17,956 $ 2,439 $ 3,049 $ 6,406 $ 3,456 $ 33,308
Securities 3,642 1,815 3,232 11,325 3,046 23,060
Other earning assets 2,250 2,250
Other assets 234 3,228 3,462
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 24,082 $ 4,254 $ 6,281 $ 17,733 $ 9,730 $ 62,080
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits $ 547 $ 6,510 $ 7,057
Interest-bearing deposits 6,599 2,037 2,411 5,894 9,117 26,058
Borrowings 9,390 3,004 7,150 637 1,066 21,247
Other liabilities 2,062 1,331 3,393
Shareholders' equity 4,325 4,325
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 18,598 $ 5,041 $ 9,561 $ 6,531 $ 22,349 $ 62,080
- ---------------------------------------------------------------------------------------------------------------------------------
Off-balance sheet items $ (8,221) $ 18 $ 1,791 $ 6,555 $ (143)
- ---------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity $ (2,737) $ (769) $ (1,489) $ 17,757 $ (12,762)
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative gap $ (2,737) $ (3,506) $ (4,995) $ 12,762
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 14
36 CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992
An interest rate sensitivity ("gap") analysis represents a point-in-time net
position of assets, liabilities and off-balance-sheet instruments subject to
repricing in specified time periods. The liability sensitivity of the
cumulative one-year gap position was 8.6 percent of total earning assets at
December 31, 1993. Gap analysis alone does not accurately measure the magnitude
of changes in net interest income since changes in interest rates do not affect
all categories of assets, liabilities, and off-balance-sheet positions
equally or simultaneously.
The distribution in the Interest Rate Sensitivity table is based on a
combination of maturities, call provisions, repricing frequencies, prepayment
patterns and historical experience. Variable rate assets and liabilities are
distributed based on the repricing frequency of the instrument.
The Corporation enters into interest rate swaps to alter the maturity
and repricing structure of the balance sheet ("hedge swaps") and as an
intermediary for customers ("customer swaps"). At December 31, 1993 hedge swaps
and customer swaps accounted for 83 percent and 3 percent, respectively, of the
total notional amount of all interest rate swap, futures, forward and written
option contracts.
The notional amount of hedge and customer swaps totaled $11.8 billion
and $490 million, respectively, at December 31, 1993. The corresponding
December 31, 1992 amounts were $7.7 billion and $520 million, respectively. At
December 31, 1993, credit risk related to all swaps totaled approximately $109
million with 92 percent collateralized by U.S. Government and agency
securities.
The majority of hedge swaps are indexed amortizing interest rate swaps
where the Corporation receives payments based on fixed interest rates and makes
payments based on a floating money market rate. Index swaps have remaining
expected maturities that range from six months to two and one half years. If
interest rates rise above a contractually specified level, the maturities of
the index swaps will be extended. However, in management's current most likely
interest rate scenario, these maturities will not extend significantly.
During 1993, hedge swaps benefited net interest income by $203.3 million
compared with $98.6 million in the corresponding 1992 period. At December 31,
1993, net deferred gains on terminated interest rate swaps totaled $22 million,
which is being amortized over various remaining periods up to two years.
Because the Corporation has an aggregate receive-fixed/pay-variable
interest rate swap position, an increase in interest rates would reduce the
benefit provided by such swaps. However, management would expect several
factors to partially or entirely mitigate a decline in the benefit provided by
such swaps. As interest rates increase, the Corporation will derive a greater
benefit from existing long-term liabilities and noninterest-bearing sources of
funds. Also, an increase in interest rates would likely be associated with
higher levels of economic activity, providing opportunities for loan growth and
higher fee income.
LIQUIDITY MANAGEMENT Liquidity represents an institution's ability to generate
cash or otherwise obtain funds at reasonable rates to satisfy commitments to
borrowers as well as the demands of 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.
Liquid assets consist of cash and due from banks, federal funds sold and
resale agreements, interest-earning deposits with banks, trading account
securities and securities available for sale. At December 31, 1993, such assets
totaled $14.1 billion. Liquidity is also provided by securities that may be
sold under agreements to repurchase, which totaled $8.2 billion at December 31,
1993. In addition, certain bank affiliates joined the Federal Home Loan Bank
System in 1993.
<PAGE> 15
CORPORATE FINANCIAL REVIEW 1993 VERSUS 1992 37
<TABLE>
<CAPTION>
FUNDING SOURCES
- ------------------------------------------------------------------------------------------------------------------------------------
December 31
In millions 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deposits
Demand, savings and money market $ 18,621 $ 17,157
Time 14,494 12,313
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 33,115 29,470
Borrowed funds
Repurchase agreements 4,995 6,452
Treasury, tax and loan 3,414 1,661
Federal funds purchased 2,066 2,037
Commercial paper 514 980
Other 673 681
- ------------------------------------------------------------------------------------------------------------------------------------
Total borrowed funds 11,662 11,811
Notes and debentures 9,585 4,297
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 54,362 $ 45,578
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Brokered deposits are included in the certificates of deposit of
$100,000 or more and other time categories. Such amounts totaled $4.1 billion
at December 31, 1993 compared with $2.3 billion at December 31, 1992. Retail
brokered deposits are issued or participated-out by brokers in denominations of
$100,000 or less and are fully insured. Such deposits represented 63.7 percent
of the total at December 31, 1993 and 13.1 percent a year ago. The increase
relates entirely to retail brokered deposits assumed in the Sears Mortgage
acquisition. These deposits are expected to decline in future periods as they
mature and alternative funding sources are employed.
Liquidity for the parent company and its nonbank affiliates is
generated through the issuance of securities in public or private markets,
lines of credit and dividends from subsidiaries. Under effective shelf
registration statements at December 31, 1993, the Corporation has available
$250 million of debt, $300 million of preferred stock and $550 million of
securities that may be issued as either debt or preferred stock. Additionally,
the Corporation has a $150 million unused committed line of credit. Funds
obtained from any of these sources can be used for both bank and nonbank
activities. In addition to current parent company funds, the funding for
pending acquisitions may include the issuance of instruments that qualify as
regulatory capital such as preferred stock or subordinated debt.
CAPITAL
The current economic and regulatory environment has placed an increased
emphasis on capital strength. Acquisition capability, funding alternatives, new
business activities, deposit insurance costs and the level and nature of
expanded regulatory oversight depend in part on capital adequacy.
<TABLE>
<CAPTION>
RISK-BASED CAPITAL AND LEVERAGE RATIOS
- ---------------------------------------------------------------------------------------------------------------------------------
December 31
Dollar amounts in millions 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL COMPONENTS
Shareholders' equity $ 4,325 $ 3,746
Goodwill (85) (62)
Net unrealized securities gains (88)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Tier I risk-based capital 4,152 3,684
Subordinated debt 554 235
Eligible allowance for credit losses 547 458
- ---------------------------------------------------------------------------------------------------------------------------------
Total risk-based capital $ 5,253 $ 4,377
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Risk-weighted assets and off-
balance-sheet instruments $ 43,380 $36,210
Average tangible assets 52,923 48,374
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS
Tier I risk-based capital 9.57% 10.17%
Total risk-based capital 12.11 12.09
Leverage 7.85 7.62
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The minimum regulatory capital ratios are 4.00 percent for Tier I,
8.00 percent for total risk-based and 3.00 percent for leverage. However,
regulators may require higher capital levels when a bank's particular
circumstances warrant.
Capital ratios are expected to decline somewhat in 1994 as a result of
including the Sears Mortgage assets for a full reporting period and
consummating pending acquisitions.
<PAGE> 16
38
MANAGEMENT'S REPORT ON THE FINANCIAL
REPORTING INTERNAL CONTROL STRUCTURE
PNC Bank Corp. is responsible for the preparation, integrity and fair
presentation of its published financial statements. The consolidated financial
statements included in this annual report have been prepared in accordance with
generally accepted accounting principles and, as such, include judgments and
estimates of management. PNC Bank Corp. also prepared the other information
included in the annual report and is responsible for its accuracy and
consistency with the consolidated financial statements.
Management is responsible for establishing and maintaining an
effective internal control structure over financial reporting. The internal
control system is augmented by written policies and procedures and by audits
performed by an internal audit staff which reports to the Audit Committee of
the Board of Directors. Internal auditors monitor the operation of the internal
control system and report findings to management and the Audit Committee, and
corrective actions are taken to address identified control deficiencies and
other opportunities for improving the system. The Audit Committee, composed
solely of outside directors, provides oversight to the financial reporting
process.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even an effective
internal control system can provide only reasonable assurance with respect to
financial statement preparation. Further, because of changes in conditions, the
effectiveness of an internal control system may vary over time.
Management assessed PNC Bank Corp.'s internal control structure over
financial reporting as of December 31, 1993. This assessment was based on
criteria for effective internal control over financial reporting described in
"Internal Control- Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management
believes that PNC Bank Corp. maintained an effective internal control system
over financial reporting as of December 31, 1993.
/s/ THOMAS H. O'BRIEN /s/ WALTER E. GREGG, JR.
Thomas H. O'Brien Walter E. Gregg, Jr.
Chairman and Executive Vice President
Chief Executive Officer
REPORT OF ERNST & YOUNG,
INDEPENDENT AUDITORS
Shareholders and Board of Directors
PNC Bank Corp.
We have audited the accompanying consolidated balance sheet of PNC Bank Corp.
and subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of PNC Bank Corp.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PNC
Bank Corp. and subsidiaries at December 31, 1993 and 1992, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in the Notes to Consolidated Financial Statements, in
1993 PNC Bank Corp. changed its method of accounting for certain investments in
debt and equity securities, income taxes, and intangible assets, and in 1992
changed its method of accounting for postretirement benefits.
/s/ ERNST & YOUNG
Pittsburgh, Pennsylvania
February 11, 1994
<PAGE> 17
CONSOLIDATED BALANCE SHEET 39
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
December 31
Dollars in millions, except par values 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,817 $ 2,117
Short-term investments 856 1,165
Loans held for sale 1,392 220
Securities available for sale, fair value of $7,552 in 1992 11,388 7,414
Investment securities, fair value of $11,716 and $13,430 11,672 13,327
Loans, net of unearned income of $222 and $292 33,308 25,817
Allowance for credit losses (972) (897)
- ----------------------------------------------------------------------------------------------
Net loans 32,336 24,920
Other 2,619 2,217
- ----------------------------------------------------------------------------------------------
Total assets $ 62,080 $ 51,380
- ----------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Noninterest-bearing $ 7,057 $ 5,890
Interest-bearing 26,058 23,580
- ----------------------------------------------------------------------------------------------
Total deposits 33,115 29,470
- ----------------------------------------------------------------------------------------------
Borrowed funds
Federal funds purchased 2,066 2,037
Repurchase agreements 4,995 6,452
Commercial paper 514 980
Other 4,087 2,342
- ----------------------------------------------------------------------------------------------
Total borrowed funds 11,662 11,811
- ----------------------------------------------------------------------------------------------
Notes and debentures 9,585 4,297
Accrued expenses and other liabilities 3,393 2,056
- ----------------------------------------------------------------------------------------------
Total liabilities 57,755 47,634
- ----------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock--$1 par value
Authorized: 17,663,791 and 17,854,291 shares
Issued and outstanding: 983,233 and 1,498,041 shares 1 1
Aggregate liquidation value: $20 and $33
Common stock--$5 par value
Authorized: 450,000,000 shares
Issued: 234,994,196 and 232,574,794 shares 1,175 1,163
Capital surplus 450 425
Retained earnings 2,715 2,263
Deferred ESOP benefit expense (95) (106)
Net unrealized securities gains 88
Common stock held in treasury at cost: 288,959 and 1,541 shares (9)
- -----------------------------------------------------------------------------------------------
Total shareholders' equity 4,325 3,746
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 62,080 $ 51,380
- -----------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 18
40 CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
In thousands, except per share data 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans $ 1,950,937 $ 1,964,248 $ 2,537,128
Short-term investments 22,379 31,960 58,087
Securities 1,203,151 1,203,643 1,038,899
Other 24,653 19,120 23,419
- --------------------------------------------------------------------------------------------------------------------------------
Total interest income 3,201,120 3,218,971 3,657,533
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 742,772 1,063,422 1,727,765
Borrowed funds 362,995 352,162 398,779
Notes and debentures 266,320 146,095 95,791
- --------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,372,087 1,561,679 2,222,335
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,829,033 1,657,292 1,435,198
Provision for credit losses 203,944 323,531 428,038
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income less provision for credit losses 1,625,089 1,333,761 1,007,160
- --------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Investment management and trust 273,849 260,113 237,794
Service charges, fees and commissions 403,013 360,559 359,578
Trading account profits 6,785 1,717 9,172
Net securities gains 187,694 193,503 63,454
Gains on sale of certain operations 92,666
Other 73,908 70,884 49,361
- --------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 945,249 886,776 812,025
- --------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Compensation 582,181 541,304 494,837
Employee benefits 103,207 127,099 103,870
Net occupancy 115,354 104,407 100,067
Equipment 113,954 102,153 91,525
Federal deposit insurance 65,488 65,629 64,825
Other 473,542 501,823 415,860
- --------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 1,453,726 1,442,415 1,270,984
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of changes in accounting principles 1,116,612 778,122 548,201
Applicable income taxes 371,349 248,682 158,415
- --------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in accounting principles 745,263 529,440 389,786
Cumulative effect of changes in accounting principles,
net of tax benefit of $5,343 and $52,804 (19,393) (102,501)
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 725,870 $ 426,939 $ 389,786
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Primary before cumulative effect of changes in accounting principles $ 3.14 $ 2.36 $ 1.97
Cumulative effect of changes in accounting principles (.08) (.46)
- --------------------------------------------------------------------------------------------------------------------------------
Primary $ 3.06 $ 1.90 $ 1.97
- --------------------------------------------------------------------------------------------------------------------------------
Fully diluted before cumulative effect of changes in accounting principles $ 3.13 $ 2.34 $ 1.94
Cumulative effect of changes in accounting principles (.09) (.45)
- --------------------------------------------------------------------------------------------------------------------------------
Fully diluted $ 3.04 $ 1.89 $ 1.94
- --------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 1.175 $ 1.08 $ .795
AVERAGE COMMON SHARES OUTSTANDING
Primary 236,386 224,023 196,872
Fully diluted 238,421 227,125 201,324
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 19
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 41
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Preferred Common Capital Retained
Dollars in millions, except per share data Stock Stock Surplus Earnings
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1991 $ 1 $ 478 $ 473 $ 1,778
- ------------------------------------------------------------------------------------------
Net income 390
Cash dividends declared
Preferred stock (3)
Common stock (153)
Deferred ESOP benefit expense
Purchase of stock (common 181,407)
Stock issued (common 11,861,295)
Common stock 52 377
Dividend reinvestment and employee benefit plans 7 29
Conversion of preferred stock and debentures 2
Marketable equity securities valuation adjustment 5
ESOP dividends tax benefit 2
Net foreign currency translation adjustment (3)
- ------------------------------------------------------------------------------------------
Balance at December 31, 1991 1 537 881 2,016
- ------------------------------------------------------------------------------------------
Net income 427
Cash dividends declared
Preferred stock (3)
Common stock (235)
Deferred ESOP benefit expense
Purchase of stock (common 515,152)
Stock issued (common 9,479,414)
Dividend reinvestment and employee benefit plans 12 49
Conversion of preferred stock and debentures 2 2
Acquisitions 33 72 55
Transfer to reflect two-for-one stock split 579 (579)
ESOP dividends tax benefit 3
- ------------------------------------------------------------------------------------------
Balance at December 31, 1992 1 1,163 425 2,263
- ------------------------------------------------------------------------------------------
Net income 726
Cash dividends declared
Preferred stock (2)
Common stock (275)
Deferred ESOP benefit expense
Purchase of stock (common 810,416)
Stock issued (common 2,419,402)
Dividend reinvestment and employee benefit plans 10 36
Conversion of preferred stock and debentures 2 (2)
Redemption of preferred stock (9)
ESOP dividends tax benefit 3
Net unrealized securities gains
- ------------------------------------------------------------------------------------------
Balance at December 31, 1993 $ 1 $1,175 $ 450 $ 2,715
- ------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Deferred ESOP Net Unrealized Treasury
Dollars in millions, except per share data Benefit Expense Securities Gains Stock
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1991 $ (130)
- --------------------------------------------------------------------------------------------
Net income
Cash dividends declared
Preferred stock
Common stock
Deferred ESOP benefit expense 11
Purchase of stock (common 181,407) $ (7)
Stock issued (common 11,861,295)
Common stock
Dividend reinvestment and employee benefit plans 7
Conversion of preferred stock and debentures
Marketable equity securities valuation adjustment
ESOP dividends tax benefit
Net foreign currency translation adjustment
- --------------------------------------------------------------------------------------------
Balance at December 31, 1991 (119)
- --------------------------------------------------------------------------------------------
Net income
Cash dividends declared
Preferred stock
Common stock
Deferred ESOP benefit expense 13
Purchase of stock (common 515,152) (13)
Stock issued (common 9,479,414)
Dividend reinvestment and employee benefit plans 13
Conversion of preferred stock and debentures
Acquisitions
Transfer to reflect two-for-one stock split
ESOP dividends tax benefit
- --------------------------------------------------------------------------------------------
Balance at December 31, 1992 (106)
- --------------------------------------------------------------------------------------------
Net income
Cash dividends declared
Preferred stock
Common stock
Deferred ESOP benefit expense 11
Purchase of stock (common 810,416) (19)
Stock issued (common 2,419,402)
Dividend reinvestment and employee benefit plans 10
Conversion of preferred stock and debentures
Redemption of preferred stock
ESOP dividends tax benefit
Net unrealized securities gains $88
- --------------------------------------------------------------------------------------------
Balance at December 31, 1993 $ (95) $88 $ (9)
- --------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 20
42 CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
In millions 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 726 $ 427 $ 390
Adjustments to reconcile net income to net cash provided by operating activities
Cumulative effect of changes in accounting principles 19 103
Provision for credit losses 204 324 428
Depreciation, amortization and accretion 148 137 72
Deferred income taxes (61) (36) 21
Net securities gains (188) (214) (70)
Net gain on sales of assets (16) (23) (118)
Valuation adjustments on foreclosed assets, net of gains on sales (22) 50 40
Changes in
Loans held for sale (42) 117 (204)
Trading account securities 20 202 (224)
Interest receivable (3) 12 77
Interest payable 108 (114)
Other 68 (189) 575
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 961 910 873
- --------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in
Interest-earning deposits with banks 283 (447) 350
Federal funds sold and resale agreements 241 951 (164)
Loans (3,081) 945 1,670
Repayment
Securities available for sale 1,196 575
Investment securities 7,773 5,712 2,117
Sales
Securities available for sale 16,659 7,976
Investment securities 11 278 5,345
Loans 81 191 606
Foreclosed assets 144 96 69
Purchases
Securities available for sale (13,620) (5,868)
Investment securities (11,839) (13,101) (9,447)
Loans (433) (213) (19)
Net cash acquired (paid) in acquisitions/divestitures (190) (26) 181
Other (255) (328) (181)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (3,030) (3,259) 527
- --------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits 1,137 529 (284)
Interest-bearing deposits (1,536) (3,324) (2,748)
Federal funds purchased (2,082) 457 (384)
Sale/issuance
Repurchase agreements 163,675 165,563 175,353
Commercial paper 5,221 10,253 12,697
Other borrowed funds 48,310 35,391 34,925
Notes and debentures 9,015 424 782
Common stock 53 74 471
Redemption/maturity
Repurchase agreements (165,133) (162,994) (176,468)
Commercial paper (5,687) (9,831) (12,569)
Other borrowed funds (46,565) (33,588) (33,107)
Notes and debentures (4,344) (337) (314)
Acquisition of treasury stock (19) (13) (7)
Cash dividends paid to shareholders (276) (239) (207)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 1,769 2,365 (1,860)
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (300) 16 (460)
Cash and due from banks at beginning of year 2,117 2,101 2,561
- --------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 1,817 $ 2,117 $ 2,101
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 43
ACCOUNTING POLICIES
BUSINESS PNC Bank Corp. provides a full range of banking and related services
through its subsidiaries to individual and corporate customers and is subject
to intense competition from other financial services companies with respect to
these services and customers. PNC Bank Corp. is also subject to the regulations
of certain federal and state agencies and undergoes periodic examinations by
such regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION The consolidated financial statements
include the accounts of PNC Bank Corp. and its subsidiaries ("Corporation"),
substantially all of which are wholly-owned. Such statements have been prepared
in accordance with generally accepted accounting principles. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect amounts reported in the financial
statements. Actual results could differ from such estimates.
