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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, 1994
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 or the transaction period
from to
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PNC BANK CORP.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1435979
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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) 762-3900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
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<S> <C> <C>
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
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
</TABLE>
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
--- ---
INDICATE BY CHECK MARK IF THE 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 $5,468,988,835 AT FEBRUARY 28, 1995.
NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK OUTSTANDING AT February 28, 1995:
230,452,514
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF PNC BANK CORP.'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1994 ("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 25,
1995 ("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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INDEX
<TABLE>
<CAPTION>
PART I PAGE
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<S> <C> <C>
Item 1 Business 1
Item 2 Properties 17
Item 3 Legal Proceedings 17
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 18
Item 6 Selected Financial Data 19
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
Item 8 Financial Statements and Supplementary Data 19
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure *
PART III
Item 10 Directors and Executive Officers of the Registrant 19
Item 11 Executive Compensation 19
Item 12 Security Ownership of Certain Beneficial Owners and
Management 20
Item 13 Certain Relationships and Related Transactions 20
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K 20
SIGNATURES 22
EXHIBIT INDEX 25
<FN>
* Not Applicable.
</TABLE>
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PART I
ITEM 1 - BUSINESS
BUSINESS OVERVIEW
INTRODUCTION
PNC Bank Corp. ("PNC Bank" or "Corporation"), is a bank holding
company registered under the Bank Holding Company Act of 1956, as
amended ("BHC Act"). PNC Bank was incorporated under Pennsylvania law
in 1983 with the consolidation of Pittsburgh National Corporation and
Provident National Corporation. Since 1983, PNC Bank has diversified
its geographical presence and product capabilities through
strategic acquisitions and the formation of various non-banking
subsidiaries. At December 31, 1994, the Corporation operated 10 banking
subsidiaries in Pennsylvania, Delaware, Indiana, Kentucky,
Massachusetts, New Jersey, and Ohio ("primary markets"), and over 80
non-banking subsidiaries. The Corporation's total assets and total
shareholders' equity were $64.1 billion and $4.4 billion, respectively.
Based on year-end 1994 assets, PNC Bank was the 12th largest bank
holding company in the United States. During 1994, the Corporation and
subsidiaries employed approximately 21,000 people on a full-time
equivalent basis.
ACQUISITIONS
On November 30, 1993, the Corporation completed the acquisition
of PNC Mortgage (formerly Sears Mortgage Banking Group). With this
acquisition, the Corporation added mortgage-related assets of $7.6
billion; a mortgage servicing portfolio approximating $27 billion,
including $21 billion serviced for others; and a national residential
mortgage origination network. In 1994, the Corporation purchased a
$10 billion residential mortgage servicing portfolio from the
Associates Corporation of North America.
During 1994, the Corporation completed the acquisitions of United
Federal Bancorp, Inc., State College, Pennsylvania and First Eastern
Corp., Wilkes-Barre, Pennsylvania. The combined assets and deposits
totaled $2.8 billion and $2.4 billion, respectively, and are now part
of PNC Bank, National Association.
On January 13, 1995, the Corporation acquired Indian River
Federal Savings Bank ("Indian River"), Vero Beach, Florida, for
approximately $12 million in cash. Indian River had assets of $79
million and deposits of $62 million at December 31, 1994. In
connection with the acquisition, Indian River was merged with PNC Trust
Company of Florida, National Association and renamed PNC Bank, FSB.
Through this subsidiary, the Corporation offers private banking
services to customers throughout Florida.
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On February 28, 1995, the Corporation completed the acquisition
of BlackRock Financial Management L.P. and related partnerships
("BlackRock") for approximately $240 million in cash and notes.
BlackRock, with approximately $24.3 billion of managed assets, provides
fixed-income asset management services. BlackRock now operates as a
subsidiary of PNC Asset Management Group, Inc. ("Asset Management
Group"), a newly-formed subsidiary of PNC Bank, National Association,
that holds the Corporation's investment management companies.
On March 3, 1995, the Corporation completed the acquisition of
Brentwood Financial Corporation ("Brentwood"), Cincinnati, Ohio, for
approximately $20.9 million in cash. The acquisition added assets and
deposits of approximately $96 million and $78 million, respectively.
The assets and deposits acquired are now part of PNC Bank, Ohio,
National Association.
On March 7, 1995, the Corporation entered into a definitive
agreement with Chemical Banking Corp. ("Chemical") to acquire Chemical
Bank New Jersey. The total purchase price will approximate $504
million, subject to closing adjustments in accordance with the terms of
the agreement. The Chemical Bank New Jersey franchise being acquired
consists of a network of 84 branches, located in 15
counties throughout central and southern New Jersey, adjacent to the
Corporation's existing operations in eastern Pennsylvania and Delaware.
Chemical will retain its northern New Jersey banking operations,
focused on the New York metropolitan region. The transaction includes
assets approximating $3.3 billion and retail core deposits of
approximately $2.9 billion. The Corporation is not acquiring any
nonperforming assets. The Corporation expects the transaction to close
prior to year-end 1995, subject to regulatory approvals.
BUSINESS STRATEGIES
In 1994, the Corporation was faced with interest rates that rose higher
and faster than anticipated. Consequently, the Corporation
focused on reducing interest rate sensitivity and realigning the
balance sheet consistent with its operating strategies. During the
second half of 1994, the Corporation sold $4.5 billion of fixed-rate
securities, entered into $5.0 billion notional value of pay-fixed
interest rate swaps; and purchased $5.5 billion notional value of
interest rate caps. As a result, the Corporation substantially reduced
its liability sensitivity at one year and mitigated the impact of
significantly higher interest rates on net interest income. As part of
the balance sheet realignment, the Corporation intends to reduce
further its securities portfolio. In addition, in connection with this
downsizing, in January 1995 the Corporation's board of directors
authorized the purchase of up to 24 million common shares over a
two-year period.
The financial services industry is currently being challenged by
potential deregulation, excess capital, overcapacity and
increased competition. Loan pricing and credit standards are under
competitive pressure as lenders seek to employ capital and nonbank
competitors make capital markets more accessible to a broader range of
borrowers. Traditional deposit activities are subject to pricing
pressures and customer migration as the competition for consumer
investment dollars intensifies among banks and other financial services
companies. Mortgage banking is being challenged as providers of
residential mortgages and mortgage services attempt to maintain
origination and servicing volumes in an environment characterized by
significantly reduced business volumes. These factors have the
potential to adversely affect the Corporation's financial results for
1995.
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The Corporation's business strategies in this environment are
based on a commitment to be an exceptional marketing company with a
focus on customer satisfaction. The Corporation has begun to realign
its line of business structure with various customer segments, as it
believes this will provide greater opportunities for growth and
business development. The Corporation intends to continue to focus
marketing efforts on customer segments. As part of the marketing focus,
employee training will emphasize identifying and meeting customers'
need and taking advantage of permissible cross-selling opportunities.
Also, because of changes in consumer preferences, the Corporation
intends to continue to make investments in alternative delivery
systems, such as telebanking, and to continue to consolidate
approximately 30 percent of its retail branches over the next
few years. Along with these operating strategies, the Corporation will
further evaluate its existing businesses and markets and their
respective rates of return, and continue to consider and evaluate
opportunities to diversify and complement its business mix, as it did
when it acquired BlackRock.
LINES OF BUSINESS
PNC Bank delivers a broad range of financial services and
products to its customers through four distinct 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 PNC Bank's retail banking office network or
wholesale banking offices located in certain major metropolitan areas
located in the United States. PNC Bank also originates
residential mortgages through 100 offices in 30 states. Additional
information relating to the lines of business is set forth under the
caption entitled "Line of Business Results" in the "Corporate Financial
Review" included on pages 26-31 of the Annual Report to Shareholders,
which is incorporated herein by reference.
CORPORATE BANKING Corporate Banking provides traditional financing,
liquidity and treasury management, capital markets, and other financial
services to business and government entities. Corporate Banking's
focus is on serving customers by developing and delivering specific
products and services to meet their needs. This line of business has
established one of the largest market shares among middle-market
companies in most of the Corporation's primary markets. In addition,
Corporate Banking maintains banking relationships with many of the
largest companies in the United States and is a major provider of
treasury management products and services to large corporate customers.
Corporate Banking also provides its customers with access to the
capital markets through an array of financing alternatives including
securitization activities.
RETAIL BANKING Retail Banking provides lending, deposit,
investment, payment system access, and other financial services to
consumers and small businesses. Such services are primarily provided
through PNC Bank's 604 banking offices located in the Corporation's
primary markets. The principal focus of Retail Banking is on providing
products and services sought by its customers in a cost-effective
manner. The Corporation's unified operating systems have been designed
to enable Retail Banking to provide common products and services in a
low-cost manner. Alternative delivery systems, such as the
Corporation's consolidated telebanking center in Pittsburgh, are
expected to allow the Corporation to provide products and services more
efficiently than traditional banking delivery systems. Retail Banking
serves approximately 2.5 million households and more than 75,000 small
businesses, with a loan portfolio exceeding $20 billion and more than
$27 billion in deposits. At December 31, 1994, PNC Mortgage was the
nation's 12 largest mortgage banking company, based on its mortgage
servicing portfolio of approximately $41 billion, including $30 billion
serviced for others. Retail Banking is currently
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reorganizing its delivery channels around customer segments, including
development of a "Private Bank" to serve affluent customers, a "Branch
Bank" to serve small-business and traditional customers and a "Direct
Bank" under which the Corporation will provide products and services
to customers in its primary markets and nationwide through alternative
delivery systems.
INVESTMENT MANAGEMENT AND TRUST 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 245 other financial institutions. At December 31, 1994, the
Corporation was among the largest United States bank trustees for
individuals and was the ninth-largest United States bank investment
manager and 32nd-largest among all investment managers in the country.
The Corporation provided services to more than 400 mutual fund
companies ranking it among the largest providers of such services. In
addition, the Corporation was the second largest bank manager of mutual
funds. The acquisition of BlackRock, completed February 28, 1995, added
$24.3 billion of assets under management. As part of the Corporation's
customer segment alignment, Investment Management and Trust's personal
trust organization will become part of the Private Bank, and its
corporate trust and employee benefits sales and servicing will become
part of Corporate Banking. The Corporation's investment management
and asset servicing functions will be part of the new Asset Management
Group.
INVESTMENT BANKING Investment Banking includes the Asset/Liability
Management function of PNC Bank as well as underwriting,
brokerage, direct investment and liquidity management services. PNC
Brokerage Corp. services Retail Banking customers throughout the branch
system with more than 200 licensed brokers. Through PNC Brokerage Corp,
Investment Banking offers a broad range of financial products including
FDIC-insured money market accounts and certificates of deposits and
non-FDIC insured stocks, bonds and mutual funds. In addition, certain
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 Equity Management
Corp and related companies. As part of the Corporation's customer
segment alignment, PNC Brokerage Corp will become part of the Private
Bank. Public and corporate finance and liquidity management will be
aligned with Corporate Banking.
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SUBSIDIARY BANKS
Information as of December 31, 1994 for certain of the
Corporation's banks is set forth below.
<TABLE>
<CAPTION>
Dollars in billions APPROXIMATE APPROXIMATE
TOTAL PERCENTAGE OF TOTAL PERCENTAGE OF
SUBSIDIARY BANK/HEADQUARTERS ASSETS TOTAL ASSETS DEPOSITS TOTAL DEPOSITS
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<S> <C> <C> <C> <C>
PNC Bank, National Association, Pittsburgh, PA $44.6 70% $24.7 71%
PNC Bank, Kentucky, Inc., Louisville, KY 5.8 9 3.4 10
PNC Bank, Ohio, National Association, 4.4 7 2.7 8
Cincinnati, OH
PNC Mortgage Bank, National Association, 3.1 5 2.2 6
Pittsburgh, PA
PNC Bank, Delaware, Wilmington, DE 2.9 5 1.7 5
PNC Bank, New England, Boston, MA 1.0 2 .5 1
</TABLE>
STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES
The "Statistical Information" contained on pages 67-77 of the
Annual Report to Shareholders is incorporated herein by reference.
RISK MANAGEMENT
In the normal course of business, the Corporation is subject to
various risks. Two of the most significant are interest rate risk and
credit risk. Although it cannot eliminate these risks, the Corporation
has risk management processes designed to provide for risk
identification, measurement, monitoring and control. In addition to the
discussion provided below, information related to the Corporation's risk
management activities is set forth under the section entitled "Risk
Management" in the "Corporate Financial Review" included on pages 37
- 42 of the Annual Report to Shareholders, which is incorporated herein
by reference.
INTEREST RATE RISK Interest rate risk is the sensitivity of net
interest income and the market value of financial instruments to the
timing, magnitude and frequency of changes in interest rates. Interest
rate risk results from various repricing frequencies and the maturity
structure of assets, liabilities, and off-balance-sheet positions.
Interest rate risk also results from, among other factors, changes in
the relationship or spread between interest rates. Asset/liability
management uses a variety of investments, funding sources and
off-balance-sheet instruments in managing the overall interest rate risk
profile of the Corporation. A number of tools are used to measure
interest rate risk including income simulation modeling and interest
sensitivity ("gap") analyses.
A dynamic income simulation model is the primary mechanism used
by management to measure interest rate risk. The primary purpose of the
simulation model is to assess the direction and magnitude of the impact
of most likely (a "base case" which management believes is reasonably
likely to occur) and higher and lower ("alternative") interest rate
scenarios on net interest
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income.
The results of the simulation model are highly dependent on
numerous assumptions.These assumptioins generally fall into two
categories: those relating to the interest rate environment and those
relating to general business and economic factors. Assumptions related
to the interst rate environment include the level of various interest
rates, the shape of the yield curve, and the relationship among these
factors as rates change. Also included are other rate-related factors,
such as prepayment speed on mortgage-related assets and the cash flows
and maturities of financial instruments including index amortizing
interest rate swaps. Assumptions related to general business and
economic factors include changes in market conditions, loan pricing,
deposit sensitivity, customer preferences, competition, and
management's financial and and capital plans. The assumptions are
developed based on current business and asset/liability management
strategies, historical experience, the current economic environment,
forecasted economic conditions and other analyses. These assumptions
are subject to change as time passes. Accordingly, they are updated on
at least a quarterly basis. Because of these and other factors,
including those described in "Business Strategies" above, the results
of the model, as discussed in the section entitled "Asset/Liability
Managment" of the "Corporate Financial Review" at page 38 of the Annual
Report to Shareholders, will not necessarily provide a precise estimate
of net interest income or the impact of higher or lower interest rates.
Using these assumptions, the model simulates net interest
income under a base case scenario that mangement believes is reasonably
likely to occur. Management also evaluates the relative risk of changes
in interest rates by simulating the impact on net interest income of
gradual parallel shifts in interest rates of 100 basis points higher
and lower than the base case scenario. In such alternative scenarios,
certain assumptions that are directly dependent on the interest rate
environment are adjusted for the respective higher or lower interest
rate environment. Other assumptions related to general and economic
factors are held constant with those developed for the base case
scenario. As a result, the alternative interest rate scenarios indicate
what may happen to net interest income if interest rates were to change
to the levels of the higher and lower scenarios but does not predict
what may happen to net interest income if business and economic
assumptions are not realized.
Actual results will differ from the simulated results of the
base case scenario and of each alternative scenario due to various
factors including timing, magnitude and frequency of interest rate
changes, the relationship or spread between various interest rates,
changes in market conditions, loan pricing and deposit sensitivity,
customer preferences, competition, and the actual interaction of the
numerous assumptions. In addition, the actual results will be affected
by the impact of mergers or acquisitions and business and
asset/liability management strategies that differ from those assumed in
the model. While the simulation model measures the relative risk of
changes in interest rates on net interest income, the actual impact on
net interest income could exceed or be less than the amounts projected
in the base case and in each alternative scenario. If interest rates
exceed those assumed in the high alternative scenarios, or if interest
rates are less than those assumed in the low alternative scenario, the
actual impact on net interest income could further differ from the
simulated results.
In addition to the simulation model, management performs an
interest sensitivity (gap) analysis which represents a point-in-time
net position of assets, liabilities and off-balance-sheet instruments
subject to repricing in specified time periods. A cumulative
liability-sensitive gap position indicates the Corporation's
liabilities are expected to reprice more quickly than its assets.
Alternatively, a cumulative asset-sensitive gap position indicates the
Corporation's assets
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are expected to reprice more quickly than its liabilities. The gap
analysis does not accurately measure the magnitude of changes in net
interest income since changes in interest rates over time do not impact
all categories of assets, liabilities and off-balance-sheet instruments
equally or simultaneously.
The Corporate Asset and Liability Committee ("ALCO") has
primary responsibility for monitoring compliance with established
interest rate risk policies and procedures. ALCO policies include
limits on interest rate sensitivity to gradual parallel shifts in
interest rates and the cumulative one-year gap. Management may
initiate various asset/liability actions to remain in compliance with
such limits. Such actions are dependent on existing and expected
economic conditions, the overall interest rate risk profile of the
Corporation, various business strategies, and other factors. Actions
that management may initiate are also subject to costs, competitive
factors and execution risks (that is, the ability to execute a desired
action and to do so at acceptable costs).
CREDIT RISK Credit risk represents the possibility that borrowers may
not perform in accordance with contractual terms. Credit risk results
from extending credit, purchasing securities and entering into certain
off-balance-sheet financial instruments. Risk associated with the
extension of credit includes general risk, which is inherent in the
lending business, and risk specific to individual borrowers. The
Corporation seeks to manage credit risk through portfolio
diversification, underwriting policies and procedures and loan
monitoring practices. Information relating to the distribution of the
loan portfolio by type of loan, loan maturities and interest sensitivity
is set forth under the section entitled "Loans" in the "Corporate
Financial Reviews" and "Loans" in the "Statistical Information"
included on pages 32 and 33 and page 74, respectively, of the Annual
Report to Shareholders, which is incorporated herein by reference.
Credit Policy is responsible for the overall management of
credit risk and the development and application of consistent
policies and procedures across the Corporation. One objective is
diversification by industry concentration, geographic distribution and
the type of borrower. Policies contain limits on amounts that may be
committed for specified categories of loans and individual borrowers.
These limits are specified for both consolidated and individual bank
exposure levels. Specific underwriting policies have been adopted for
many categories of exposure including commercial real estate, cable,
cellular, broadcasting, health care and automobile dealers, as well as
general policies covering standards of documentation, collateral
coverage, guarantee provisions, environmental risk protection and
approval processes.
The Corporation receives collateral to support credit extensions and
commitments when deemed necessary, the amount of which is based on
management's credit evaluation of the borrower. The most significant
categories of collateral include real estate, commercial business
assets, cash on deposit and marketable securities. In addition, for
some loans made on the basis of the general creditworthiness of the
borrower, additional security in the form of real and personal
property may be obtained that may not be directly related to the
purpose of the loan.
In order to assess and monitor the degree of risk in the loan
portfolio, a lender-initiated credit risk grading system is used. A
risk grade is assigned to each loan on origination based on an
assessment of the borrower's financial capacity to service the debt and
the presence and value of collateral for the
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loan. Industry and economic risks are also considered when
assigning such grades. Credit grades are maintained by the loan officer
whose responsibilities include monitoring the risk inherent in such
individual credits. An independent corporate loan review function
assesses the credit granting process and reviews credit grades for
compliance with policies.
Asset/liability management seeks to minimizes the credit risk
associated with its activities, primarily by entering into transactions
with only a select number of high-quality institutions, establishing
credit limits with counterparties and, where applicable, requiring
segregated collateral.
SUPERVISION AND REGULATION
BANK HOLDING COMPANIES
GENERAL As a registered holding company, the Corporation is
regulated under the BHC Act and is subject to supervision and regular
inspection by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). The BHC 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.
ACQUISITIONS/PERMISSIBLE BUSINESS ACTIVITIES The BHC 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.
On September 29, 1994, the President signed into law the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "IBBEA"), which permits adequately capitalized and adequately
managed bank holding companies to acquire banks in any state. The IBBEA
also permits banks in separate states to consolidated into single
entities with branches in multiple states. Consequently, effective
September 29, 1995, the Corporation will have the authority to acquire
any bank or bank holding company, and could be acquired by any bank or
bank holding company, located anywhere in the United States. Further,
effective June 1, 1997, the Corporation's subsidiary banks will have
the authority, subject to certain restrictions, including state opt-out
provisions, to consolidate with one another. States may affirmatively
opt-in earlier. Among other things, the IBBEA provides that interstate
branches of national banks will be subject to host state laws with
respect to intrastate branching, consumer protection, fair lending,
and community reinvestment laws, unless any such law is preempted by
federal law or is discriminatory in effect. The IBBEA provides that
interstate branches of state banks will be
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subject to the laws of the host state. In addition, among other
things, the IBBEA increases the community reinvestment requirements
applicable to multi-state depository institutions. This legislation
may increase competition as banks branch across state lines and enter
new markets.
Under the BHC Act, the Corporation is prohibited, with certain
exceptions, from acquiring direct or indirect ownership or control of
more than 5 percent 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 that the Federal Reserve Board deems
to be closely related to banking as "to be proper incident thereto."
The Federal Reserve Board has determined that a number of activities
meet this standard, including, for example, (i) making and servicing
loans, (ii) performing certain fiduciary functions, (iii) leasing real
and personal property, (iv) underwriting and dealing in government
obligations and certain money market instruments, and, to a limited
extent, in certain other securities that banks may not otherwise
underwrite or deal in, (v) providing foreign exchange advisory and
transactional services, (vi) making equity or debt investments in
corporations designed to promote community welfare or rehabilitation,
and (vii) 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 Federal Reserve Board may revise, and has revised, from
time to time, its list of permitted activities. See "Supervision and
Regulation - Legislative Proposals and Reform" below.
COMMUNITY REINVESTMENT Bank holding companies and their
subsidiary banks are subject to the provisions of the Community
Reinvestment Act of 1977, as amended (the "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 generally annually assessed by that bank's primary
regulatory 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 and other
services and investments to low- and moderate-income areas. Such
proposal includes race and gender reporting requirements.
SOURCE OF STRENGTH POLICY 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 to
support each such bank. In addition, under federal law, a bank
holding company may find it
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necessary to provide capital to an insured depository
institution subsidiary in connection with that subsidiary's capital
restoration plan. 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 corporation's capital needs, asset quality and overall
financial condition.
SUBSIDIARY BANKS
GENERAL The Corporation's subsidiary 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 national banks. In addition, all of the
subsidiary banks are insured by and subject to some or all of the
regulations of the Federal Deposit Insurance Corporation ("FDIC"). The
Corporation's subsidiary banks are also subject to various requirements
and restrictions under federal and state law, including requirements to
maintain reserves against deposits, restrictions on the types, amounts
and terms and conditions of loans that may be granted and limitations
on the types of investments that may be made and the types of services
that may be offered. Various consumer laws and regulations also affect
the operations of the subsidiary banks. In addition to the impact of
regulation, commercial banks are affected significantly by the actions
of the Federal Reserve Board, including actions taken with respect to
interest rates, as it attempts to control the money supply and credit
availability in order to influence the economy.
DIVIDEND RESTRICTIONS Dividends from the Corporation's
subsidiary banks constitute the principal source of income to the
parent company. The Corporation's subsidiary banks are subject to
various statutory and regulatory restrictions on their ability to pay
dividends to the Corporation. Under such restrictions, the amount
available for payment of dividends to the Corporation by all subsidiary
banks was $948 million at December 31, 1994. In addition, the
Comptroller, 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 subsidiary from engaging in an
unsafe or unsound practice in conducting its business. The payment of
dividends, depending upon the financial condition of the bank
subsidiary in question, could be deemed to constitute such an unsafe or
unsound practice, and the Comptroller and the Federal Reserve Board
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 subsidiary banks to pay dividends in the
future is presently, and could be further, influenced by bank
regulatory and supervisory policies.
AFFILIATE TRANSACTION RESTRICTIONS The Corporation's
subsidiary banks are subject to affiliate transaction restrictions
under federal law which limit the transactions by subsidiary banks to
or on behalf of their parent company and to or on behalf of any
non-bank subsidiaries, whether in the form of loans, extensions of
credit, issuances of guaranties, acceptances or letters of credits,
investments or asset purchases. Such transactions by a subsidiary bank
to its parent company or to any non-bank subsidiary are limited to
10 percent of a bank subsidiary's capital and surplus
10
<PAGE> 13
and, with respect to such parent company and all such non-bank
subsidiaries, to an aggregate of 20% of such bank subsidiary's capital
and surplus. Further, such loans and extensions of credit generally
are required to be secured by eligible collateral in specified
amounts. Federal law also prohibits subsidiary banks from purchasing
"low-quality" assets from affiliates.
FDIC CROSS-GUARANTEE PROVISIONS The Corporation's subsidiary
banks, as FDIC-insured institutions, are subject to the
"cross-guarantee" provisions under federal law that 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 estimated losses suffered by
the FDIC. Such liability could have a material adverse effect on the
financial condition of any assessed bank and the 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.