RECLASSIFICATIONS Certain prior period amounts have been reclassified to
conform to reporting classifications utilized for the current reporting period.
These reclassifications did not impact the Corporation's financial condition or
results of operations.
SECURITIES Effective December 31, 1993, the Corporation adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Securities are classified as
investments and carried at amortized cost if management has the positive intent
and ability to hold the securities to maturity. Securities purchased with the
intention of recognizing short-term profits are placed in the trading account
and are carried at market value. Securities not classified as investment or
trading are designated securities available for sale and carried at fair value
with unrealized gains and losses reflected in shareholders' equity. Prior to
the adoption of SFAS No. 115, securities available for sale were carried at the
lower of cost or fair value.
Gains and losses on sales of securities are generally computed on a
specific security basis.
LOANS HELD FOR SALE Loans held for sale primarily consist of residential
mortgages and are carried at the lower of cost or aggregate market value. Gains
and losses on these loans are included in other noninterest income.
INTEREST RATE SWAPS, FINANCIAL FUTURES, FORWARDS AND OPTIONS Interest rate
swaps, financial futures, forwards and options, except those designated as
hedges, are valued at market, with realized and unrealized gains and losses
included in trading account profits. Fees related to interest rate swap
agreements entered into for customers are recognized in income over the term of
the swap.
To qualify for hedge accounting treatment, the hedging instrument must be
associated with specific interest-bearing assets or liabilities, be designated
and effective as a hedge and reduce exposure to interest rate risk. Interest
accruals on interest rate swaps designated as hedges are recognized as
adjustments to interest income or interest expense related to the hedged asset
or liability. Gains and losses on financial futures, forwards and options
designated as hedges are deferred and amortized over the remaining life of the
hedged transaction.
LOANS Interest income with respect to loans is accrued on the principal amount
outstanding, except for lease financing income and interest on certain consumer
loans which are recognized over their respective terms using methods which
approximate level yields. Significant loan fees are deferred and accreted to
income over the respective lives of the loans.
<PAGE> 22
44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NONPERFORMING ASSETS Nonperforming assets are comprised of nonaccrual and
restructured loans and foreclosed assets. Generally, a loan is classified as
nonaccrual and the accrual of interest on such loan is discontinued when it is
determined that the collection of interest or principal is doubtful, or when a
default of interest or principal has existed for 90 days or more, unless such
loan is well secured and in the process of collection. When the accrual of
interest is discontinued, unpaid interest credited to income in the current
year is reversed and unpaid interest accrued in prior years is charged against
the allowance for credit losses. A loan is categorized as restructured if the
original interest rate on such loan, repayment terms, or both, are restructured
due to a deterioration in the financial condition of the borrower and it was
not previously classified as nonaccrual. Nonperforming loans are generally not
returned to performing status until the obligation is brought current, has
performed in accordance with the contractual terms for a reasonable period of
time and the ultimate collectibility of the total contractual principal and
interest is no longer in doubt.
Foreclosed assets are comprised of property acquired through a
foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure and loans
classified as in-substance foreclosure. A loan is classified as in-substance
foreclosure when the borrower is perceived to have little or no equity in the
collateral and the Corporation can reasonably anticipate proceeds for repayment
only from the operation or sale of the collateral. Foreclosed assets are
recorded at the lower of the related loan balance or market value of the
collateral less estimated disposition costs at the date acquired. Subsequently,
foreclosed assets are valued at the lower of the amount recorded at the date
acquired or the then current market value less estimated disposition costs. Any
gains or losses realized upon disposition of the property are reflected in
income. Market values are estimated primarily based upon appraisals.
ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is established
through provisions for credit losses charged against income. Loans deemed to be
uncollectible are charged against the allowance account. Subsequent recoveries,
if any, are credited to the allowance account.
The allowance is maintained at a level believed adequate by management
to absorb estimated potential credit losses. Management's determination of the
adequacy of the allowance is based on periodic evaluations of the credit
portfolio considering past experience, current economic conditions, composition
of the credit portfolio and other relevant factors. This evaluation is
inherently subjective as it requires material estimates that may be susceptible
to significant change.
DEPRECIATION AND AMORTIZATION Depreciation and amortization of premises and
equipment are principally computed by the straight-line method over their
estimated useful lives for financial reporting purposes and by accelerated
methods for federal income tax purposes. Leasehold improvements are amortized
over their estimated useful lives or their respective lease terms, whichever is
shorter.
INTANGIBLE ASSETS Effective January 1, 1993, the Corporation changed its method
of accounting for certain intangible assets, consisting primarily of purchased
mortgage servicing rights. Such assets are accounted for at the lower of
amortized cost or the estimated value of the discounted future net revenues on
a disaggregated basis. Previously, future net revenues were not discounted for
this purpose. The cumulative effect of the change decreased net income by $10.4
million.
Intangible assets, which are included in other assets, are amortized
using accelerated and straight-line methods over their respective estimated
useful lives. Goodwill is amortized on a straight-line basis over periods
ranging from 15 to 25 years.
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 45
INCOME TAXES Effective January 1, 1993, the Corporation adopted SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the use of the liability
method to account for deferred income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Previously, deferred income taxes were accounted for using
the deferred method.
As permitted by SFAS No. 109, the Corporation elected not to restate the
financial statements of any prior periods. The cumulative effect of the change
decreased net income by $9.0 million.
TREASURY STOCK The purchase of the Corporation's common stock is recorded at
cost. At the date of subsequent reissue, the treasury stock account is reduced
by the cost of such stock on the first-in-first-out basis.
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.
MERGER AGREEMENT
During 1993, the Corporation entered into an agreement to acquire for cash
First Eastern Corp. ("First Eastern"), Wilkes-Barre, Pennsylvania, which
reported total assets of $2.0 billion at December 31, 1993. The transaction has
an indicated value of $330 million and is subject to the approval of certain
regulatory agencies and First Eastern's shareholders. Closing is currently
anticipated in the second quarter of 1994.
SEARS MORTGAGE ACQUISITION
On November 30, 1993, the Corporation consummated its acquisition of the Sears
Mortgage Banking Group ("Sears Mortgage"), which consisted of Sears Mortgage
Corporation, Sears Mortgage Securities Corporation and Sears Savings Bank. The
transaction was recorded under the purchase method of accounting and the total
assets of Sears Mortgage were $7.6 billion at closing. The purchase price was
$328 million in cash and is subject to certain post-closing adjustments. Upon
consummation, Sears Savings Bank was converted to a national banking
association and renamed PNCMortgage Bank, National Association ("PNC
Mortgage"), and the other acquired entities became wholly-owned subsidiaries of
PNC Mortgage.
The following table presents unaudited pro forma financial information
for the Corporation and Sears Mortgage for the years ended December 31, 1993
and 1992, as if the acquisition had been effective on January 1, 1993, and
January 1, 1992, respectively.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Year ended December 31 (Unaudited)
(In millions, except per share data) 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net interest income $1,935 $ 1,823
Provision for credit losses 204 338
Noninterest income 1,143 1,075
Noninterest expenses 1,710 1,694
Income before cumulative effect of
changes in accounting principles 774 590
- -----------------------------------------------------------------------------------------------------------------------
Earnings per common share before cumulative
effect of changes in accounting principles
Primary $ 3.26 $ 2.63
Fully diluted 3.25 2.61
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 1993 information includes the Corporation's historical amounts for the
year ended December 31, 1993, and Sears Mortgage's unaudited historical amounts
for the eleven-months ended November 30, 1993. The 1992 information includes
both entities' historical amounts for the year ended December 31, 1992. These
historical amounts have been adjusted for the amortization of purchase
accounting adjustments. The pro forma financial information may not be
indicative of the results of operations that actually would have occurred, or
that may be attained in the future, had the Corporation completed its
acquisition of Sears Mortgage on the dates indicated. The purchase price paid
at closing is subject to certain post-closing adjustments, which are not
expected to have a material impact on the pro forma financial information.
OTHER ACQUISITIONS AND DIVESTITURES
During 1993, the Corporation acquired for cash the Massachusetts Company,
Boston, Massachusetts and Gateway Fed Corporation, Cincinnati, Ohio. The
aggregate purchase price was $107 million and the combined assets of these
companies totaled $1.4 billion at closing. These transactions were recorded
under the purchase method of accounting.
On January 21, 1994, the Corporation consummated the acquisition of United
Federal Bancorp, Inc. ("United"), State College, Pennsylvania, for $156 million
in cash. The transaction was recorded under the purchase method of accounting
and United's assets totaled $900 million at closing.
During 1992, the Corporation completed the acquisitions of Pro Group, Inc.,
Bradford, Pennsylvania, The First National Pennsylvania Corporation ("FNP") in
Erie, Pennsylvania, Sunrise Bancorp, Inc. ("Sunrise"), Fort Mitchell, Kentucky,
CCNB Corporation ("CCNB"), Camp Hill, Pennsylvania, and Flagship Financial
Corp. ("Flagship"), Jenkintown, Pennsylvania. These institutions contributed
approximately $2.6 billion in assets on a net basis. Under the terms of the
various agreements, the Corporation issued approximately 13.3 million shares of
common stock and paid cash of approximately $45 million. The Sunrise and
Flagship acquisitions were recorded under the purchase method of accounting.
The Pro Group, Inc., FNP and CCNB acquisitions were accounted for on a
pooling-of-interests basis, however, due to immateriality, prior period
financial information has not been restated.
During 1991, the Corporation acquired approximately $2.7 billion of selected
assets and deposit liabilities of First Federal Savings and Loan Association of
Pittsburgh and Future Federal Savings Bank of Louisville, Kentucky from the
Resolution Trust Corporation. Additionally, the Corporation entered into a
credit card processing agreement in which a substantial portion of the merchant
processing portfolio and servicing rights were sold. This transaction resulted
in a pre-tax gain of $13.3 million. During 1991, the Corporation completed the
sale of four Ohio bank affiliates which resulted in a pre-tax gain of $79.3
million. The banks had total assets and deposits of $2.0 billion and $1.6
billion, respectively.
CASH FLOWS
For purposes of the statement of cash flows, the Corporation defines cash and
due from banks as cash and cash equivalents. During 1993, 1992 and 1991,
interest paid on deposits and other contractual debt obligations was $1.3
billion, $1.6 billion and $2.3 billion, respectively, and income taxes paid
were $396.0 million, $257.3 million and $113.4 million, respectively. During
both 1993 and 1992, $7.2 billion, of investment securities were transferred to
available for sale. Loans transferred to foreclosed assets aggregated $24.5
million in 1993, $89.2 million in 1992 and $207.3 million in 1991.
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 47
SECURITIES
Effective December 31, 1993, the Corporation adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Under the new standard,
investment securities are carried at amortized cost and securities available
for sale are carried at fair value with the after-tax net unrealized gain or
loss recorded in shareholders' equity. As a result of adopting SFAS No. 115,
$7.2 billion of investment securities were reclassified as available for sale.
At December 31, 1993, after-tax net unrealized gains totaled $88 million.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Unrealized
December 31, 1993 Amortized ------------------------ Fair
In millions Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities
Debt securities
U.S. Treasury $ 1 $ 1
U.S. Government
agencies and
corporations 10,227 $ 39 $ 32 10,234
State and municipal 389 38 427
Other 810 3 4 809
Corporate stocks 245 245
- -------------------------------------------------------------------------------------------------------------------------
Total $ 11,672 $ 80 $ 36 $ 11,716
- -------------------------------------------------------------------------------------------------------------------------
Securities available for sale
Debt securities
U.S. Treasury $ 2,402 $ 2 $ 2 $ 2,402
U.S. Government
agencies and
corporations 8,023 114 16 8,121
State and municipal 2 2
Other 788 18 4 802
Corporate stocks 36 25 61
- -------------------------------------------------------------------------------------------------------------------------
Total $ 11,251 $ 159 $ 22 $ 11,388
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying value of securities pledged to secure public and trust
deposits, repurchase agreements and for other purposes was $12.2 billion.
The following tables present the amortized cost and fair value of debt
securities at December 31, 1993, by remaining contractual maturities. Based on
the Corporation's current rate projections and historical experience, the
weighted-average expected maturity of all collateralized mortgage obligations
and mortgage-backed and asset-backed securities was two years and 11 months at
December 31, 1993.
<TABLE>
<CAPTION>
December 31, 1993 Amortized Fair
In millions Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment securities
One year or less $ 54 $ 54
After one year through five years 117 125
After five years through ten years 64 69
After ten years 195 219
Collateralized mortgage obligations 10,738 10,741
Asset-backed securities 259 263
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 11,427 $11,471
- -------------------------------------------------------------------------------------------------------------------------------
Securities available for sale
One year or less $ 538 $ 538
After one year through five years 1,872 1,871
After five years through ten years 17 18
After ten years 53 61
Collateralized mortgage obligations 2,949 2,935
Mortgage-backed securities 5,739 5,857
Asset-backed securities 47 47
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 11,215 $11,327
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from the sale of securities available for sale were $16.7
billion in 1993 resulting in gross gains of $186.6 million and gross losses of
$4.5 million.
Proceeds from the sale of debt securities during 1992 and 1991 were
$8.2 billion and $5.2 billion, respectively. As a result of such sales, gross
gains of $198.1 million and $83.2 million, respectively, and gross losses of
$.7 million and $4.9 million, respectively, were realized.
<PAGE> 26
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
December 31, 1992 Amortized Unrealized Fair
In millions Cost Gains Losses Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities
Debt securities
U.S. Treasury $ 37 $ 1 $ 38
U.S. Government
agencies and
corporations 11,413 101 $ 47 11,467
State and municipal 558 26 1 583
Other 1,246 7 6 1,247
Corporate stocks 73 22 95
- -----------------------------------------------------------------------------
Total $ 13,327 $ 157 $ 54 $ 13,430
- -----------------------------------------------------------------------------
Securities available for sale
U.S. Treasury $ 2,768 $ 18 $ 1 $ 2,785
U.S. Government
agencies and
corporations 4,011 120 4,131
Other 635 1 636
- -----------------------------------------------------------------------------
Total $ 7,414 $ 139 $ 1 $ 7,552
- -----------------------------------------------------------------------------
</TABLE>
Loans
Loans are comprised of the following categories:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
December 31
In millions 1993 1992
- -----------------------------------------------------------------
<S> <C> <C>
Commercial $ 12,463 $ 10,985
Real estate project 1,730 1,955
Real estate mortgage
Residential 8,036 3,235
Commercial 905 879
Consumer 8,525 7,950
Other 1,871 1,105
Unearned income (222) (292)
- -----------------------------------------------------------------
Total, net of unearned income $ 33,308 $ 25,817
- -----------------------------------------------------------------
</TABLE>
At December 31, 1993, $1.5 billion of loans were pledged to secure
borrowings and for other purposes.
Certain directors and executive officers of the Corporation and its
significant subsidiaries as well as certain affiliates of these directors and
officers were customers of and had loans with subsidiary banks in the ordinary
course of business. All such loans were on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers and did not involve more than a
normal risk of collectibility. The aggregate dollar amount of these loans was
$313 million at December 31, 1993, and $216 million at December 31, 1992.
During 1993, new loans of $262 million were funded and repayments totaled $165
million.
NONPERFORMING ASSETS
Nonaccrual loans, restructured loans and foreclosed assets were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
December 31
In millions 1993 1992
- -----------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 356 $ 529
Restructured loans 28 25
- -----------------------------------------------------------------
Total nonperforming loans 384 554
Foreclosed assets 170 266
- -----------------------------------------------------------------
Total nonperforming assets $ 554 $ 820
- -----------------------------------------------------------------
</TABLE>
At December 31, 1993 and 1992, unfunded commitments to lend additional
funds with respect to nonperforming assets totaled $41 million and $99 million,
respectively. At December 31, 1993 and 1992, foreclosed assets are reported net
of valuation allowances of $69 million and $99 million, respectively.
In-substance foreclosures totaled $36 million at December 31, 1993 and $149
million at December 31, 1992. Gains on sales of foreclosed assets resulted in
net foreclosed asset income of $27 million in 1993, which is included in other
noninterest expenses. Net foreclosed asset expense totaled $50 million in 1992
and $39 million in 1991.