FDIC INSURANCE ASSESSMENTS Since the deposits of the
Corporation's subsidiary banks are insured by the FDIC, the subsidiary
banks are subject to FDIC insurance assessments. 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 a higher
insurance premium to an institution with perceived higher inherent
risks. 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 for the best-
rated banks, with a maximum of 31 cents per $100 of eligible deposits
for the weakest-rated institutions. The FDIC's Board of Directors has
proposed to revise the assessment methodology and reduce the current
assessments rates for all but the riskiest banks. Under the proposal,
the best-rated banks would pay 4 cents per $100 of deposits while the
weakest ones would continue to pay 31 cents per $100 of deposits. At
this time, assessment rates for savings associations are not proposed
to be reduced.
The rate assessed for each of the Corporation's subsidiary
banks is currently 23 cents per $100 of eligible deposits. The
assessment rate for the Corporation's savings association deposits is
also currently 23 cents per $100 of eligible deposits.
CAPITAL REQUIREMENTS The federal banking agencies possess broad powers
to take corrective action as deemed appropriate for an insured
depository institution and its holding company. The extent of these
powers depends on whether the institution in question is considered
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized."
Generally, as an institution is deemed to be less than 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 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;
11
<PAGE> 14
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. At
December 31, 1994, all of the Corporation's subsidiary banks exceeded
the required ratios for classification as "well capitalized."
The federal bank regulatory authorities have each adopted
risk-based capital guidelines to which the Corporation's subsidiary
banks are subject. These guidelines are based on an international
agreement developed by the Basle Committee on Banking Regulations and
Supervisory Practices, which consists of representatives of central
banks and supervisory authorities in 12 countries including the United
States. The guidelines establish a systematic analytical framework that
makes regulatory capital requirements more sensitive to differences in
risk profiles among banking organizations, takes off-balance-sheet
exposures into explicit account in assessing capital adequacy and
minimizes disincentives to holding liquid, low-risk assets. The
risk-based capital ratio is determined by allocating assets and
specified off-balance-sheet items into four weighted categories, with
higher levels of capital being required for the categories perceived as
representing greater risk.
Under these guidelines, a bank's capital is divided into two
tiers. The first tier (Tier 1) includes common equity, non-cumulative
perpetual preferred stock (excluding auction rate issues) and minority
interests that are held by others in a bank's consolidated
subsidiaries, less goodwill and any disallowed intangibles.
Supplementary (Tier 2) capital includes, among other items, cumulative
and limited-life preferred stock, hybrid capital instruments, mandatory
convertible securities, qualifying subordinated debt and the allowance
for loan and lease losses, subject to certain limitations, less
required deductions as prescribed by regulation.
All banks are required to maintain a minimum total risk-based
ratio of 8 percent, of which half (4 percent) must be Tier 1 capital.
In addition, the federal bank regulators established leverage ratio
(Tier 1 capital to total adjusted average assets) guidelines providing
for a minimum leverage ratio of 3 percent for banks meeting certain
specified criteria, including excellent asset quality, high liquidity,
low interest rate exposure and the highest regulatory rating.
Institutions not meeting these criteria are expected to maintain a
ratio which exceeds the 3 percent minimum by at least 100 to 200 basis
points. The federal bank regulatory authorities may, however, set
higher capital requirements when a bank's particular circumstances
warrant.
12
<PAGE> 15
The following table sets forth the capital and leverage ratios of
certain of the Corporation's subsidiary banks as of December 31, 1994:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
RISK-BASED CAPITAL RATIOS
-------------------------
SUBSIDIARY BANK TOTAL TIER I LEVERAGE
--------------------------------------------------------------------
<S> <C> <C> <C>
PNC Bank, National Association 10.62% 8.92% 6.93%
PNC Bank, Kentucky, Inc. 12.61 11.35 8.19
PNC Bank, Ohio, National 10.90 8.88 6.89
Association
PNC Mortgage Bank, National 18.81 17.68 8.69
Association
PNC Bank, Delaware 12.25 11.00 6.72
PNC Bank, New England 12.71 11.79 5.70
--------------------------------------------------------------------
</TABLE>
A discussion of the current capital levels of the Corporation,
is set forth under the caption entitled "Capital" of the "Corporate
Financial Review" on pages 36 and 37 of the Annual Report to
Shareholders, which is incorporated herein by reference.
The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") requires each federal banking agency to revise its
risk-based capital standards, among other things, to ensure that those
standards take adequate account of interest rate risk, concentration of
credit risk and the risks of non-traditional activities, as well as
reflect the actual performance and expected risk of loss on
multi-family mortgages. By joint rule on December 15, 1994, effective
January 17, 1995, each of the Federal Reserve Board, the FDIC, the
Comptroller and the Office of Thrift Supervision has amended its
agency's risk-based capital standards by explicitly identifying
concentration of credit risk and the risk arising from non-traditional
activities, as well as an institution's ability to manage those risks,
as important factors to be taken into account by the agency in
assessing an institution's overall capital adequacy. The Federal
Reserve Board, the FDIC and the Comptroller have also issued a joint
notice of proposed rulemaking for implementing the interest rate risk
component of the risk-based capital guidelines. Under the proposal, an
institution's assets, liabilities, and off-balance-sheet positions
would be weighted by risk factors that approximate the instruments'
price sensitivity to a 100 basis point change in interest rates.
Institutions with interest rate exposure in excess of a threshold level
would be required to hold additional capital proportional to that risk.
A final rule is expected to be adopted during the first half of 1995.
The Corporation has been advised that any final rule may differ from
its currently proposed form.
NON-BANK SUBSIDIARIES
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. The Corporation has three
subsidiaries that are registered broker-dealers. The activities of
these companies are
13
<PAGE> 16
monitored by the Comptroller in two instances and the Federal
Reserve Board in the other instance, and each company is 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 subsidiaries of the Corporation are
registered investment advisors and are subject to the regulations of
the Securities and Exchange Commission and may be subject to
regulations of one or more state securities commissions. Additionally,
those investment advisors, as subsidiaries of a national bank, 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.
GOVERNMENTAL POLICIES
The operations of financial institutions may be affected by the
policies of various regulatory authorities. In particular, bank holding
companies and their subsidiaries are affected by the credit and
monetary 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 or timing of future
changes in monetary and fiscal policies, or the effect that they may
have on the Corporation's business and earnings.
14
<PAGE> 17
LEGISLATIVE PROPOSALS AND REFORM
Certain significant legislative proposals and reforms affecting
the financial services industry are currently being discussed and
evaluated by Congress. Such proposals include legislation to revise the
Glass-Steagall Act and the BHC Act to expand permissible activities for
banks, principally to facilitate the convergence of commercial and
investment banking. Other proposals under consideration include the
consolidation and/or jurisdictional realignment of various federal
banking agencies as well as involve a reassessment of community
reinvestment and fair lending laws. At this time, it is unclear whether
any of these proposals, or any form of them, will become law this year
or ever. Consequently, it is difficult to ascertain what effect they
may have on the Corporation and its subsidiaries.
COMPETITION
Bank holding companies and their subsidiaries are subject to
vigorous and intense competition from various financial institutions
and other "non-bank" or non-regulated companies or firms that engage in
similar activities. The Corporation's subsidiary banks compete for
deposits with other commercial banks, savings banks, savings and loan
associations, insurance companies and credit unions, as well as issuers
of commercial paper and other securities, including shares in mutual
funds. In making loans, the Corporation's subsidiary banks compete with
other commercial banks, savings banks, savings and loan associations,
consumer finance companies, credit unions, leasing companies and other
non-bank lenders. In addition, various non-bank subsidiaries engaged in
investment banking and venture capital activities compete with
commercial banks, investment banking firms, insurance companies and
venture capital firms. In providing trust and money management
services, the Corporation's subsidiaries compete with many large
commercial banks, trust companies, brokerage houses, mutual fund
managers, registered investment advisors and insurance companies.
The Corporation and its subsidiaries compete not only with
financial institutions based in the states in which the subsidiary
banks are located, but also with a number of large out-of-state and
foreign banks, bank holding companies and other financial and non-bank
institutions. Some of the financial and other institutions operating in
the same markets are engaged in national and international operations
and have more assets and personnel than the Corporation. Some of the
Corporation's competitors are not subject to the extensive bank
regulatory structure and restrictive policies which apply to the
Corporation and its subsidiaries.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning each executive officer of the
Corporation as of February 28, 1995 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 as noted on page 16.
15
<PAGE> 18
<TABLE>
<CAPTION>
NAME AGE POSITION WITH PNC BANK CORP. YEAR EMPLOYED
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Thomas H. O'Brien 58 Chairman and Chief Executive Officer 1962
James E. Rohr 46 President 1972
Susan B. Bohn 50 Executive Vice President, Corporate 1986
Development and Communications
Richard C. Caldwell (1) 50 Executive Vice President, Investment 1990
Management and Trust
Walter E. Gregg, Jr. 53 Executive Vice President, Finance and 1974
Administration
Robert L. Haunschild (2) 45 Senior Vice President and Chief Financial Officer 1990
Joe R. Irwin 59 Executive Vice President and Chief Investment 1963
Officer
William J. Johns 47 Senior Vice President and Chief Accounting Officer 1974
Edward P. Junker III 58 Vice Chairman 1964
Thomas E. Paisley III 47 Senior Vice President and Chairman, Corporate 1972
Credit Policy Committee
Helen P. Pudlin 45 Senior Vice President and General Counsel 1989
Bruce E. Robbins 50 Executive Vice President, Corporate Banking 1973
A. William Schenck III 51 Executive Vice President, Retail Banking 1969
Richard L. Smoot 54 President and Chief Executive Officer, PNC Bank, 1987
National Association - Philadelphia
Herbert G. Summerfield, Jr. 54 Executive Vice President, Real Estate 1970
<FN>
____________________________
(1) Mr. Caldwell's principal occupation prior to 1990 was Executive Vice
President and Manager of the Trust Division of Harris Trust and Savings
Bank, Chicago, Illinois.
(2) Mr. Haunschild's principal occupation prior to 1990 was Partner in the
Pittsburgh Office of Ernst & Young LLP.
</TABLE>
16
<PAGE> 19
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. The thirty-story structure is owned by PNC Bank, N.A. The
Corporation and PNC Bank, N.A. occupy substantially all of the building.
In addition, PNC Bank, N.A. owns a thirty-four story structure adjacent
to One PNC Plaza, known as Two PNC Plaza, that houses additional office
space. PNC Bank, N.A. also owns a data processing and telecommunications
center located in a suburb of Pittsburgh.
The Corporation's subsidiaries also 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.
For additional information pertaining to the Corporation's
properties, refer to the information set forth under the caption
entitled "Premises, Equipment and Leasehold Improvements," included on
pages 56 and 57 of the Annual Report to Shareholders, which is
incorporated herein by reference.
ITEM 3 - LEGAL PROCEEDINGS
A consolidated purported class action complaint was filed in March 1995
in the United States District Court for the Western District of
Pennsylvania against the Corporation, its Chairman and Chief Executive
Officer, and its Senior Vice President and Chief Financial Officer, on
behalf of a purported class of persons who purchased the Corporation's
securities between April 18, 1994 and November 15, 1994. The lawsuit
was consolidated from four lawsuits filed in November and December
1994. The consolidated lawsuit alleges violations of federal
securities laws and common law relating to disclosures regarding the
Corporation's net interest income, interest rate risk, future
prospects, and related matters, and seeks, among other things,
unquantified damages. Management believes there are meritorious
defenses to this consolidated lawsuit and intends to defend it
vigorously. Management believes that the final disposition will not be
material to the Corporation's financial position.
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 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 had paid these fees, and
seeks, among other things, unquantified compensatory and triple damages
and injunctive relief. The lawsuit was filed in the Court of Common
Pleas of Allegheny County and was removed to the United States District
Court for the Western District of Pennsylvania. The district court
denied plaintiff's motion to remand the case to state court and
dismissed the lawsuit, holding that Pennsylvania law is preempted by
federal banking laws. Plaintiff has appealed and PNCNB is vigorously
defending the district court's
17
<PAGE> 20
decision. The impact of the final disposition of this lawsuit
cannot be assessed at the present time. In certain cases not involving
PNCNB, a Pennsylvania intermediate state appellate court has held that
the application of Pennsylvania law to certain credit card fees, when
charged to Pennsylvania residents, is not preempted by federal banking
laws. Further appellate review is being sought in those cases.
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.
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, 1995, there were 43,925 common 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 on earnings, the financial condition of
the Corporation and other factors including applicable government
regulations and policies (such as those relating to the ability of the
subsidiary banks and non-bank subsidiaries to upstream dividends to the
parent company). The Federal Reserve Board has the power to prohibit
the Corporation from paying dividends without prior regulatory
approval. Further discussion concerning dividend restrictions is set
forth under the caption "Supervision and Regulation" in Part I, Item 1
of this Form 10-K and in "Regulatory Matters" on page 63 of the Annual
Report to Shareholders, which is incorporated herein by reference.
Additional information relating to the common stock is set
forth under the caption "Common Stock Prices/Dividends Declared" on
page 81 of the Annual Report to Shareholders, which is incorporated
herein by reference.
18
<PAGE> 21
ITEM 6 - SELECTED FINANCIAL DATA
"Selected Consolidated Financial Data" on page 67 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
The discussion and analysis of the Corporation's financial
position and its results of operations set forth under the section
entitled "Corporate Financial Review" on pages 20 - 44 of the Annual
Report to Shareholders is incorporated herein by reference.
See also the updated discussion included under the captions
"Business Overview-Business Strategies"and "Risk Management" in Part I,
Item 1-Business of this Form 10-K.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Report of Ernst & Young LLP, Independent Auditors,"
"Consolidated Financial Statements" and "Selected Quarterly Financial
Data" on pages 45, 46-66 and 68, respectively, of the Annual Report to
Shareholders are incorporated herein by reference.
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 Proxy Statement is incorporated
herein by reference.
Information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 set forth 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 under the caption "Executive
Officers of the Registrant."
ITEM 11 - EXECUTIVE COMPENSATION
Information regarding compensation of directors and executive
officers under the captions entitled "Election of Directors -
Compensation of Directors" and "Compensation of Executive Officers",
excluding the "Personnel and Compensation Committee Report on Executive
Compensation," in the Proxy Statement is incorporated herein by
reference.
19
<PAGE> 22
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the beneficial ownership of the equity
securities of the Corporation by all nominees 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 Directors and Executive Officers and Certain
Beneficial Owners-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 beneficial owners under the heading "Security
Ownership of Directors and Executive Officers and Certain Beneficial
Owners-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.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following report of independent auditors of the Corporation and
consolidated financial statements, included in the Annual Report to
Shareholders, are incorporated herein by reference.
<TABLE>
<CAPTION>
PAGE OF
FINANCIAL STATEMENTS ANNUAL REPORT
-------------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 45
Consolidated Balance Sheet as of December 31, 1994 and 1993 46
Consolidated Statement of Income for the three years ended
December 31, 1994 47
Consolidated Statement of Changes in Shareholders' Equity for
the three years ended December 31, 1994 48
Consolidated Statement of Cash Flows for the three years ended
December 31, 1994 49
Notes to Consolidated Financial Statements 50
Quarterly Selected Financial Data 68
FINANCIAL STATEMENT SCHEDULES
Not applicable.
</TABLE>
20
<PAGE> 23
REPORTS ON FORM 8-K
A Form 8-K dated as of October 19, 1994, was filed on October 21, 1994,
pursuant to Item 5 to report the Corporation's consolidated financial
results for the three months and nine months ended September 30, 1994.
A Form 8-K dated as of November 23, 1994, was filed on December 7, 1994,
pursuant to Item 5 to report two purported class action
lawsuits commenced against the Corporation, its Chairman and Chief
Executive Officer, and, in one case, its Senior Vice President and Chief
Financial Officer, alleging purported violations of federal securities
laws relating to disclosures regarding the Corporation's net interest
income, interest rate risk, and future prospects and related matters.
A Form 8-K was filed on, and dated as of, January 6, 1995,
pursuant to Item 5 to report (i) certain actions taken by the
Corporation to reduce its interest rate sensitivity; (ii) to announce a
charge to earnings related to the cost of consolidating existing
telephone banking centers and continued rationalization of the branch
network; and (iii) the authorization by the Corporation's Board of
Directors to purchase up to 24 million shares of the Corporation's
common stock over the next two years.
A Form 8-K dated as of January 13, 1995, was filed on January 23, 1995,
pursuant to Item 5 to report (i) the Corporation's consolidated
financial results for the three months and twelve months ended December
31, 1994; and (ii) the completion of the acquisition of Indian River.
A Form 8-K dated as of February 28, 1995, was filed on March
14, 1995, pursuant to Item 5 to report (i) the completion of the
acquisition of BlackRock; (ii) the completion of the acquisition of
Brentwood; and (iii) the entering into a definitive agreement to
acquire Chemical Bank New Jersey.
No financial statements were filed with such reports.
EXHIBITS
The exhibits listed on the Exhibit Index on pages 25-26 of this Form
10-K are filed herewith or are incorporated herein by reference.
21
<PAGE> 24
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.
(Registrant)
By: /s/ THOMAS H. O'BRIEN
--------------------------
Thomas H. O'Brien
Chairman and Chief
Executive Officer
Dated: March 31, 1995
22
<PAGE> 25
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 capacity and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - --------------------------- ------------------------------ ----------------
<S> <C> <C>
/s/ THOMAS H. O'BRIEN
- - - --------------------------- Chairman, Chief Executive March 31, 1995
Thomas H. O'Brien Officer and Director
(Principal Executive Officer)
/s/ ROBERT L. HAUNSCHILD
- - - --------------------------- Senior Vice President and March 31, 1995
Robert L. Haunschild Chief Financial Officer
(Principal Financial Officer)
/s/ WILLIAM J. JOHNS
- - - --------------------------- Senior Vice President and March 31, 1995
William J. Johns Chief Accounting Officer
(Principal Accounting Officer)
*
- - - --------------------------- Director March 31, 1995
Robert N. Clay
*
- - - --------------------------- Director March 31, 1995
William G. Copeland
*
- - - --------------------------- Director March 31, 1995
George A. Davidson, Jr.
*
- - - --------------------------- Director March 31, 1995
Dianna L. Green
*
- - - --------------------------- Director March 31, 1995
C. G. Grefenstette
*
- - - --------------------------- Director March 31, 1995
Thomas Marshall
*
- - - --------------------------- Director March 31, 1995
W. Craig McClelland
*
- - - --------------------------- Director March 31, 1995
Donald I. Moritz
</TABLE>
23
<PAGE> 26
<TABLE>
<S> <C> <C>
*
- - - --------------------------- Director March 31, 1995
Jackson H. Randolph
/s/ JAMES E. ROHR
- - - --------------------------- President and Director March 31, 1995
James E. Rohr
*
- - - --------------------------- Director March 31, 1995
Roderic H. Ross
*
- - - --------------------------- Director March 31, 1995
Vincent A. Sarni
*
- - - --------------------------- Director March 31, 1995
Richard P. Simmons
*
- - - --------------------------- Director March 31, 1995
Thomas J. Usher
*
- - - --------------------------- Director March 31, 1995
Milton A. Washington
*
- - - --------------------------- Director March 31, 1995
Helge H. Wehmeier
* By /s/ MELANIE S. CIBIK March 31, 1995
----------------------
Melanie S. Cibik
Attorney-in-fact, pursuant
to Powers of Attorney
filed herewith
</TABLE>
24
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Corporation, as amended, incorporated
herein by reference to Exhibit 3.1 of the Annual Report on Form 10-K
for the year ended December 31, 1993.
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 on 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. *
10.6 PNC Bank Corp. 1994 Annual Incentive Award Plan, filed herewith. *
10.7 PNC Bank Corp. Directors Retirement Plan, filed herewith. *
</TABLE>
25
<PAGE> 28
<TABLE>
<S> <C>
11 Calculation of Primary and Fully Diluted Earnings Per Share, filed
herewith.
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 Dividends, filed herewith.
13 Annual Report to Shareholders for the year ended December 31, 1994,
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 Schedule of Certain Subsidiaries of the Corporation, filed
herewith.
23 Consent of Ernst & Young LLP, independent auditors for the Corporation,
filed herewith.
24 Powers of Attorney of certain directors of the Corporation, filed
herewith.
27 Financial Data Schedule, filed herewith.
<FN>
____________________
* Management contract or compensatory plan.
</TABLE>
26
<PAGE> 1
EXHIBIT 3.2
BY-LAWS OF
PNC BANK CORP.
(Effective 2/16/95)
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 Senior 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 reponsibilities of the Committee shall be established by the Board
of Directors.
<PAGE> 7
By-Laws - PNC Bank Corp.
Page 7
1.3 Corporate Governance Committee
The Board of Directors shall appoint annually the members of the
Committee, consisting of not fewer than three directors, none of whom shall be
an officer or former officer of the Corporation, and from these directors
appoint the Chairman. The Committee may appoint a Secretary, who need not be a
director. The Committee on Corporate Governance shall be responsible
for selecting the persons to be candidates for nomination for election or
appointment as directors of the Corporation, making recommendations with
respect thereto to the Board of Directors and monitoring and recommending
enhancements to the Corporation's corporate governance framework, particularly
with respect to the structure, processes and proceedings of the Board of
Directors. The Committee shall conduct its affairs in accordance with a
charter approved by 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 10.6
PNC BANK CORP.
1994 ANNUAL INCENTIVE AWARD PLAN
1. GENERAL PURPOSE OF PLAN
The PNC Bank Corp. 1994 Annual Incentive Award Plan is designed to assist
PNC Bank Corp. and its Subsidiaries in attracting, retaining and providing
incentives to Eligible Employees and to promote the identification of their
interests with those of the Corporation's shareholders by providing for the
payment of Incentive Awards subject to the achievement of specified Performance
Goals.
2. DEFINITIONS
Terms not otherwise defined herein shall have the following meanings:
2.1. "Award Period" means the calendar year, except to the extent the
Committee determines otherwise.
2.2. "Board" means the Board of Directors of the Corporation.
2.3. "Code" means the Internal Revenue Code of 1986, as amended.
2.4. "Committee" means the committee appointed by the Board to establish
and administer the Plan as provided herein. Unless otherwise determined by the
Board, the Personnel and Compensation Committee of the Board shall be the
Committee.
2.5. "Corporation" means PNC Bank Corp. and its successors and assigns and
any corporation which shall acquire substantially all of its assets.
2.6. "Covered Employee" means a "covered employee" within the meaning of
Section 162(m) of the Code.
2.7. "Eligible Employee" means an employee described in Section 4 hereof.
2.8. "Incentive Award" means a contingent award made to a Participant
that, subject to Section 5.3 hereof, entitles the Participant to a cash payment
equal to such Participant's Target Award for an Award Period, as increased or
decreased to reflect the relative level of attainment of Performance Goals
established by the Committee for an Award Period and such other factors as the
Committee may determine.
2.9. "Participant" means any Eligible Employee who receives an Incentive
Award under the Plan for an Award Period.
2.10. "Performance Goals" means (a) earnings per share, (b) return on
average equity in relation to a peer group (the "Peer Group") of bank holding
companies or other entities designated by the Company (c) return on average
assets in relation to the Peer Group, or (d) such other performance goals as
may be established by the Committee which may be based on earnings, earnings
growth, revenues, expenses, stock price, market share, charge-offs, reductions
in non-performing assets, return on assets, equity or investment, regulatory
compliance, satisfactory internal or external audits, improvement of financial
ratings, achievement of balance sheet or income statement objectives, or any
other objective goals established by the Committee, and may be absolute in
their terms or measured against or in relationship to other companies
comparably, similarly or otherwise situated. Such performance goals may be
particular to a Participant or the division, department, branch, line of
business, Subsidiary or other unit in which the Participant works, or may be
based on the performance of the Corporation generally, and may cover such
period as may be specified by the Committee.
A-1
<PAGE> 2
2.11. "Plan" means the PNC Bank Corp. 1994 Annual Incentive Award Plan.
2.12. "Subsidiary" means a corporation of which at least 50% of the total
combined voting power of all classes of stock is owned by the Corporation,
either directly or through one or more other Subsidiaries.
2.13. "Target Award" means the dollar amount to be paid to a Participant
if the Committee determines that the Corporation has achieved the target
Performance Goals established by the Committee for an Award Period. A
Participant's Target Award shall in no event exceed the greater of: (a) 100% of
a Participant's base salary as of the later of (i) the first day of the
applicable Award Period, or (ii) the date of grant of the Incentive Award; or
(b) the total dollar amount of the Participant's base salary during the Award
Period. The amount actually paid to a Participant pursuant to an Incentive
Award shall be based upon the Participant's Target Award, as adjusted to
reflect the relative level of attainment of the Performance Goals established
by the Committee and such other factors as the Committee may determine.