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 49
Related interest on nonperforming loans was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
December 31
In thousands 1993 1992 1991
- -----------------------------------------------------------------
<S> <C> <C> <C>
Interest computed
on original terms $ 33,891 $ 53,362 $ 85,563
Interest recognized 6,296 6,136 20,663
- -----------------------------------------------------------------
</TABLE>
ALLOWANCE FOR CREDIT LOSSES
The following table presents changes in the allowance for credit losses:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
December 31
In millions 1993 1992 1991
- -----------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 897 $ 797 $ 784
- -----------------------------------------------------------------
Charge-offs (246) (343) (446)
Recoveries 74 62 48
- -----------------------------------------------------------------
Net charge-offs (172) (281) (398)
- -----------------------------------------------------------------
Provision for credit losses 204 324 428
Acquisitions/divestitures 43 57 (17)
- -----------------------------------------------------------------
Balance at December 31 $ 972 $ 897 $ 797
- -----------------------------------------------------------------
</TABLE>
In May 1993, SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," was issued with adoption required in 1995. Management does not expect
the adoption of this standard to have a material impact on the Corporation's
financial position or results of operations.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET
RISK AND CONCENTRATIONS OF CREDIT RISK
In the normal course of business the Corporation is party to financial
instrument transactions with off-balance-sheet risk. These transactions enable
customers to meet their financing needs and enable the Corporation to reduce
exposure to market risk. Financial instruments with off-balance-sheet risk
involve, to varying degrees, credit and market risk in excess of the amount
recognized in the balance sheet. Such instruments are subject to the
Corporation's credit policies and procedures. The Corporation attempts to limit
the potential exposure of off-balance-sheet transactions through
diversification, utilizing exposure limits to any single industry or customer
and selling participations to third parties. Collateral requirements and
covenants, if necessary, are established based on management's credit
assessment of the customer.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
December 31
In millions 1993 1992
- -----------------------------------------------------------------
<S> <C> <C>
Contract amount represents credit risk
Commitments to extend credit $ 22,334 $ 17,445
Standby letters of credit 3,808 3,760
Commercial letters of credit 97 146
Contract or notional amount exceeds
the amount of credit risk
Interest rate swaps 12,302 8,206
Foreign currency exchange contracts
Commitments to purchase 387 235
Commitments to sell 392 255
Futures and forward contracts
Commitments to purchase 50
Option contracts
Written 555 227
Purchased 605 167
- -----------------------------------------------------------------
</TABLE>
COMMITMENTS TO EXTEND CREDIT AND LOANS Commitments to extend credit represent
contractual obligations to lend funds. Funding of approximately 34 percent of
such commitments at December 31, 1993 is subject to the financial condition of
the customer. Commitments to extend credit generally require payment of a fee
by the customer and contain fixed expiration dates or other termination clauses
and specified interest rates. At December 31, 1993 and 1992, commitments to
extend credit included $1.8 billion and $1.9 billion, respectively, of
participations and syndications which are primarily to financial institutions.
The Corporation has purchased participations and originated loans in
connection with highly leveraged transactions ("HLT") which are included in the
commercial portfolio. HLT loans and unfunded commitments at December 31, 1993
and 1992, totaled $1.1 billion and
<PAGE> 28
50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$1.3 billion, respectively. Communications was the largest category within
total HLT credit facilities at both year ends.
Loan outstandings and related unfunded commitments are primarily
concentrated within affiliate markets which encompass Delaware, Indiana,
Kentucky, New Jersey, Ohio and Pennsylvania. No specific industry concentration
exceeded 10 percent of total outstandings and unfunded commitments.
LETTERS OF CREDIT STANDBY letters of credit commit the Corporation to make
payments on behalf of customers when certain specified future events occur.
Such instruments are typically issued to support obligations such as industrial
revenue bonds, commercial paper, and bid or performance related contracts.
Commercial letters of credit are used to facilitate customer trade
transactions. At year-end 1993, the largest industry concentration within
standby letters of credit was healthcare, which accounted for approximately 18
percent of the total. At December 31, 1993, maturities for standby letters of
credit ranged from 1994 to 2003. At December 31, 1993 and 1992, standby letters
of credit included $758 million and $748 million, respectively, of
participations and syndications to others, and $3.2 billion and $2.9 billion,
respectively, were issued to support medium- and long-term debt.
INTEREST RATE SWAPS Interest rate swaps are agreements between two parties to
exchange periodic interest payments that are calculated on a notional principal
amount. The Corporation enters into interest rate swaps to alter the maturity
and repricing structure of the balance sheet ("hedge swaps") and as an
intermediary for customers ("customer swaps"). Only the interest payments are
exchanged, therefore, cash requirements and exposure to credit risk are
significantly less than the notional principal amount.
The Corporation seeks to minimize the credit risk associated with its
interest rate swap activities. This is primarily accomplished by entering into
transactions with only a selected number of high quality institutions,
establishing credit limits with counterparties and, where applicable, requiring
segregated collateral in the form of U.S. Government and agency securities. At
December 31, 1993, credit exposure related to all swaps totaled $109 million
and was 92 percent collateralized.
INTEREST RATE SWAPS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Gain Position Loss Position Total
------------------------------------------------------
December 31, 1993 Notional Fair Notional Fair Notional
In millions Value Value Value Value Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hedge swaps
Receive fixed $ 7,904 $ 153 $ 2,715 $ (26) $ 10,619
Pay fixed 1,193 (86) 1,193
- ------------------------------------------------------------------------------------------------------------
7,904 153 3,908 (112) 11,812
Customer swaps 245 3 245 (3) 490
- ------------------------------------------------------------------------------------------------------------
Total $ 8,149 $ 156 $ 4,153 $ (115) $ 12,302
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Gain Position Loss Position Total
---------------------------------------------
December 31, 1992 Notional Fair Notional Fair Notional
In millions Value Value Value Value Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hedge swaps
Receive fixed $ 4,066 $ 154 $ 2,150 $ (35) $ 6,216
Pay fixed 589 881 (13) 1,470
- ------------------------------------------------------------------------------------------------------------
4,655 154 3,031 (48) 7,686
Customer swaps 260 7 260 (7) 520
- ------------------------------------------------------------------------------------------------------------
Total $ 4,915 $ 161 $ 3,291 $ (55) $ 8,206
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The majority of hedge swaps are indexed amortizing interest rate swaps
where the Corporation receives payments based on fixed interest rates and makes
payments based on a floating money market rate. Index swaps have remaining
expected maturities that range from six months to two and one half years. If
interest rates rise above a contractually specified level, the maturities of
the index swaps will be extended.
<PAGE> 29
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOREIGN CURRENCY EXCHANGE CONTRACTS Foreign currency exchange contracts involve
the trading of one currency for another at specified rates and dates and are
used to facilitate the management of fluctuations in foreign exchange rates.
Such contracts are entered into on behalf of customers and are utilized by the
Corporation to hedge against risk positions associated with asset/liability
management and trading activities.
FUTURES AND FORWARDS CONTRACTS Futures contracts represent commitments to
purchase or sell securities and other money market instruments at a specified
date and price. Futures contract terms are standardized and are traded on
organized exchanges. The exchange assumes the risk that a counterparty will not
honor the contract and, therefore, generally requires margin payments to
minimize such risk. Forward contracts are traded in over-the-counter markets
and do not have standardized terms. Futures and forward contracts are utilized
by the Corporation to hedge against risk positions associated with
asset/liability management and trading activities. Counterparties to the
Corporation's futures and forward contracts are primarily U.S. Government
agencies and brokers and dealers in securities.
OPTION CONTRACTS Option contracts represent rights to purchase or sell
securities or other money market instruments at a specified date and price at
the option of the holder. The writer of the option contract receives a fee that
conveys to the holder the right to put or call the underlying financial
instrument. Option contracts are traded on organized exchanges or customized to
meet the specialized needs of the counterparty.
PREMISES, EQUIPMENT AND
LEASEHOLD IMPROVEMENTS
Premises, equipment and leasehold improvements, stated at cost less accumulated
depreciation and amortization, were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
December 31
In millions 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Land $ 62 $ 51
Buildings 364 291
Equipment 662 563
Leasehold improvements 127 117
- ---------------------------------------------------------------------------
1,215 1,022
Accumulated depreciation and amortization (561) (476)
- ---------------------------------------------------------------------------
Net book value $ 654 $ 546
- ---------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense on premises, equipment and
leasehold improvements totaled $91.8 million in 1993, $76.9 million in 1992 and
$69.7 million in 1991.
Certain facilities and equipment are leased under agreements expiring at
various dates until the year 2022. Substantially all such leases are accounted
for as operating leases. Rental expense on such leases amounted to $61.8
million in 1993, $57.5 million in 1992 and $56.4 million in 1991.
At December 31, 1993, required minimum annual rentals due on
noncancelable leases having terms in excess of one year aggregated $307.1
million. Minimum annual rentals for each of the years 1994 through 1998 are
$56.3 million, $46.6 million, $39.8 million, $30.8 million and $21.1 million,
respectively.
MORTGAGE BANKING
At December 31, 1993, purchased mortgage servicing rights totaled $268 million
compared with $44 million at December 31, 1992. Amortization expense during
1993 and 1992 totaled $17.1 million and $9.0 million, respectively.
REPURCHASE AGREEMENTS
Certain securities are sold under agreements to repurchase and are treated as
financings. The obligation to repurchase such securities is reflected as a
liability on the consolidated
<PAGE> 30
52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
balance sheet. The dollar amounts of securities underlying the agreements
remain in the respective asset accounts.
Repurchase agreement data, including accrued interest for securities
sold, are presented below. All collateral is in the form of U.S. Treasury or
U.S. Government agency securities.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
December 31, 1993
Remaining Maturity Securities Sold Repurchase Liability
------------------------ ---------------------
Type of Security Carrying Market Interest
In millions Amount Value Amount Rate
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Next business day
Treasury $ 144 $ 144 $ 143 2.63%
Agency 353 355 220 2.44
4 to 30 days
Treasury 47 47 47 2.76
Agency 442 447 368 3.48
31 to 90 days
Agency 1,042 1,053 972 3.52
Over 91 days to one year
Agency 2,821 2,838 2,763 3.72
Over one year
Treasury 67 67 57 7.82
Agency 443 446 425 3.89
- ------------------------------------------------------------------------------------
Total $ 5,359 $ 5,397 $ 4,995 3.63%
- --------------------------------------------------------------------------------------------------
</TABLE>
NOTES AND DEBENTURES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
December 31
In millions 1993 1992
- ------------------------------------------------------------------------
<S> <C> <C>
BANKING SUBSIDIARIES
Bank notes $ 7,000 $ 2,925
Federal Home Loan Bank 1,045
Student Loan Marketing Association 520 615
- ------------------------------------------------------------------------
Total Banking Subsidiaries 8,565 3,540
OTHER SUBSIDIARIES
Senior notes 150 150
Subordinated notes 550 100
ESOP borrowing 110 131
Other 210 376
- ------------------------------------------------------------------------
Total Other Subsidiaries 1,020 757
- ------------------------------------------------------------------------
Total $ 9,585 $ 4,297
- ------------------------------------------------------------------------
</TABLE>
During 1993, $200 million of 8.25% Notes Due 1996 were redeemed.
Bank notes mature in 1994 and have various interest rates that range from
3.20 percent to 3.90 percent. The Federal Home Loan Bank advances have various
maturities ranging from 1994 to 2002 and interest rates that range from 3.37
percent to 8.76 percent. The Student Loan Marketing Association obligations
mature in 1994 and have various interest rates that range from 3.25 percent to
3.55 percent.
The senior and subordinated notes were issued by PNC Funding Corp. and are
not redeemable prior to maturity. Interest on the notes is payable
semiannually, and the payment of principal and interest is unconditionally
guaranteed by the parent company. The senior and subordinated notes have
various maturities ranging from 1995 to 2003 and interest rates that range from
4.875 percent to 9.875 percent.
The ESOP borrowing is unconditionally guaranteed by the parent company.
During 1993, the ESOP borrowing was refinanced with a series of medium-term,
fixed-rate notes with maturities that range from 1994 to 1999 and interest
rates ranging from 4.76 percent to 5.48 percent. Interest expense on the
borrowing was $4.9 million in 1993, $5.8 million in 1992 and $9.7 million in
1991.
The other category includes convertible subordinated debentures, floating
rate notes, capital notes, mortgage notes and various other borrowings, with
rates ranging from 3.50 percent to 11.09 percent and various maturities
extending through 2004.
Notes and debentures have scheduled repayments for the years 1994 through
1998 of $7.7 billion, $716 million, $39 million, $22 million and $51 million,
respectively.
SHAREHOLDERS' EQUITY
The Corporation has four outstanding series of preferred stock. During 1993,
the Series E preferred stock was redeemed. The redemption/liquidation value and
number of shares outstanding by series are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Redemption/
Liquidation Shares Outstanding
--------------------------
December 31 Value Per Share 1993 1992
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1.80 Series A $ 40 21,495 23,666
1.80 Series B 40 9,297 10,457
1.60 Series C 20 425,813 478,448
1.80 Series D 20 526,628 647,370
2.60 Series E 27.75 338,100
- -------------------------------------------------------------------------------------------------------
Total 983,233 1,498,041
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 53
Series A through D are cumulative and except for Series B, are redeemable
at the option of the Corporation.
Holders of preferred stock are entitled to a number of votes equal to the
number of full shares of common stock into which such preferred stock is
convertible. Preferred stockholders are entitled to the following conversion
privileges: (i) one share of Series A or Series B is convertible into eight
shares of common stock; and (ii) 2.4 shares of Series C or Series D are
convertible into four shares of common stock.
The Corporation has a dividend reinvestment and stock purchase plan.
Shareholders of preferred stock and common stock may participate in the plan
which provides that additional shares of common stock may be purchased with
reinvested dividends and voluntary cash payments at market value. The following
number of shares of common stock were purchased pursuant to such plan: 591,785
shares in 1993, 670,309 shares in 1992 and 565,127 shares in 1991.
The Corporation had reserved approximately 19.0 million shares of common
stock to be issued in connection with employee stock options and the conversion
of certain debt and equity securities.
EMPLOYEE BENEFIT PLANS
The Corporation has an incentive savings plan ("ISP") in which employee
contributions of up to 6 percent of base pay are matched. Additionally, the
Corporation has an ESOP which covers all eligible participants of the ISP. The
aggregate benefit expense of these plans was $4.9 million for 1993, $9.7
million for 1992 and $12.7 million for 1991.
The shares purchased by the ESOP are used to match a portion of employee
contributions to the ISP. Dividends received on shares held by the ESOP are
used to service a portion of the principal and interest payments of the ESOP
borrowing. During 1993, 1992 and 1991, dividends used for debt service totaled
$8.5 million, $7.9 million and $5.8 million, respectively. The Corporation
contributed $8.8 million in 1993, $9.5 million in 1992 and $9.4 million in 1991
to satisfy the additional debt service cost. Benefit expense is recognized
based on a percentage of total debt service for the current year to total debt
service over the life of the borrowing. This percentage is applied to the
original principal balance to calculate the benefit expense, which totaled $2.5
million in 1993, $8.0 million in 1992 and $11.4 million in 1991.
The Corporation sponsors a funded defined benefit pension plan covering
substantially all employees. The plan provides pension benefits that are based
on the average base salary for specified years of service prior to retirement.
Pension contributions are made to the extent deductible under existing federal
tax regulations. The Corporation also has an unfunded non-qualified
supplemental defined benefit retirement plan covering certain employees, as
defined in the plan.
The following table sets forth the estimated funded status of defined
benefit plans:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
December 31
In millions 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
benefit obligation, including vested
benefits of $280 and $203 $ 298 $ 218
- ---------------------------------------------------------------------------
Actuarial present value of projected
benefit obligation for service
rendered to date $ 402 $ 338
Less plan assets at fair value--primarily
listed common stocks, U.S.
Government and agency
securities, and collective funds (289) (288)
- ---------------------------------------------------------------------------
Unfunded projected benefit obligation
in excess of projected plan assets 113 50
Unrecognized net loss from past
experience different from that
assumed and effects of changes
in assumptions (108) (52)
Unrecognized net asset 15 18
Unrecognized prior service cost (6) (7)
- ---------------------------------------------------------------------------
Accrued pension cost included
in other liabilities $ 14 $ 9
- ---------------------------------------------------------------------------
</TABLE>
<PAGE> 32
54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net defined benefit plan costs include the following components:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year ended December 31
In thousands 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits earned
during the period $ 16,887 $ 16,883 $ 14,567
Interest cost on projected
benefit obligation 19,611 24,577 19,338
Actual return on plan assets (34,837) (18,204) (54,487)
Net amortization and deferral 6,000 (8,823) 30,728
- -------------------------------------------------------------------------------------------------
Net periodic pension costs $ 7,661 $ 14,433 $ 10,146
- -------------------------------------------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the plans were:
<TABLE>
<CAPTION>
December 31 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.25% 6.00%-8.50% 8.50%
Rate of increase in
compensation levels 5.18 5.68 5.68
Expected long-term
rate of return on assets 10.00 10.00 10.00
- -------------------------------------------------------------------------------------------------
</TABLE>
The Corporation has an employee stock purchase plan which covers a maximum
of five million shares of common stock of which 1,871,697 were available to be
issued. Persons who have been continuously employed for at least one year are
eligible to participate. Offering periods cover six months beginning June 1 and
December 1 of each year. Common stock is purchased by participants at 85
percent of the lesser of fair market value on the first or last day of each
offering period. During 1993, 276,517 shares were issued to participants at
prices of $24.12 and $25.18 per share; 291,580 shares were issued in 1992 at
prices of $17.80 and $21.68 per share; and 416,548 shares were issued in 1991
at prices of $9.41 and $15.62 per share. No charge to earnings is required with
respect to such plan.
In addition to providing pension benefits, the Corporation provides
certain health care and life insurance benefits for retired employees.
Effective January 1, 1992, the Corporation adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which requires the
accrual of the expected cost of providing postretirement benefits to employees
during the years that employees render service. The adoption of SFAS No. 106
resulted in a charge of $102.5 million.
A reconciliation of the accrued postretirement benefit obligation is as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
December 31
In millions 1993 1992
- ---------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
Retirees $ 75 $ 75
Active employees 3 29
Other active plan participants 39 65
- ---------------------------------------------------------------------------------
Total accumulated postretirement obligation 117 169
- ---------------------------------------------------------------------------------
Unrecognized prior service cost 66
Unrecognized net loss (14)
- ---------------------------------------------------------------------------------
Accrued postretirement benefit obligation $ 169 $ 169
- ---------------------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefit costs include the following components:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Year ended December 31
In thousands 1993 1992
- ---------------------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits earned during the period $ 1,467 $ 5,483
Interest cost on accrued benefit obligation 6,330 13,440
Amortization of prior service cost (4,306)
- ---------------------------------------------------------------------------------
Net periodic postretirement benefit costs $ 3,491 $ 18,923
- ---------------------------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the plans were:
<TABLE>
<CAPTION>
December 31 1993 1992
- ---------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.25% 6.00-8.50%
Expected health care cost trend rate:
Medical 10.70 13.30
Dental 7.80 9.20
- ---------------------------------------------------------------------------------
</TABLE>
The health care cost trend rate declines until it stabilizes at 5.0
percent beginning 2001. A 1 percent increase in the health care trend rate
would result in an increase of $113,000 and $470,000 in the service cost and
interest cost components, respectively, and a $7.7 million increase in the
accumulated postretirement benefit obligation.