3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have
plenary authority, in its discretion, to determine the terms of all Incentive
Awards, including, without limitation, the Eligible Employees to whom, and the
time or times at which, awards are made, the amount of a Participant's Target
Award, the Award Period to which each Incentive Award shall relate, the actual
dollar amount to be paid pursuant to an Incentive Award, the Performance Goals
to which payment of awards will be subject, and when payments pursuant to
Incentive Awards shall be made (which payments may, without limitation, be made
during or after an Award Period on a deferred basis or in installments). In
making such determinations, the Committee may take into account the nature of
the services rendered by the respective Eligible Employees, their present and
potential contributions to the success of the Corporation and its Subsidiaries,
and such other factors as the Committee in its discretion shall deem relevant.
Subject to the express provisions of the Plan, the Committee shall have plenary
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it and to make all other determinations deemed
necessary or advisable for the administration of the Plan. The determinations
of the Committee pursuant to its authority under the Plan shall be conclusive
and binding. The Committee may, in its discretion, authorize the Chief
Executive Officer of the Corporation to act on its behalf, except with respect
to matters relating to such Chief Executive Officer.
4. ELIGIBILITY
Incentive Awards may be granted only to salaried employees of the
Corporation or a Subsidiary.
5. INCENTIVE SHARE AWARDS; TERMS OF AWARDS; PAYMENT
5.1. The Committee shall, in its sole discretion, determine which Eligible
Employees shall receive Incentive Awards. For each Award Period with respect to
which the Committee determines to make Incentive Awards, the Committee shall by
resolution establish one or more Performance Goals applicable to such awards,
the Target Award of each award, and the other terms and conditions of the
awards. Such Performance Goals and other terms and conditions shall be
established by the Committee in its sole discretion as it shall deem
appropriate and in the best interests of the Corporation.
5.2 After the end of each Award Period for which the Committee has granted
Incentive Awards, the Committee shall determine the extent to which the
Performance Goals established by the Committee for the Award Period have been
achieved and shall authorize the Corporation to make Incentive Award payments
to Participants in accordance with the terms of the awards. If the achievement
of applicable Performance Goals is below the minimum level specified by the
Committee, no Incentive Award payments shall be made to Participants. In no
event shall the amount paid to a Participant in accordance with the terms of an
Incentive Award by reason of Performance Goal achievement in excess of target
levels, or for any other reason, exceed the Participant's Target Award amount
by more than 50%. Unless otherwise determined by the Committee, no Incentive
Award payments shall be made to a Participant unless the Participant is
employed by the Corporation or a Subsidiary as of the date of payment.
A-2
<PAGE> 3
5.3 The Committee may at any time, in its sole discretion, cancel an
Incentive Award or reduce or eliminate the amount payable pursuant to the terms
of an Incentive Award without the consent of a Participant.
5.4 Incentive Award payments shall be subject to applicable federal, state
and local withholding taxes and other applicable withholding in accordance with
the Corporation's payroll practices as from time-to-time in effect.
6. TRANSFERABILITY
Incentive Awards shall not be subject to the claims of creditors and may
not be assigned, alienated, transferred or encumbered in any way other than by
will or pursuant to the laws of descent and distribution.
7. TERMINATION OR AMENDMENT
The Board may amend, modify or terminate the Plan in any respect at any
time without the consent of Participants.
8. EFFECTIVENESS OF PLAN AND AWARDS
The Plan and Incentive Awards granted hereunder shall be void ab initio
unless the Plan is approved by a vote of the Corporation's shareholders at the
first shareholders' meeting of the Corporation following adoption of the Plan
by the Board.
9. EFFECTIVE DATE; TERM OF THE PLAN
The Plan shall be effective as of January 1, 1994. Unless sooner terminated
by the Board pursuant to Section 7, to the extent necessary to ensure that
Incentive Award payments made to Covered Employees may be deductible for
federal income tax purposes, the Plan shall terminate as of the date of the
first meeting of the Corporation's shareholders occurring during 1999, unless
the term of the Plan is extended and reapproved at such shareholders' meeting.
No Incentive Awards may be awarded under the Plan after its termination.
Termination of the Plan shall not affect any Incentive Awards outstanding on
the date of termination and such awards shall continue to be subject to the
terms of the Plan notwithstanding its termination.
10. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have
as Directors or as members of the Committee, each of the members of the
Committee shall be indemnified by the Corporation against the reasonable
expenses, including attorneys' fees, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any Incentive Award granted hereunder, and against all amounts reasonably paid
by them in settlement thereof or paid by them in satisfaction of a judgment in
any such action, suit or proceeding to the maximum extent permitted by law.
11. GENERAL PROVISIONS
11.1. The establishment of the Plan shall not confer upon any Eligible
Employee any legal or equitable right against the Corporation or any
Subsidiary, except as expressly provided in the Plan.
11.2. The Plan does not constitute an inducement or consideration for
the employment of any Eligible Employee, nor is it a contract between the
Corporation, or any Subsidiary and any Eligible Employee. Participation in the
Plan shall not give an Eligible Employee any right to be retained in the employ
of the Corporation or any Subsidiary.
11.3. Nothing contained in this Plan shall prevent the Board or
Committee from adopting other or additional compensation arrangements, subject
to shareholder approval if such approval is required, and such arrangements may
be either generally applicable or applicable only in specific cases.
11.4. The Plan shall be governed, construed and administered in
accordance with the laws of the Commonwealth of Pennsylvania.
A-3
<PAGE> 1
EXHIBIT 10.7
PNC BANK CORP.
DIRECTORS RETIREMENT PLAN
Pursuant to the Directors Retirement Plan, each current or future non-officer
director of the Corporation who served as a director of the Corporation or
predecessor or acquired corporation or other business entity for at least five
years shall be paid an annual cash retirement benefit. The amount of the annual
benefit will be equal to the annual retainer fee in effect for non-officer
directors of the Corporation on the date of the director's retirement. The
annual benefit shall be paid for the lesser of ten years or life of the retired
director, with payment to commence on the later of age 65 or retirement from
the Board of Directors of the Corporation.
(effective date: July 7, 1994)
27
<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 1994 1993 1992
- - - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY AVERAGE COMMON SHARES OUTSTANDING
Weighted average shares of common stock outstanding 234,960 233,782 221,408
Weighted average common shares to be issued
using average market price and assuming:
Exercise of stock options 1,650 2,556 2,498
Exercise of warrants 48 117
- - - ------------------------------------------------------------------------------------------------
Primary weighted average common shares 236,610 236,386 224,023
- - - ------------------------------------------------------------------------------------------------
FULLY DILUTED AVERAGE COMMON SHARES OUTSTANDING
Weighted average shares of common stock outstanding 234,960 233,782 221,408
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 225 256 296
Conversion of preferred stock Series C 681 748 870
Conversion of preferred stock Series D 859 946 1,186
Conversion of debentures 73 85 206
Exercise of stock options 1,650 2,556 3,037
Exercise of warrants 48 122
- - - ------------------------------------------------------------------------------------------------
Fully diluted weighted average common
shares outstanding 238,448 238,421 227,125
- - - ------------------------------------------------------------------------------------------------
PRIMARY EARNINGS PER COMMON SHARE
Income before cumulative effect of changes in
accounting principles $610,062 $745,263 $529,440
Cumulative effect of changes in
accounting principles,
net of tax benefit of $5,343 (19,393) (102,501)
- - - ------------------------------------------------------------------------------------------------
Net income $610,062 $725,870 $426,939
Add: ESOP dividends tax benefit 2,680
Less: Preferred dividends declared 1,632 1,832 3,056
- - - ------------------------------------------------------------------------------------------------
Net income applicable to primary earnings
per common share $608,430 $724,038 $426,563
- - - ------------------------------------------------------------------------------------------------
Primary before cumulative effect of
changes in accounting principles $2.57 $3.14 $2.36
Cumulative effect of changes in
accounting principles (.08) (.46)
- - - ------------------------------------------------------------------------------------------------
Primary earnings per common share $2.57 $3.06 $1.90
- - - ------------------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS PER COMMON SHARE
Income before cumulative effect of changes
in accounting principles $610,062 $745,263 $529,440
Cumulative effect of changes in
accounting principles,
net of tax benefit of $5,343 (19,393) (102,501)
- - - ------------------------------------------------------------------------------------------------
Net income $610,062 $725,870 $426,939
Add: Interest expense on convertible
debentures (net of tax) 50 57 142
ESOP dividends tax benefit 2,680
Less: Dividends declared on non-convertible
preferred stock 34 879
Convertible preferred dividends
- - - ------------------------------------------------------------------------------------------------
Net income applicable to fully diluted
earnings per common share $610,112 $725,893 $428,882
- - - ------------------------------------------------------------------------------------------------
Fully diluted before cumulative effect
of changes in accounting principles $2.56 $3.13 $2.34
Cumulative effect of changes in
accounting principles (.09) (.45)
- - - ------------------------------------------------------------------------------------------------
Fully diluted earnings per common share $2.56 $3.04 $1.89
- - - ------------------------------------------------------------------------------------------------
</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
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------
Dollars in thousands 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and cumulative
effect of changes in accounting principles $ 902,389 $1,116,612 $ 778,122 $ 548,201 $ 29,425
Fixed charges excluding interest
on deposits ......................... 1,043,195 649,898 517,424 513,370 918,698
---------- ---------- ---------- ---------- ----------
Subtotal............................ 1,945,584 1,766,510 1,295,546 1,061,571 948,123
Interest on deposits ................ 935,876 742,772 1,063,422 1,727,765 1,973,087
---------- ---------- ---------- ---------- ----------
Total............................... $2,881,460 $2,509,282 $2,358,968 $2,789,336 $2,921,210
========== ========== ========== ========== ==========
Fixed charges:
Interest on notes and debentures..... $ 515,732 $ 265,353 $ 145,125 $ 95,207 $ 84,045
Interest on borrowed funds........... 499,252 362,995 352,162 398,779 816,448
Amortization of notes and debentures. 1,346 967 970 584 538
Interest component of rentals ....... 26,865 20,583 19,167 18,800 17,667
---------- ---------- ---------- ---------- ----------
Subtotal............................ 1,043,195 649,898 517,424 513,370 918,698
Interest on deposits................. 935,876 742,772 1,063,422 1,727,765 1,973,087
---------- ---------- ---------- ---------- ----------
Total............................... $1,979,071 $1,392,670 $1,580,846 $2,241,135 $2,891,785
========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits ..... 1.87x 2.72x 2.50x 2.07x 1.03x
Including interest on deposits....... 1.46 1.80 1.49 1.24 1.01
</TABLE>
<PAGE> 1
EXHIBIT 12.2
PNC BANK CORP.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
Dollars in thousands 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and cumulative
effect of changes in accounting principles.. $ 902,389 $1,116,612 $ 778,122 $ 548,201 $ 29,425
Fixed charges and preferred stock dividends
excluding interest on deposits ............. 1,045,609 652,432 521,908 518,004 922,156
---------- ---------- ---------- ---------- ----------
Subtotal.................................... 1,947,998 1,769,044 1,300,030 1,066,205 951,581
Interest on deposits ........................ 935,876 742,772 1,063,422 1,727,765 1,973,087
---------- ---------- ---------- ---------- ----------
Total ...................................... $2,883,874 $2,511,816 $2,363,452 $2,793,970 $2,924,668
========== ========== ========== ========== ==========
Fixed charges:
Interest on notes and debentures............. $ 515,732 $ 265,353 $ 145,125 $ 95,207 $ 84,045
Interest on borrowed funds................... 499,252 362,995 352,162 398,779 816,448
Amortization of notes and debentures ........ 1,346 967 970 584 538
Interest component of rentals ............... 26,865 20,583 19,167 18,800 17,667
Preferred stock dividend requirements........ 2,414 2,534 4,484 4,634 3,458
---------- ---------- ---------- ---------- ----------
Subtotal.................................... 1,045,609 652,432 521,908 518,004 922,156
Interest on deposits......................... 935,876 742,772 1,063,422 1,727,765 1,973,087
---------- ---------- ---------- ---------- ----------
Total....................................... $1,981,485 $1,395,204 $1,585,330 $2,245,769 $2,895,243
========== ========== ========== ========== ==========
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends:
Excluding interest on deposits .............. 1.86x 2.71x 2.49x 2.06x 1.03x
Including interest on deposits............... 1.46 1.80 1.49 1.24 1.01
</TABLE>
<PAGE> 1
EXHIBIT 13
Index to Financial Information 23
CORPORATE FINANCIAL REVIEW
20 1994 Versus 1993
20 Overview
21 Mergers and Acquisitions
21 Income Statement Review
26 Line of Business Results
32 Balance Sheet Review
37 Risk Management
43 1993 Versus 1992
43 Overview
43 Mergers and Acquisitions
43 Income Statement Review
44 Balance Sheet Review
REPORTS ON CONSOLIDATED FINANCIAL STATEMENTS
45 Management's Report on the Financial Reporting Internal Control Structure
45 Report of Ernst & Young LLP, Independent Auditors
CONSOLIDATED FINANCIAL STATEMENTS
46 Consolidated Balance Sheet
47 Consolidated Statement of Income
48 Consolidated Statement of Changes in Shareholders' Equity
49 Consolidated Statement of Cash Flows
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
50 Accounting Policies
53 Mergers and Acquisitions
53 Cash Flows
54 Securities
55 Loans and Commitments to Extend Credit
56 Nonperforming Assets
56 Allowance for Credit Losses
56 Premises, Equipment and Leasehold Improvements
57 Intangible Assets
57 Repurchase Agreements
57 Notes and Debentures
58 Shareholders' Equity
58 Financial Derivatives
60 Employee Benefit Plans
61 Stock Option Plan
62 Income Taxes
63 Regulatory Matters
63 Litigation
64 Parent Company Financial Statements
65 Unused Lines of Credit
65 Fair Value of Financial Instruments
STATISTICAL INFORMATION
67 Selected Consolidated Financial Data
68 Selected Quarterly Financial Data
69 Analysis of Year-to-Year Changes in Net Interest Income
70 Average Consolidated Balance Sheet and Net Interest Analysis
72 Securities
74 Loans
74 Nonperforming Assets
75 Past Due Loans
75 Allowance for Credit Losses
76 Maturity of Time Deposits of $100,000 or more
77 Borrowed Funds
77 Taxable-Equivalent Adjustment
<PAGE> 2
20 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
The Corporate Financial Review should be read in conjunction with the PNC Bank
Corp. and subsidiaries ("Corporation") Consolidated Financial Statements and
Statistical Information included herein.
OVERVIEW
During 1994, the nation's real gross domestic product grew at a preliminary
annual rate of 4.0 percent according to the United States Commerce Department.
The Federal Reserve's monetary policies included aggressive increases in
interest rates to reduce inflationary pressures associated with the economic
expansion. Based on recent economic indicators, management expects economic
growth to remain above average throughout the first half of 1995 accompanied by
increases in interest rates.
In 1994, management's strategic focus was on reducing interest rate sensitivity
and realigning the Corporation's balance sheet consistent with its operating
strategies for the future. During the second half of 1994, the Corporation took
actions to reduce its interest rate sensitivity. These actions included
selling $4.5 billion of fixed-rate securities; entering into $5.0 billion
notional value of pay-fixed interest rate swaps; and purchasing $5.5 billion
notional value of interest rate caps. As a result, the Corporation
substantially eliminated its liability sensitivity at one year and mitigated
the impact of significantly higher interest rates on net interest income.
Net Income (in millions of dollars)
Data points for the graph of the Corporation's net income for the five
years ended December 31, 1990 through 1994 follow:
<TABLE>
<CAPTION>
BEFORE CUMULATIVE
NET EFFECT OF ACCOUNTING
INCOME CHANGES
------ --------------------
<S> <C> <C>
1994 610.062
1993 725.870 745.263
1992 426.939 529.440
1991 389.786
1990 70.912
</TABLE>
The Corporation's results of operations for 1994 reflect the impact of these
actions. Net income for 1994 was $610.1 million, or $2.56 per fully diluted
share, compared with $725.9 million, or $3.04 per share, in 1993. Income before
accounting changes in the prior-year period was $745.3 million or $3.13 per
fully diluted share. Excluding securities transactions in both periods and a
restructuring and related charge in 1994, income before accounting changes was
$729.2 million in 1994 compared with $623.3 million in 1993. Return on assets
and return on common shareholders' equity were 1.00 percent and 14.10 percent,
respectively, in 1994 compared with 1.44 percent and 18.40 percent in 1993. The
corresponding 1993 returns before accounting changes were 1.48 percent and
18.89 percent.
Fully Diluted Earnings per Share (in dollars)
Data points for the graph of the Corporation's fully diluted earnings per share
for the five years ended December 31, 1990 through 1994 follow:
<TABLE>
<CAPTION>
BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
EPS CHANGES
----- --------------------
<S> <C> <C>
1994 2.56
1993 3.04 3.13
1992 1.89 2.34
1991 1.94
1990 0.37
</TABLE>
The comparative results also reflect the impact of acquisitions completed
during the periods, including PNC Mortgage (formerly Sears Mortgage Banking
Group) completed on November 30, 1993. The results for 1993 included the
cumulative effect of adopting Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," and a change in the method of accounting
for certain intangible assets, primarily purchased mortgage servicing rights.
The cumulative effect of these changes reduced net income by $9.0 million and
$10.4 million, respectively.
<PAGE> 3
The Corporation's balance sheet realignment is expected to include further
reductions of the securities portfolio, certain low-spread loans and related
wholesale funding through scheduled maturities and repayments. In connection
with this downsizing, in January 1995 the board of directors authorized the
purchase of up to 24 million common shares over a two-year period, or
approximately 10 percent of shares outstanding at year-end 1994.
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
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-acquisition market, operational and
financial integration. The post-acquisition 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-acquisition
integration is monitored to determine if objectives, both qualitative and
quantitative, are being achieved.
On November 30, 1993, the Corporation completed its acquisition of PNC
Mortgage. Post-closing purchase price adjustments were finalized in 1994 with
no material impact. With this acquisition, the Corporation added
mortgage-related assets of $7.6 billion; a mortgage servicing portfolio
approximating $27 billion, including $21 billion serviced for others; and a
national residential mortgage origination network. In 1994, the Corporation
purchased a $10-billion residential mortgage servicing portfolio from the
Associates Corporation of North America ("Associates").
During 1994, the Corporation completed the acquisitions of United Federal
Bancorp, Inc. ("United Federal"), State College, Pennsylvania and First Eastern
Corp. ("First Eastern"), Wilkes-Barre, Pennsylvania. The combined assets and
deposits totaled $2.8 billion and $2.4 billion, respectively.
In addition, the Corporation entered into a definitive agreement to acquire
BlackRock Financial Management, L.P. ("BlackRock"), a New York-based,
fixed-income investment management firm with approximately $23 billion in
assets under management. The purchase price is approximately $240 million in
cash and notes and will be paid over a five year period. This acquisition will
be recorded under the purchase method of accounting, and substantially all of
the purchase price will be allocated to intangible assets. This transaction is
expected to close in the first quarter of 1995, pending approval by
shareholders of certain managed mutual funds.
The Corporation also announced agreements to acquire Indian River Federal
Savings Bank ("Indian River"), Vero Beach, Florida, and Brentwood Financial
Corporation ("Brentwood"), Cincinnati, Ohio. The aggregate purchase price
approximates $33 million in cash. Combined assets and deposits totaled
approximately $175 million and $140 million, respectively, at December 31,
1994. The acquisition of Indian River was completed in January 1995. Brentwood
is expected to close in the first quarter of 1995.
<PAGE> 4
22 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
INCOME STATEMENT REVIEW
<TABLE>
<CAPTION>
INCOME STATEMENT HIGHLIGHTS
- - - -------------------------------------------------------------------------------------------------
Change
Year ended December 31 -----------------------------
Dollars in millions 1994 1993 Amount Percent
- - - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income,
taxable-equivalent
basis $1,943 $1,869 $ 74 4.0%
Provision for
credit losses 60 204 (144) (70.6)
Noninterest income
before securities
transactions 958 757 201 26.4
Net securities gains
(losses) (135) 188 (323) (171.9)
Noninterest expense 1,770 1,454 316 21.7
Income before cumulative
effect of changes in
accounting principles 610 745 (135) (18.1)
Net income 610 726 (116) (16.0)
- - - -------------------------------------------------------------------------------------------------
</TABLE>
NET INTEREST INCOME AND NET INTERST MARGIN Net interest income is interest
income, dividends and fees on earning assets, less interest expense incurred
for funding sources. Earning assets primarily include loans and securities.
Sources used to fund these assets include deposits, borrowed funds and
shareholders' equity. Net interest margin is net interest income on a fully
taxable-equivalent basis as a percentage of average earning assets.
<TABLE>
<CAPTION>
NET INTEREST INCOME
- - - -------------------------------------------------------------------------------------------------
Year ended December 31 Change
Taxable-equivalent basis -----------------------------
Dollars in millions 1994 1993 Amount Percent
- - - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income/
expense before swaps:
Interest income $3,767 $3,081 $ 686 22.3%
Loan fees 69 66 3 4.5
Taxable-equivalent
adjustment 33 39 (6) (15.4)
- - - --------------------------------------------------------------------------
Total interest income 3,869 3,186 683 21.4
Interest expense 2,027 1,520 507 33.4
- - - --------------------------------------------------------------------------
Net interest income
before swaps 1,842 1,666 176 10.6
Effect of interest
rate swaps on
Interest income 26 55 (29) (52.7)
Interest expense (75) (148) (73) (49.3)
- - - --------------------------------------------------------------------------
Total swaps 101 203 (102) (50.2)
- - - --------------------------------------------------------------------------
Net interest income $1,943 $1,869 $ 74 4.0%
- - - -------------------------------------------------------------------------------------------------
</TABLE>
On a fully taxable-equivalent basis, net interest income for 1994 increased
$74.6 million, or 4.0 percent, due to a $9.8 billion increase in average
earning assets, partially offset by the effect of higher rates paid on
borrowings and lower benefit from interest rate swaps.
<TABLE>
<CAPTION>
VOLUME/RATE ANALYSIS
- - - -------------------------------------------------------------------------------
1994 versus 1993 Increase/(Decrease)
Due To Changes In:
-------------------------------
In millions Volume Rate Rate/Volume Total
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $663 $ 14 $ 6 $ 683
Interest expense 356 120 31 507
Interest rate swaps 42 (118) (26) (102)
Net interest income 389 (256) (59) 74
- - - -------------------------------------------------------------------------------
</TABLE>
The net interest margin narrowed during the year due to the adverse impact of
the rising interest rate environment throughout 1994. The narrower interest
rate spread was primarily due to liabilities repricing faster than assets,
narrowing interest spreads on loans and the impact of the PNC Mortgage
acquisition. In addition, the net interest margin was negatively impacted by a
reduced benefit from interest rate swaps. Management expects net interest
income and net interest margin to decline in 1995 as a result of higher
interest rates, competitive loan pricing, rising deposit and borrowing costs
and the impact of certain actions taken in 1994 to reduce interest rate
sensitivity. Net interest income is also expected to decline as a result of
decreasing the securities portfolio, certain low-spread loans, and related
wholesale funding.
<TABLE>
<CAPTION>
NET INTEREST MARGIN
- - - --------------------------------------------------------------------------------------------
Year ended December 31 Basis Point
Taxable-equivalent basis 1994 1993 Change
- - - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Book-basis yield on earning assets 6.58% 6.51% 7
Effect of loan fees .12 .14 (2)
Taxable-equivalent adjustment .06 .08 (2)
- - - --------------------------------------------------------------------------------------------
Taxable-equivalent yield on earning assets 6.76 6.73 3
Rate on interest-bearing liabilities 4.11 3.81 30
- - - --------------------------------------------------------------------------------------------
Interest rate spread 2.65 2.92 (27)
Effect of:
Noninterest-bearing sources .54 .54
Interest rate swaps on
Interest income .06 .12 (6)
Interest expense (.15) (.37) (22)
- - - --------------------------------------------------------------------------------------------
Total swaps .21 .49 (28)
- - - --------------------------------------------------------------------------------------------
Net interest margin 3.40% 3.95% (55)
- - - --------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 5
23 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
PROVISION FOR CREDIT LOSSES The provision for credit losses was $60.1 million
in 1994 compared with $203.9 million a year ago. Stronger economic conditions
combined with management's ongoing efforts to improve asset quality resulted in
lower nonperforming assets and net charge-offs, and a higher reserve coverage
of nonperforming loans. Based on the current risk profile of the loan portfolio
and assuming economic trends continue, management does not expect to record a
provision for credit losses in 1995.
NONINTEREST INCOME Noninterest income before securities transactions increased
26.4 percent to $957.6 million in 1994. Net securities losses totaled $134.9
million during 1994 compared with net gains of $187.7 million in 1993.
Excluding securities transactions, noninterest income was 33.0 percent of total
revenue in 1994 compared with 28.8 percent a year earlier. During 1994, this
increase was primarily related to mortgage banking revenue associated with PNC
Mortgage and the purchase of the Associates mortgage servicing portfolio. The
pending acquisition of BlackRock will further expand fee-based revenues and is
expected to increase this ratio in 1995.
Noninterest Income before Securities Transactions (in millions of dollars)
Data points for the graph of the Corporation's noninterest income before
securities transactions for the five years ended December 31, 1990 through 1994
follow:
<TABLE>
<CAPTION>
Noninterest
Income
-----------
<S> <C>
1994 957,560
1993 757,555
1992 693,273
1991 748,571
1990 634,108
</TABLE>
The 1991 amount excludes the gain on sale of certain operations.
<TABLE>
<CAPTION>
NONINTEREST INCOME
- - - --------------------------------------------------------------------------------------------------------------------------
Change
Year ended December 31 --------------------
Dollars in thousands 1994 1993 Amount Percent
- - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment management and trust
Trust $ 194,060 $184,286 $ 9,774 5.3%
Mutual funds 97,992 89,563 8,429 9.4
- - - ------------------------------------------------------------------------------------------------------------
Total investment management and trust 292,052 273,849 18,203 6.6
Service charges, fees and commissions
Deposit account and corporate services 164,220 156,468 7,752 5.0
Credit card and merchant services 56,020 55,529 491 .9
Brokerage 35,539 37,989 (2,450) (6.4)
Corporate finance 44,716 40,358 4,358 10.8
Other services 69,651 63,953 5,698 8.9
- - - ------------------------------------------------------------------------------------------------------------
Total service charges, fees and commissions 370,146 354,297 15,849 4.5
Mortgage banking
Servicing 121,776 34,365 87,411 254.4
Sale of servicing 60,573 60,573 NM
Marketing 16,199 16,225 (26) (.2)
- - - ------------------------------------------------------------------------------------------------------------
Total mortgage banking 198,548 50,590 147,958 292.5
Other 96,814 78,819 17,995 22.8
- - - ------------------------------------------------------------------------------------------------------------
Total noninterest income before
securities transactions 957,560 757,555 200,005 26.4
Net securities gains (losses) (134,919) 187,694 (322,613) (171.9)
- - - ------------------------------------------------------------------------------------------------------------
Total $ 822,641 $945,249 $(122,608) (13.0%)
- - - --------------------------------------------------------------------------------------------------------------------------
<FN>
NM-Not meaningful
</TABLE>
<PAGE> 6
Investment management and trust revenue increased 6.6 percent to $292.1 million
due to strong sales activity. Revenue from new trust business was mitigated by
the adverse effect on fees resulting from a decline in the valuation of assets
managed. A 23 percent increase in mutual fund accounting and administrative
fees was partially offset by a decline in fees resulting from a lower average
level of managed assets. The BlackRock acquisition is expected to add
approximately $23 billion in discretionary mutual fund assets, $14 billion of
which are institutional funds, and approximately 20 percent to investment
management and trust revenue on an annualized basis. The table below sets forth
trust and mutual fund assets and the related revenue as of, and for the years
ended, December 31, 1994 and 1993.
<TABLE>
<CAPTION>
INVESTMENT MANAGEMENT AND TRUST
- - - ---------------------------------------------------------------------------------------------------------------------------------
Assets at December 31 Revenue for the
----------------------------------------------------------------------- Year ended
Discretionary Nondiscretionary Total December 31
-------------------------------------------------------------------------------------------
In millions 1994 1993 1994 1993 1994 1993 1994 1993
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Personal and charitable $22,598 $22,923 $ 9,716 $ 11,773 $ 32,314 $ 34,696 $142 $134
Institutional 3,991 9,758 72,355 69,412 76,346 79,170 52 50
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total trust 26,589 32,681 82,071 81,185 108,660 113,866 194 184
Mutual funds 25,990 24,343 77,919 54,257 103,909 78,600 98 90
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total $52,579 $57,024 $159,990 $135,442 $212,569 $192,466 $292 $274
- - - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Approximately $4 billion of the decline in discretionary institutional trust
assets is due to the sale of a substantial portion of the Corporation's
interest in an investment advisory firm. The proprietary PNC Family of Funds
are included in the discretionary mutual funds category. Assets in these funds
totaled $5.3 billion at December 31, 1994 and were comprised of $4.3 billion in
trust accounts, $700 million in institutional accounts and $300 million in
retail accounts. Total assets in these funds were $3.4 billion at December 31,
1993. Nondiscretionary mutual fund assets increased due to the addition of
$23.9 billion of assets under custody for a large brokerage house.
Service charges, fees and commissions increased $15.8 million, or 4.5 percent,
to $370.1 million. Increased transaction volume related to acquisitions and new
business accounted for the growth in deposit account and corporate services
revenue. The decline in brokerage fees was attributable to lower transaction
volume. Increased syndication and advisory activity accounted for the growth in
corporate finance fees. Other service fees increased as a result of
acquisitions, higher transaction activity and revised consumer loan fee
schedules.
<TABLE>
<CAPTION>
MORTGAGE SERVICING PORTFOLIO
- - - -------------------------------------------------------------
In millions 1994 1993
- - - -------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $35,527 $ 9,214
- - - -------------------------------------------------------------
Originations 6,387 3,468
Acquisitions 10,599 27,222
Repayments (6,077) (4,377)
Sales (5,470)
- - - -------------------------------------------------------------
Balance at December 31 $40,966 $35,527
- - - -------------------------------------------------------------
</TABLE>
Mortgage banking income increased $148.0 million to $198.5 million as a result
of the PNC Mortgage acquisition and the purchase of the Associates mortgage
servicing portfolio. During 1994, the Corporation funded $6.4 billion of
residential mortgages, approximately 78 percent of which represented new
financings. PNC Mortgage directly originated 73 percent of total volume in
1994. Although the rising interest rate environment in 1994 adversely impacted
the volume of originations, the value of the
<PAGE> 7
CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993 25
mortgage servicing portfolio increased as prepayments declined. At
December 31, 1994, the Corporation's mortgage servicing portfolio totaled $41.0
billion, including $30.0 billion serviced for others. The portfolio had a
weighted-average coupon rate of 7.85 percent, an unamortized carrying value of
$323 million and an estimated fair value of $506 million. Gains from sales of
mortgage servicing totaled $60.6 million during 1994.
Other noninterest income increased $18.0 million primarily due to higher gains
from sales of assets and income from venture capital activity.
NONINTEREST EXPENSE Noninterest expense totaled $1.8 billion in 1994 compared
with $1.5 billion in the year-earlier period. The increase was primarily due to
acquisitions and a $48.3 million charge for restructuring and related costs
principally for the consolidation of existing telebanking centers and continued
rationalization of the branch network. Excluding acquisitions and this charge,
noninterest expense increased less than one percent in the comparison.
Noninterest expense is not expected to increase in 1995 compared with 1994.
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
- - - ----------------------------------------------------------------------------
Change
Year ended December 31 ----------------
Dollars in thousands 1994 1993 Amount Percent
- - - ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Compensation $ 686,342 $ 582,181 $104,161 17.9%
Employee benefits 149,330 103,207 46,123 44.7
- - - --------------------------------------------------------------------
Total staff expense 835,672 685,388 150,284 21.9
Net occupancy 147,713 115,354 32,359 28.1
Equipment 132,724 113,954 18,770 16.5
Amortization of intangible
assets 82,237 31,589 50,648 160.3
Federal deposit insurance 73,902 65,488 8,414 12.8
Taxes other than income 44,227 36,070 8,157 22.6
Other 453,260 405,883 47,377 11.7
- - - --------------------------------------------------------------------
Total $1,769,735 $1,453,726 $316,009 21.7%
- - - ----------------------------------------------------------------------------
</TABLE>
The overhead ratio was 64.0 percent in 1994 compared with 51.7 percent in 1993.
Excluding securities transactions and the restructuring and related costs, the
overhead ratio was 59.4 percent in 1994 compared with 55.4 percent a year
earlier. The higher overhead ratio reflects the Corporation's increased
emphasis on fee-based businesses including mortgage banking and treasury
management which are more labor intensive and, accordingly, have lower profit
margins.
During the fourth quarter of 1994, the Corporation announced plans to
consolidate its telebanking centers located in seven markets into a new
state-of-the-art center in Pittsburgh. In addition, the continuing
rationalization of the retail delivery system will result in consolidation of
certain branches. In connection with these initiatives, the Corporation
recorded $17.9 million of staff expense, $12.0 million of net occupancy related
to disposition of buildings and lease cancellations, $2.7 million of equipment,
$2.4 million of intangible asset amortization, and $13.3 million of other
expense.
Excluding the restructuring and related costs, staff expense increased 19.3
percent in the year-to-year comparison, primarily due to acquisitions in the
mortgage banking and consumer banking businesses. Average full-time equivalent
employees increased to approximately 21,000 for 1994 compared with
approximately 18,000 in the year-earlier period. Pension expense totaled $32.5
million, an increase of $20.2 million due to a reduction in the discount rate
used to calculate the pension obligation for 1994. The increase in the
remaining noninterest expense categories was primarily due to acquisitions.
<PAGE> 8
26 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
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 the
management accounting system is enhanced and business or product lines change.
During 1994, certain methodologies were changed and, accordingly, results for
1993 are presented on a consistent basis. These changes did not materially
impact previously reported line of business results.
For management reporting purposes, the Corporation has designated four distinct
lines of business: Corporate Banking, Retail Banking, Investment Management and
Trust, and Investment Banking. The financial results presented in this section
reflect each line of business as if it operated on a stand-alone basis.
Securities or borrowings, and related interest rate spread, have been assigned
to each line of business based on its net asset or liability position. Retail
Banking and Investment Management and Trust are net generators of funds and,
accordingly, were assigned securities, while Corporate Banking received an
assignment of borrowings as a net asset generator. An assignment of securities
is accompanied by an assignment of equity in accordance with the methodology
described below. The remaining securities and borrowings, related interest rate
spread, and securities transactions, are included in Portfolio Management
within Investment Banking.
Direct earnings for each business unit reflect fully taxable-equivalent net
interest and noninterest revenues and fully-absorbed costs associated with each
unit's operating activities. The provision for credit losses is a charge or
credit to earnings as appropriate to maintain specific reserves.
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 and the total amount assigned may vary from consolidated
shareholders' equity.
After-tax profit margin represents earnings expressed as a percentage of
revenues. The overhead ratio is the percentage of noninterest expense to
revenues. For purposes of these ratio computations, revenues include net
interest income on a fully taxable-equivalent basis and noninterest income.
<PAGE> 9
<TABLE>
<CAPTION>
LINE OF BUSINESS HIGHLIGHTS
- - - ------------------------------------------------------------------------------------------------------------------------------
Average After-Tax Return on
Earnings Balance Sheet Profit Margin Overhead Assigned Equity
Year ended December 31 -------------- --------------- ------------- -------------- ----------------
Dollars in millions 1994 1993 1994 1993 1994 1993 1994 1993 1994 1993
- - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Banking $292 $294 $14,759 $12,873 44% 42% 38% 34% 16% 17%
Retail Banking 314 303 36,791 27,617 18 21 71 64 16 21
Investment Management and Trust 67 67 522 480 20 22 68 66 44 51
Investment Banking (6) 208 10,075 9,115 NM 55 NM 15 NM 65
- - - -------------------------------------------------------------------
Total Lines of Business 667 872 $62,147 $50,085 24 31 64 50 16 24
Cumulative effect of
accounting changes (19)
Unallocated provision (37) (96)
Other unallocated items (20) (31) (1,251) 236
- - - -------------------------------------------------------------------
Total $610 $726 $60,896 $50,321
- - - ------------------------------------------------------------------------------------------------------------------------------
<FN>
NM-not meaningful
</TABLE>
Earnings contributed by the lines of business totaled $667 million in 1994
compared with $872 million in 1993. These results exceeded reported
consolidated net income by $57 million and $146 million, respectively, due to
the cumulative effect of changes in accounting principles in 1993, provision
for credit losses in excess of specific reserve allocations and certain
unallocated revenue and expenses. Excluding securities transactions and the
restructuring and related costs, earnings from the lines of business were $786
million and $750 million in 1994 and 1993, respectively, and returns on
assigned equity were 18 percent and 21 percent, respectively.
Percent Contribution to Line of Business Earnings (percent)
Data points for the graph of the Corporation's percent contribution to line of
business earnings for the two years ended December 31, 1993 and 1994 follow:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Corporate Banking 33.72 43.77
Retail Banking 34.75 47.08
Investment Management and Trust 7.68 9.15
Investment Banking 23.85 0
</TABLE>
<PAGE> 10
28 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
CORPORATE BANKING Corporate Banking provides traditional financing, liquidity
and treasury management, capital markets and other 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 and natural
resources.
Corporate Banking provided 44 percent of line of business earnings in 1994
compared with 34 percent in 1993. Direct earnings from this line of business
increased $18 million, or 7.4 percent, in 1994 primarily due to the impact of
improved asset quality.
Large Corporate generated a $1.1 billion, or 38.4 percent, increase in average
loans, the majority of which was in short-term commercial and money market
loans. The benefit of this additional volume was partially offset by narrower
interest rate spreads. The return on assigned equity declined in the
year-to-year comparison due to a higher assignment of capital associated with
the growth in low-spread loans.
Middle Market direct earnings increased as the benefit of improved asset
quality more than offset the effect of narrower interest rate spreads on loans.
Treasury Management services are provided to customers in both the Large
Corporate and Middle Market sectors. Customers pay a fee, which is reported in
noninterest income, or maintain deposit balances which provide net interest
income. Revenue from treasury management amounted to $102 million and
represented 16.5 percent of total Corporate Banking revenue in 1994 compared
with 15.7 percent in 1993.
<TABLE>
<CAPTION>
CORPORATE BANKING
- - - -----------------------------------------------------------------------------------------------------------------------------
Large Corporate Middle Market Total
Year ended December 31 ------------------ ------------------- ------------------
Dollars in millions 1994 1993 1994 1993 1994 1993
- - - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 111 $ 93 $ 383 $ 413 $ 494 $ 506
Noninterest income 43 30 81 88 124 118
----------------------------------------------------------------------------------
Total revenue 154 123 464 501 618 624
Provision (3) (11) (30) 23 (33) 12
Noninterest expense 61 53 192 187 253 240
----------------------------------------------------------------------------------
Pretax income 96 81 302 291 398 372
Income taxes 31 27 105 101 136 128
----------------------------------------------------------------------------------
Direct earnings 65 54 197 190 262 244
After-tax impact of assigned assets/funds 10 12 20 38 30 50
----------------------------------------------------------------------------------
Total earnings $ 75 $ 66 $ 217 $ 228 $ 292 $ 294
AVERAGE BALANCE SHEET
Loans $4,017 $2,902 $ 9,914 $9,768 $13,931 $12,670
Other assets 742 111 86 92 828 203
----------------------------------------------------------------------------------
Total assets $4,759 $3,013 $10,000 $9,860 $14,759 $12,873
----------------------------------------------------------------------------------
Deposits $ 733 $ 620 $ 1,845 $2,036 $ 2,578 $ 2,656
Assigned funds 3,907 2,314 7,008 6,255 10,915 8,569
Other funds 119 79 1,147 1,569 1,266 1,648
----------------------------------------------------------------------------------
Total funds $4,759 $3,013 $10,000 $9,860 $14,759 $12,873
----------------------------------------------------------------------------------
PERFORMANCE RATIOS
After-tax profit margin 44% 47% 44% 41% 44% 42%
Overhead 36 38 39 33 38 34
Return on assigned equity 16 19 17 17 16 17
- - - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993 29
<TABLE>
<CAPTION>
RETAIL BANKING
- - - ------------------------------------------------------------------------------------------------------------------------
Consumer Banking Mortgage Banking Total
Year ended December 31 ---------------------- --------------------- ----------------------
Dollars in millions 1994 1993 1994 1993 1994 1993
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 926 $ 842 $ 160 $ 81 $ 1,086 $ 923
Noninterest income 214 209 228 68 442 277
- - - ------------------------------------------------------------------------------------------------------------------------
Total revenue 1,140 1,051 388 149 1,528 1,200
Provision 32 44 4 1 36 45
Noninterest expense 879 789 312 127 1,191 916
- - - ------------------------------------------------------------------------------------------------------------------------
Pretax income 229 218 72 21 301 239
Income taxes 81 76 25 7 106 83
- - - ------------------------------------------------------------------------------------------------------------------------
Direct earnings 148 142 47 14 195 156
After-tax impact of
Assigned assets/funds 122 131 28 16 150 147
Restructuring and related costs (31)
- - - ------------------------------------------------------------------------------------------------------------------------
Total earnings $ 270 $ 273 $ 75 $ 30 $ 314 $ 303
- - - ------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans $11,369 $ 9,777 $ 8,925 $3,475 $20,294 $13,252
Assigned assets 13,786 13,371 13,786 13,371
Other assets 711 400 2,000 594 2,711 994
- - - ------------------------------------------------------------------------------------------------------------------------
Total assets $25,866 $23,548 $10,925 $4,069 $36,791 $27,617
- - - ------------------------------------------------------------------------------------------------------------------------
Deposits $24,619 $22,789 $ 3,036 $ 588 $27,655 $23,377
Assigned funds 414 401 5,612 3,011 6,026 3,412
Other funds 833 358 2,277 470 3,110 828
- - - ------------------------------------------------------------------------------------------------------------------------
Total funds $25,866 $23,548 $10,925 $4,069 $36,791 $27,617
- - - ------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
After-tax profit margin 20% 22% 17% 18% 18% 21%
Overhead 66 63 73 73 71 64
Return on assigned equity 18 21 16 16 16 21
- - - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
The earnings contribution from Retail Banking increased to 47 percent in 1994
from 35 percent a year ago. Total 1994 earnings were adversely impacted by a
$31 million after-tax charge for restructuring and related costs principally
for the consolidation of existing telebanking centers and continued
rationalization of the branch network. Direct earnings from this line of
business increased $39 million, or 25 percent, in 1994 as a result of a number
of acquisitions, including PNC Mortgage, United Federal and First Eastern.
Within Consumer Banking, average loans increased 16.3 percent and average
deposits increased 8.0 percent. A majority of this growth was attributable to
acquisitions. The resulting higher net interest income as well as improved
asset quality contributed to the increase in direct earnings.
The increase in Mortgage Banking direct earnings resulted from the acquisition
of PNC Mortgage. This transaction added net interest income from
mortgage-related assets as well as a sizeable mortgage servicing revenue
stream. During 1994, the mortgage servicing portfolio increased $5.5 billion to
$41.0 billion at December 31, 1994, including $30.0 billion serviced for
others. The net growth in loans serviced resulted from the Associates
transaction and internal origination activity which was partially offset by
sales and repayments. Mortgage servicing totaling $5.5 billion was sold in 1994
which resulted in gains of $60.6 million.
<PAGE> 12
30 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
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.
Investment Management and Trust contributed 9 percent of line of business
earnings in 1994 compared with 7 percent a year ago. Direct earnings remained
flat year-to-year as a 10 percent growth in fee revenue continued to be
reinvested in the sales and marketing infrastructure and volume-related costs
increased.
Trust direct earnings declined in the comparison as revenue growth from new
business was more than offset by a decline in fees resulting from lower levels
of managed assets and higher marketing and incentive expenses. The higher
interest rate environment in 1994 adversely affected equity and bond market
valuations and resulted in a 1.7 percent decline in the average composite
market value of discretionary trust assets. Mutual Funds direct earnings
increased $4.2 million in 1994 compared with the year-earlier period. Revenue
increased due to higher managed funds, new accounting and administrative
services business, and a gain from the sale of certain transfer agent services.
This increased revenue was partially offset by the effect of increased
marketing and volume-related costs.
<TABLE>
<CAPTION>
INVESTMENT MANAGEMENT AND TRUST
- - - ------------------------------------------------------------------------------------------------------------------------
Trust Mutual Funds Total
Year ended December 31 ------------------- ------------------ -------------------
Dollars in millions 1994 1993 1994 1993 1994 1993
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 14 $ 16 $ 6 $ 6 $ 20 $ 22
Noninterest income 193 186 110 90 303 276
- - - ------------------------------------------------------------------------------------------------------------------------
Total revenue 207 202 116 96 323 298
Noninterest expense 152 140 71 59 223 199
- - - ------------------------------------------------------------------------------------------------------------------------
Pretax income 55 62 45 37 100 99
Income taxes 19 22 17 13 36 35
- - - ------------------------------------------------------------------------------------------------------------------------
Direct earnings 36 40 28 24 64 64
After-tax impact of assigned
assets/funds 2 2 1 1 3 3
- - - ------------------------------------------------------------------------------------------------------------------------
Total earnings $ 38 $ 42 $ 29 $ 25 $ 67 $ 67
- - - ------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans $ 72 $ 35 $ 42 $ 28 $114 $ 63
Assigned assets 277 308 86 76 363 384
Other assets 30 24 15 9 45 33
- - - ------------------------------------------------------------------------------------------------------------------------
Total assets $379 $367 $143 $113 $522 $480
- - - ------------------------------------------------------------------------------------------------------------------------
Deposits $277 $292 $ 90 $ 69 $367 $361
Assigned funds 8 9 3 2 11 11
Other funds 94 66 50 42 144 108
- - - ------------------------------------------------------------------------------------------------------------------------
Total funds $379 $367 $143 $113 $522 $480
- - - ------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
After-tax profit margin 18% 21% 25% 26% 20% 22%
Overhead 72 68 60 61 68 66
Return on assigned equity 39 49 52 55 44 51
- - - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
31 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
<TABLE>
<CAPTION>
INVESTMENT BANKING
- - - ------------------------------------------------------------------------------------------------------------------------
Brokerage
Portfolio Management and Underwriting Total
Year ended December 31 ----------------------- ------------------- ----------------------
Dollars in millions 1994 1993 1994 1993 1994 1993
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 370 $ 401 $ (3) $ (2) $ 367 $ 399
Noninterest income before
securities transactions 6 15 105 85 111 100
Net securities gains (losses) (136) 182 (136) 182
- - - ------------------------------------------------------------------------------------------------------------------------
Total revenue 240 598 102 83 342 681
Noninterest expense 14 20 60 36 74 56
- - - ------------------------------------------------------------------------------------------------------------------------
Pretax income 226 578 42 47 268 625
Income taxes 77 202 15 17 90 219
- - - ------------------------------------------------------------------------------------------------------------------------
Direct earnings 149 376 27 30 176 406
After-tax impact of assigned
assets/funds (182) (199) 1 (182) (198)
- - - ------------------------------------------------------------------------------------------------------------------------
Total earnings $ (33) $ 177 $ 27 $ 31 $ (6) $ 208
- - - ------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans $ 1,667 $ 1,611 $ 30 $ 29 $ 1,697 $ 1,640
Assets assigned to other units (14,142) (13,755) (14,142) (13,755)
Other assets 22,011 20,954 509 276 22,520 21,230
- - - ------------------------------------------------------------------------------------------------------------------------
Total assets $ 9,536 $ 8,810 $539 $305 $ 10,075 $ 9,115
- - - ------------------------------------------------------------------------------------------------------------------------
Deposits $ 3,332 $ 2,511 $ 3,332 $ 2,511
Funds assigned to other units (16,850) (11,847) (16,850) (11,847)
Other funds 23,054 18,146 $539 $305 23,593 18,451
- - - ------------------------------------------------------------------------------------------------------------------------
Total funds $ 9,536 $ 8,810 $539 $305 $ 10,075 $ 9,115
- - - ------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
After-tax profit margin NM 61% 27% 37% NM 55%
Overhead NM 7 59 43 NM 15
Return on assigned equity NM 70 32 46 NM 65
- - - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 the
Corporation's on- and off-balance-sheet positions; and Brokerage and
Underwriting -- venture capital investments, corporate and public finance and
brokerage services.
Investment Banking's results for 1994 reflect the adverse impact of actions
taken to reduce interest rate sensitivity. Portfolio Management incurred a net
loss in 1994 primarily due to net securities losses of $135.9 million. The 1993
results included net securities gains of $182.0 million. Excluding securities
transactions, Investment Banking's earnings were $82 million and $90 million,
respectively, in the comparison.
Noninterest income generated by Brokerage and Underwriting increased 23.5
percent over the prior year due to growth in venture capital income and
corporate finance fees. Increases in fees from underwriting of bond issues and
commissions on mutual fund sales were more than offset by additional expenses
for personnel and marketing costs related to brokerage product development and
distribution initiatives.
Venture capital income from the Corporation's private equity investment
activities amounted to $42.1 million in 1994 compared with $35.1 million last
year. At December 31, 1994, the private equity investment portfolio totaled
$185 million compared with $160 million a year ago.
<PAGE> 14
CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993 32
BALANCE SHEET REVIEW
<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------------
AVERAGE ASSETS Change
Year ended December 31 --------------------
Dollars in millions 1994 1993 Amount Percent
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets $60,896 $50,321 $10,575 21.0%
Total earning assets 57,187 47,340 9,847 20.8
Loans, net of
unearned income 33,511 25,959 7,552 29.1
Securities 22,116 20,403 1,713 8.4%
- - - -------------------------------------------------------------------------------
</TABLE>
The changes in average assets reflect the impact of acquisitions, increased
loan demand and asset/liability management activities.