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 55
Prior to the adoption of SFAS No. 106, the Corporation recognized benefit
expense related to postretirement benefits on a cash basis. The expense of
providing such benefits was $4.1 million in 1991.
Effective January 1, 1993, the Corporation's postretirement benefit plan
was amended to provide benefits limited to a fixed amount based on the
employee's age and years of service. The plan amendments resulted in a $63.8
million reduction to the accrued postretirement benefit obligation. In
accordance with SFAS No. 106, this reduction is amortized over the average
service life of covered employees, which is currently 15 years.
In November 1992, SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," was issued with adoption required in 1994. The impact of this
standard is not material to the Corporation's financial position or results of
operations.
In November 1993, Statement of Position No. 93-6, "Employers' Accounting
for Employee Stock Option Plans," was issued with adoption required in 1994.
Management does not expect the adoption of this statement to have a material
impact on the Corporation's financial position or results of operations.
STOCK OPTION PLANS
The Corporation has a senior executive long-term incentive award plan
("Incentive Plan") that provides for the granting of incentive stock options,
nonqualified options, stock appreciation rights ("SARs"), performance units,
and incentive shares. In any given year the number of shares of common stock
available for grants under the Incentive Plan may range from 1.5 percent to 3
percent of total issued shares of common stock, determined at the end of the
preceding calendar year.
Options are granted at exercise prices not less than the fair market value
of common stock on the date of grant. Such options may not be exercised for
twelve months after the date of grant. Payment of the option price may be in
cash or shares of common stock valued at fair market value on the exercise
date.
The following table presents share data related to the Incentive Plan, a
similar predecessor plan and other plans assumed in certain mergers. In
accordance with the terms of plans assumed in certain mergers, option holders
receive upon exercise, common stock in accordance with the relevant exchange
ratio.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Option Price
Per Common Share Shares
- ---------------------------------------------------------------------------------
<S> <C> <C>
January 1, 1991 $6.47-$23.00 8,605,276
Granted 11.38- 21.63 2,266,800
SARs exercised (9,400)
Options exercised 6.47- 21.11 (752,714)
Terminated (206,260)
- ---------------------------------------------------------------------------------
December 31, 1991 6.47- 23.00 9,903,702
Granted 12.31- 27.56 2,177,640
SARs exercised (52,800)
Options exercised 6.47- 21.63 (3,095,230)
Terminated (48,300)
- ---------------------------------------------------------------------------------
December 31, 1992 6.47- 27.56 8,885,012
Granted 29.50- 30.13 1,924,350
SARs exercised (10,000)
Options exercised 6.47- 27.56 (1,384,022)
Terminated (68,609)
- ---------------------------------------------------------------------------------
December 31, 1993 $6.47-$30.13 9,346,731
- ---------------------------------------------------------------------------------
</TABLE>
At December 31, 1993, options for 7,411,803 shares of common stock were
exercisable. Shares of common stock available for the granting of options under
the Incentive Plan and the predecessor plan were as follows: 6,259,203 at
December 31, 1993, 4,658,641 at December 31, 1992, and 703,500 at December 31,
1991.
INCOME TAXES
Effective January 1, 1993, the Corporation adopted SFAS No. 109, "Accounting
for Income Taxes," which requires the use of the liability method to account
for deferred income taxes.
<PAGE> 34
56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes related to operations, the tax effect of securities
transactions, and the current and deferred portions of income taxes were as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year ended December 31
In thousands 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations $ 305,656 $ 175,887 $ 134,602
Securities transactions
Equity and other (133) 5,680 (2,826)
Debt 65,826 67,115 26,639
- -------------------------------------------------------------------------------------------------
Total $ 371,349 $ 248,682 $ 158,415
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year ended December 31
In thousands 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 419,986 $ 276,156 $ 131,418
State 11,914 8,433 6,388
- -------------------------------------------------------------------------------------------------
Total current 431,900 284,589 137,806
- -------------------------------------------------------------------------------------------------
Deferred
Federal (58,044) (36,777) 16,388
State (2,507) 870 4,221
- -------------------------------------------------------------------------------------------------
Total deferred (60,551) (35,907) 20,609
- -------------------------------------------------------------------------------------------------
Total $ 371,349 $ 248,682 $ 158,415
- -------------------------------------------------------------------------------------------------
</TABLE>
Significant components of the Corporation's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
December 31, January 1,
In millions 1993 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Allowance for credit losses $ 321 $ 300
Compensation and benefits 81 73
Foreclosed assets 21 21
Purchase accounting--deposits
and other borrowings 72
Purchase accounting--other 35
Other 63 53
- -------------------------------------------------------------------------------------------------
Total deferred tax assets 593 447
- -------------------------------------------------------------------------------------------------
Deferred tax liabilities
Leasing operations 179 205
Depreciation 18 23
Net unrealized securities gains 48
Purchase accountingloans 97
Other 24 13
- -------------------------------------------------------------------------------------------------
Total deferred tax liabilities 366 241
- -------------------------------------------------------------------------------------------------
Net deferred tax asset $ 227 $ 206
- -------------------------------------------------------------------------------------------------
</TABLE>
The components of deferred income taxes that result from timing differences
in the recognition of revenues and expenses for tax and financial reporting
purposes were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year ended December 31
In thousands 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Lease financing $ 5,145 $ 13,729
Provision for credit losses (17,294) (10,896)
Investment tax credit (106) (167)
Alternative minimum tax 6,040 36,918
Other--net (29,692) (18,975)
- -------------------------------------------------------------------------------------------------
Total deferred taxes (benefits) $(35,907) $ 20,609
- -------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation between the statutory and effective tax rates follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year ended December 31 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 34.0% 34.0%
Tax-exempt interest (2.4) (3.8) (7.3)
State tax .5 .8 1.3
Other--net .2 1.0 .9
- -------------------------------------------------------------------------------------------------
Effective tax rate 33.3% 32.0% 28.9%
- -------------------------------------------------------------------------------------------------
</TABLE>
REGULATORY MATTERS
The Corporation is subject to the regulations of certain federal and state
agencies and undergoes periodic examinations by such regulatory authorities. At
any time, various bank and nonbank examinations are ongoing. Management
promptly responds to all findings of regulators. None of the Corporation's bank
and nonbank subsidiaries are subject to written regulatory agreements.
The dividends that may be paid by subsidiary banks to the parent company
are subject to certain legal limitations. Without regulatory approval, the
amount available for payment of dividends by all subsidiary banks was $943
million at December 31, 1993. Dividends also may be impacted by capital needs,
regulatory requirements and policies, and other factors as management deems
relevant.
Under federal law, generally no bank subsidiary may extend credit to the
parent company or its nonbank subsidiaries on terms and under circumstances
which are not substantially the same as comparable extensions of credit to
nonaffiliates. No extension of credit may be made to the
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 57
parent company or a nonbank subsidiary which is in excess of 10 percent of the
capital stock and surplus of such bank subsidiary or in excess of 20 percent of
the capital and surplus of such bank subsidiary as to aggregate extensions of
credit to the parent company and its subsidiaries. In certain circumstances,
federal regulatory authorities may impose more restrictive limitations. Such
extensions of credit, with limited exceptions, must be fully collateralized.
The maximum amount available under statutory limitations for transfer from
subsidiary banks to the parent company in the form of loans and dividends
approximated 32 percent of consolidated net assets at December 31, 1993.
Federal Reserve Board regulations require depository institutions to
maintain cash reserves with the Federal Reserve Bank. During 1993, subsidiary
banks maintained reserves which averaged $814 million.
LITIGATION
During 1993, the parties reached an agreement to settle a consolidated class
action against the Corporation and certain present and former
officer-directors, alleging purported violations of federal securities laws,
and a shareholders' derivative suit against such officer-directors, alleging
breach of fiduciary duty and waste of corporate assets. The settlement was
approved by the court and both actions were dismissed with prejudice. The cost
of settlement was covered by insurance and existing litigation reserves.
In January 1992, a purported class action lawsuit was filed against
PNC National Bank ("PNCNB"), a national bank subsidiary of the Corporation
located in Wilmington, Delaware, alleging that PNCNB violated Pennsylvania
statues in connection with certain fees charged on credit cards issued by PNCNB
and seeking, among other things, unquantified compensatory and triple damages
and injunctive relief. PNCNB has filed a motion for judgment on the pleadings,
seeking dismissal of the suit. This case is one of several brought against a
number of banks, challenging whether a credit card issuing bank can impose
various types of fees allowed by the state where the issuer is located on
cardholders residing in other states that allegedly limit or prohibit those
fees.
PNCNB is vigorously defending the lawsuit. The impact of the final
disposition of this case cannot be assessed at the present time.
The Corporation, in the normal course of business, is subject to
various other pending and threatened lawsuits in which claims for monetary
damages are asserted. Management, after consultation with legal counsel, does
not anticipate that the ultimate aggregate liability, if any, arising out of
such other lawsuits will have a material adverse effect on the Corporation's
financial position.
At the present time, management is not in a position to determine
whether any pending or threatened litigation will have a material adverse
effect on the Corporation's results of operations in any future reporting
period.
PARENT COMPANY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BALANCE SHEET
- -------------------------------------------------------------------
December 31
In millions 1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1 $ 3
Securities available for sale 261 165
Investments in
Bank subsidiaries 4,268 3,543
Nonbank subsidiaries 320 293
Advances to subsidiary banks 4 1
Goodwill 19 24
Other assets 103 34
- -------------------------------------------------------------------
Total assets $ 4,976 $ 4,063
- -------------------------------------------------------------------
LIABILITIES
Dividends payable $ 1
Notes and debentures $ 1 1
Nonbank affiliate borrowings 360 130
Accrued expenses and other liabilities 290 185
- -------------------------------------------------------------------
Total liabilities 651 317
- -------------------------------------------------------------------
SHAREHOLDERS' EQUITY 4,325 3,746
- -------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 4,976 $ 4,063
- -------------------------------------------------------------------
</TABLE>
<PAGE> 36
58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF INCOME
- -----------------------------------------------------------------------------------------
Year ended December 31
In thousands 1993 1992 1991
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE
Dividends from
Bank subsidiaries $ 335,125 $ 265,875 $ 351,264
Nonbank subsidiaries 10,750 6,050 96,364
Interest income 10,436 15,409 11,001
Other income 781 240 1,434
- -----------------------------------------------------------------------------------------
Total operating revenue 357,092 287,574 460,063
- -----------------------------------------------------------------------------------------
OPERATING EXPENSES
Interest expense 4,924 4,135 7,802
Other expenses 55,989 84,006 22,096
- -----------------------------------------------------------------------------------------
Total operating expenses 60,913 88,141 29,898
- -----------------------------------------------------------------------------------------
Income before income taxes
and equity in undistributed
net income of subsidiaries 296,179 199,433 430,165
Applicable income taxes
(benefits) 1,895 (18,818) (2,924)
- -----------------------------------------------------------------------------------------
Income before equity in
undistributed net income
of subsidiaries 294,284 218,251 433,089
Net equity in undistributed
net income (excess dividends)*
Bank subsidiaries 400,877 335,638 62,512
Nonbank subsidiaries 33,174 (24,449) (105,815)
- -----------------------------------------------------------------------------------------
Income before cumulative
effect of changes in
accounting principles 728,335 529,440 389,786
Cumulative effect of changes
in accounting principles,
net of tax benefit
of $52,804 in 1992 (2,465) (102,501)
- -----------------------------------------------------------------------------------------
Net income $ 725,870 $ 426,939 $ 389,786
- -----------------------------------------------------------------------------------------
</TABLE>
* Amounts for 1993 include the cumulative effect of changes in accounting
principles at the respective subsidiaries.
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
- -----------------------------------------------------------------------------------------
Year ended December 31
In millions 1993 1992 1991
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 726 $ 427 $ 390
Adjustments to reconcile
net income to net cash
provided by operating
activities
Cumulative effect of
changes in accounting
principles 2 103
Equity in undistributed
net earnings of
subsidiaries (434) (311) 43
Other 110 47 (29)
- -----------------------------------------------------------------------------------------
Net cash provided by
operating activities 404 266 404
- -----------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in interest-
earning deposits
with subsidiary bank (4) 4 (5)
Net capital returned/
(contributed) to subsidiaries 173 1 (535)
Sales of securities
available for sale 2,674 2,956
Purchases of securities
available for sale (2,770) (2,874)
Cash paid in acquisitions (383) (45)
Other (87) (22) (107)
- -----------------------------------------------------------------------------------------
Net cash provided (used)
by investing activities (397) 20 (647)
- -----------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Borrowings from
nonbank subsidiary 250 72
Matured borrowings from
nonbank subsidiary (9) (5) (86)
Acquisition of treasury stock (19) (14) (7)
Cash dividends paid to
shareholders (277) (239) (207)
Issuance of stock 46 74 471
Redemption of
notes and debentures (100)
- -----------------------------------------------------------------------------------------
Net cash provided (used)
by financing activities (9) (284) 243
- -----------------------------------------------------------------------------------------
Increase (decrease) in cash
and due from banks (2) 2
Cash and due from banks at
beginning of year 3 1 1
- -----------------------------------------------------------------------------------------
Cash and due from banks
at end of year $ 1 $ 3 $ 1
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 59
Commercial paper issued by PNC Funding Corp. is guaranteed by the
parent company. During 1993, 1992 and 1991, the parent company received income
tax refunds of $2.7 million, $16.8 million and $7.1 million, respectively. Such
refunds represent the parent company's portion of consolidated income taxes.
During 1993, 1992 and 1991, the parent company paid interest on contractual
debt obligations of $4.9 million, $4.4 million and $7.9 million, respectively.
UNUSED LINES OF CREDIT
At December 31, 1993, the Corporation maintained a line of credit in the amount
of $150 million, none of which was drawn. This line is available for general
corporate purposes. The annual fee paid for the unused line is .25 percent.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information for financial instruments. SFAS No. 107
excludes certain assets such as real and personal property, leases, loan
customer relationships, deposit customer intangibles, retail branch networks,
fee-based businesses, trademarks and brand names. Accordingly, the aggregate of
fair value amounts presented does not attempt to capture and does not represent
the underlying value of the Corporation.
SFAS No. 107 defines fair value as the estimated amount at which the
financial instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. However, it is not
management's intention to immediately dispose of a significant portion of such
financial instruments, and the unrealized gains or losses should not be
interpreted as a forecast of future earnings and cash flows.
The fair value of securities is based primarily on quoted market
prices. For substantially all other financial instruments, fair values have
been estimated using discounted cash flow analyses, pricing models and other
valuation techniques. These derived fair values are subjective in nature,
involve uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could significantly
impact the derived fair value estimates.
The following table represents the estimates of fair value of financial
instruments:
<TABLE>
<CAPTION>
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------------------------------------------------------------------------------
December 31 1993 1992
------------------------ -----------------------
Carrying Fair Carrying Fair
In millions Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and short-term assets $ 3,119 $ 3,119 $ 3,745 $ 3,745
Loans held for sale 1,392 1,392 220 220
Securities 23,060 23,104 20,741 20,982
Net loans (excludes leases) 31,679 32,185 24,290 25,067
LIABILITIES
Demand deposits 18,621 18,621 17,156 17,156
Time deposits 14,494 14,790 12,314 12,646
Short-term borrowings 12,212 12,211 12,274 12,263
Notes and debentures 9,585 9,598 4,297 4,330
OFF-BALANCE-SHEET
Commitments to extend credit (23) (23) (13) (13)
Letters of credit (30) (30) (49) (49)
Interest rate swaps 31 41 44 106
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used in estimating fair
value amounts for financial instruments:
GENERAL For short-term financial instruments realizable in three months or
less, the carrying amount reported in the balance sheet approximates fair
value. Unless otherwise stated, the rates used to discount cash flows are based
on market yield curves.
<PAGE> 38
60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AND SHORT-TERM ASSETS The carrying amounts reported in the consolidated
balance sheet for cash and short-term assets approximate those assets' fair
values primarily due to their short-term nature. For purposes of this
disclosure only, short-term assets include due from banks, interest-earning
deposits with banks, federal funds sold and resale agreements, trading account
securities, customers' acceptance liability and accrued interest receivable.
Trading account securities are recorded at market value, therefore, the
carrying amount is equal to fair value.
SECURITIES The fair value of investment securities and securities available for
sale are based on quoted market prices, where available. If quoted market
prices are not available, fair value is estimated using the quoted market
prices of comparable instruments.
NET LOANS AND LOANS HELD FOR SALE For demand and variable rate commercial and
certain consumer loans that reprice quarterly, fair values are estimated by
reducing carrying amounts by estimated credit loss factors. For other
commercial loans, including nonaccrual loans, fair values are estimated using
discounted cash flow analyses, with cash flows reduced by estimated credit loss
factors and discount rates equal to rates currently charged by the Corporation
for similar loans. In the case of nonaccrual loans, scheduled cash flows do not
include interest payments.
For automobile, home equity, student and credit card loans, fair values
are determined by using internal pricing models. The models derive fair value
by incorporating assumptions about prepayments, credit losses and servicing
fees and costs and discounting the future net revenues at an appropriate risk
rate of return. For credit cards and revolving home equity loans, this fair
value does not include any amount for new loans or the related fees that will
be generated from the existing customer relationships. The fair value of
residential mortgages is estimated based on quoted market prices of similar
loans sold in conjunction with securitization transactions, adjusted for
differences in loan characteristics. Due to their short-term nature, the
carrying amount of loans held for sale approximates fair value.
DEPOSITS The carrying amounts for noninterest-bearing demand and
interest-bearing, money market and savings deposits approximate fair values.
For time deposits, fair values are based on the discounted value of scheduled
cash flows. The discount rates used vary by instrument and are based on dealer
quotes or rates currently offered for deposits with similar maturities.
SHORT-TERM BORROWINGS The carrying amounts of federal funds purchased,
commercial paper, acceptances outstanding and accrued interest payable are
considered fair value because of their short-term nature. Repurchase agreements
and term federal funds purchased are valued using discounted cash flow
analyses.
NOTES AND DEBENTURES The fair value of variable-rate notes and debentures is
equivalent to carrying value. For fixed-rate notes and debentures, scheduled
cash flows are discounted using rates for similar debt with the same
maturities.
UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT Fair values for commitments to
extend credit and letters of credit are estimated based upon the amount of
deferred fees and the creditworthiness of the counterparties.
FOREIGN CURRENCY EXCHANGE, FINANCIAL FUTURES, FORWARDS AND OPTION CONTRACTS
These off-balance-sheet financial instruments are marked to market, therefore,
the carrying amount approximates fair value. Such amounts are immaterial at
December 31, 1993.
INTEREST RATE SWAPS The fair value of index interest rate swaps is based on
dealer quotes. The fair value of all other swaps is the discounted value of the
expected net cash flows. These fair values represent the estimated amounts that
the Corporation would receive or pay to terminate the contracts, taking into
account current interest rates
<PAGE> 39
STATISTICAL INFORMATION 61
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Year ended December 31 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS (In thousands)
<S> <C> <C> <C> <C> <C>
Interest income $3,201,120 $3,218,971 $3,657,533 $4,223,375 $4,064,440
Interest expense 1,372,087 1,561,679 2,222,335 2,874,118 2,758,385
Net interest income 1,829,033 1,657,292 1,435,198 1,349,257 1,306,055
Provision for credit losses 203,944 323,531 428,038 760,507 331,724
Noninterest income excluding net securities gains 757,555 693,273 748,571 634,108 547,093
Net securities gains 187,694 193,503 63,454 22,425 33,545
Noninterest expenses 1,453,726 1,442,415 1,270,984 1,215,858 1,069,705
Applicable income taxes (benefits) 371,349 248,682 158,415 (41,487) 107,824
Income before cumulative effect
of changes in accounting principles 745,263 529,440 389,786 70,912 377,440
Cumulative effect of changes in accounting
principles, net of tax benefit of $5,343 and $52,804 (19,393) (102,501)
Net income 725,870 426,939 389,786 70,912 377,440
PER COMMON SHARE DATA
Book value at year end $18.34 $15.96 $15.27 $13.40 $14.83
Cash dividends declared 1.175 1.080 .795 1.060 1.030
Earnings
Primary before cumulative effect
of changes in accounting principles $ 3.14 $ 2.36 $ 1.97 $ .37 $ 1.99
Cumulative effect of changes in accounting principles (.08) (.46)
- ----------------------------------------------------------------------------------------------------------------------------
Primary $ 3.06 $ 1.90 $ 1.97 $ .37 $ 1.99
- ----------------------------------------------------------------------------------------------------------------------------
Fully diluted before cumulative effect
of changes in accounting principles $ 3.13 $ 2.34 $ 1.94 $ .37 $ 1.96
Cumulative effect of changes in accounting principles (.09) (.45)
- ----------------------------------------------------------------------------------------------------------------------------
Fully diluted $ 3.04 $ 1.89 $ 1.94 $ .37 $ 1.96
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS
At December 31 (In millions)
Total assets $ 62,080 $ 51,380 $ 44,892 $ 45,533 $ 45,661
Securities 23,060 20,741 14,173 12,189 12,867
Loans, net of unearned income 33,308 25,817 25,443 27,633 28,107
Deposits 33,115 29,470 30,019 32,043 30,120
Borrowed funds 11,662 11,811 9,486 8,735 10,728
Notes and debentures 9,585 4,297 1,287 1,319 715
Shareholders equity 4,325 3,745 3,317 2,601 2,830
SELECTED RATIOS
Return on average total assets 1.44% .95% .91% .16% .90%
Return on average common shareholders equity 18.40 12.47 14.02 2.46 13.60
Average shareholders equity to average total assets 7.86 7.68 6.53 6.08 6.65
Dividend payout 37.98 55.54 39.60 298.03 51.42
Overhead 51.66 55.76 55.11 57.84 53.63
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 40
62 STATISTICAL INFORMATION
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
- ------------------------------------------------------------------------------------------------
1993
----------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (In thousands)
Interest income $ 815,201 $ 791,890 $ 800,476 $ 793,553
Interest expense 353,487 333,908 344,830 339,862
Net interest income 461,714 457,982 455,646 453,691
Provision for credit losses 38,692 50,021 53,814 61,417
Noninterest income
excluding net securities gains 202,926 191,691 187,818 175,120
Net securities gains 3,404 72,513 6,616 105,161
Noninterest expenses 375,649 345,914 345,148 387,015
Income before cumulative effect
of changes in accounting principles 171,434 217,676 169,142 187,011
Cumulative effect of changes
in accounting principles,
net of tax benefit of $5,343 and $52,804 (19,393)
Net income 171,434 217,676 169,142 167,618
PER COMMON SHARE DATA
Book value at quarter end $ 18.34 $ 17.50 $ 16.84 $ 16.42
Earnings
Primary before cumulative effect
of changes in accounting principles $ .72 $ .92 $ .71 $ .79
Cumulative effect of changes
in accounting principles (.08)
- ------------------------------------------------------------------------------------------------
Primary $ .72 $ .92 $ .71 $ .71
- ------------------------------------------------------------------------------------------------
Fully diluted before cumulative effect
of changes in accounting principles $ .72 $ .91 $ .71 $ .78
Cumulative effect of changes
in accounting principles (.08)
- ------------------------------------------------------------------------------------------------
Fully diluted $ .72 $ .91 $ .71 $ .70
- ------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
HIGHLIGHTS (In millions)
Total assets $ 53,010 $ 50,270 $ 50,152 $ 47,794
Securities 20,430 21,011 21,184 18,980
Loans, net of unearned income 27,883 25,528 25,184 25,214
Deposits 29,762 27,813 28,091 28,090
Borrowed funds 9,453 10,437 11,485 10,149
Notes and debentures 8,548 7,000 5,578 4,744
Shareholders equity 4,128 4,013 3,869 3,814
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
- ------------------------------------------------------------------------------------------------
1992
----------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS (In thousands)
<S> <C> <C> <C> <C>
Interest income $ 821,900 $ 796,441 $ 780,757 $ 819,873
Interest expense 367,735 374,700 385,659 433,585
Net interest income 454,165 421,741 395,098 386,288
Provision for credit losses 63,060 69,865 100,186 90,420
Noninterest income
excluding net securities gains 173,769 184,704 175,157 159,643
Net securities gains 49,187 18,515 46,580 79,221
Noninterest expenses 402,685 362,300 330,875 346,555
Income before cumulative effect
of changes in accounting principles 143,542 132,845 127,578 125,475
Cumulative effect of changes
in accounting principles,
net of tax benefit of $5,343 and $52,804 (102,501)
Net income 143,542 132,845 127,578 22,974
PER COMMON SHARE DATA
Book value at quarter end $ 15.96 $ 15.76 $ 15.45 $ 15.12
Earnings
Primary before cumulative effect
of changes in accounting principles $ .61 $ .59 $ .58 $ .57
Cumulative effect of changes
in accounting principles (.47)
- ------------------------------------------------------------------------------------------------
Primary $ .61 $ .59 $ .58 $ .10
- ------------------------------------------------------------------------------------------------
Fully diluted before cumulative effect
of changes in accounting principles $ .61 $ .59 $ .58 $ .57
Cumulative effect of changes
in accounting principles (.47)
- ------------------------------------------------------------------------------------------------
Fully diluted $ .61 $ .59 $ .58 $ .10
- ------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
HIGHLIGHTS (In millions)
Total assets $ 48,436 $ 45,087 $ 42,683 $ 42,727
Securities 19,595 17,533 15,062 14,381
Loans, net of unearned income 25,048 24,158 24,234 24,636
Deposits 28,556 27,753 28,332 29,269
Borrowed funds 10,648 9,232 8,248 8,122
Notes and debentures 4,630 3,862 1,960 1,313
Shareholders' equity 3,644 3,472 3,343 3,282
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 41
STATISTICAL INFORMATION 63
ANALYSIS OF YEAR-TO-YEAR CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
In thousands 1993/1992
Increase/(Decrease) In Income/Expense
Due To Changes In:
-----------------------------------------------------
Rate/
Taxable-equivalent basis Volume Rate Volume Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net of unearned income
Commercial $ 30,928 $ (20,864) $ (1,149) $ 8,915
Real estate project (10,904) (800) 40 (11,664)
Real estate mortgage 73,363 (50,332) (10,554) 12,477
Consumer 41,908 (54,223) (2,498) (14,813)
Other (4,427) (6,358) 406 (10,379)
- ------------------------------------------------------------------------------------------------
Total loans 116,703 (125,052) (7,115) (15,464)
- ------------------------------------------------------------------------------------------------
Short-term investments (7,801) (2,428) 629 (9,600)
Securities
U.S. Treasury 60,982 (15,011) (12,596) 33,375
U.S. Government agencies
and corporations 212,412 (175,861) (35,590) 961
State and municipal (8,998) 1,188 (164) (7,974)
Corporate stocks 2,912 328 267 3,507
Other (7,106) (27,691) 3,337 (31,460)
- ------------------------------------------------------------------------------------------------
Total securities 274,875 (224,815) (51,651) (1,591)
- ------------------------------------------------------------------------------------------------
Other interest-earning assets 10,511 (3,205) (1,773) 5,533
- ------------------------------------------------------------------------------------------------
Total interest-earning assets $ 397,940 $ (371,290) $ (47,773) $ (21,122)
- ------------------------------------------------------------------------------------------------
INTEREST-BEARING SOURCES OF FUNDS
Interest-bearing deposits
Demand $ 9,064 $ (29,969) $ (5,653) $ (26,558)
Savings 6,412 (27,536) (3,483) (24,607)
Money market deposit accounts 19,268 (69,551) (8,322) (58,605)
Certificates of deposit
of $100,000 or more (93,425) (6,098) 2,633 (96,890)
Other time 2,881 (94,597) (1,092) (92,808)
In foreign offices (18,758) (7,492) 5,068 (21,182)
- ------------------------------------------------------------------------------------------------
Total interest-bearing deposits (28,018) (300,939) 8,307 (320,650)
- ------------------------------------------------------------------------------------------------
Borrowed funds
Federal funds purchased
and repurchase agreements (7,568) (9,810) 1,140 (16,264)
Repurchase agreements 66,211 (15,071) (5,012) 46,128
Commercial paper 4,163 (1,843) (338) 1,982
Other (16,306) (6,205) 1,498 (21,013)
- ------------------------------------------------------------------------------------------------
Total borrowed funds 50,673 (34,455) (5,385) 10,833
- ------------------------------------------------------------------------------------------------
Notes and debentures 175,485 (25,058) (30,202) 120,225
- ------------------------------------------------------------------------------------------------
Total sources on
which interest is paid $ 184,414 $ (332,112) $ (41,894) $(189,592)
- ------------------------------------------------------------------------------------------------
Change in net interest income $ 207,464 $ (33,754) $ (5,240) $ 168,470
- ------------------------------------------------------------------------------------------------
</TABLE>
ANALYSIS OF YEAR-TO-YEAR CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
In thousands 1992/1991
Increase/(Decrease) In Income/Expense
Due To Changes In:
-----------------------------------------------------
Rate/
Taxable-equivalent basis Volume Rate Volume Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net of unearned income
Commercial $ (185,085) $ (239,151) $ 39,817 $ (384,419)
Real estate project 812 (22,498) (25) (21,711)
Real estate mortgage (76,071) (18,851) 3,448 (91,474)
Consumer 50,596 (117,462) (7,759) (74,625)
Other (3,816) (9,624) 442 (12,998)
- ------------------------------------------------------------------------------------------------
Total loans (232,447) (388,138) 35,358 (585,227)
- ------------------------------------------------------------------------------------------------
Short-term investments (9,452) (19,841) 3,210 (26,083)
Securities
U.S. Treasury 11,006 (19,413) (2,561) (10,968)
U.S. Government agencies
and corporations 405,810 (145,985) (70,745) 189,080
State and municipal (8,105) (3,096) 292 (10,909)
Corporate stocks (1,141) 639 (113) (615)
Other 12,966 (15,587) (3,131) (5,752)
- ------------------------------------------------------------------------------------------------
Total securities 417,715 (185,210) (71,669) 160,836
- ------------------------------------------------------------------------------------------------
Other interest-earning assets (2,203) (2,325) 230 (4,298)
- ------------------------------------------------------------------------------------------------
Total interest-earning assets $ 194,299 $ (617,478) $ (31,593) $ (454,772)
- ------------------------------------------------------------------------------------------------
INTEREST-BEARING SOURCES OF FUNDS
Interest-bearing deposits
Demand $ 14,663 $ (58,390) $ (8,493) $ (52,220)
Savings (7,361) (52,094) 3,585 (55,870)
Money market deposit accounts 58,944 (79,928) (22,250) (43,234)
Certificates of deposit
of $100,000 or more (230,922) (99,857) 45,476 (285,303)
Other time (106,416) (143,141) 19,991 (229,566)
In foreign offices 13,850 (7,844) (4,156) 1,850
- ------------------------------------------------------------------------------------------------
Total interest-bearing deposits (199,241) (524,986) 59,884 (664,343)
- ------------------------------------------------------------------------------------------------
Borrowed funds
Federal funds purchased
and repurchase agreements (6,418) (41,440) 2,022 (45,836)
Repurchase agreements 122,067 (67,553) (44,407) 10,107
Commercial paper 11,860 (8,822) (4,682) (1,644)
Other 3,660 (12,264) (640) (9,244)
- ------------------------------------------------------------------------------------------------
Total borrowed funds 128,169 (132,417) (42,369) (46,617)
- ------------------------------------------------------------------------------------------------
Notes and debentures 115,885 (29,615) (35,966) 50,304
- ------------------------------------------------------------------------------------------------
Total sources on
which interest is paid $ 46,419 $ (692,604) $ (14,471) $ (660,656)
- ------------------------------------------------------------------------------------------------
Change in net interest income $ 78,181 $ 120,288 $ 7,415 $ 205,884
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 42
64 STATISTICAL INFORMATION
<TABLE>
<CAPTION>
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31 1993 1992
---------------------------------------- ----------------------------------
Taxable-equivalent basis Average Average Average Average
Average balance in millions, interest in thousands Balances Interest Yields/Rates Balances Interest Yields/Rates
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Loans, net of unearned income
Commercial $ 10,877 $ 733,727 6.75% $ 10,432 $ 724,812 6.95%
Real estate project 1,845 128,252 6.95 2,001 139,916 6.99
Real estate mortgage 4,390 357,911 8.15 3,621 345,434 9.54
Consumer 7,974 697,261 8.74 7,531 712,074 9.46
Other 873 56,355 6.46 935 66,734 7.14
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans 25,959 1,973,506 7.60 24,520 1,988,970 8.11
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term investments 575 22,551 3.92 759 32,151 4.24
Securities
U.S. Treasury 2,294 106,147 4.63 1,248 72,772 5.83
U.S. Government agencies and corporations 16,722 1,032,049 6.17 13,867 1,031,088 7.44
State and municipal 474 47,352 9.99 566 55,326 9.78
Corporate stocks 118 7,332 6.20 67 3,825 5.71
Other 795 27,032 3.40 905 58,492 6.46
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities 20,403 1,219,912 5.98 16,653 1,221,503 7.33
- -----------------------------------------------------------------------------------------------------------------------------------
Other interest-earning assets 403 24,653 6.12 260 19,120 7.35
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets/interest income 47,340 $ 3,240,622 6.85% 42,192 $ 3,261,744 7.73%
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets
Allowance for credit losses (932) (852)
Cash and due from banks 1,967 1,748
Other assets 1,946 1,656
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 50,321 $ 44,744
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS EQUITY
Interest-bearing sources
Interest-bearing deposits
Demand $ 3,104 $ 20,853 .67% $ 2,606 $ 47,411 1.82%
Savings 2,255 21,691 .95 1,981 46,298 2.34
Money market deposit accounts 5,873 109,669 1.87 5,269 168,274 3.19
Certificates of deposit of $100,000 or more 2,214 125,877 5.69 3,811 222,767 5.85
Other time 9,415 458,320 4.87 9,366 551,128 5.88
In foreign offices 211 6,362 3.02 663 27,544 4.15
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 23,072 742,772 3.22 23,696 1,063,422 4.49
- -----------------------------------------------------------------------------------------------------------------------------------
Borrowed funds
Federal funds purchased 1,639 49,890 3.04 1,851 66,154 3.57
Repurchase agreements 6,944 242,916 3.50 5,197 196,788 3.79
Commercial paper 691 22,830 3.30 576 20,848 3.62
Other 1,099 47,359 4.31 1,443 68,372 4.74
- -----------------------------------------------------------------------------------------------------------------------------------
Total borrowed funds 10,373 362,995 3.50 9,067 352,162 3.88
- -----------------------------------------------------------------------------------------------------------------------------------
Notes and debentures 6,486 266,320 4.11 2,948 146,095 4.96
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
sources/interest expense 39,931 $ 1,372,087 3.44% 35,711 $ 1,561,679 4.37%
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing sources
Demand and other noninterest-bearing deposits 5,370 4,780
Accrued expenses and other liabilities 1,063 817
Shareholders' equity 3,957 3,436
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders equity $ 50,321 $ 44,744
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest rate spread 3.41% 3.36%
Impact of noninterest-bearing sources .54 .67
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin on earning assets $ 1,868,535 3.95% $ 1,700,065 4.03%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Nonaccrual loans are included in loans, net of unearned income. The impact of
interest rate swaps is included in the interest income/expense and average
yields/rates for commercial loans, U.S. Government agencies and corporation
securities, all interest-bearing deposits, other borrowed funds and notes and
debentures.