LOANS Average loans for 1994 increased 29.1 percent over 1993, to $33.5
billion. Acquisitions increased the loan portfolio primarily in the mortgage
banking and consumer banking businesses. Excluding the impact of acquisitions,
average loans increased 6.0 percent. The proportion of average loans to average
earning assets increased to 58.6 percent in 1994 compared with 54.8 percent a
year ago. Management expects this ratio to increase further in 1995 as a result
of loan growth and a decline in the securities portfolio. However, management
expects to reduce certain low-spread loans.
Average Loans to Average Earnings Assets (percent)
Data points for the graph of the Corporation's average loans to average earning
assets for the five years ended December 31, 1990 through 1994 follow:
<TABLE>
<CAPTION>
Percent
-------
<S> <C>
1994 58.60
1993 54.84
1992 58.12
1991 67.22
1990 65.50
</TABLE>
The Corporation manages credit risk associated with its lending activities
through portfolio diversification, underwriting policies and procedures, and
loan monitoring practices. The portfolio composition remained substantially
unchanged from year-end 1993 except for a moderate increase in the proportion
of real estate mortgage loans and a moderate decrease in the proportion of
commercial loans.
At December 31, 1994, loan outstandings and net unfunded commitments increased
$8.3 billion, or 15.5 percent, since year-end 1993. Unfunded commitments are
net of participations and syndications, primarily to financial institutions.
In addition, the Corporation issued $4.3 billion and $3.9 billion of letters of
credit at December 31, 1994 and 1993, respectively, consisting primarily of
standby letters of credit.
Total commercial loan outstandings remained relatively flat since year-end
1993. Total commercial unfunded commitments increased $5.5 billion, or 40.7
percent, in the comparison. The growth in commitments was broad based and
attributable to increased economic activity.
Total real estate project exposure declined slightly in 1994. Retail and office
projects accounted for 32 percent and 22 percent, respectively, of total real
estate project exposure at December 31, 1994. Multi-family, hotel/motel and
residential projects accounted for 10 percent, 10 percent and 9 percent,
respectively. No other project type accounted for more than 4 percent. Projects
in the Corporation's primary markets, which include Delaware, Indiana,
Kentucky, New Jersey, Ohio and Pennsylvania, accounted for 73 percent of total
outstandings. The southeast region of the United States accounted for 15
percent and no other geographic region accounted for more than 5 percent.
Real estate mortgage outstandings increased 17.9 percent primarily due to
acquisitions and portfolio management strategies. Residential and commercial
mortgages acquired in 1994 totaled $568 million and $288 million, respectively.
As part of its overall asset/liability management strategy, the Corporation
retains certain originated residential mortgage products in the loan portfolio.
The remainder of its originations are securitized and retained for the
securities portfolio or sold.
Consumer loan outstandings increased $662 million due to acquisitions.
Excluding acquisitions, consumer loans increased approximately 3.6 percent,
primarily in the home equity lending portfolio.
<PAGE> 15
33 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
<TABLE>
<CAPTION>
LOANS
- - - -------------------------------------------------------------------------------------------------------
1994 1993
--------------------------- ---------------------------
December 31 Net Unfunded Net Unfunded
In millions Outstandings Commitments Outstandings Commitments
- - - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial
Manufacturing $ 2,434 $ 6,011 $ 2,765 $ 4,351
Retail/Wholesale 2,148 2,123 1,789 1,570
Services providers 1,534 1,384 1,050 1,055
Communications
Cable 691 215 735 157
Telephone/cellular 285 923 503 535
Other 125 93 99 40
- - - -------------------------------------------------------------------------------------------------------
Total communications 1,101 1,231 1,337 732
Financial services 691 2,502 872 1,666
Real estate related 610 180 557 177
Health care 606 958 536 544
Public utilities 254 1,079 352 860
Other 3,067 3,447 3,205 2,493
- - - -------------------------------------------------------------------------------------------------------
Total commercial 12,445 18,915 12,463 13,448
Real estate project
Construction and development 394 254 350 195
Medium-term financings 1,234 56 1,380 26
- - - -------------------------------------------------------------------------------------------------------
Total real estate project 1,628 310 1,730 221
Real estate mortgage
Residential 9,283 769 8,036 1,521
Commercial 1,261 19 905 6
- - - -------------------------------------------------------------------------------------------------------
Total real estate mortgage 10,544 788 8,941 1,527
Consumer
Home equity 2,625 1,761 2,238 1,360
Automobile 2,534 2,428
Student 1,258 30 1,103 27
Credit card 817 3,423 725 3,065
Other 1,953 330 2,031 214
- - - -------------------------------------------------------------------------------------------------------
Total consumer 9,187 5,544 8,525 4,666
Other 1,843 917 1,871 400
Unearned income (240) (222)
- - - -------------------------------------------------------------------------------------------------------
Total, net of unearned income $35,407 $26,474 $33,308 $20,262
- - - -------------------------------------------------------------------------------------------------------
</TABLE>
Percent Composition of Loan Portfolio (percent)
Data points for the graph of the Corpoation's percent composition of loan
portfolio for the two years ended December 31, 1993 and 1994 follow:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Commercial 37.17 34.91
Real Estate Project 5.16 4.57
Real Estate Mortgage 26.67 29.58
Consumer 25.42 25.77
Other 5.58 5.17
------ ------
Total 100.00 100.00
</TABLE>
<PAGE> 16
CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993 34
SECURITIES At December 31, 1994, the investment securities and securities
available for sale portfolios included $11.6 billion and $2.9 billion,
respectively, of collateralized mortgage obligations and mortgage-backed
securities. The characteristics of these investments include principal
guarantees, primarily by U.S. Government agencies, marketability, and
availability as collateral for additional liquidity. The expected lives of
mortgage-related securities can vary as a result of changes in interest rates.
The Corporation manages this risk through the use of an income simulation model
as part of the asset/liability management process.
Other U.S. Government agency securities and asset-backed private placements
represent AAA-rated, variable-rate instruments. The interest rates on these
instruments float with various indices and are limited by periodic and maximum
caps. These securities have an initial specified term at the end of which the
maturity may be extended or called at the option of the issuer. Other debt
securities consist primarily of private label collateralized mortgage
obligations.
Securities represented 36.3 percent of earning assets at December 31, 1994
compared with 39.3 percent a year ago. During 1994, $13.1 billion of securities
were sold at an after-tax loss of $87.7 million. Such sales included $2.7
billion of fixed-rate securities in the third quarter that were replaced with
variable-rate assets. During the fourth quarter of 1994, $1.8 billion of
fixed-rate securities were sold as part of management's actions to reduce
further interest rate sensitivity and to reduce the size of the securities
portfolio relative to earning assets. Management anticipates further
reductions in the size of the securities portfolio during 1995 which will be
accomplished through scheduled maturities and anticipated repayments in the
most likely interest rate environment.
<TABLE>
<CAPTION>
SECURITIES
- - - -------------------------------------------------------------------------------------------------------------------------------
1994 1993
--------------------------------------- -------------------------------------
Unrealized Unrealized
December 31 Amortized ---------------- Fair Amortized ------------- Fair
In millions Cost Gains Losses Value Cost Gains Losses Value
- - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
Debt securities
U.S. Treasury $ 1,794 $ 93 $ 1,701 $ 1 $ 1
U.S. Government agencies
and corporations
Mortgage-related 10,920 1,025 9,895 10,227 $ 39 $32 10,234
Other 1,000 28 972
State and municipal 348 $12 2 358 389 38 427
Asset-backed private placements 1,597 33 1,564
Other debt
Mortgage-related 726 43 683 513 4 509
Other 769 20 749 297 3 300
Other 310 1 311 245 245
- - - -------------------------------------------------------------------------------------------------------------------------------
Total $17,464 $13 $1,244 $16,233 $11,672 $ 80 $36 $11,716
- - - -------------------------------------------------------------------------------------------------------------------------------
Securities available for sale
Debt securities
U.S. Treasury $ 401 $ 8 $ 393 $ 2,402 $ 2 $ 2 $2,402
U.S. Government agencies
and corporations
Mortgage-related 2,161 69 2,092 7,998 114 15 8,097
Other 25 4 21 25 1 24
Other debt
Mortgage-related 749 17 732 691 18 4 705
Other 117 $ 2 119 99 99
Corporate stocks and other 105 1 6 100 36 25 61
- - - ------------------------------------------------------------------------------------------------------------------------------
Total $ 3,558 $ 3 $ 104 $ 3,457 $11,251 $159 $22 $11,388
- - - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
EXPECTED MATURITY DISTRIBUTION OF SECURITIES
- - - ----------------------------------------------------------------------------------------------------------------------
December 31 1997 and Weighted
Dollars in millions 1995 1996 Beyond Total Average Life
- - - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities
Debt securities
U.S. Treasury $ 1,794 $ 1,794 4.1 yrs
U.S. Government agencies and corporations
Mortgage-related $2,042 $1,864 7,014 10,920 4.1 yrs
Other 1,000 1,000 3.9 yrs
State and municipal 16 332 348 9.2 yrs
Asset-backed private placements 1,597 1,597 3.4 yrs
Other debt
Mortgage-related 123 181 422 726 3.3 yrs
Other 335 230 204 769 1.4 yrs
Other 310 310 NM
- - - ----------------------------------------------------------------------------------------------------------------------
Total investment securities 2,516 2,275 12,673 17,464 3.9 yrs
Securities available for sale
Debt securities
U.S. Treasury 140 221 32 393 1.4 yrs
U.S. Government agencies and corporations
Mortgage-related 328 269 1,495 2,092 5.1 yrs
Other 21 21 3.1 yrs
Other debt
Mortgage-related 132 130 470 732 3.8 yrs
Other 17 17 85 119 8.1 yrs
Corporate stocks and other 100 100 NM
- - - ----------------------------------------------------------------------------------------------------------------------
Total securities available for sale 617 637 2,203 3,457 4.3 yrs
- - - ----------------------------------------------------------------------------------------------------------------------
Total $3,133 $2,912 $14,876 $20,921 4.0 yrs
- - - ----------------------------------------------------------------------------------------------------------------------
Percent of total 15.0% 13.9% 71.1% 100%
- - - ----------------------------------------------------------------------------------------------------------------------
Securities with interest rates that are:
Fixed $2,635 $2,499 $10,360 $15,494
Variable $ 498 $ 413 $ 4,516 $ 5,427
- - - ----------------------------------------------------------------------------------------------------------------------
<FN>
NM-not meaningful
</TABLE>
Securities available for sale are recorded at fair value in the consolidated
balance sheet, and net unrealized gains or losses, net of tax, are reflected as
an adjustment to shareholders' equity. The Corporation may sell such securities
as part of the overall asset/liability management process should market or
other factors warrant. Gains and losses from such transactions would be
reflected in results of operations.
The table above sets forth the expected maturity distribution of the securities
portfolio. Mortgage-related securities and other instruments are distributed
based on expected weighted average lives determined by historical experience
and assuming management's most likely interest rate environment.
The expected weighted average lives have extended compared with year-end 1993
as a result of slower prepayments in the higher rate environment.
<PAGE> 18
36 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
<TABLE>
<CAPTION>
AVERAGE FUNDING SOURCES
- - - -----------------------------------------------------------------------------------------------
Change
Year ended December 31 ------------------------
Dollars in millions 1994 1993 Amount Percent
- - - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deposits $32,852 $28,442 $4,410 15.5%
Borrowed funds 11,375 10,373 1,002 9.7
Notes and debentures 11,288 6,486 4,802 74.0
Shareholders' equity 4,336 3,957 379 9.6
- - - -----------------------------------------------------------------------------------------------
</TABLE>
The changes in average funding sources reflect the impact of acquisitions and
asset/liability management activities.
DEPOSITS Average deposits increased $4.4 billion, or 15.5 percent, compared
with 1993 primarily due to acquisitions. The proportion of average
noninterest-bearing sources supporting average earning assets was 13.8 percent
in 1994 compared with 15.7 percent in the year-earlier period. This decline
was primarily due to the PNC Mortgage acquisition which added $6.9 billion of
earning assets.
<TABLE>
<CAPTION>
FUNDING SOURCES
- - - ------------------------------------------------------------------------------------------------------------------------------------
December 31
In millions 1994 1993
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deposits
Demand, savings and money market $19,313 $18,621
Time 15,698 14,494
- - - ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 35,011 33,115
- - - ------------------------------------------------------------------------------------------------------------------------------------
Borrowed funds
Repurchase agreements 3,785 4,995
Treasury, tax and loan 1,989 3,414
Federal funds purchased 2,181 2,066
Commercial paper 1,226 514
Other 2,427 673
- - - ------------------------------------------------------------------------------------------------------------------------------------
Total borrowed funds 11,608 11,662
- - - ------------------------------------------------------------------------------------------------------------------------------------
Notes and debentures
Bank notes 8,825 7,000
Federal Home Loan Bank 1,347 1,045
Other 1,582 1,540
- - - ------------------------------------------------------------------------------------------------------------------------------------
Total notes and debentures 11,754 9,585
- - - ------------------------------------------------------------------------------------------------------------------------------------
Total $58,373 $54,362
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total deposits at December 31, 1994 increased $1.9 billion, or 5.7 percent,
since year-end 1993 as increases from acquired deposits were partially offset
by lower brokered and other deposits. Brokered deposits, which are primarily
included in time deposits, totaled $2.8 billion at December 31, 1994 compared
with $4.1 billion at December 31, 1993. These deposits are expected to decline
further as they mature and alternative funding sources are employed. Retail
brokered deposits are issued or participated-out by brokers in denominations of
$100,000 or less. Such deposits represented 77.2 percent of the total at
December 31, 1994 compared with 63.7 percent at year-end 1993.
BORROWED FUNDS Borrowed funds decreased $54 million from year-end 1993. In
addition, during 1994 certain repurchase agreements and treasury, tax and loan
borrowings were replaced with short-term borrowings primarily consisting of
commercial paper and term Federal funds purchased.
NOTES AND DEBENTURES Average notes and debentures increased $4.8 billion as
bank notes and Federal Home Loan Bank advances were used as lower cost
alternatives to other funding sources. Notes and debentures increased
$2.2 billion since year-end 1993. During 1994, the Corporation issued
$5.2 billion of variable-rate, unsecured bank notes with maturities of one year,
$3.6 billion of fixed-rate, unsecured bank notes with maturities ranging from
three to six months, and $200 million of subordinated debentures due in 2004.
Management believes the Corporation has sufficient liquidity to meet its
obligations to customers, debtholders and others. The impact of replacing
maturing liabilities is reflected in the income simulation model used in the
Corporation's overall asset/liability management process. At December 31, 1994,
the model assumed rising interest rates and a resulting higher cost of
replacement funding.
CAPITAL Management continues to place an 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 large part on a banking institution's capital strength. 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. To be
classified as well capitalized, regulators require capital ratios of 6.00
percent for Tier I, 10.00 percent for total risk-based and 5.00 percent for
leverage. At December 31, 1994, the capital position of each bank affiliate was
classified as well capitalized.
<PAGE> 19
37 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
<TABLE>
<CAPTION>
RISK-BASED CAPITAL AND CAPITAL RATIOS
- - - ---------------------------------------------------------------------------------------------------------------------------------
December 31
Dollar in millions 1994 1993
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL COMPONENTS
Shareholders' equity $ 4,394 $ 4,325
Goodwill (373) (85)
Net unrealized securities (gains) loses 119 (88)
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total Tier I risk-based capital 4,140 4,152
Subordinated debt 752 554
Eligible allowance for credit losses 605 547
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total risk-based capital $ 5,497 $ 5,253
- - - ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Risk-weighted assets and off-
balance-sheet instruments $48,007 $43,380
Average tangible assets 62,842 52,923
- - - ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS
Tier I risk-based capital 8.62% 9.57%
Total risk-based capital 11.45 12.11
Leverage 6.59 7.85
- - - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A net decline in Tier I and leverage capital ratios is expected in 1995
primarily due to the pending acquisition of BlackRock.
In January 1995, the board of directors approved a stock repurchase program
which authorizes the Corporation to purchase up to 24 million additional common
shares over the next two years. The share repurchase program is not expected to
materially affect capital ratios. The Corporation maintains its capital
positions primarily through the issuance of debt and equity instruments, its
dividend policy and retained earnings. During 1994, the Corporation retained
capital of $302.9 million.
The double leverage ratio indicates the degree to which debt has been utilized
to acquire or capitalize subsidiary companies, including banking affiliates.
This ratio was 111.0 percent at December 31, 1994 compared with 101.8 percent a
year ago. The increase during 1994 was due to acquisitions.
RISK MANAGEMENT
In the normal course of business, the Corporation is subject to various types
of risk, including interest rate, credit, and liquidity risk. The Corporation's
objective is to maximize profitability while maintaining acceptable levels of
risk.
Interest rate risk is the sensitivity of net interest income and the market
value of financial instruments to the magnitude, direction and frequency of
changes in interest rates. Interest rate risk results from various repricing
frequencies and the maturity structure of assets, liabilities, and
off-balance-sheet positions.
Credit risk represents the possibility that a customer may not perform in
accordance with contractual terms. Credit risk results from extending credit to
customers, purchasing securities, and entering into certain off-balance-sheet
financial instruments.
Liquidity risk represents the inability to generate cash or otherwise obtain
funds at reasonable rates to satisfy commitments to borrowers, as well as the
obligations to depositors and debtholders.
ASSET/LIABILITY Asset/liability management uses a variety of investments,
funding sources and off-balance-sheet instruments in managing the overall
interest rate risk profile of the Corporation. Asset/liability management
minimizes the credit risk associated with its activities, primarily by entering
into transactions with only a select number of high-quality institutions,
establishing credit limits with counterparties and, where applicable, requiring
segregated collateral.
A dynamic income simulation model is the primary mechanism used in assessing
the impact of changes in interest rates on net interest income. The model
reflects management's assumptions related to asset yields and rates paid on
liabilities, deposit sensitivity, size and composition of the balance sheet,
maturities of on- and off-balance-sheet instruments and other rate-influenced
variables. These assumptions are applied to all current on- and off-balance
sheet positions and are updated periodically to reflect changing conditions. The
assumptions are based on what management believes at that time to be the most
likely interest rate environment. Management also evaluates the impact of
higher and lower interest rates.
<PAGE> 20
38 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
Actual results may differ from simulated results due to various factors
including timing, magnitude and frequency of interest rate changes, the
relationship or spread between various rates, changes in market conditions,
loan pricing and deposit sensitivity, asset/liability management strategies and
mergers or acquisitions.
Several economic measures such as growth in the manufacturing sector, a lower
unemployment rate, a decline in the dollar's exchange rates and a rise in
industrial commodities prices continue to indicate potential inflationary
pressures. Based on recent economic indicators, management expects economic
growth to remain above average throughout the first half of 1995 and that the
Federal Reserve will continue to respond by raising the Federal funds rate
during this period.
The following table sets forth average interest rates for the periods indicated
including management's most likely interest rate environment and the industry
consensus as reported in the Blue Chip Financial Forecasts.
<TABLE>
<CAPTION>
AVERAGE INTEREST RATES Industry
Most Likely Environment Consensus
----------------------- Fourth
December June December Quarter
1994 1995 1995 1995
- - - ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal funds 5.50% 6.50% 6.50% 6.70%
3-month LIBOR 6.38 6.85 6.90 7.00
5-year U.S. Treasury Note 7.78 8.00 7.80 7.80
Spread between 5-year
U.S. Treasury Note
and Federal funds 228bp 150bp 130bp 110bp
- - - ---------------------------------------------------------------------------
</TABLE>
In the most likely interest rate environment, net interest income is expected
to decline by approximately 21 percent in 1995 compared with full-year 1994.
The expected decline in net interest income is primarily due to the impact of
interest rate swaps, narrowing loan spreads and higher deposit and borrowing
costs. These results also include the impact of actions taken by management
during the latter part of 1994 to reduce the adverse impact of interest rates
above the most likely interest rate environment. Such actions included the
purchase of interest rate caps with a notional value of $5.5 billion, entering
into pay-fixed interest rate swaps with a notional value of $5.0 billion and
the sale of $4.5 billion of fixed-rate securities. The model also reflects the
impact of management's plans to reduce further the securities portfolio,
through scheduled maturities and repayments, and to repurchase common stock.
These actions are expected to reduce net interest income in 1995 by
approximately $124 million.
If interest rates are 100 basis points higher than management's most likely
interest rate environment, the simulation model projects net interest income in
1995 would decline from the most likely scenario by 4 percent. Conversely, if
interest rates are 100 basis points lower, net interest income would exceed the
most likely scenario by 4 percent.
In addition to the income simulation model, management performs an interest
rate sensitivity ("gap") analysis which represents a point-in-time net position
of assets, liabilities and off-balance-sheet instruments subject to repricing
in specified time periods. Gap analysis alone does not accurately measure the
magnitude of changes in net interest income since changes in interest rates do
not impact all categories of assets, liabilities and off-balance-sheet
instruments equally or simultaneously. The liability sensitivity of the
cumulative one-year gap position was 1.5 percent of total earning assets at
December 31, 1994, compared with 17.4 percent at September 30, 1994, and 8.6
percent a year ago. The actions taken by management in the second half of 1994
substantially eliminated the one-year cumulative liability sensitive position
of the Corporation in the most likely interest rate environment.
<PAGE> 21
39 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
The distribution in the Interest Rate Sensitivity table is based on a
combination of maturities, call provisions, repricing frequencies, prepayment
patterns and historical experience and management's most likely interest rate
environment. Variable-rate assets and liabilities are distributed based on the
repricing frequency of the instrument.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY (GAP) ANALYSIS
- - - ----------------------------------------------------------------------------------------------------------------------------------
Rate Sensitive
------------------------------------------------------------------------------------------
December 31, 1994 1 to 91 to 181 to 1 to 2 2 to 5 Beyond
In millions 90 Days 180 Days 365 Days Years Years 5 Years Total
- - - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans $17,986 $ 2,275 $3,246 $2,981 $ 5,238 $ 3,681 $35,407
Securities 4,043 1,447 2,582 2,527 7,149 3,173 20,921
Other earning assets 1,296 1,296
Other assets 2,359 13 31 54 161 3,903 6,521
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total assets $25,684 $ 3,735 $5,859 $5,562 $12,548 $ 10,757 $64,145
- - - ----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits $ 865 $ 17 $ 6,110 $ 6,992
Interest-bearing deposits 8,421 $ 2,169 3,069 $2,384 $ 2,425 9,551 28,019
Borrowings 18,608 3,100 362 66 202 1,024 23,362
Other liabilities 27 1,351 1,378
Shareholders' equity 4,394 4,394
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $27,921 $ 5,269 $3,448 $2,450 $ 2,627 $ 22,430 $64,145
- - - ----------------------------------------------------------------------------------------------------------------------------------
Off-balance-sheet items (476) 503 449 291 (623) (144)
- - - ----------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity (2,713) (1,031) 2,860 3,403 9,298 $(11,817)
- - - ----------------------------------------------------------------------------------------------------------------------------------
Cumulative gap $(2,713) $(3,744) $ (884) $2,519 $11,817
- - - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL DERIVATIVES The Corporation uses off-balance-sheet financial
derivatives as part of its overall asset/liability management process. The
majority of such instruments consist of interest rate swaps, interest rate
caps, and forward contracts, which are used to manage interest rate risk.
Interest rate swaps are agreements with a counterparty to exchange periodic
interest payments that are calculated on a notional principal amount. Interest
rate swaps, including those with index-amortizing characteristics, are used to
alter the repricing structure of interest-bearing assets or liabilities.
Interest rate caps are agreements where, for a fee, the counterparty agrees to
pay the Corporation the amount, if any, by which a specified market interest
rate exceeds a defined cap rate applied to a notional amount.
Forward contracts provide for the delivery of financial instruments at a
specified future date and at a specified price or yield. The Corporation uses
forward contracts to manage interest rate risk associated with its mortgage
banking activities. Commitments to purchase and sell forward contracts totaled
$16 million and $350 million, respectively, at year-end 1994. Substantially all
contracts mature within 90 days.
Financial derivatives involve, to varying degrees, interest rate and credit
risk in excess of the amount recognized in the balance sheet. The Corporation
manages overall interest rate risk, including that related to financial
derivatives, as part of its asset/liability management process. Financial
derivatives are also subject to the Corporation's credit policies and
procedures.
<TABLE>
<CAPTION>
INTEREST RATE SWAPS AND CAPS
- - - ----------------------------------------------------------------------------------------------------------------------------
Gain Position Loss Position
--------------------------------------------------------- Total
In millions Notional Fair Notional Fair Notional
December 31, 1994 Value Value Value Value Value
- - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rate swaps
Receive-fixed $ 119 $ 4 $11,375 $ (772) $11,494
Pay-fixed 5,060 26 658 (19) 5,718
- - - ----------------------------------------------------------------------------------------------------------------------------
Total swaps 5,179 30 12,033 (791) 17,212
Interest rate caps 5,500 132 5,500
- - - ----------------------------------------------------------------------------------------------------------------------------
Total $10,679 $ 162 $12,033 $ (791) $22,712
- - - ----------------------------------------------------------------------------------------------------------------------------
December 31, 1993
Interest rate swaps
Receive-fixed $ 7,904 $ 153 $ 2,715 $ (26) $10,619
Pay-fixed 1,193 (86) 1,193
- - - ----------------------------------------------------------------------------------------------------------------------------
Total $ 7,904 $ 153 $ 3,908 $ (112) $11,812
- - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
40 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
Substantially all receive-fixed swaps are index amortizing and are primarily
associated with commercial loans and deposits. The Corporation receives
payments based on fixed interest rates and makes payments based on floating
money market indices, primarily 1-month and 3-month LIBOR. The notional values
of the receive-fixed swaps amortize on predetermined dates and in predetermined
amounts based on market movements of the designated index, which are primarily
3-year U.S. Treasury constant maturities and 3-month LIBOR. The Corporation's
swaps do not contain leverage or any similar features.
The Corporation's pay-fixed interest rate swaps are associated with
collateralized mortgage and U.S. Treasury obligations in the investment
securities portfolio. The Corporation receives payments based on floating money
market indices, primarily 3-month LIBOR, and pays fixed interest rates.
Substantially all pay-fixed swaps mature by the end of 1998.
<TABLE>
<CAPTION>
INTEREST RATE SWAPS AND CAPS ACTIVITY
- - - ----------------------------------------------------------------------------------------------------------------------------
Notional value January 1 Maturities/ December 31
In millions 1994 Additions Amortization Terminations 1994
- - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rate swaps
Receive-fixed $ 10,619 $ 3,200 $ (2,321) $ (4) $ 11,494
Pay-fixed 1,193 5,000 (270) (205) 5,718
Interest rate caps 5,500 5,500
- - - ----------------------------------------------------------------------------------------------------------------------------
Total $ 11,812 $ 13,700 $ (2,591) $ (209) $ 22,712
- - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
In November 1994, the Corporation paid a $129.6 million premium for interest
rate caps with a notional value of $5.5 billion associated with collateralized
mortgage obligations in the investment securities portfolio. The caps require
the counterparty to pay the Corporation the excess of 3-month LIBOR over a
specified cap rate, currently 6.00 percent, computed quarterly based on the
notional value of the contracts. At December 31, 1994, 3-month LIBOR was 6.50
percent. The cap rate adjusts to 6.50 percent at the end of 1995 and the
contracts expire at the end of 1997. The agreements limit the amount payable to
the Corporation to 150 basis points over the cap rate. The effect of these caps
is to modify the interest rate characteristics of certain fixed-rate
collateralized mortgage obligations to be variable within certain ranges.
Only the interest payments and the premium on the agreements 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 and cap activities primarily
by entering into transactions with only a select number of high-quality
institutions, establishing credit limits with counterparties and, where
applicable, requiring segregated collateral or bilateral netting agreements. At
December 31, 1994, credit exposure related to interest rate swaps and caps
totaled $48 million and was 47 percent collateralized.
During 1994, interest rate swaps benefited net interest income by $100.7
million compared with $203.3 million in 1993. Based on its most likely interest
rate environment, and as reflected in the results of the simulation model,
management expects interest rate swaps and caps will adversely impact net
interest income in 1995.
The following table sets forth the maturity distribution of the notional value
of interest rate swaps and the associated weighted average interest rates on
swaps maturing in the respective year, assuming management's most likely
interest rate environment. Variable rates paid or received are subject to
change as the underlying index floats with changes in the market.
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF INTEREST RATE SWAPS BASED ON MANAGEMENTS MOST LIKELY
INTEREST RATE ENVIRONMENT
- - - ----------------------------------------------------------------------------------------------------------------------------
1999 and
Dollars in millions 1995 1996 1997 1998 Beyond Total
- - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive-fixed
Notional value $ 1,282 $ 481 $ 4,243 $ 4,461 $ 1,027 $ 11,494
Weighted average fixed
interest rate received 6.27% 5.87% 5.81% 5.29% 5.22% 5.61%
Weighted average variable
interest rate paid 6.65 7.04 6.87 7.06 7.10 6.95
Pay-fixed
Notional value $ 320 $ 1.65 $ 1,040 $ 4,050 $ 143 $ 5,718
Weighted average variable
rate received 6.38 6.88 7.10 7.10 7.10 7.05
Weighted average fixed interest
rate paid 5.15 7.50 7.90 7.93 9.59 7.80
- - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
41 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
LIQUIDITY MANAGEMENT Liquidity represents an institution's ability to generate
cash or otherwise obtain funds at reasonable rates to satisfy commitments to
borrowers, demands of depositors and debtholders, and invest in other strategic
initiatives. 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, short-term investments, loans
held for sale and securities available for sale. At December 31, 1994, such
assets totaled $7.3 billion. Liquidity is also provided by residential
mortgages and mortgage-related securities which may be used as collateral for
funds obtained through the Federal Home Loan Bank system or, with respect to
mortgage-related securities, sold under agreements to repurchase. At December
31, 1994, approximately $5.2 billion and $1.3 billion of residential mortgages
and mortgage-related securities, respectively, were available for collateral
for borrowings from the Federal Home Loan Bank system. Alternatively,
mortgage-related securities may be used as collateral for securities sold under
agreements to repurchase. The planned reduction in the securities portfolio and
related wholesale funding sources is not expected to materially affect overall
liquidity.
Liquidity for the parent company and its affiliates is also 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, 1994, the Corporation had available $140 million of debt, $300
million of preferred stock and $350 million of securities that may be issued as
either debt or preferred stock. Additionally, the Corporation had a $300
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 or potential acquisitions
may include the issuance of instruments that qualify as regulatory capital,
such as preferred stock or subordinated debt.
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.
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 are
used in extending credit.
To assist in the consistent application of underwriting standards, credit
officers work with lending officers in 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.
ASSET QUALITY During 1994, nonperforming assets declined $108 million
reflecting continued improvement in overall asset quality. Excluding the impact
of the First Eastern acquisition, total nonperforming assets declined $165
million when compared with year-end 1993.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
- - - -----------------------------------------------------------------------
December 31
Dollars in millions 1994 1993
- - - -----------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans
Commercial $ 177 $ 181
Real estate project 68 91
Real estate mortgage 65 84
- - - -----------------------------------------------------------------------
Total nonaccrual loans 310 356
- - - -----------------------------------------------------------------------
Restructured loans 9 28
- - - -----------------------------------------------------------------------
Total nonperforming loans 319 384
- - - -----------------------------------------------------------------------
Foreclosed assets
Real estate project 75 108
Real estate mortgage 25 42
Other 27 20
- - - -----------------------------------------------------------------------
Total foreclosed assets 127 170
- - - -----------------------------------------------------------------------
Total $ 446 $ 554
- - - -----------------------------------------------------------------------
Nonperforming loans to total loans .90% 1.15%
Nonperforming assets to total
loans and foreclosed assets 1.25 1.65
Nonperforming assets to total assets .69 .89
- - - -----------------------------------------------------------------------
</TABLE>
<PAGE> 24
42 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
The following table sets forth the changes in nonperforming assets during 1994
and 1993.
CHANGE IN NONPERFORMING ASSETS
<TABLE>
<CAPTION>
In millions 1994 1993
- - - -----------------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $ 554 $ 820
- - - -----------------------------------------------------------------------
Transferred from accrual 348 296
Acquisitions 69 104
Returned to performing (61) (59)
Principal reductions (266) (306)
Sales (103) (131)
Charge-offs and valuation adjustments (95) (170)
- - - -----------------------------------------------------------------------
Balance at December 31 $ 446 $ 554
- - - -----------------------------------------------------------------------
</TABLE>
At December 31, 1994, $62 million of nonperforming loans were current as to
principal and interest compared with $102 million at December 31, 1993. Office,
retail and land projects accounted for 70 percent of total nonperforming real
estate project assets at December 31, 1994. The Corporation's primary markets
accounted for 59 percent of total nonperforming real estate project assets. The
southeast region of the United States and metropolitan Washington D.C. area
accounted for 27 percent and 9 percent, respectively.
Nonperforming Assets (in millions of dollars)
Data points for the graph of the Corporation's nonperforming assets for the
five years ended December 31, 1990 through 1994 follow:
<TABLE>
<CAPTION>
Nonperforming
Assets
--------------
<S> <C>
1994 446
1993 554
1992 820
1991 1,083
1990 1,305
</TABLE>
Accruing loans contractually past due 90 days or more as to the payment of
principal or interest totaled $148 million at December 31, 1994 compared with
$135 million a year ago. Residential mortgages and student loans totaling $50
million and $36 million, respectively, were included in the total at December
31, 1994 compared with $55 million and $41 million, respectively, at year-end
1993.
Loans not included in 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 $111 million at December 31,
1994. A total of $71 million of these loans 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; and the impact of government regulation.
Residential mortgage and consumer loan allocations are based on historical loss
experience adjusted for portfolio activity and current economic conditions.
The allowance for credit losses totaled $1.0 billion at December 31, 1994
compared with $972 million at December 31, 1993. The allowance as a percentage
of period-end loans and nonperforming loans was 2.83 percent and 314.2 percent,
respectively, at December 31, 1994. The comparable year-end 1993 amounts were
2.92 percent and 253.1 percent, respectively. The allowance for credit losses
is expected to decline during 1995.
<TABLE>
<CAPTION>
CHARGE-OFFS AND RECOVERIES
- - - --------------------------------------------------------------------------------------------------------
In millions Net Percent of
Year ended December 31, 1994 Charge-offs Recoveries Charge-offs Average Loans
- - - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 61 $38 $ 23 .19%
Real estate project 20 2 18 1.07
Real estate mortgage 21 3 18 .19
Consumer 68 32 36 .41
- - - --------------------------------------------------------------------------------------
Total $170 $75 $ 95 .29%
- - - --------------------------------------------------------------------------------------------------------
Year ended December 31, 1993
Commercial $ 92 $37 $ 55 .51%
Real estate project 60 2 58 3.14
Real estate mortgage 15 3 12 .27
Consumer 79 32 47 .59
- - - --------------------------------------------------------------------------------------
Total $246 $74 $172 .66%
- - - --------------------------------------------------------------------------------------------------------
</TABLE>
The 1994 charge-off and recovery levels reflected the continued improvement in
overall asset quality and the Corporation's loan workout efforts.
<PAGE> 25
43 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
OVERVIEW
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 shareholder's 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 SFAS No. 109 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 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 fully diluted share, 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 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.
MERGERS AND ACQUISITIONS
On November 30, 1993, the Corporation consummated its acquisition of PNC
Mortgage. In addition, during 1993 the Corporation acquired PNC Bank, New
England (formerly The Massachusetts Company, Inc.), Boston, Massachusetts and
Gateway Fed Corporation, Cincinnati, Ohio.
INCOME STATEMENT REVIEW
NET INTEREST INCOME AND NET INTEREST MARGIN On a fully taxable-equivalent
basis, net interest income for 1993 increased $168.5 million, or 9.9 percent,
to $1.9 billion due to an increase in average earning assets.
The net interest margin for 1993 was 3.95 percent compared with 4.03 percent in
1992. 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 PNC Mortgage acquisition. Partially offsetting these
factors was the impact of interest rate swaps.
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.
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.
Trust revenue increased 5.8 percent to $184.3 million in the comparison
primarily due to new business. Trust assets totaled $114 billion at December
31, 1993 compared with $101 billion in 1992. 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.
<PAGE> 26
44 CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
Mortgage origination, brokerage and loan syndication fees increased $8.6
million, $7.3 million and $6.0 million, respectively.
NONINTEREST EXPENSE Staff expense increased 2.5 percent during 1993 to $685.4
million. Higher compensation expense resulted from adding employees in
strategic businesses, acquisitions, and merit pay increases. Average full-time
equivalent employees increased 4.8 percent in the comparison to approximately
18,000.
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.
Acquisitions accounted for half of the increase in net occupancy and equipment
expenses, which totaled $115.4 million and $114.0 million, respectively, in
1993 compared with $104.4 million and $102.2 million in 1992. 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 8.6 percent in the comparison to $442.0
million. A decline of $76.6 million in net foreclosed asset expense was
partially offset by an increase in expenses related to acquisitions.
Amortization of intangible assets increased $13.3 million, primarily within the
amortization of purchased mortgage servicing rights resulting from higher
prepayment experience in the lower interest rate environment.
BALANCE SHEET REVIEW
Total assets increased approximately $10.7 billion to $62.1 billion at December
31, 1993 in the year-to-year comparison primarily as a result of acquisitions.
Total commercial loans outstanding 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.
Total consumer loans outstanding increased $575 million to $8.5 billion, at
December 31, 1993, and residential mortgages increased $4.8 billion to $8.0
billion as a result of the PNC Mortgage acquisition.
Securities totaled $23.1 billion at December 31, 1993 compared with $20.7
billion a year earlier. The increase in the portfolio was primarily due to
acquisitions.
Deposits increased $3.6 billion to $33.1 billion in the year-to-year
comparison. Demand, savings and money market deposits increased $1.5 billion
and time deposits increased $2.2 billion during 1993.
Borrowed funds totaled $11.7 billion at December 31, 1993 compared with $11.8
billion at year-end 1992. Notes and debentures increased $5.3 billion to $9.6
billion at December 31, 1993. The increase was primarily due to issuance of
$4.1 billion of bank notes.
ASSET QUALITY During 1993, asset quality continued to improve. Nonperforming
assets totaled $554 million at December 31, 1993 compared with $820 million at
year end 1992.
At December 31, 1993, $102 million of nonperforming loans were current as to
principal and interest compared with $144 million at December 31, 1992.
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.
ALLOWANCE FOR CREDIT LOSSES 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 253.1 percent at
December 31, 1993 compared with 162.1 percent at December 31, 1992.
CAPITAL Shareholders' equity totaled $4.3 billion at December 31, 1993,
compared with $3.7 billion at December 31, 1992. The Corporation's leverage
ratio totaled 7.85 percent and 7.62 percent at December 31, 1993 and 1992,
respectively. Tier I and total risk-based capital ratios were 9.57 percent and
12.11 percent, respectively, at December 31, 1993. The comparable December 31,
1992 ratios were 10.17 percent and 12.09 percent, respectively.
<PAGE> 27
45 REPORTS ON CONSOLIDATED FINANCIAL STATEMENTS
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, 1994. 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, 1994.
/s/ THOMAS H. O'BRIEN /s/ ROBERT L. HAUNSCHILD
Thomas H. O'Brien Senior Vice President and
Chairman and Chief Financial Officer
Chief Executive Officer
REPORT OF ERNST & YOUNG LLP,
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, 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.
Pittsburgh, Pennsylvania
January 27, 1995
<PAGE> 28
46 CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- - - ----------------------------------------------------------------------------------------------
December 31
Dollars in millions, except par values 1994 1993
- - - ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,592 $ 1,817
Short-term investments 809 856
Loans held for sale 487 1,392
Securities available for sale. 3,457 11,388
Investment securities, fair value of $16,233 and $11,716 17,464 11,672
Loans, net of unearned income of $240 and $222 35,407 33,308
Allowance for credit losses (1,002) (972)
- - - ----------------------------------------------------------------------------------------------
Net loans 34,405 32,336
- - - ----------------------------------------------------------------------------------------------
Other 4,931 2,619
- - - ----------------------------------------------------------------------------------------------
Total assets $64,145 $62,080
- - - ----------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Noninterest-bearing $ 6,992 $ 7,057
Interest-bearing 28,019 26,058
- - - ----------------------------------------------------------------------------------------------
Total deposits 35,011 33,115
- - - ----------------------------------------------------------------------------------------------
Borrowed funds
Federal funds purchased 2,181 2,066
Repurchase agreements 3,785 4,995
Commercial paper 1,226 514
Other 4,416 4,087
- - - ----------------------------------------------------------------------------------------------
Total borrowed funds 11,608 11,662
- - - ----------------------------------------------------------------------------------------------
Notes and debentures 11,754 9,585
Accrued expenses and other liabilities 1,378 3,393
- - - ----------------------------------------------------------------------------------------------
Total liabilities 59,751 57,755
- - - ----------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock--$1 par value
Authorized: 17,601,524 and 17,663,791 shares
Issued and outstanding: 920,966 and 983,233 shares 1 1
Aggregate liquidation value: $19 and $20
Common stock--$5 par value
Authorized: 450,000,000 shares
Issued: 236,063,418 and 234,994,196 shares 1,180 1,175
Capital surplus 462 450
Retained earnings 3,018 2,715
Deferred ESOP benefit expense (83) (95)
Net unrealized securities gains (119) 88
Common stock held in treasury at cost: 2,814,910 and 288,959 shares (65) (9)
- - - ----------------------------------------------------------------------------------------------
Total shareholders' equity 4,394 4,325
- - - ----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $64,145 $62,080
- - - ----------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 29
CONSOLIDATED STATEMENT OF INCOME 47
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
In thousands, except per share data 1994 1993 1992
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans $2,479,093 $1,950,937 $1,964,248
Securities 1,290,998 1,203,151 1,203,643
Other 91,721 47,032 51,080
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 3,861,812 3,201,120 3,218,971
- - - ---------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 935,876 742,772 1,063,422
Borrowed funds 499,252 362,995 352,162
Notes and debentures 517,078 266,320 146,095
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,952,206 1,372,087 1,561,679
- - - ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,909,606 1,829,033 1,657,292
Provision for credit losses 60,123 203,944 323,531
- - - ---------------------------------------------------------------------------------------------------------------------------------
Net interest income less provision for credit losses 1,849,483 1,625,089 1,333,761
- - - ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Investment management and trust 292,052 273,849 260,113
Service charges, fees and commissions 370,146 354,297 330,317
Mortgage banking 198,548 50,590 30,476
Net securities gains (losses) (134,919) 187,694 193,503
Other 96,814 78,819 72,367
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 822,641 945,249 886,776
NONINTEREST EXPENSES
Staff expense 835,672 685,388 668,403
Net occupancy and equipment 280,437 229,308 206,560
Amortization of intangibles 82,237 31,589 18,294
Federal deposit insurance 73,902 65,488 65,629
Other 497,487 441,953 483,529
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 1,769,735 1,453,726 1,442,415
- - - ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of changes in accounting principles 902,389 1,116,612 778,122
Applicable income taxes 292,327 371,349 248,682
- - - ---------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in accounting principles 610,062 745,263 529,440
Cumulative effect of changes in accounting principles,
net of tax benefit of $5,343 and $52,804 (19,393) (102,501)
- - - ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 610,062 $ 725,870 $ 426,939
- - - ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Primary before cumulative effect of changes in accounting principles $ 2.57 $ 3.14 $ 2.36
Cumulative effect of changes in accounting principles (.08) (.46)
- - - ---------------------------------------------------------------------------------------------------------------------------------
Primary $ 2.57 $ 3.06 $ 1.90
- - - ---------------------------------------------------------------------------------------------------------------------------------
Fully diluted before cumulative effect of changes in accounting principles $ 2.56 $ 3.13 $ 2.34
Cumulative effect of changes in accounting principles (.09) (.45)
- - - ---------------------------------------------------------------------------------------------------------------------------------
Fully diluted $ 2.56 $ 3.04 $ 1.89
- - - ---------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 1.31 $ 1.175 $ 1.08
AVERAGE COMMON SHARES OUTSTANDING
Primary 236,610 236,386 224,023
Fully diluted 238,448 238,421 227,125
- - - ---------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 30
48 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------------
Preferred Common Capital Retained
Dollars in millions, except per share data Stock Stock Surplus Earnings Other Total
- - - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992 $1 $ 537 $ 881 $2,016 $(119) $3,316
- - - -----------------------------------------------------------------------------------------------------------------
Net income 427 427
Cash dividends declared (238) (238)
Deferred ESOP benefit expense 13 13
Treasury shares
Purchased (515,152) (13) (13)
Issued (513,953) 13 13
Common stock issued (9,479,414) 47 123 55 225
Acquisitions 33 72 55 160
Other 14 51 65
Transfer to reflect two-for-one stock split 579 (579)
ESOP dividends tax benefit 3 3
- - - ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 1 1,163 425 2,263 (106) 3,746
- - - ------------------------------------------------------------------------------------------------------------------
Net income 726 726
Cash dividends declared (277) (277)
Deferred ESOP benefit expense 11 11
Treasury shares
Purchased (810,416) (19) (19)
Issued (522,998) 10 10
Common stock issued (2,419,402) 12 34 46
Redemption of preferred stock (9) (9)
ESOP dividends tax benefit 3 3
Net unrealized securities gains 88 88
- - - -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 1 1,175 450 2,715 (16) 4,325
- - - -------------------------------------------------------------------------------------------------------------------
Net income 610 610
Cash dividends declared (309) (309)
Deferred ESOP benefit expense 12 12
Treasury shares
Purchased (3,678,141) (89) (89)
Issued (1,152,190) 33 33
Common stock issued (1,069,222) 5 9 14
ESOP dividends tax benefit 2 2
Stock options tax benefit 3 3
Net unrealized securities losses (207) (207)
- - - -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $1 $1,180 $ 462 $3,018 $(267) $4,394
- - - -------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 31
CONSOLIDATED STATEMENT OF CASH FLOWS 49
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
In millions 1994 1993 1992
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 610 $ 726 $ 427
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 60 204 324
Depreciation, amortization and accretion 246 148 137
Deferred income taxes 32 (61) (36)
Net securities (gains) losses 135 (188) (194)
Net gain on sales of assets (61) (16) (43)
Valuation adjustments on assets, net of gains on sales (13) (22) 50
Changes in
Loans held for sale 957 (42) 117
Other (462) 193 25
- - - --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,504 961 910
- - - --------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in loans (1,284) (3,081) 945
Repayment
Securities available for sale 2,100 1,196 575
Investment securities 3,016 7,784 5,712
Sales
Securities available for sale 11,282 16,659 7,976
Investment securities 278
Loans 567 81 191
Foreclosed assets 113 144 96
Purchases
Securities available for sale (9,616) (13,620) (5,868)
Investment securities (7,794) (11,839) (13,101)
Loans (29) (433) (213)
Net cash paid for acquisitions (475) (190) (26)
Other 180 269 176
- - - --------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,940) (3,030) (3,259)
- - - --------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits (393) 1,137 529
Interest-bearing deposits (63) (1,536) (3,324)
Federal funds purchased 111 (2,082) 457
Sale/issuance
Repurchase agreements 125,322 163,675 165,563
Commercial paper 5,621 5,221 10,253
Other borrowed funds 110,292 48,310 35,391
Notes and debentures 9,627 9,015 424
Common stock 45 53 74
Redemption/maturity
Repurchase agreements (126,531) (165,133) (162,994)
Commercial paper (4,909) (5,687) (9,831)
Other borrowed funds (109,957) (46,565) (33,588)
Notes and debentures (7,555) (4,344) (337)
Net acquisition of treasury stock (90) (19) (13)
Cash dividends paid to shareholders (309) (276) (239)
- - - --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,211 1,769 2,365
- - - --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 775 (300) 16
Cash and due from banks at beginning of year 1,817 2,117 2,101
- - - --------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 2,592 $ 1,817 $ 2,117
- - - --------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 50
ACCOUNTING POLICIES
BUSINESS PNC Bank Corp. provides a full range of banking and related financial
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. 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.
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.
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.
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 investments or
trading are designated as securities available for sale and carried at fair
value with unrealized gains and losses refiected in shareholders' equity. As a
result of adopting SFAS No. 115, $7.2 billion of investment securities were
reclassified as available for sale on December 31, 1993.
Gains and losses on sales of securities available for sale are generally
computed on a specific security basis and recognized in results of operations.
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.
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 the
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.
<PAGE> 33
51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. These 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 refiected 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.
INTANGIBLE ASSETS Effective January 1, 1993, the Corporation changed its method
of accounting for certain identifiable 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.
DEPRECIATION AND AMORTIZATION Depreciation and amortization of premises and
equipment are principally computed using 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.
FINANCIAL DERIVATIVES The Corporation uses off-balance-sheet financial
derivatives as part of its overall asset/liability management process. The
majority of such instruments consist of interest rate swaps, interest rate
caps, and forward contracts, which are used to manage interest rate exposure.
Interest rate swaps, including swaps with index-amortizing characteristics, are
agreements with a counterparty to exchange periodic interest payments that are
calculated on a notional principal amount. Interest rate swaps that are used to
alter the repricing structure of interest-bearing assets or liabilities are
accounted for under the accrual method. To qualify for such accounting, the
swaps must be designated to interest-bearing assets or liabilities and alter
their interest rate characteristics (such as from fixed to variable, variable
to fixed, or one variable index to another) over the expected term of the swap
agreements or the designated instruments, whichever is shorter. Under this
method, the net amount payable or receivable from interest rate swaps is
accrued as an adjustment to interest income or expense of the designated
instruments.