<PAGE> 43
STATISTICAL INFORMATION 65
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1991 1990
----------------------------------------- ----------------------------------------
Average Average Average Average
Balances Interest Yields/Rates Balances Interest Yields/Rates
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 12,521 $1,109,231 8.86% $ 14,327 $1,488,192 10.39%
1,991 161,627 8.12 2,620 263,046 10.04
4,384 436,908 9.97 2,824 294,813 10.44
7,076 786,699 11.12 6,612 782,387 11.83
982 79,732 8.12 1,484 142,578 9.61
- -----------------------------------------------------------------------------------------
26,954 2,574,197 9.55 27,867 2,971,016 10.66
- -----------------------------------------------------------------------------------------
906 58,234 6.43 1,145 97,353 8.50
1,103 83,740 7.59 1,024 84,428 8.25
9,358 842,008 9.00 9,894 919,990 9.30
645 66,235 10.26 933 95,276 10.21
90 4,440 4.96 181 15,057 8.30
753 64,244 8.53 1,400 125,654 8.97
- -----------------------------------------------------------------------------------------
11,949 1,060,667 8.88 13,432 1,240,405 9.23
- -----------------------------------------------------------------------------------------
287 23,418 8.16 100 10,753 10.65
- -----------------------------------------------------------------------------------------
40,096 $3,716,516 9.27% 42,544 $4,319,527 10.15%
- -----------------------------------------------------------------------------------------
(823) (584)
1,822 1,965
1,698 1,791
- -----------------------------------------------------------------------------------------
$ 42,793 $ 45,716
- -----------------------------------------------------------------------------------------
$ 2,272 $ 99,631 4.39% $ 1,983 $92,890 4.68%
2,135 102,168 4.78 1,753 89,574 5.11
4,120 211,508 5.13 3,558 209,440 5.89
6,983 508,070 7.28 9,863 815,102 8.26
10,844 780,694 7.20 8,947 728,811 8.15
431 25,694 5.97 317 37,270 11.77
- -----------------------------------------------------------------------------------------
26,785 1,727,765 6.45 26,421 1,973,087 7.47
- -----------------------------------------------------------------------------------------
1,964 111,990 5.68 2,343 194,227 8.29
3,142 186,681 5.94 4,930 389,598 7.90
377 22,492 5.96 1,101 89,165 8.10
1,378 77,616 5.63 1,743 143,458 8.23
- -----------------------------------------------------------------------------------------
6,861 398,779 5.81 10,117 816,448 8.07
- -----------------------------------------------------------------------------------------
1,334 95,791 7.18 991 84,583 8.52
- -----------------------------------------------------------------------------------------
34,980 $2,222,335 6.35% 37,529 $2,874,118 7.66%
- -----------------------------------------------------------------------------------------
4,417 4,370
601 1,037
2,795 2,780
- -----------------------------------------------------------------------------------------
$ 42,793 $ 45,716
- -----------------------------------------------------------------------------------------
2.92% 2.49%
.81 .91
- -----------------------------------------------------------------------------------------
$1,494,181 3.73% $1,445,409 3.40%
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------
1989
--------------------------------------------
Average Average
Balances Interest Yields/Rates
- ---------------------------------------------
<S> <C> <C>
13,928 $1,578,864 11.34%
2,922 340,262 11.65
2,163 230,278 10.65
5,786 698,961 12.08
1,740 175,642 10.09
- ---------------------------------------------
26,539 3,024,007 11.39
- ---------------------------------------------
1,622 169,618 10.46
2,165 177,781 8.21
5,438 501,789 9.23
1,108 111,375 10.05
164 13,745 8.37
1,722 167,421 9.72
- ---------------------------------------------
10,597 972,111 9.17
- ---------------------------------------------
64 6,740 10.53
- ---------------------------------------------
38,822 $4,172,476 10.75%
- ---------------------------------------------
(528)
1,991
1,798
- ---------------------------------------------
42,083
- ---------------------------------------------
1,893 $ 90,624 4.79%
1,664 83,375 5.01
3,688 219,740 5.96
8,641 758,382 8.78
7,700 648,763 8.43
862 106,885 12.41
- ---------------------------------------------
24,448 1,907,769 7.80
- ---------------------------------------------
2,891 271,398 9.39
3,840 344,659 8.98
1,161 104,169 8.97
740 68,294 9.23
- ---------------------------------------------
8,632 788,520 9.14
- ---------------------------------------------
654 62,096 9.50
- ---------------------------------------------
33,734 $2,758,385 8.18%
- ---------------------------------------------
4,353
1,198
2,798
- ---------------------------------------------
42,083
- ---------------------------------------------
2.57%
1.07
- ---------------------------------------------
$1,414,091 3.64%
- ---------------------------------------------
</TABLE>
<PAGE> 44
66 STATISTICAL INFORMATION
SECURITIES
<TABLE>
<CAPTION>
CARRYING VALUE OF SECURITIES
- ----------------------------------------------------------------------------------------------------------------------------
December 31
In millions 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities
Debt securities
U.S. Treasury $ 1 $ 37 $ 304
U.S. Government agencies and corporations 10,227 11,413 10,958
State and municipal 389 558 581
Other 810 1,246 717
Corporate stocks 245 73 57
- ---------------------------------------------------------------------------------------------------------------------------
Total investment securities $ 11,672 $ 13,327 $ 12,617
- ---------------------------------------------------------------------------------------------------------------------------
Securities available for sale
Debt securities
U.S. Treasury $ 2,402 $ 2,768 $ 1,462
U.S. Government agencies and corporations 8,121 4,011 79
State and municipal 2 13
Other 802 635
Corporate stocks 61 1
- ---------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 11,388 $ 7,414 $ 1,555
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1993, securities available for sale are carried at fair value.
<PAGE> 45
STATISTICAL INFORMATION 67
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF SECURITIES
- ------------------------------------------------------------------------------------------------------------------------
December 31,1993 After After
In millions One Year Five Years
One Year Through Through After No Fixed
or Less Five Years Ten Years Ten Years Maturity Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment securities (Amortized Cost)
Debt securities
U.S. Treasury $ 1 $ 1
U.S. Government agencies and corporations $ 1 $10,226 10,227
State and municipal 22 110 $ 62 $ 195 389
Other 31 6 2 771 810
Corporate stocks 245 245
- ------------------------------------------------------------------------------------------------------------------------
Total investment securities $ 54 $ 117 $ 64 $ 195 $11,242 $ 11,672
- ------------------------------------------------------------------------------------------------------------------------
Percent of total investment securities .46% 1.00% .55% 1.68% 96.31% 100.00%
Weighted average yield 6.57 10.23 10.31 11.01 5.97 6.12
- ------------------------------------------------------------------------------------------------------------------------
Securities available for sale (Fair Value)
Debt securities
U.S. Treasury $ 537 $1,845 $ 16 $ 4 $ 2,402
U.S. Government agencies and corporations 24 1 $ 8,095 8,120
State and municipal 1 1 1 3
Other 1 1 56 744 802
Corporate stock 61 61
- ------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 538 $1,871 $ 18 $ 61 $ 8,900 $ 11,388
- ------------------------------------------------------------------------------------------------------------------------
Percent of total securities available for sale 4.72% 16.43% .16% .54% 78.15% 100.00%
Weighted average yield 3.19 4.33 6.41 18.29 6.23 5.82
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Collateralized mortgage obligations and mortgage-backed and asset-backed
securities are included in the No Fixed Maturity Category. Based on the
Corporation's current rate projections and historical experience, the
weighted-average expected maturity of all collateralized mortgage obligations
and mortgage-backed and asset-backed securities was two years and 11 months at
December 31, 1993. Weighted average yields are based on book value with
effective yields weighted for the contractual maturity of each security.
Tax-exempt securities have been adjusted to a taxable-equivalent basis using a
federal income tax rate of 35 percent.
<PAGE> 46
68 STATISTICAL INFORMATION
LOAN PORTFOLIO
At December 31, 1990, approximately $1.2 billion of loans to individuals were
reclassified from commercial loans to the consumer category. Balances at
December 31, 1989, were not restated.
<TABLE>
<CAPTION>
LOAN OUTSTANDINGS
- ---------------------------------------------------------------------------------------------------------------------------
December 31
In millions 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 12,463 $10,985 $11,245 $12,713 $14,877
Real estate project 1,730 1,955 2,047 2,194 2,893
Real estate mortgage 8,941 4,114 3,763 3,041 2,562
Consumer 8,525 7,950 7,458 8,933 6,686
Other 1,871 1,105 1,349 1,476 1,799
- ---------------------------------------------------------------------------------------------------------------------------
Total loans 33,530 26,109 25,862 28,357 28,817
Less unearned income 222 292 419 724 710
- ---------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $ 33,308 $25,817 $25,443 $27,633 $28,107
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents the maturity distribution and interest
sensitivity of selected loan categories based on contractual terms.
<TABLE>
<CAPTION>
LOAN MATURITIES AND INTEREST SENSITIVITY
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1993 One Year One Through After
In millions or Less Five Years Five Years Gross Loans
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $5,035 $4,664 $2,764 $12,463
Real estate project 751 754 225 1,730
- ---------------------------------------------------------------------------------------------------------------------------
Total $5,786 $5,418 $2,989 $14,193
- ---------------------------------------------------------------------------------------------------------------------------
Loans with predetermined rate $1,052 $1,054 $ 561 $ 2,667
Loans with floating rate 4,734 4,364 2,428 11,526
- ---------------------------------------------------------------------------------------------------------------------------
Total $5,786 $5,418 $2,989 $14,193
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 47
STATISTICAL INFORMATION 69
NONPERFORMING ASSETS
Generally, a loan is classified as "nonaccrual" when it is determined that the
collection of interest or principal is doubtful, or when a default of interest
or principal has existed for 90 days or more, unless such loan is well secured
and in the process of collection. When interest accrual is discontinued, unpaid
interest credited to income in the current year is reversed, and unpaid
interest accrued in prior years is charged to the allowance for credit losses.
A loan is categorized as "restructured" if the original interest rate on
such loan, repayment terms, or both were restructured due to a deterioration
in the financial condition of the borrower.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
December 31
Assets in millions, interest in thousands 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 356 $ 529 $ 740 $ 986 $ 466
Restructured loans 28 25 21 33 23
- ---------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 384 554 761 1,019 489
- ---------------------------------------------------------------------------------------------------------------------------
Foreclosed assets 170 266 322 286 92
- ---------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 554 $ 820 $1,083 $1,305 $ 581
- ---------------------------------------------------------------------------------------------------------------------------
Nonperforming loans to period-end loans 1.15% 2.14% 2.99% 3.69% 1.74%
Nonperforming assets to period-end loans and foreclosed assets 1.65 3.14 4.21 4.67 2.06
Nonperforming assets to total assets .89 1.60 2.41 2.87 1.27
Interest computed on original terms $ 33,891 $ 53,362 $ 85,563 $ 111,074 $ 70,947
Interest recognized 6,296 6,136 20,663 52,908 18,223
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST DUE LOANS
The following table presents information concerning accruing loans which are
contractually past due 90 days or more as to principal or interest payments and
excludes loans reported as either nonaccrual or restructured.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
December 31
In millions 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Past due loans $ 135 $ 192 $ 139 $ 111 $ 115
- ---------------------------------------------------------------------------------------------------------------------------
Past due loans as a percentage of total loans .41% .74% .55% .40% .41%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 48
70 STATISTICAL INFORMATION
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is based on periodic evaluations of the loan
portfolio by management. These evaluations consider, among other factors,
historic losses within specific industries, current economic conditions, loan
portfolio trends, specific credit reviews and estimates based on subjective
factors.
During 1993 and 1992, economic conditions improved, resulting in lower
charge-offs and provision for credit losses. During 1991 and 1990, weaker
economic conditions adversely impacted collateral valuations and affected some
borrowers ability to repay loans. These adverse conditions resulted in higher
provisions for credit losses. During 1989, additional provisions for credit
losses were taken LDC loans.
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
In Millions 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 897 $ 797 $ 784 $ 616 $ 543
- ---------------------------------------------------------------------------------------------------------------------------
Acquisitions/divestitures 43 57 (17)
- ---------------------------------------------------------------------------------------------------------------------------
Amounts charged off
Commercial 101 213 243 216 104
Real estate project 60 39 90 177 45
Real estate mortgage 2 2 4 5 3
Consumer 82 82 99 79 60
Other 1 7 10 151 75
- ---------------------------------------------------------------------------------------------------------------------------
Total loans charged off 246 343 446 628 287
- ---------------------------------------------------------------------------------------------------------------------------
Recoveries on amounts previously charged off
Commercial 41 37 20 11 10
Real estate project 4 1 8 8 1
Consumer 29 22 18 14 12
Other 2 2 3 5
- ---------------------------------------------------------------------------------------------------------------------------
Total recoveries 74 62 48 36 28
- ---------------------------------------------------------------------------------------------------------------------------
Net charge-offs 172 281 398 592 259
- ---------------------------------------------------------------------------------------------------------------------------
Provision for credit losses 204 324 428 760 332
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 972 $ 897 $ 797 $ 784 $ 616
- ---------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income
Average $ 25,959 $ 24,520 $ 26,954 $ 27,867 $ 26,539
At December 31 33,308 25,817 25,443 27,633 28,107
As a percent of average loans
Net charge-offs .66% 1.15% 1.48% 2.12% .98%
Provision for credit losses .79 1.32 1.59 2.73 1.25
Allowance for credit losses 3.74 3.66 2.96 2.82 2.32
Allowance as a percent of period-end
Loans 2.92 3.47 3.13 2.84 2.19
Nonperforming loans 253.12 162.08 104.71 76.99 125.96
Allowance as a multiple of net charge-offs 5.65x 3.19x 2.00x 1.32x 2.38x
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 49
STATISTICAL INFORMATION 71
During 1993, management revised its methodology for allocating the allowance
for credit losses. The revisions had the effect of reclassifying certain
previously unallocated reserves to loan categories. For purposes of this
presentation, remaining unallocated reserves have been assigned to loan
categories based on the relative specific allocation amounts. Prior year
unallocated reserve amounts have been similarly assigned to loan categories.
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
- ---------------------------------------------------------------------------------------------------------------------------
December 31
In millions 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 467 $ 448 $432 $477 $164
Real estate project 216 285 230 171 58
Real estate mortgage 103 17 13 14 4
Consumer 175 134 106 103 79
Other 11 13 16 19 311
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 972 $ 897 $797 $784 $616
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE DISTRIBUTION OF ALLOWANCE ALLOCATION AND CATEGORIES OF LOANS AS A PERCENTAGE OF GROSS LOANS
- ---------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
------------------ ----------------- ----------------- ---------------- -----------------
December 31 Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial 48.1% 37.2% 50.0% 42.1% 54.2% 43.5% 60.8% 44.8% 26.6% 51.6%
Real estate project 22.2 5.2 31.8 7.5 28.9 7.9 21.8 7.7 9.4 10.0
Real estate mortgage 10.6 26.7 1.9 15.8 1.6 14.6 1.8 10.7 .7 8.9
Consumer 18.0 25.4 14.9 30.5 13.3 28.8 13.1 31.5 12.8 23.2
Other 1.1 5.5 1.4 4.1 2.0 5.2 2.5 5.3 50.5 6.3
- ---------------------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
A majority of foreign deposits were in denominations of $100,000 or more. The
table below provides maturities of domestic time deposits of $100,000 or more.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1993 Certificates Other Time
In millions of Deposit Deposits Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Three months or less $ 663,097 $ 43,041 $ 706,138
Over three through six months 577,294 27,592 604,886
Over six through twelve months 574,136 38,577 612,713
Over twelve months 2,412,170 279,789 2,691,959
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 4,226,697 $ 388,999 $4,615,696
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 50
72 STATISTICAL INFORMATION
BORROWED FUNDS
Federal funds purchased represent overnight borrowings. Repurchase agreements
generally have maturities of 18 months or less. At December 31, 1993, 1992 and
1991, $2.7 billion, $3.4 billion and $495 million, respectively, of repurchase
agreements had original maturities which exceeded one year. Commercial paper is
issued in maturities not to exceed nine months and is stated net of discount.
Other borrowed funds consist primarily of term federal funds purchased and U.S.
Treasury, tax and loan borrowings which are payable on demand.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1993 1992 1991
---------------- ---------------- ----------------
Dollars in millions Amount Rate Amount Rate Amount Rate
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased
Year-end balance $2,066 3.06% $2,037 3.12% $1,580 4.03%
Average during year 1,639 3.04 1,851 3.57 1,964 5.68
Maximum month-end balance during year 3,662 2,833 2,592
Repurchase agreements
Year-end balance 4,995 3.61 6,452 3.46 3,884 4.20
Average during year 6,944 3.50 5,197 3.79 3,142 5.94
Maximum month-end balance during year 8,917 7,356 4,520
Commercial paper
Year-end balance 514 3.24 980 3.57 558 4.68
Average during year 691 3.30 576 3.62 377 5.96
Maximum month-end balance during year 1,117 980 567
Other
Year-end balance 4,087 3.11 2,342 3.49 3,465 4.61
Average during year 1,099 4.31 1,443 4.74 1,378 5.63
Maximum month-end balance during year 4,088 3,377 3,465
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
TAXABLE-EQUIVALENT ADJUSTMENT
Interest income earned on certain loans, and obligations of states,
municipalities and other public entities is not subject to federal income tax.
In addition, certain interest expense incurred to fund these assets is not
deductible for federal income tax purposes.
In order to make pre-tax income and resultant yields comparable to taxable
loans and investments, a taxable-equivalent adjustment, less the effect of
disallowed interest expense, is added equally to interest income and to income
tax expense, with no effect on after-tax income.
The taxable-equivalent adjustment is shown in the table below based on a
federal income tax rate of 35 percent for 1993 and 34 percent for all other
years.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31
In thousands 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income book basis $ 3,201,120 $ 3,218,971 $ 3,657,533 $ 4,223,375 $4,064,440
Taxable-equivalent adjustment 39,502 42,773 58,983 96,152 108,036
- ---------------------------------------------------------------------------------------------------------------------------
Interest income taxable-equivalent basis 3,240,622 3,261,744 3,716,516 4,319,527 4,172,476
Interest expense 1,372,087 1,561,679 2,222,335 2,874,118 2,758,385
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income taxable-equivalent basis $ 1,868,535 $ 1,700,065 $ 1,494,181 $ 1,445,409 $1,414,091
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 51
MANAGEMENT'S DISCUSSION AND ANALYSIS 1992 VERSUS 1991 73
MERGERS AND ACQUISITIONS
During 1992, PNC Bank Corp. completed the acquisitions of Pro Group, Inc.,
Bradford, Pennsylvania; The First National Pennsylvania Corporation, Erie,
Pennsylvania; Sunrise Bancorp, Inc., Fort Mitchell, Kentucky; CCNB Corporation,
Camp Hill, Pennsylvania; and Flagship Financial Corp., Jenkintown,
Pennsylvania. These institutions added approximately $2.6 billion in assets.
Under the terms of the various agreements, PNC Bank issued approximately 13.3
million shares of common stock and paid cash of approximately $45 million.
In December of 1992, PNC Bank Corp. entered into a joint venture in
automated teller machine ("ATM") and point-of-sale ("POS") transaction
processing services with three other financial institutions. The new company,
Electronic Payment Services, Inc. ("EPS"), is one of the largest processors of
ATM and POS transactions in the United States. PNC Bank contributed its ATM and
POS processing businesses and invested approximately $49 million in cash for 31
percent of EPS common stock.
COMMON STOCK SPLIT
On October 1, 1992, the Board of Directors approved a two-for-one split of the
common stock which was effected in the form of a 100 percent stock dividend.
Financial data has been restated for the impact of the two-for-one split of the
common stock.