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 52
Changes in fair value of interest rate swaps accounted for under the accrual
method are not refiected in the accompanying financial statements. Realized
gains and losses on terminated interest rate swaps are deferred as an
adjustment to the carrying amount of the designated instruments and amortized
over the shorter of the remaining original life of the agreements or the
designated instruments.
Interest rate caps are agreements where, for a fee, the counterparty agrees to
pay the Corporation the amount, if any, by which a specified market interest
rate exceeds a defined cap rate applied to a notional amount. Interest rate
caps must be designated to interest-bearing assets or liabilities and modify
their interest rate characteristics (such as modifying a fixed-rate asset to a
floating-rate asset when rates exceed the defined cap rate) over the term of
the cap agreement or the designated instruments, whichever is shorter. Premiums
on interest rate caps are deferred and amortized over the life of the agreement
as an adjustment to interest income or interest expense of the designated
instruments. Unamortized premiums are included in other assets. Payments
received on interest rate caps are recognized under the accrual method as an
adjustment to interest income or expense of the designated instruments. Changes
in fair value of interest rate caps accounted for under the accrual method are
not reflected in the accompanying financial statements.
Forward contracts provide for the delivery of financial instruments at a
specified future date and at a specified price or yield. The Corporation uses
forward contracts to manage interest rate risk associated with its mortgage
banking activities. Realized gains and losses on mandatory and optional
delivery forward commitments are recorded as other income in the period
settlement occurs. Unrealized gains or losses are considered in the lower of
cost or market valuation of loans held for sale.
In addition, the Corporation enters into foreign currency exchange contracts to
accommodate customers. The fair value of such activity is recorded in other
assets. Realized and unrealized gains and losses are included in other income.
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. 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 law 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 in 1993 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.
<PAGE> 35
53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MERGERS AND ACQUISITIONS
In 1994, the Corporation completed the acquisition of United Federal Bancorp,
Inc., State College, Pennsylvania, and First Eastern Corp., Wilkes-Barre,
Pennsylvania, for a total of $486 million in cash. The combined assets and
deposits totaled $2.8 billion and $2.4 billion, respectively, at closing. The
Corporation also completed the acquisition of a $10-billion residential
mortgage servicing portfolio from the Associates Corporation of North America
for $117 million in cash. These transactions were accounted for under the
purchase accounting method.
The Corporation also entered into a definitive agreement to acquire BlackRock
Financial Management, L.P., a New York-based, fixed-income investment
management firm with approximately $23 billion in assets under management. The
purchase price is approximately $240 million in cash and notes and will be paid
over five years. The acquisition will be accounted for under the purchase
accounting method. This transaction is expected to close in the first quarter
1995, pending approval of shareholders of certain managed mutual funds.
In the third quarter of 1994, the Corporation announced agreements to acquire
Brentwood Financial Corporation ("Brentwood"), Cincinnati, Ohio, and Indian
River Federal Savings Bank ("Indian River"), Vero Beach, Florida. The aggregate
purchase price approximates $33 million in cash. The combined assets and
deposits totaled approximately $175 million and $140 million, respectively, at
December 31, 1994. The acquisition of Indian River was completed in January
1995 and, upon consummation, it was renamed PNC Bank, FSB. Brentwood is
expected to close in the first quarter of 1995.
On November 30, 1993, the Corporation completed its acquisition of PNC Mortgage
(formerly Sears Mortgage Banking Group) for $328 million in cash. During the
third quarter of 1994, the post-closing purchase price adjustments were
finalized with no material impact. The transaction was recorded under the
purchase method of accounting, and the total assets of PNC Mortgage were $7.6
billion at closing.
During 1993, the Corporation acquired for cash PNC Bank, New England (formerly
The Massachusetts Company, Inc.), 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.
CASH FLOWS
For purposes of the statement of cash flows, the Corporation defines cash and
due from banks as cash and cash equivalents. During 1994, 1993 and 1992,
interest paid on deposits and other contractual debt obligations was $1.9
billion, $1.3 billion and $1.6 billion, respectively, and income taxes paid
were $382.7 million, $396.0 million and $257.3 million, respectively. During
1994, $2.7 billion of securities available for sale were reclassified to
investment securities. Loans transferred to foreclosed assets aggregated $57.6
million in 1994, $24.5 million in 1993 and $89.2 million in 1992. In addition,
in connection with acquisitions completed during 1994, the Corporation acquired
assets of $2.8 billion and assumed liabilities of $2.7 billion. The cash paid
totaled $603 million and the Corporation received $128 million in cash and due
from banks in connection with these acquisitions.
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 54
SECURITIES
The following table sets forth the securities portfolio at December 31, 1994
and 1993.
Proceeds from the sale of securities available for sale were $13.1 billion and
$16.7 billion in 1994 and 1993, respectively. Gross gains on such sales were
$62.1 million and $186.6 million and gross losses were $197.0 million and $4.5
million.
Proceeds from the sale of debt securities during 1992 were $8.2 billion,
resulting in gross gains of $198.1 million, and gross losses of $.7 million. At
December 31, 1994, $1.8 billion of amounts receivable from the sale of
securities is included in other assets.
The carrying value of securities pledged to secure public and trust deposits,
repurchase agreements and for other purposes at December 31, 1994, was $12.1
billion.
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------------------------------------------------------
1994 1993
--------------------------------------------- ---------------------------------------------
Unrealized Unrealized
December 31, Amortized ----------------- Fair Amortized ----------------- Fair
In millions Cost Gains Losses Value Cost Gains Losses Value
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
Debt securities
U.S. Treasury $ 1,794 $ 93 $ 1,701 $ 1 $ 1
U.S. Government
agencies and
corporations
Mortgage-related 10,920 1,025 9,895 10,227 $ 39 $32 10,234
Other 1,000 28 972
State and municipal 348 $12 2 358 389 38 427
Asset-backed private
placements 1,597 33 1,564
Other debt
Mortgage-related 726 43 683 513 4 509
Other 769 20 749 297 3 300
Other 310 1 311 245 245
- - - --------------------------------------------------------------------------------------------------------------------------------
Total $17,464 $13 $1,244 $16,233 $11,672 $ 80 $36 $11,716
- - - --------------------------------------------------------------------------------------------------------------------------------
Securities available for sale
Debt securities
U.S. Treasury $ 401 $ 8 $ 393 $ 2,402 $ 2 $ 2 $ 2,402
U.S. Government
agencies and
corporations
Mortgage-related 2,161 69 2,092 7,998 114 15 8,097
Other 25 4 21 25 1 24
Other debt
Mortgage-related 749 17 732 691 18 4 705
Other 117 $ 2 119 99 99
Corporate stocks and other 105 1 6 100 36 25 61
- - - --------------------------------------------------------------------------------------------------------------------------------
Total $ 3,558 $ 3 $ 104 $ 3,457 $11,251 $159 $22 $11,388
- - - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 37
55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amortized cost and fair value of debt
securities at December 31, 1994 by remaining contractual maturities. Based on
historical experience and management's most likely interest rate environment,
the weighted average expected maturity of all mortgage-related and asset-backed
securities was approximately 4 years at December 31, 1994.
<TABLE>
<CAPTION>
December 31, 1994 Amortized Fair
In millions Cost Value
- - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment securities
Debt securities
One year or less $ 17 $ 18
After one year through five years 1,889 1,797
After five years through ten years 69 71
After ten years 180 185
U.S. Government agency debt 1,000 972
Mortgage-related securities 11,646 10,578
Asset-backed securities 2,353 2,301
Other 310 311
- - - -------------------------------------------------------------------------------------------------------------------------------
Total $17,464 $16,233
- - - -------------------------------------------------------------------------------------------------------------------------------
Securities available for sale
Debt securities
One year or less $ 151 $ 151
After one year through five years 251 242
After five years through ten years 16 15
After ten years 57 61
U.S. Government agency debt 25 21
Mortgage-related securities 2,910 2,824
Asset-backed securities 43 43
Corporate stocks and other 105 100
- - - -------------------------------------------------------------------------------------------------------------------------------
Total $ 3,558 $ 3,457
- - - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
LOANS AND COMMITMENTS TO EXTEND CREDIT
Loans and commitments to extend credit were as follows:
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------
1994 1993
----------------------- -------------------------
Net Net
Underfunded Underfunded
December 31 Out- Com- Out- Com-
In millions standings mitments standings mitments
- - - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $12,445 $18,915 $12,463 $13,448
Real estate project 1,628 310 1,730 221
Real estate mortgage
Residential 9,283 769 8,036 1,521
Commercial 1,261 19 905 6
Consumer 9,187 5,544 8,525 4,666
Other 1,843 917 1,871 400
Unearned income (240) (222)
- - - -----------------------------------------------------------------------------------------
Total, net of unearned income $35,407 $26,474 $33,308 $20,262
- - - -----------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994, $1.9 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 affiliated companies 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 amounts of these loans were
$340 million and $313 million at December 31, 1994 and 1993, respectively.
During 1994, new loans of $211 million were funded, and repayments totaled $184
million.
Commitments to extend credit represent arrangements to lend funds and generally
require payment of a fee by the customer and contain fixed expiration dates or
other termination clauses and specified interest rates. Commitments to extend
credit are net of participations and syndications, primarily to financial
institutions, totaling $2.5 billion and $1.8 billion at December 31, 1994 and
1993, respectively.
Loan outstandings and related unfunded commitments are primarily concentrated
within affiliate markets, which include Delaware, Indiana, Kentucky, New
Jersey, Ohio and Pennsylvania. No specific industry concentration exceeded 8
percent of total outstandings and unfunded commitments.
Letters of credit totaled $4.3 billion and $3.9 billion at December 31, 1994
and 1993, respectively and consist primarily of standby letters of credit which
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. At year-end 1994, the largest industry
concentration within standby letters of credit was healthcare, which accounted
for approximately 20 percent of the total. Maturities for standby letters of
credit ranged from 1995 to 2011.
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 56
At December 31, 1994 and 1993, standby letters of credit included $539 million
and $758 million, respectively, of participations and syndications to others,
and $3.0 billion and $3.2 billion, respectively, to support medium- and
long-term debt.
NONPERFORMING ASSETS
Nonaccrual restructured loans, and foreclosed assets were as follows:
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------
December 31
In millions 1994 1993
- - - -----------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $310 $356
Restructured loans 9 28
- - - -----------------------------------------------------------------
Total nonperforming loans 319 384
Foreclosed assets 127 170
- - - -----------------------------------------------------------------
Total nonperforming assets $446 $554
- - - -----------------------------------------------------------------
</TABLE>
Related interest on nonperforming loans was as follows:
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------
Year ended December 31
In thousands 1994 1993 1992
- - - -----------------------------------------------------------------
<S> <C> <C> <C>
Interest computed
on original terms $31,490 $33,891 $53,362
Interest recognized 5,523 6,296 6,136
- - - -----------------------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, unfunded commitments to lend additional funds
with respect to nonperforming assets totaled $7 million and $41 million,
respectively. At December 31, 1994 and 1993, foreclosed assets are reported net
of valuation allowances of $39 million and $69 million, respectively. Gains on
sales of foreclosed assets resulted in net foreclosed asset income of $18
million and $27 million in 1994 and 1993, respectively, and is included in
other noninterest expense. Net foreclosed asset expense totaled $50 million in
1992.
ALLOWANCE FOR CREDIT LOSSES
The following table presents changes in the allowance for credit losses:
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------
In millions 1994 1993 1992
- - - -----------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 972 $ 897 $ 797
- - - -----------------------------------------------------------------
Charge-offs (170) (246) (343)
Recoveries 75 74 62
- - - -----------------------------------------------------------------
Net charge-offs (95) (172) (281)
- - - -----------------------------------------------------------------
Provision for credit losses 60 204 324
Acquisitions 65 43 57
- - - -----------------------------------------------------------------
Balance at December 31 $1,002 $ 972 $ 897
- - - -----------------------------------------------------------------
</TABLE>
The Corporation will adopt SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," effective January 1, 1995. Management does not expect
the adoption of the standard to have a material impact on the Corporation's
financial position or results of operations.
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 1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Land $ 63 $ 62
Buildings 393 364
Equipment 745 662
Leasehold improvements 129 127
- - - ---------------------------------------------------------------------------
1,330 1,215
Accumulated depreciation and amortization (627) (561)
- - - ---------------------------------------------------------------------------
Net book value $ 703 $ 654
- - - ---------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense on premises, equipment and leasehold
improvements totaled $102.5 million in 1994, $91.8 million in 1993 and $76.9
million in 1992.
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 $80.6
million in 1994, $61.8 million in 1993 and $57.5 million in 1992.
<PAGE> 39
57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1994, required minimum annual rentals due on noncancelable
leases having terms in excess of one year aggregated $294.9 million. Minimum
annual rentals for each of the years 1995 through 1999 are $54.7 million, $46.8
million, $35.8 million, $25.6 million and $20.5 million, respectively.
INTANGIBLE ASSETS
Intangible assets, net of amortization, consisted of the following:
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------
December 31
In millions 1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Goodwill $361 $ 78
Purchased mortgage servicing rights 323 264
Other 5 7
- - - ---------------------------------------------------------------------------
Total $689 $349
- - - ---------------------------------------------------------------------------
</TABLE>
REPURCHASE AGREEMENTS
Certain securities are sold under agreements to repurchase and are treated as
financings. The obligation to repurchase such securities is refiected as a
liability on the consolidated balance sheet. The dollar amounts of securities
underlying the agreements remain in the respective asset accounts.
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------------
Remaining Maturity by Securities Sold Repurchase
Type of Security ------------------------ ---------------------
December 31, 1994 Carrying Market Interest
In millions Amount Value Amount Rate
- - - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Next business day
Treasury $1,005 $ 981 $ 962 5.74%
Agency 641 587 531 4.64
4 to 30 days
Treasury 45 44 44 5.43
Agency 177 163 160 5.87
31 to 90 days
Treasury 23 23 22 5.58
Agency 1,190 1,084 1,035 5.60
Over 91 days to one year
Agency 1,149 1,029 979 5.81
Over one year
Treasury 27 26 21 7.82
Agency 32 31 31 6.45
- - - ------------------------------------------------------------------------------------
Total $4,289 $3,968 $3,785 5.59%
- - - ---------------------------------------------------------------------------------------------------
</TABLE>
NOTES AND DEBENTURES
Notes and debentures consisted of the following:
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------
December 31
In millions 1994 1993
- - - ------------------------------------------------------------------------
<S> <C> <C>
Banking Subsidiaries
Bank notes $ 8,825 $7,000
Federal Home Loan Bank 1,384 1,045
Student Loan Marketing Association 500 520
- - - ------------------------------------------------------------------------
Total Banking Subsidiaries 10,709 8,565
Other Subsidiaries
Senior notes 164 150
Subordinated notes 746 550
ESOP borrowing 110 110
Other 25 210
- - - ------------------------------------------------------------------------
Total Other Subsidiaries 1,045 1,020
- - - ------------------------------------------------------------------------
Total $11,754 $9,585
- - - ------------------------------------------------------------------------
</TABLE>
Bank notes mature in 1995 and have various interest rates that range from 3.50
percent to 5.90 percent. Obligation to the Federal Home Loan Bank have various
maturities ranging from 1995 to 2002 and interest rates that range from 2.90
percent to 8.76 percent. The Student Loan Marketing Association obligations
mature in 1995 and have various interest rates that range from 4.97 percent to
6.08 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 2004 and interest rates that range from 4.88 percent to
9.88 percent.
The ESOP borrowing is unconditionally guaranteed by the parent company and
consists of a series of medium-term, fixed-rate notes with maturities that
range from 1995 to 2000 and interest rates ranging from 3.75 percent to 5.43
percent. Interest expense on the borrowing was $5.4 million in 1994, $4.9
million in 1993 and $5.8 million in 1992.
Notes and debentures have scheduled repayments for the years 1995 through 1999
and thereafter of $10.3 billion, $59 million, $44 million, $69 million, and
$1.3 billion, respectively.
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENT 58
SHAREHOLDERS EQUITY
The redemption/liquidation value and number of shares outstanding by series of
the Corporation's preferred stock are as follows:
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------
Redemption/
Liquidation Shares Outstanding
--------------------------
December 31 Value Per Share 1994 1993
- - - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1.80 Series A $40 19,348 21,495
1.80 Series B 40 7,425 9,297
1.60 Series C 20 393,089 425,813
1.80 Series D 20 501,104 526,628
- - - -------------------------------------------------------------------------------------------------------
Total 920,966 983,233
- - - -------------------------------------------------------------------------------------------------------
</TABLE>
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. Holders of preferred stock 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. Holders of
preferred stock and common stock may participate in the plan which provides
that additional shares of common stock may be purchased at market value with
reinvested dividends and voluntary cash payments. The following number of
shares of common stock were purchased by shareholders pursuant to such plan:
785,631 shares in 1994; 591,785 shares in 1993; 670,309 shares in 1992.
The Corporation had reserved approximately 18.2 million common shares to be
issued in connection with employee stock options and the conversion of certain
debt and equity securities.
FINANCIAL DERIVATIVES
As part of asset/liability management, the Corporation uses off-balance-sheet
financial derivatives to manage interest rate risk. Financial derivatives with
off-balance-sheet risk involve, to varying degrees, interest rate and credit
risk in excess of the amount recognized in the balance sheet. The Corporation
manages interest rate risk, including that of financial derivatives, as part of
its overall asset/liability management process. Policies and procedures,
including established risk tolerance limits, net interest income simulations
and interest rate sensitivity analyses are used to manage interest rate risk.
Financial derivatives are also subject to the Corporation's credit policies and
procedures.
INTEREST RATE SWAPS AND CAPS The table below sets forth the interest rate swap
and cap portfolios and related fair values at year-end 1994 and 1993.
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
Gain Position Loss Position
--------------------------------------------------------- Total
In millions Notional Fair Notional Fair Notional
December 31, 1994 Value Value Value Value Value
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rate swaps
Receive fixed $ 119 $ 4 $11,375 $(772) $11,494
Pay fixed 5,060 26 658 (19) 5,718
- - - ------------------------------------------------------------------------------------------------------------
Total swaps 5,179 30 12,033 (791) 17,212
Interest rate caps 5,500 132 5,500
- - - ------------------------------------------------------------------------------------------------------------
Total 10,679 162 12,033 (791) 22,712
- - - ------------------------------------------------------------------------------------------------------------
December 31, 1993
Interest rate swaps
Receive fixed $ 7,904 $153 $ 2,715 $ (26) $10,619
Pay fixed 1,193 (86) 1,193
- - - ------------------------------------------------------------------------------------------------------------
Total $ 7,904 $153 $ 3,908 $(112) $11,812
- - - ------------------------------------------------------------------------------------------------------------
</TABLE>
Substantially all receive-fixed swaps are index amortizing and primarily are
associated with commercial loans and interest-bearing deposits. The associated
deposits include time deposits and interest-bearing transaction accounts, such
as demand and money market. Historical data indicate there is a fixed-rate
component to the rates paid on transaction accounts. Receive-fixed interest
rate swaps convert this fixed-rate component to a variable rate.
The notional values of index-amortizing swaps amortize on predetermined dates
and in predetermined amounts based on market movements of the designated index,
which are primarily 3-year U.S. Treasury constant maturities and 3-month LIBOR.
Periodically, the Corporation receives payments based on fixed interest rates
and makes payments based on fioating money market indices, primarily 1-month
and 3-month LIBOR, calculated on the notional amounts.
The Corporation's pay-fixed interest rate swaps are associated with
collateralized mortgage and U.S. Treasury obligations in the investment
securities portfolio. The Corporation receives payments based on floating money
market indices, primarily 3-month LIBOR, and pays fixed interest rates.
Substantially all pay-fixed swaps mature in 1998. The Corporation's swaps do
not contain leverage or any similar features.
<PAGE> 41
59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth interest rates on interest rate swaps as of
December 31, 1994. The weighted average variable interest rates set forth below
represent the rates at year-end 1994. Such variable rates are subject to change
as the underlying index floats with changes in the market.
MATURITY DISTRIBUTION OF INTEREST RATE SWAPS
BASED ON INTEREST RATES AT DECEMBER 31, 1994
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------
1999 and
Dollars in millions 1995 1996 1997 1998 Beyond Total
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Received-fixed
Notional value $1,827 $ 961 $3,384 $4,422 $ 900 $11,494
Weighted average fixed interest
rate received 6.18% 5.94% 5.74% 5.29% 5.18% 5.61%
Weighted average variable
interest rate paid 6.41 6.38 6.13 6.38 6.50 6.32
Pay-fixed
Notional value $ 320 $ 165 $1,040 $4,050 $ 143 $ 5,718
Weighted average variable interest
rate received 6.03% 6.24% 6.50% 6.50% 6.50% 6.47%
Weighted average fixed
interest rate paid 5.15 7.50 7.90 7.93 9.59 7.80
- - - ------------------------------------------------------------------------------------------------------------
</TABLE>
In November 1994, the Corporation paid a $129.6 million premium for interest
rate caps with a notional value of $5.5 billion. The interest rate caps are
associated with collateralized mortgage obligations in the investment
securities portfolio. The caps require the counterparty to pay the Corporation
the excess of 3-month LIBOR over a specified cap rate, currently 6.00 percent,
computed quarterly based on the notional value of the contracts. At December
31, 1994, 3-month LIBOR was 6.50 percent. The cap rate adjusts to 6.50 percent
at the end of 1995 and the contracts expire at the end of 1997. The agreements
limit the amount payable to the Corporation to 150 basis points over the
specified cap rate. The effect of these caps is to modify the interest rate
characteristics of certain fixed-rate collateralized mortgage obligations to be
variable within certain ranges.
Only the interest payments and the premium on the agreements 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 and cap activities primarily
by entering into transactions with only a selected number of high-quality
institutions, establishing credit limits with counterparties and, where
applicable, requiring segregated collateral or bilateral netting agreements. At
December 31, 1994, credit exposure related to interest rate swaps and caps
totaled $48 million and was 47 percent collateralized.
FORWARD CONTRACTS The following table sets forth the notional value of forward
contracts at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------
December 31
In millions 1994 1993
- - - ------------------------------------------------------------------
<S> <C> <C>
Commitments to purchase $ 16 $ 224
Commitments to sell 350 1,799
- - - ------------------------------------------------------------------
</TABLE>
The Corporation uses forward contracts to manage interest rate risk positions
associated with certain mortgage banking activities. Forward contracts are
traded in over-the-counter markets and do not have standardized terms.
Counterparties to the Corporation's forward contracts are primarily U.S.
Government agencies and brokers and dealers in mortgage-backed securities. In
the event the counterparty is unable to meet its contractual obligations, the
Corporation may be exposed to selling or purchasing mortgage loans at
prevailing market prices. Substantially all forward contracts mature within 90
days of origination.
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 60
EMPLOYEE BENEFIT PLANS
INCENTIVE SAVINGS PLAN The Corporation sponsors an incentive savings plan
("ISP") covering substantially all employees. Under the ISP, employee
contributions of up to 6 percent of base pay, subject to Internal Revenue
Service limitations, are matched with shares of the Corporation's common stock.
Contributions are matched primarily by shares of common stock held by the
Corporation's ESOP.
The Corporation makes annual contributions to the ESOP equal to the debt
service requirements on the ESOP borrowing less dividends received by the ESOP.
All dividends received by the ESOP are used to pay debt service. During 1994,
1993 and 1992, dividends used for debt service totaled $9.5 million, $8.5
million and $7.9 million, respectively. To satisfy additional debt service
requirements, the Corporation contributed $7.6 million in 1994, $8.8 million in
1993, and $9.5 million in 1992.
As the ESOP borrowing is repaid, shares are allocated to employees who made
contributions during the year based on the proportion of annual debt service to
total debt service. The Corporation includes all ESOP shares as common shares
outstanding in its earnings per share computation. The components of ESOP
shares are as follows:
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------
December 31
In thousands 1994
- - - ---------------------------------------------------------------------------
<S> <C>
Allocated shares 1,956
Shares released for allocation 673
Unallocated shares 4,617
Shares retired during year (126)
- - - ---------------------------------------------------------------------------
Total ESOP shares 7,120
- - - ---------------------------------------------------------------------------
</TABLE>
Compensation expense related to the portion of the ISP contributions matched
with ESOP shares is determined based on the number of ESOP shares allocated.
Compensation expense related to the ESOP and ISP plans was $8.4 million for
1994, $4.9 million for 1993 and $9.7 million for 1992.
The Corporation has adopted the provisions of Statement of Position No. 93-6,
"Employers' Accounting for Employee Stock Ownership Plans," for ESOP shares
acquired subsequent to December 31, 1992.