INCOME STATEMENT REVIEW
Net income for 1992 was $426.9 million or $1.89 per common share on a fully
diluted basis, compared with $389.8 million or $1.94 in 1991. Return on assets
and return on common shareholders' equity were .95 percent and 12.47 percent,
respectively. This compares with .91 percent and 14.02 percent in 1991.
The Corporation adopted SFAS No. 106 related to postretirement benefits in
1992. The adoption of SFAS No. 106 resulted in additional after-tax expense of
$111.3 million or $.49 per common share on a fully diluted basis, consisting of
a first quarter one-time charge of $102.5 million or $.45 per share and $2.2
million of additional operating expense in each quarter. Income before the
cumulative effect of the change in accounting principle was $529.4 million, or
$2.34 per common share on a fully diluted basis. On this basis, return on
assets and return on common shareholders' equity were 1.18 percent and 15.03
percent, respectively.
NET INTEREST INCOME AND NET INTEREST MARGIN On a fully taxable-equivalent
basis, net interest income for 1992 was $1.7 billion, an increase of $205.9
million, or 13.8 percent, from 1991. Total average earning assets increased
$2.1 billion to $42.2 billion. A $4.7 billion increase in average securities
was partially offset by a $2.4 billion decline in loans. In the declining rate
environment, net interest income benefited from liabilities repricing more
rapidly than earning assets. Additionally, funding costs were favorably
impacted by interest rate swap hedging activity. The yield on interest- earning
assets declined 154 basis points to 7.73 percent and the rate paid on
interest-bearing sources of funds decreased 198 basis points to 4.37 percent.
The net interest margin increased 30 basis points to 4.03 percent in 1992.
Net average noninterest-bearing sources increased $1.4 billion in the
comparison, in part as a result of the issuance of common stock and retention
of earnings. Although these sources increased, lower average rates in 1992
reduced the favorable impact on net interest income provided by such funds.
PROVISION FOR CREDIT LOSSES The provision for credit losses was $323.5 million
compared with $428.0 million in 1991. Consistent with the national trend,
economic conditions in the markets served by the Corporation improved modestly
in 1992. This factor combined with management's efforts to improve asset
quality resulted in lower nonperforming asset and charge-off levels, and higher
reserve coverage of nonperforming loans.
NONINTEREST INCOME Total noninterest income increased $74.8 million to $886.8
million in 1992. Noninterest
<PAGE> 52
74 MANAGEMENT'S DISCUSSION AND ANALYSIS 1992 VERSUS 1991
income for 1992 included net security gains of $214.1 million. Noninterest
income for 1991 included $70.0 million in net security gains and $92.7 million
in gains on the sale of four Ohio banks ("Ohio Banks") and a substantial
portion of the merchant services processing portfolio.
Investment management and trust income increased 9.4 percent to $260.1
million in 1992. The most significant growth occurred in mutual fund income,
which increased 18.5 percent to $86.0 million and resulted from growth in asset
volume. Trust revenue increased 5.3 percent to $174.2 million primarily from
new business.
Service charges, fees and commissions revenue totaled $360.6 million in
1992 and remained relatively level compared with 1991. An increase in deposit
account and corporate service and loan servicing income was offset by a decline
in credit card and merchant services revenue. The decline resulted from the
sale of the merchant services processing portfolio. In addition, the comparison
was negatively impacted by the sale of the Ohio Banks.
NONINTEREST EXPENSES Noninterest expenses increased $171.4 million to $1.4
billion. Despite the significant employee additions related to acquisitions and
targeted businesses, overall staff levels were reduced through various cost
savings initiatives, which involved consolidating, centralizing and outsourcing
certain operational and support functions. Average full-time equivalent
employees declined 3.3 percent in 1992. Compensation expense totaled $541.3
million in 1992, an increase of 9.4 percent, which resulted from accruals for
displaced employees related to consolidations and acquisitions, staff additions
in growth businesses and merit pay and incentive compensation.
Employee benefit expense increased $23.2 million to $127.1 million in
1992. The change in accounting for postretirement benefits increased employee
benefits expense by $14.8 million compared with the cash basis method of
accounting used in 1991. Additionally, pension expense increased $6.5 million
primarily due to a change in the discount rate reflecting the current interest
rate environment.
Net occupancy and equipment expenses increased 7.8 percent to $206.6
million in 1992 as a result of the consolidation of three data centers into a
newly-constructed data processing and telecommunications center. Equipment and
software purchased for this new facility resulted in higher levels of
depreciation and software expenses. These increases were partially offset by a
decline in equipment rentals and maintenance costs that resulted from closing
the old data centers.
The other category of noninterest expenses increased $86.0 million to
$501.8 million. Significant components of this increase include a $20.0 million
accrual for developing and implementing a common corporate identity and
consolidating the Corporation's six Pennsylvania banks; $15.1 million of
valuation adjustments and legal fees related to foreclosed asset and problem
loan workout activities; and $14.7 million for outside services related to
consolidation or outsourcing of certain operational and support functions. In
addition, contributions and donations increased $10.4 million. The remainder of
the increase reflects the net impact of acquisition and divestiture activities
as well as various cost increases.
BALANCE SHEET REVIEW
Total assets at December 31, 1992, were $51.4 billion, a $6.5 billion increase
from December 31, 1991. Total assets averaged $44.7 billion in 1992, compared
with $42.8 billion in 1991.
In part, the changes in the composition of the Corporation's balance sheet
during 1992 reflected continued weakness in overall loan demand and the
shifting of funding sources to longer-term liabilities with attractive rates.
LOANS Total loans were $25.8 billion at December 31, 1992, compared with $25.4
billion at December 31, 1991. Total loans averaged $24.5 billion in 1992, a
decline of $2.4 billion from 1991. During 1992, the Corporation added
approximately $1.7 billion in loans as a result of bank acquisitions, of which
$1.2 billion were acquired in the fourth quarter. The increase in loan
outstandings related to bank
<PAGE> 53
MANAGEMENT'S DISCUSSION AND ANALYSIS 1992 VERSUS 1991 75
acquisitions was mitigated by paydowns of loans resulting from the continuing
reduction of debt throughout most sectors of the economy.
Commercial loans declined 2.3 percent to $11.0 billion at December 31,
1992, as a result of weak demand in the current economic environment and from
the Corporation's efforts to reduce exposure in certain segments of the
portfolio. The addition of approximately $290 million of commercial loans
obtained in acquisitions partially offset these declines.
HLTs are included in various commercial loan categories. During 1992, the
federal bank regulators revised their HLT delisting criteria and the December
31, 1992, amounts reflect such revisions. HLT outstandings represented 4.3
percent of total loans at December 31, 1992, compared with 6.6 percent at
December 31, 1991. During 1992, $328 million of loans and $189 million of
unfunded commitments were no longer classified as HLTs. Of such amounts, the
revised HLT delisting criteria resulted in $131 million of loans and $89
million of commitments no longer being classified as HLTs.
At December 31, 1992, the Corporation had 76 customers with loans
designated as HLT. The 10 largest HLT outstandings and unfunded commitments
totaled $417 million and $73 million, respectively, none of which were
classified as nonperforming. During 1992, the Corporation originated and/or
participated in $155 million of commitments to new HLT customers compared with
$10 million in 1991. HLT loan fees recognized in income during 1992 totaled
$10.9 million and deferred HLT loan fees totaled $3.7 million at December 31,
1992. The yield on the HLT portfolio, including loans classified as
nonperforming, was 7.19 percent in 1992.
At December 31, 1992, real estate project outstandings and unfunded
commitments totaled $2.0 billion and $482 million, respectively. The comparable
December 31, 1991, amounts were $2.0 billion and $477 million, respectively.
Commercial mortgages totaled $879 million at December 31, 1992, compared
with $783 million at December 31, 1991. Acquisitions added approximately $170
million to this category.
Residential mortgages totaled $3.2 billion at December 31, 1992, compared
with $2.9 billion at December 31, 1991. During 1992, the Corporation originated
approximately $1.9 billion of residential mortgages, of which $1.4 billion were
securitized and sold with servicing retained. Additionally, approximately $800
million of residential mortgages were obtained in acquisitions. These increases
were partially offset by prepayment and refinancing activity.
Consumer loans totaled $7.8 billion at December 31, 1992, an increase of
7.2 percent from December 31, 1991. The purchase of approximately $190 million
of home equity loans primarily accounted for the increase.
RISK ELEMENTS Nonperforming assets totaled $820 million at December 31, 1992,
compared with $1.1 billion at December 31, 1991. At December 31, 1992,
nonperforming assets were comprised of $554 million of loans and $266 million
of foreclosed assets. The comparable December 31, 1991, amounts were $761
million and $322 million, respectively.
At December 31, 1992, $144 million of nonperforming loans were current as
to principal and interest compared with $149 million at December 31, 1991.
Nonperforming HLT loans totaled $41 million at December 31, 1992, compared with
$82 million at December 31, 1991.
Nonperforming real estate project assets totaled $421 million at December
31, 1992, and were comprised of $198 million of loans and $223 million of
foreclosed real estate. The comparable December 31, 1991, amounts were $555
million, $270 million and $285 million, respectively.
Accruing loans contractually past due 90 days or more as to the payment of
principal or interest totaled $192 million at December 31, 1992, compared with
$139 million at December 31, 1991. Residential mortgage and other consumer
loans in the amount of $123 million were included in the total at December 31,
1992, compared with $83 million at December 31, 1991. Acquisitions completed in
1992 primarily contributed to the increase. Within the consumer category,
student loans totaled $61 million at December 31, 1992, and $58 million at
December 31, 1991.
<PAGE> 54
76 MANAGEMENT'S DISCUSSION AND ANALYSIS 1992 VERSUS 1991
ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses totaled $897
million at December 31, 1992, compared with $797 million a year ago. The
allowance as a percentage of period-end loans was 3.47 percent at December 31,
1992, compared with 3.13 percent at December 31, 1991. The allowance as a
percentage of nonperforming loans was 162.1 percent and 104.7 percent at
December 31, 1992 and 1991, respectively.
Net charge-offs were $281 million in 1992 compared with $398 million in
1991. As a percentage of average loans, net charge-offs were 1.15 percent and
1.48 percent in 1992 and 1991, respectively.
During 1992 and 1991, HLT credits in the amount of $46 million and $49
million, respectively, were charged-off. Such charge-offs primarily related to
credits in the communications and retail/wholesale categories. Recoveries in
1992 of previously charged-off HLT credits totaled $9 million compared with $8
million in 1991.
ASSET/LIABILITY MANAGEMENT In response to the declining interest rate
environment in 1992, the Corporation reduced the overall interest rate and
prepayment risk profile of the securities portfolio by selling high coupon
fixed-rate mortgage-backed securities ("MBS") and reinvesting the proceeds
primarily in shorter-term U.S. Treasury and adjustable rate MBS. The MBS
acquired were primarily U.S. Government agency securities. As a result of this
repositioning, the average expected life of the MBS portfolio was reduced to
three years and one month at December 31, 1992 from five years and one month at
the prior year end. Although yields on U.S. Treasury and shorter-term
adjustable rate MBS are generally lower than longer-term fixed-rate MBS,
prepayment risk is reduced.
During 1992, the Corporation increased its use of interest rate swaps to
manage overall interest rate sensitivity. The total notional amount of interest
rate swaps increased to $7.7 billion at December 31, 1992, from $2.7 billion at
December 31, 1991. The increase was primarily in index interest rate swaps in
which the Corporation receives payments based on fixed interest rates. During
1992, swaps benefited net interest income by $98.6 million.
SECURITIES At December 31, 1992, securities totaled $20.7 billion and were
comprised of $7.4 billion of securities available for sale and $13.3 billion of
investment securities. The comparable December 31, 1991, amounts were $14.2
billion, $1.6 billion and $12.6 billion, respectively.
DEPOSITS Average deposits declined $2.7 billion in 1992 to $28.5 billion.
Certificates of deposit of $100,000 or more declined $3.2 billion to $3.8
billion during 1992. This decline reflects management's use of lower cost
funding sources such as unsecured bank notes and repurchase agreements.
Brokered deposits are included in certificates of deposit of $100,000 or
more and other time categories. Such amounts totaled $2.3 billion compared with
$3.7 billion at December 31, 1991. Retail brokered deposits represented 13.1
percent of the total at December 31, 1992, and 8.9 percent at year-end 1991.
Retail brokered deposits are issued or participated-out by brokers in
denominations of $100,000 or less and are fully insured.
BORROWINGS Borrowed funds totaled $11.8 billion at December 31, 1992, an
increase of $2.3 billion. Repurchase agreements increased $2.6 billion during
1992.
Notes and debentures increased $3.0 million to $4.3 billion at December
31, 1992, primarily as a result of the issuance of bank notes.
CAPITAL Shareholders' equity totaled $3.7 billion at December 31, 1992,
compared with $3.3 billion at December 31, 1991. Tier I and total risk-based
capital ratios were 10.17 percent and 12.09 percent, respectively at December
31, 1992. The comparable December 31, 1991, amounts were 9.69 percent and 12.13
percent, respectively.
<PAGE> 55
BANKS AND COMPANIES 77
FULL-SERVICE BANKS
PNC Bank, N.A. (Pittsburgh, Philadelphia, Central PA, Northeast PA,
Northwest PA, Southcentral PA)
PNC Bank, Indiana, Inc.
PNC Bank, Kentucky, Inc.
PNC Bank, Northern Kentucky, N.A.
PNC Bank, Ohio, N.A.
The Massachusetts Company, Inc.
The following bank will adopt the PNC Bank name during early 1994:
Bank of Delaware, Wilmington, DE
SPECIALIZED COMPANIES
BROKERAGE SERVICES AND SECURITIES UNDERWRITING
For Securities Underwriting,
Full-Service and Low-Cost Brokerage Services, Investment Banking and
Advisory Services:
PNC Securities Corp
Pittsburgh, PA
CREDIT CARD SERVICES
PNC National Bank
Wilmington, DE
DIRECT INVESTMENT SERVICE
For Private Equity Investments:
PNC Equity Management Corp
Pittsburgh, PA
INTERNATIONAL BANKING SERVICES
PNC Bank International, New York
New York, NY
INVESTMENT MANAGEMENT SERVICES
For Investment Management:
PNC Investment Management & Research
Philadelphia, PA
For Value Oriented Institutional Investment Management:
PCM
Philadelphia, PA
For Institutional
Liquidity Management:
PIMC
Wilmington, DE
For Mutual Fund, Administration, Accounting and Shareholder Services:
PFPC Inc.
Wilmington, DE
For Investment Research for Financial Institutions:
PNC IIS
Philadelphia, PA
LEASING
PNC Leasing Corp
Pittsburgh, PA
PNC Leasing Corp., Kentucky
Louisville, KY
MORTGAGE SERVICES
PNC Mortgage Bank, N.A.
Pittsburgh, PA
PNC Mortgage Corp. of America
Vernon Hills, IL
PNC Mortgage Securities Corp.
Vernon Hills, IL
PNC Mortgage Company
Louisville, KY
TRUST SERVICES
In Florida:
PNC Trust Company of Florida, N.A.
Vero Beach and Tampa, FL
In New Jersey:
PNC Bank, New Jersey, N.A.
Cherry Hill, NJ
For Securities Clearing:
PNC Trust Company of New York
New York, NY
<PAGE> 56
78 BOARD OF DIRECTORS
ROBERT N. CLAY, 47 (1,2,5)
President, Clay Holding Company
(thoroughbred breeding)
Director since 1987
PATRICIA J. CLIFFORD,* 70 (1,4)
Volunteer Civic Leader
Director since 1979
WILLIAM G. COPELAND, 68 (1,4,5)
Chairman of the Board
Providentmutual Holding Company
(life insurance and financial services)
Director since 1989
GEORGE A. DAVIDSON, JR., 55 (1,4)
Chairman and Chief Executive Officer,
Consolidated Natural Gas Company
(public utility holding company)
Chairman, Nominating Committee
Director since 1988
C.G. GREFENSTETTE, 66 (1,2)
Chairman and Chief Executive Officer,
The Hillman Company
(diversified operations and investments)
Chairman, Audit Committee
Director since 1989
W. CRAIG McCLELLAND, 59 (2,3,4)
President and Chief Operating Officer,
Union Camp Corporation
(pulp and paper manufacturing)
Chairman, Loan and Investment Committee
Director since 1985
THOMAS MARSHALL, 65 (2,3,5)
Chairman and Chief Executive Officer,
Aristech Chemical Corporation
(chemicals)
Chairman, Personnel and
Compensation Committee
Director since 1989
DONALD I. MORITZ, 66 (1,2,5)
Chairman and Chief Executive Officer,
Equitable Resources, Inc.
(energy company - gas utility)
Director since 1985
THOMAS H. O'BRIEN, 57 (2)
Chairman and Chief Executive Officer
Director since 1983
JACKSON H. RANDOLPH, 63 (2,3,4)
Chairman, President and Chief Executive Officer,
The Cincinnati Gas & Electric Company
(public utility - gas and electric)
Director since 1988
JAMES E. ROHR, 45 (3)
President
Director since 1989
RODERIC H. ROSS, 63 (2,5)
Chairman, President and Chief Executive Officer,
Keystone State Life Insurance Company
(insurance company)
Director since 1979
VINCENT A. SARNI, 65 (3,4)
Chairman of the Executive Committee
Pittsburgh Baseball Associates
(professional baseball team)
Director since 1989
RICHARD P. SIMMONS, 62 (2,3,4)
Chairman and Chairman of the Executive Committee,
Allegheny Ludlum Corporation
(specialty metals)
Chairman, Executive Committee
Director since 1976
THOMAS J. USHER, 51 (1,5)
President, U.S. Steel Group
(steel industry)
Director since 1992
HELGE H. WEHMEIER, 51 (1,4)
President and Chief Executive Officer,
Miles Inc.
(healthcare, chemicals and imaging technologies)
Director since 1992
1 Audit Committee
2 Executive Committee
3 Loan & Investment Committee
4 Nominating Committee
5 Personnel & Compensation Committee
* not standing for re-election in 1994
<PAGE> 57
EXECUTIVE MANAGEMENT 79
THOMAS H. O'BRIEN, 57 (1,2)
Chairman and Chief Executive Officer
31 years of service
JAMES E. ROHR, 45 (1,2)
President
21 years of service
JOHN E. ALDEN, 52 (2)
Senior Vice President,
Marketing
10 years of service
SUSAN B. BOHN, 49 (2)
Senior Vice President,
Public Relations
8 years of service
RICHARD C. CALDWELL, 49 (1,2)
Executive Vice President,
Investment Management and Trust
3 years of service
DANIEL F. GILLIS, 53 (2)
Senior Vice President,
Human Resources
26 years of service
WALTER E. GREGG, JR., 52 (1,2)
Executive Vice President,
Finance and Administration
19 years of service
FREDERICK J. GRONBACHER, 51 (2)
Executive Vice President and Deputy Manager
Retail Banking
17 years of service
MICHAEL N. HARRELD, 49 (2)
President and Chief Executive Officer,
PNC Bank, Kentucky, Inc.
25 years of service
ROBERT L. HAUNSCHILD, 44 (1)
Senior Vice President,
Planning/Finance
3 years of service
JOE R. IRWIN, 58 (1,2)
Executive Vice President and
Chief Investment Officer
30 years of service
WILLIAM J. JOHNS, 46 (1)
Senior Vice President and Controller
19 years of service
EDWARD P. JUNKER III, 57 (1,2)
Vice Chairman
29 years of service
WALTER C. KLEIN, JR., 50 (2)
Executive Vice President,
PNC Mortgage Bank, N.A.
1 year of service
RALPH S. MICHAEL III, 39 (2)
President and Chief Executive Officer,
PNC Bank, Ohio, N.A.
14 years of service
CALVERT A. MORGAN, JR., 46 (2)
Chairman, President and Chief
Executive Officer, Bank of Delaware
23 years of service
LOUIS J. MYERS, 41 (2)
President and Chief Executive Officer,
PNC Bank, N.A., Northeast PA
11 years of service
THOMAS E. PAISLEY III, 46 (1,2)
Senior Vice President and Chairman,
Corporate Credit Policy Committee
22 years of service
CHARLES C. PEARSON, JR., 54 (2)
President and Chief Executive Officer,
PNC Bank, N.A., Central PA
1 year of service
JOHN V. PETRYCKI, 53 (2)
President and Chief Executive Officer,
PNC Bank, N.A., Southcentral PA
2 years of service
HELEN P. PUDLIN, 44 (1,2)
Senior Vice President,
General Counsel
4 years of service
BRUCE E. ROBBINS, 49 (1,2)
President and Chief Executive Officer,
PNC Bank, N.A., Pittsburgh
20 years of service
A. WILLIAM SCHENCK III, 50 (1,2)
Executive Vice President,
Retail Banking
24 years of service
TIMOTHY G. SHACK, 43 (2)
Senior Vice President
Operations and Data Processing
17 years of service
RICHARD L. SMOOT, 53 (1,2)
President and Chief Executive Officer,
PNC Bank, N.A., Philadelphia
7 years of service
HERBERT G. SUMMERFIELD, JR., 53 (1,2)
Executive Vice President,
Real Estate
23 years of service
WALTER L. WEST, 51 (1)
Treasurer
27 years of service
DAVID E. ZUERN, 44 (2)
President and Chief Executive Officer,
PNC Bank, N.A., Northwest PA
22 years of service
1 Executive Officer
2 Management Committee
<PAGE> 58
80
SHAREHOLDER INFORMATION
STOCK PRICES/DIVIDENDS DECLARED The table below sets forth the range of high
and low daily last sale prices for PNC Bank Corp. common stock and the
respective dividends declared per common share by quarter.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Daily Sale Prices Cash Dividends
High Low Declared
- ----------------------------------------------------------------
<S> <C> <C> <C>
1993 Quarter
- ----------------------------------------------------------------
First $35.000 $27.000 $ .285
Second 36.125 29.750 .285
Third 32.750 28.500 .285
Fourth 31.125 27.625 .320
- ----------------------------------------------------------------
Total $ 1.175
- ----------------------------------------------------------------
1992 Quarter
- ----------------------------------------------------------------
First $25.750 $23.375 $ .265
Second 27.687 23.812 .265
Third 27.250 23.937 .265
Fourth 29.125 25.875 .285
- ----------------------------------------------------------------
Total $ 1.080
- ----------------------------------------------------------------
</TABLE>
DIVIDEND POLICY Holders of PNC Bank Corp. common stock are entitled to receive
dividends when declared by the board of directors out of funds legally
available. The board presently intends to continue the policy of paying
quarterly cash dividends. However, future dividends will depend upon earnings,
the financial condition of PNC Bank Corp. and other factors including
applicable government regulations and policies.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN PNC Bank Corp.'s dividend
reinvestment and stock purchase plan enables shareholders 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 PNC Bank Corp.'s Shareholder
Relations Department at corporate headquarters.
[GRAPH]
<PAGE> 59
81
CORPORATE INFORMATION
STOCK LISTING
PNC Bank Corp.'s common stock is traded on the New York Stock Exchange (NYSE)
under the symbol PNC. At the close of business on February 8, 1994, there were
43,384 common shareholders of record.
REGISTRAR AND TRANSFER AGENT
Chemical Bank
Securityholder Relations Department
P.O. Box 24935, Church Street Station
New York, New York 10249
800-982-7652
ANNUAL SHAREHOLDERS' MEETING
All shareholders are invited to attend PNC Bank Corp.'s annual meeting on
Tuesday, April 26, 1994, at 11 a.m., Eastern Standard Time on the 15th floor of
One PNC Plaza, Fifth Avenue and Wood Street, Pittsburgh, Pennsylvania.
INQUIRIES
Inquiries, comments or suggestions concerning PNC Bank Corp. are welcome.
Individual shareholders should contact:
Shareholder Relations at 800-843-2206.
Analysts and institutional investors should contact:
William H. Callihan, Vice President, Investor Relations at 412-762-8257.
CORPORATE HEADQUARTERS
PNC Bank Corp.
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, Pennsylvania 15265
FORM 10-K
The Annual Report on Form 10-K is filed with the Securities and Exchange
Commission. Copies of this document, excluding exhibits, may be obtained
without charge by writing to:
Walter E. Gregg, Jr., Executive Vice President, at corporate headquarters.
TRUST PROXY VOTING
Reports of 1993 non-routine proxy voting by PNC Bank Corp.'s trust divisions
are available by writing to: William F. Strome, Senior Vice President, Deputy
General Counsel, at corporate headquarters.
INQUIRIES
News media representatives and others seeking general information should
contact: Jonathan Williams, Vice President, Media Relations, at 412-762-4550.
<PAGE> 60
82 GLOSSARY OF TERMS
BOOK VALUE PER COMMON SHARE The value of a share of common stock based on the
values at which the assets are recorded on the balance sheet determined by
dividing shareholders' equity excluding the liquidation value of preferred
stock by the total number of common shares outstanding.
EARNING PER SHARE (EPS) The most common method of
expressing a company's profitability. Its purpose is to indicate how effective
an enterprise has been in using the resources provided by common shareholders.
EPS is usually presented in two ways: primary EPS and fully diluted EPS. The
computation of primary EPS includes other instruments which are equivalent to
common stock. Fully diluted EPS includes all instruments which have the
potential of causing additional shares of common stock to be issued.
FEE INCOME Income from fee-based services including investment management and
trust fees, service charges on deposit accounts, loan servicing fees,
transaction processing fees, credit card fees and other fees.
FORECLOSED ASSETS Property acquired through a foreclosure proceeding or
acceptance of a deed-in-lieu of foreclosure and loans classified as
in-substance foreclosure.
HIGHLY LEVERAGED TRANSACTIONS (HLT) Financing transactions which involve the
buyout, acquisition or recapitalization of an existing business which causes
the company's liabilities to increase significantly. HLTs also include credits
to highly leveraged companies.
LEVERAGE RATIO A measure of the relationship between capital and total assets
determined by dividing shareholders' equity less goodwill and unrealized
securities gains by average tangible assets.
MARKET CAPITALIZATION The value assigned by the market to a company's worth
determined by multiplying the number of outstanding shares by the current
market price per share.
NET CHARGE-OFFS The amount charged to the allowance for credit losses less
amounts recovered on loans and leases previously charged off.
NET INTEREST INCOME Interest income, loan fees and dividends on earning assets
less the interest expense incurred for all sources of funds.
NONPERFORMING ASSETS Assets which are not currently accruing interest, interest
is not being paid, or interest is being paid but the rate or terms were altered
due to the deteriorated financial condition of the borrower. Nonperforming
assets include nonaccrual loans, restructured loans and foreclosed assets.
OVERHEAD RATIO Noninterest expenses divided by the sum of net interest income,
adjusted to a taxable-equivalent basis, and noninterest income. A measure of
the relationship between operating expenses and revenues.
PROFIT MARGIN After-tax earnings expressed as a percentage of revenues.
Revenues include net interest income on a fully taxable equivalent basis and
noninterest income.
PROVISION FOR CREDIT LOSSES A charge to earnings to recognize that all loans
will not be fully paid. The amount is determined based on such factors as the
Corporation's actual loss experience, management's expectations of probable
credit losses, as well as current economic trends.
RETURN ON AVERAGE ASSETS Net income as a percentage of average total assets.
The basic yardstick of bank profitability, indicating how effectively assets
are employed.
RETURN ON COMMON EQUITY Net income as a percentage of average common
shareholders' equity. This ratio indicates how effectively common shareholders'
equity capital is invested.
RISK-BASED CAPITAL RATIOS Regulatory measurements of capital adequacy.
Guidelines set forth how capital is to be measured and how total assets,
including certain off-balance-sheet items, are to be risk adjusted to reflect
levels of credit risk.
SHAREHOLDERS' EQUITY The amount which represents the total investment in the
Corporation by holders of common and preferred stock plus retained earnings.
<PAGE> 1
EXHIBIT 21
PNC BANK CORP.
MAJOR SUBSIDIARIES
AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
State or Other Jurisdiction
Name of Incorporation or Organization
---- --------------------------------
<S> <C>
PNC Bancorp, Inc.* Delaware
PNC Bank, National Association* United States
PNC Bank, Kentucky, Inc.* Kentucky
PNC Mortgage Bank, National Association* United States
PNC Bank, Ohio, National Association United States
Bank of Delaware* Delaware
PNC Bank, Indiana, Inc.* Indiana
PNC National Bank (Delaware)* United States
PNC Bank, Northern Kentucky, National Association United States
The Massachusetts Company, Inc. Massachusetts
PNC Holding Corp.* Delaware
Pittsburgh National Life Insurance Company Arizona
PNC Capital Corp Delaware
PNC Equity Management Corp* Pennsylvania
PNC Funding Corp Pennsylvania
PNC Realty Holding Corp* Pennsylvania
PNC Securities Corp Pennsylvania
PNC Trust Company of Florida, National Association United States
PNC Trust Company of New York New York
PNC Venture Corp Delaware
- ----------------------
</TABLE>
* Names of subsidiaries of the indicated entities are omitted. Such
subsidiaries, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference, in the Registration Statements
listed below, of our report dated February 11, 1994, with respect to the
consolidated financial statements of PNC Bank Corp. and subsidiaries
incorporated by reference in this Annual Report on Form 10-K of PNC Bank Corp.
for the year ended December 31, 1993.
Form S-3 relating to the shelf registration of $1 billion of debt securities of
PNC Funding Corp, unconditionally guaranteed by PNC Bank Corp., and/or
preferred stock of PNC Bank Corp. (File No. 33-55114)
Form S-3 relating to the Dividend Reinvestment and Stock Purchase Plan of PNC
Bank Corp. (File No. 33-52844)
Form S-3 relating to the shelf registration of six million shares of PNC Bank
Corp. preferred stock (File No. 33-40602)
Post-Effective Amendment No. 1 on Form S-3 relating to the shelf registration
of $500 million of debt securities of PNC Funding Corp, unconditionally
guaranteed by PNC Bank Corp. (File No. 33-42803)
Form S-8 relating to the PNC Bank Corp. 1992 Long-Term Incentive Award Plan
(File No. 33-54960)
Post-Effective Amendment No. 2 on Form S-8 relating to the Employee Stock
Purchase Plan of PNC Bank Corp. (File No. 2-83510)
Post-Effective Amendment No. 1 on Form S-8 relating to the Stock Option Plan of
PNC Bank Corp. (File No. 2-92181)
Form S-8 relating to the PNC Bank Corp. Incentive Savings Plan (File No.
33-25140)
Form S-8 relating to the 1987 Senior Executive Long-Term Award Plan of PNC Bank
Corp. (File No. 33-28828)
Post-Effective Amendment No. 1 (on Form S-3) to Form S-4 relating to the
conversion of outstanding debentures assumed in connection with the merger of
PNC Bank Corp., Kentucky, Inc., with and into a wholly-owned subsidiary of PNC
Bank Corp. (File No. 33-10016)
Post-Effective Amendment No. 2 (on Form S-8) to Form S-4 relating to the
exercise of stock options assumed by PNC Bank Corp. in connection with the
merger of PNC Bank Corp., Kentucky, Inc., with and into a wholly-owned
subsidiary of PNC Bank Corp. (File No. 33-10016)
Post-Effective Amendment No. 1 (on Form S-8) to Form S-4 relating to the
exercise of stock options assumed by PNC Bank Corp. in connection with the
merger of a wholly-owned subsidiary of PNC Bank Corp. with and into Bank of
Delaware Corporation (File No. 33-25642)
/s/ ERNST & YOUNG
Pittsburgh, Pennsylvania
March 16, 1994
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Patricia J. Clifford, a Director of PNC Bank Corp., do hereby name,
constitute and appoint Walter E. Gregg, Jr., William F. Strome, Timothy C.
Roach and Steven Kaplan, or each of them, with full power of substitution, my
true and lawful attorney-in-fact to execute in my name, place and stead, the
Annual Report on Form 10-K of PNC Bank Corp. for the year ended December 31,
1993.
And I do hereby ratify and confirm all that said attorney shall
lawfully do or cause to be done by virtue hereof.
/s/ Patricia J. Clifford
--------------------------
Signature
<PAGE> 2
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, William G. Copeland, a Director of PNC Bank Corp., do hereby name,
constitute and appoint Walter E. Gregg, Jr., William F. Strome, Timothy C.
Roach and Steven Kaplan, or each of them, with full power of substitution, my
true and lawful attorney-in-fact to execute in my name, place and stead, the
Annual Report on Form 10-K of PNC Bank Corp. for the year ended December 31,
1993.
And I do hereby ratify and confirm all that said attorney shall
lawfully do or cause to be done by virtue hereof.
/s/ William G. Copeland
--------------------------
Signature
<PAGE> 3
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, George A. Davidson, Jr., a Director of PNC Bank Corp., do hereby
name, constitute and appoint Walter E. Gregg, Jr., William F. Strome, Timothy
C. Roach and Steven Kaplan, or each of them, with full power of substitution,
my true and lawful attorney-in-fact to execute in my name, place and stead, the
Annual Report on Form 10-K of PNC Bank Corp. for the year ended December 31,
1993.
And I do hereby ratify and confirm all that said attorney shall
lawfully do or cause to be done by virtue hereof.
/s/ George A. Davidson, Jr.
----------------------------
Signature
<PAGE> 4
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, C. G. Grefenstette, a Director of PNC Bank Corp., do hereby name,
constitute and appoint Walter E. Gregg, Jr., William F. Strome, Timothy C.
Roach and Steven Kaplan, or each of them, with full power of substitution, my
true and lawful attorney-in-fact to execute in my name, place and stead, the
Annual Report on Form 10-K of PNC Bank Corp. for the year ended December 31,
1993.
And I do hereby ratify and confirm all that said attorney shall
lawfully do or cause to be done by virtue hereof.
/s/ C. G. Grefenstette
------------------------
Signature
<PAGE> 5
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, W. Craig McClelland, a Director of PNC Bank Corp., do hereby name,
constitute and appoint Walter E. Gregg, Jr., William F. Strome, Timothy C.
Roach and Steven Kaplan, or each of them, with full power of substitution, my
true and lawful attorney-in-fact to execute in my name, place and stead, the
Annual Report on Form 10-K of PNC Bank Corp. for the year ended December 31,
1993.
And I do hereby ratify and confirm all that said attorney shall
lawfully do or cause to be done by virtue hereof.
/s/ W. Craig McClelland
--------------------------
Signature
<PAGE> 6
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Thomas Marshall, a Director of PNC Bank Corp., do hereby name,
constitute and appoint Walter E. Gregg, Jr., William F. Strome, Timothy C.
Roach and Steven Kaplan, or each of them, with full power of substitution, my
true and lawful attorney-in-fact to execute in my name, place and stead, the
Annual Report on Form 10-K of PNC Bank Corp. for the year ended December 31,
1993.
And I do hereby ratify and confirm all that said attorney shall
lawfully do or cause to be done by virtue hereof.
/s/ Thomas Marshall
----------------------
Signature
<PAGE> 7
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Donald I. Moritz, a Director of PNC Bank Corp., do hereby name,
constitute and appoint Walter E. Gregg, Jr., William F. Strome, Timothy C.
Roach and Steven Kaplan, or each of them, with full power of substitution, my
true and lawful attorney-in-fact to execute in my name, place and stead, the
Annual Report on Form 10-K of PNC Bank Corp. for the year ended December 31,
1993.
And I do hereby ratify and confirm all that said attorney shall
lawfully do or cause to be done by virtue hereof.
/s/ Donald I. Moritz
-----------------------
Signature
<PAGE> 8
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Jackson H. Randolph, a Director of PNC Bank Corp., do hereby name,
constitute and appoint Walter E. Gregg, Jr., William F. Strome, Timothy C.
Roach and Steven Kaplan, or each of them, with full power of substitution, my
true and lawful attorney-in-fact to execute in my name, place and stead, the
Annual Report on Form 10-K of PNC Bank Corp. for the year ended December 31,
1993.
And I do hereby ratify and confirm all that said attorney shall
lawfully do or cause to be done by virtue hereof.
/s/ Jackson H. Randolph
---------------------------
Signature
<PAGE> 9
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, James E. Rohr, a Director of PNC Bank Corp., do hereby name,
constitute and appoint Walter E. Gregg, Jr., William F. Strome, Timothy C.
Roach and Steven Kaplan, or each of them, with full power of substitution, my
true and lawful attorney-in-fact to execute in my name, place and stead, the
Annual Report on Form 10-K of PNC Bank Corp. for the year ended December 31,
1993.
And I do hereby ratify and confirm all that said attorney shall
lawfully do or cause to be done by virtue hereof.
/s/ James E. Rohr
-----------------------
Signature
<PAGE> 10
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Thomas J. Usher, a Director of PNC Bank Corp., do hereby name,
constitute and appoint Walter E. Gregg, Jr., William F. Strome, Timothy C.
Roach and Steven Kaplan, or each of them, with full power of substitution, my
true and lawful attorney-in-fact to execute in my name, place and stead, the
Annual Report on Form 10-K of PNC Bank Corp. for the year ended December 31,
1993.
And I do hereby ratify and confirm all that said attorney shall
lawfully do or cause to be done by virtue hereof.
/s/ Thomas J. Usher
------------------------
Signature