DEFINED BENEFIT PLANS 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 1994 1993
- - - ---------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
benefit obligation, including vested
benefits of $235 and $280 $ 253 $ 298
- - - ---------------------------------------------------------------------------
Actuarial present value of projected
benefit obligation for service
rendered to date $ 333 $ 402
Less plan assets at fair value--primarily
listed common stocks, U.S.
Government and agency
securities, and collective funds (302) (289)
- - - ---------------------------------------------------------------------------
Unfunded projected benefit obligation
in excess of projected plan assets 31 113
Unrecognized net loss from past
experience different from that
assumed and effects of changes
in assumptions (9) (108)
Unrecognized net asset 14 15
Unrecognized prior service cost (6) (6)
- - - ---------------------------------------------------------------------------
Accrued pension cost included
in other liabilities $ 30 $ 14
- - - ---------------------------------------------------------------------------
</TABLE>
Net periodic defined benefit plan costs include the following components:
<TABLE>
<CAPTION>
- - - ----------------------------------------------------------------------------------------------
Year ended December 31
In thousands 1994 1993 1992
- - - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 23 $ 17 $ 17
Interest cost on projected
benefit obligation 27 20 25
Actual return on plan assets (2) (35) (18)
Net amortization and deferral (26) 6 (9)
- - - ----------------------------------------------------------------------------------------------
Net periodic pension costs $ 22 $ 8 $ 15
- - - ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 43
61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assumptions used in accounting for the plans were:
<TABLE>
<CAPTION>
December 31 1994 1993 1992
- - - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.75% 7.25% 6-8.50%
Rate of increase in
compensation levels 5.00 5.18 5.68
Expected long-term
rate of return on assets 10.00 10.00 10.00
- - - ----------------------------------------------------------------------------------------------
</TABLE>
In addition to providing pension benefits, the Corporation provides
certain health care and life insurance benefits for retired employees.
A reconciliation of the accrued postretirement benefit obligation is as
follows:
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------
December 31
In millions 1994 1993
- - - ---------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
Retirees $ 98 $ 75
Other
Fully eligible participants 1 3
Other active participants 35 39
- - - ---------------------------------------------------------------------------------
Total accumulated postretirement obligation 134 117
- - - ---------------------------------------------------------------------------------
Unrecognized prior service cost 62 66
Unrecognized net loss (19) (14)
- - - ---------------------------------------------------------------------------------
Accrued postretirement benefit obligation
included in other liabilities $177 $169
- - - ---------------------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefit costs include the following components:
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------
Year ended December 31
In millions 1994 1993
- - - ---------------------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits earned during the period $ 2 $ 2
Interest cost on accrued benefit obligation 10 6
Amortization of prior service cost (3) (4)
- - - ---------------------------------------------------------------------------------
Net periodic postretirement benefit costs $ 9 $ 4
- - - ---------------------------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the plan were:
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------
December 31 1994 1993
- - - ---------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 8.75% 7.25%
Expected health care cost trend rate:
Medical 9.10 10.70
Dental 7.40 7.80
- - - ---------------------------------------------------------------------------------
</TABLE>
The health care cost trend rate declines until it stabilizes at 6.00 percent
beginning 1999. A 1 percent increase in the health care trend rate would result
in an increase of $259,000 and $826,000 in the service cost and interest cost
components, respectively, and a $10.7 million increase in the accumulated
postretirement benefit obligation.
The net periodic postretirement benefit costs for 1992 were $19 million.
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.
The Corporation has an employee stock purchase plan which covers a maximum of
5.2 million shares of common stock of which 1.5 million 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 1994, 403,692 shares were issued to participants at
prices of $17.64 and $24.76 per share; 276,517 shares were issued in 1993 at
prices of $24.12 and $25.18 per share; and 291,580 shares were issued in 1992
at prices of $17.80 and $21.68 per share. No charge to earnings is required
with respect to such noncompensatory plan.
STOCK OPTION PLAN
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.
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 61
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.
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------
Option Price
Per Common Share Shares
- - - ---------------------------------------------------------------------------------
<S> <C> <C>
January 1, 1992 $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
Granted 21.75- 29.75 2,159,200
Options exercised 6.47- 27.56 (649,132)
Terminated (134,250)
- - - ---------------------------------------------------------------------------------
December 31, 1994 $6.47-$30.13 10,722,549
- - - ---------------------------------------------------------------------------------
</TABLE>
At December 31, 1994, options for 8,569,399 shares of common stock were
exercisable. Shares of common stock available for the granting of options under
the Incentive Plan and the predecessor plans were as follows: 6,997,455 at
December 31, 1994, 6,259,203 at December 31, 1993, and 4,658,641 at December
31, 1992.
INCOME TAXES
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 1994 1993 1992
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations $339,549 $305,656 $175,887
Securities transactions
Equity and other 7,123 (133) 5,680
Debt (54,345) 65,826 67,115
- - - --------------------------------------------------------------------------------------------------
Total $292,327 $371,349 $248,682
- - - --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------------------------
Year ended December 31
In thousands 1994 1993 1992
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $246,044 $419,986 $276,156
State 14,493 11,914 8,433
- - - --------------------------------------------------------------------------------------------------
Total current 260,537 431,900 284,589
- - - --------------------------------------------------------------------------------------------------
Deferred
Federal 29,578 (58,044) (36,777)
State 2,212 (2,507) 870
- - - --------------------------------------------------------------------------------------------------
Total deferred 31,790 (60,551) (35,907)
- - - --------------------------------------------------------------------------------------------------
Total $292,327 $371,349 $248,682
- - - --------------------------------------------------------------------------------------------------
</TABLE>
Significant components of the Corporation's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------------------------------
December 31
In millions 1994 1993
- - - -------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Allowance for credit losses $316 $321
Compensation and benefits 90 81
Foreclosed assets 11 21
Net unrealized securities losses 55
Purchased net operating loss and
ATM carryforwards 16
Purchase accounting--deposits
and other borrowings 60 72
Purchase accounting--other 22 35
Other 67 63
- - - -------------------------------------------------------------------------------------------------
Total deferred tax assets 637 593
- - - -------------------------------------------------------------------------------------------------
Deferred tax liabilities
Leasing 199 179
Depreciation 25 18
Net unrealized securities gains 48
Purchase accounting-loans and losses 48 97
Other 10 24
- - - -------------------------------------------------------------------------------------------------
Total deferred tax liabilities 282 366
- - - -------------------------------------------------------------------------------------------------
Net deferred tax asset $355 $227
- - - -------------------------------------------------------------------------------------------------
</TABLE>
The purchased net operating loss carryforwards expire in 2008 and 2009 and the
alternative minimum tax ("AMT") can be carried forward indefinitely.
<PAGE> 45
63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
- - - -----------------------------------------------------------------------------------
<S> <C>
Lease financing $ 5,145
Provision for credit losses (17,294)
Investment tax credit (106)
Alternative minimum tax 6,040
Other-net (29,692)
- - - ----------------------------------------------------------------------------------
Total deferred taxes benefits $(35,907)
- - - ----------------------------------------------------------------------------------
</TABLE>
A reconciliation between the statutory and effective tax rates follows:
<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------------------------------
Year ended December 31 1994 1993 1992
- - - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 34.0%
Tax-exempt interest (2.6) (2.4) (3.8)
State tax 1.2 0.5 0.8
Other--net (1.2) 0.2 1.0
- - - -------------------------------------------------------------------------------------------------
Effective tax rate 32.4% 33.3% 32.0%
- - - -------------------------------------------------------------------------------------------------
</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 $948 million at
December 31, 1994. Dividends also may be impacted by capital needs, regulatory
requirements and policies, and other factors deemed 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 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 33 percent of
consolidated net assets at December 31, 1994.
Federal Reserve Board regulations require depository institutions to maintain
cash reserves with the Federal Reserve Bank. During 1994, subsidiary banks
maintained reserves which averaged $910 million.
LITIGATION
Four consolidated purported class action lawsuits have been filed against the
Corporation and certain officers, alleging disclosure violations of federal
securities laws and seeking, among other things, unquantified damages on behalf
of purchasers of the Corporation's securities during specified portions of
1994. Management believes there are meritorious defenses to these lawsuits and
intends to defend them vigorously. Management believes that the final
disposition will not be material to the Corporation's financial position.
A purported class action lawsuit was filed in 1992 against PNC National Bank
("PNCNB"), alleging certain credit card fees violated Pennsylvania law and
seeking, among other things, unquantified compensatory and triple damages and
injunctive relief. The federal district court denied plaintiff's motion to
remand the case to state court and dismissed the lawsuit, holding that
Pennsylvania law is preempted by federal banking laws. Plaintiff has appealed,
and PNCNB is vigorously defending the district court's decision. The impact of
the final disposition of the lawsuit cannot be predicted at the present time.
In certain cases not involving PNCNB, a Pennsylvania intermediate state
appellate court has held that the application of Pennsylvania law to certain
credit card fees, when charged to Pennsylvania residents, is not preempted by
federal banking laws. Further appellate review is being sought in those cases.
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 64
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 1994 1993
- - - -------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7 $ 1
Securities available for sale 108 261
Investments in
Bank subsidiaries 4,816 4,268
Nonbank subsidiaries 285 320
Advances to subsidiary banks 12 4
Other assets 92 122
- - - -------------------------------------------------------------------
Total assets $5,320 $4,976
- - - -------------------------------------------------------------------
LIABILITIES
Notes and debentures $ 1 $ 1
Nonbank affiliate borrowings 679 360
Accrued expenses and other liabilities 246 290
- - - -------------------------------------------------------------------
Total liabilities 926 651
- - - -------------------------------------------------------------------
SHAREHOLDERS' EQUITY 4,394 4,325
- - - -------------------------------------------------------------------
Total liabilities and
shareholders' equity $5,320 $4,976
- - - -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF INCOME
- - - -----------------------------------------------------------------------------------------
Year ended December 31
In thousands 1994 1993 1992
- - - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE
Dividends from
Bank subsidiaries $357,605 $335,125 $ 265,875
Nonbank subsidiaries 54,600 10,750 6,050
Interest income 8,542 10,436 15,409
Other income 979 781 240
- - - ----------------------------------------------------------------------------------------
Total operating revenue 421,726 357,092 287,574
- - - ----------------------------------------------------------------------------------------
OPERATING EXPENSES
Interest expense 31,026 4,924 4,135
Other expenses 27,754 55,989 84,006
- - - ----------------------------------------------------------------------------------------
Total operating expenses 58,780 60,913 88,141
- - - ----------------------------------------------------------------------------------------
Income before income taxes
and equity in undistributed
net income of subsidiaries 362,946 296,179 199,433
Applicable income taxes
(benefits) (36,344) 1,895 (18,818)
- - - ----------------------------------------------------------------------------------------
Income before equity in
undistributed net income
of subsidiaries 399,290 294,284 218,251
Net equity in undistributed
net income (excess dividends)*
Bank subsidiaries 215,438 400,877 335,638
Nonbank subsidiaries (4,666) 33,174 (24,449)
- - - ----------------------------------------------------------------------------------------
Income before cumulative
effect of changes in
accounting principles 610,062 728,335 529,440
Cumulative effect of changes
in accounting principles,
net of tax benefit
of $52,804 in 1992 (2,465) (102,501)
- - - ----------------------------------------------------------------------------------------
Net income $610,062 $725,870 $ 426,939
- - - ----------------------------------------------------------------------------------------
<FN>
* Amounts for 1993 include the cumulative effect of changes in accounting
principles at the respective subsidiaries.
</TABLE>
<PAGE> 47
65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
- - - -----------------------------------------------------------------------------------------
Year ended December 31
In millions 1994 1993 1992
- - - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 610 $ 726 $ 427
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 (211) (434) (311)
Other (3) 93 41
- - - ----------------------------------------------------------------------------------------
Net cash provided by
operating activities 396 387 260
- - - ---------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net decreaase in interest-
earning deposits
with subsidiary bank (8) (4) 4
Net capital returned/
(contributed) to subsidiaries (6) 173 1
Sales of securities
available for sale 2,158 2,674 2,956
Purchases of securities
available for sale (2,005) (2,770) (2,874)
Cash paid in acquisitions (503) (383) (45)
Other (2) (87) (22)
- - - ----------------------------------------------------------------------------------------
Net cash provided (used)
by investing activities (366) (397) 20
- - - ----------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Borrowings from
nonbank subsidiary 330 250
Acquisition of treasury stock (90) (19) (13)
Cash dividends paid to
shareholders (309) (276) (239)
Issuance of stock 45 53 74
Redemption of
notes and debentures (100)
- - - ----------------------------------------------------------------------------------------
Net cash provided (used)
by financing activities (24) 8 (278)
- - - ----------------------------------------------------------------------------------------
Increase (decrease) in cash
and due from banks 6 (2) 2
Cash and due from banks at
beginning of year 1 3 1
- - - ----------------------------------------------------------------------------------------
Cash and due from banks
at end of year $ 7 $ 1 $ 3
- - - -----------------------------------------------------------------------------------------
</TABLE>
Commercial paper and all other debt issued by PNC Funding Corp is guaranteed by
the parent company. In addition, in connection with certain affiliates'
mortgage servicing operations, the parent company has committed to maintain
such affiliates' net worth above minimum requirements.
During 1994, 1993 and 1992, the parent company received income tax refunds of
$23.4 million, $24.8 million and $16.8 million, respectively. Such refunds
represent the parent company's portion of consolidated income taxes. During
1994, 1993 and 1992, the parent company paid interest on contractual debt
obligations of $28.5 million, $.1 million and $4.4 million, respectively.
UNUSED LINES OF CREDIT
At December 31, 1994, the Corporation maintained a line of credit in the amount
of $300 million, none of which was drawn. This line is available for general
corporate purposes. The annual fee paid for the unused line is .13 percent.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table sets forth the carrying value and estimated fair value of
financial instruments:
<TABLE>
<CAPTION>
FAIR VALUE OF FINANCIAL INSTRUMENTS
- - - -----------------------------------------------------------------------------------------------------------
1994 1993
------------------------ -----------------------
December 31 Carrying Fair Carrying Fair
In millions Amount Value Amount Value
- - - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and short-term assets $ 3,865 $ 3,865 $ 3,119 $ 3,119
Securities 20,921 19,690 23,060 23,104
Loans held for sale 487 487 1,392 1,392
Net loans (excludes leases) 33,603 33,397 31,679 32,185
LIABILITIES
Demand deposits 19,313 19,313 18,621 18,621
Time deposits 15,698 15,499 14,494 14,790
Borrowed funds 12,106 12,097 12,212 12,211
Notes and debentures 11,754 11,684 9,585 9,598
OFF-BALANCE-SHEET
Commitments to extend credit (16) (16) (23) (23)
Letters of credit (12) (12) (30) (30)
Interest rate swaps (40) (761) 31 41
Interest rate caps 130 132
- - - -----------------------------------------------------------------------------------------------------------
</TABLE>
Certain assets are excluded from the above table including real and personal
property, leases, loan customer relationships, deposit customer intangibles,
retail branch networks, fee-based businesses, such as mortgage banking and
asset management, 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.
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 65
Fair value is defined 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 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.
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, the trading
account customers' acceptance liability and accrued interest receivable.
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. Loans held for sale are reported at the
lower of cost or market value in the consolidated balance sheet. For purposes
of this disclosure only, the carrying value 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.
BORROWED FUNDS 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.
INTEREST RATE SWAPS AND CAPS The fair value of index amortizing interest rate
swaps and interest rate caps is based on dealer quotes. The fair value of 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> 49
STATISTICAL INFORMATION 67
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
- - - ----------------------------------------------------------------------------------------------------------------------------
Year ended December 31 1994 1993 1992 1991 1990
- - - ----------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS (In thousands)
<S> <C> <C> <C> <C> <C>
Interest income $3,861,812 $3,201,120 $3,218,971 $3,657,533 $4,223,375
Interest expense 1,952,206 1,372,087 1,561,679 2,222,335 2,874,118
Net interest income 1,909,606 1,829,033 1,657,292 1,435,198 1,349,257
Provision for credit losses 60,123 203,944 323,531 428,038 760,507
Noninterest income excluding net securities
gains/losses 957,560 757,555 693,273 748,571 634,108
Net securities gains(losses) (134,919) 187,694 193,503 63,454 22,425
Noninterest expenses 1,769,735 1,453,726 1,442,415 1,270,984 1,215,858
Applicable income taxes (benefits) 292,327 371,349 248,682 158,415 (41,487)
Income before cumulative effect
of changes in accounting principles 610,062 745,263 529,440 389,786 70,912
Cumulative effect of changes in accounting
principles, net of tax benefit of $5,343 and $52,804 (19,393) (102,501)
Net income 610,062 725,870 426,939 389,786 70,912
PER COMMON SHARE DATA
Book value
As reported $ 18.76 $ 18.34 $ 15.96 $ 15.27 $ 13.40
Excluding net unrealized securities gains/losses 19.26 17.96 15.96 15.27 13.40
Cash dividends declared 1.310 1.175 1.080 .795 1.060
Earnings
Primary before cumulative effect
of changes in accounting principles 2.57 3.14 2.36 1.97 .37
Cumulative effect of changes in accounting principles (.08) (.46)
- - - ----------------------------------------------------------------------------------------------------------------------------
Primary 2.57 3.06 1.90 1.97 .37
- - - ----------------------------------------------------------------------------------------------------------------------------
Fully diluted before cumulative effect
of changes in accounting principles 2.56 3.13 2.34 1.94 .37
Cumulative effect of changes in accounting principles (.09) (.45)
- - - ----------------------------------------------------------------------------------------------------------------------------
Fully diluted 2.56 3.04 1.89 1.94 .37
- - - ----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS (In millions)
December 31
Total assets $ 64,145 $ 62,080 $ 51,380 $ 44,892 $ 45,533
Securities 20,921 23,060 20,741 14,173 12,189
Loans, net of unearned income 35,407 33,308 25,817 25,443 27,633
Deposits 35,011 33,115 29,470 30,019 32,043
Borrowed funds 11,608 11,662 11,811 9,486 8,735
Notes and debentures 11,754 9,585 4,297 1,287 1,319
Shareholders equity 4,394 4,325 3,745 3,317 2,601
SELECTED RATIOS
Return on average total assets 1.00% 1.44% .95% .91% .16%
Return on average common shareholders' equity 14.10 18.40 12.47 14.02 2.46
Average shareholders' equity to average total assets 7.12 7.86 7.68 6.53 6.08
Dividend payout 50.60 37.98 55.54 39.60 298.03
Overhead 63.99 51.66 55.76 55.11 57.84
- - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 50
68 STATISTICAL INFORMATION
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
- - - ------------------------------------------------------------------------------------------------
1994
----------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
- - - ------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
(In thousands)
<S> <C> <C> <C> <C>
Interest income $1,024,145 $1,007,569 $934,994 $895,104
Interest expense 599,794 512,614 442,035 397,763
Net interest income 424,351 494,955 492,959 497,341
Provision for credit losses 10,078 25,030 25,015
Noninterest income
excluding net securities gains/losses 225,775 275,301 228,325 228,159
Net securities gains (losses) (121,024) (44,202) (85) 30,392
Noninterest expense 488,681 435,913 418,295 426,846
Income before cumulative effect
of changes in accounting principles 28,530 187,998 187,845 205,689
Cumulative effect of changes
in accounting principles,
net of tax benefit of $5,343
Net income 28,530 187,998 187,845 205,689
PER COMMON SHARE DATA
Book value:
As reported $ 18.76 $ 18.87 $ 18.37 $ 18.14
Excluding net unrealized securities
gains/losses 19.26 19.46 19.02 18.53
Earnings
Primary before cumulative effect
of changes in accounting principles .12 .79 .79 .87
Cumulative effect of changes
in accounting principles
Primary .12 .79 .79 .87
- - - ------------------------------------------------------------------------------------------------
Fully diluted before cumulative effect
of changes in accounting principles .12 .79 .79 .86
Cumulative effect of changes
in accounting principles
Fully diluted .12 .79 .79 .86
- - - ------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
HIGHLIGHTS (In millions)
Total assets $ 62,952 $ 61,988 $ 59,625 $ 58,966
Securities 22,923 22,422 21,859 21,328
Loans, net of unearned income 34,955 34,494 32,531 32,023
Deposits 33,409 33,982 32,252 31,737
Borrowed funds 11,642 11,346 10,967 11,543
Notes and debentures 12,593 11,358 11,030 10,142
Shareholders' equity 4,386 4,360 4,268 4,330
- - - ------------------------------------------------------------------------------------------------
</TABLE>
<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/losses 202,926 191,691 187,818 175,120
Net securities gains (losses) 3,404 72,513 6,616 105,161
Noninterest expense 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 (19,393)
Net income 171,434 217,676 169,142 167,618
PER COMMON SHARE DATA
Book value:
As reported $ 18.34 $ 17.50 $ 16.84 $ 16.42
Excluding net unrealized securities
gains/losses 17.96 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 20,428 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 10,410 11,485 10,149
Notes and debentures 8,548 7,027 5,578 4,744
Shareholders' equity 4,128 4,013 3,869 3,814
- - - ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 51
STATISTICAL INFORMATION 69
ANALYSIS OF YEAR-TO-YEAR CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------
1994/1993
Increase/(Decrease) in Income/Expense
Due To Changes In:
----------------------------------------------------------
Taxable-equivalent basis Rate/
In thousands Volume Rate Volume Total
- - - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Short-term investments $ 9,134 $ 6,268 $ 2,540 $ 17,942
Mortgages held for sale 20,824 2,071 1,824 24,719
Securities
U.S. Treasury 42,503 3,441 1,565 47,509
U.S. Government agencies
and corporations (12,278) (25,179) 175 (37,282)
State and municipal (10,889) 1,801 (429) (9,517)
Other debt 45,221 18,334 9,425 72,980
Corporate stocks and other 11,284 (271) (444) 10,569
- - - ----------------------------------------------------------------------------------------------------
Total securities 102,437 (16,322) (1,856) 84,259
- - - ----------------------------------------------------------------------------------------------------
Loans, net of unearned income
Commercial $ 79,245 $ 51,122 $ 6,441 $136,808
Real estate project (10,981) 20,295 (1,717) 7,597
Real estate mortgage 418,992 (50,046) (58,507) 310,439
Consumer 70,619 (31,099) (3,379) 36,141
Other 37,920 (1,833) (1,234) 34,853
- - - ----------------------------------------------------------------------------------------------------
Total loans 573,952 (36,343) (11,771) 525,838
- - - ----------------------------------------------------------------------------------------------------
Other interest-earning assets 977 598 380 1,955
- - - ----------------------------------------------------------------------------------------------------
Total interest-earning assets $674,520 $ (14,202) $ (5,605) $654,713
- - - ----------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
Demand $ 2,345 $ 20,176 $ 2,206 $ 24,727
Savings 1,682 12,628 698 15,008
Money market 12,884 39,349 4,656 56,889
Other time 73,744 (18,606) (2,606) 52,532
Deposits in foreign offices 25,972 3,545 14,431 43,948
- - - ----------------------------------------------------------------------------------------------------
Total interest-bearing deposits 114,149 69,216 9,739 193,104
- - - ----------------------------------------------------------------------------------------------------
Borrowed funds
Federal funds purchased 35,750 21,635 15,370 72,755
Repurchase agreements (66,185) 44,442 (11,725) (33,468)
Commercial paper 12,573 9,052 5,004 26,629
Other 57,582 5,715 7,044 70,341
- - - ----------------------------------------------------------------------------------------------------
Total borrowed funds 35,070 92,320 8,867 136,257
- - - ----------------------------------------------------------------------------------------------------
Notes and debentures 197,362 30,484 22,912 250,758
- - - ----------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $321,606 $ 207,641 $ 50,872 $580,119
- - - ----------------------------------------------------------------------------------------------------
Change in net interest income $388,957 $(255,636) $(58,727) $ 74,594
- - - ----------------------------------------------------------------------------------------------------
</TABLE>
ANALYSIS OF YEAR-TO-YEAR CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------
1993/1992
Increase/(Decrease) in Income/Expense
Due To Changes In:
----------------------------------------------------------
Taxable-equivalent basis Rate/
In thousands Volume Rate Volume Total
- - - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Short-term investments $ (7,801) $ (2,428) $ 629 $ (9,600)
Mortgages held for sale 8,962 (2,504) (1,311) 5,147
Securities
U.S. Treasury 60,982 (15,011) (12,596) 33,375
U.S. Government agencies
and corporations 139,315 (177,498) (22,894) (61,077)
State and municipal (8,998) 1,188 (164) (7,974)
Other debt 54,950 (12,399) (11,973) 30,578
Corporate stocks and other 2,912 328 267 3,507
- - - ----------------------------------------------------------------------------------------------------
Total securities 274,875 (224,815) (51,651) (1,591)
- - - ----------------------------------------------------------------------------------------------------
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)
- - - ----------------------------------------------------------------------------------------------------
Other interest-earning assets 1,165 (395) (384) 386
- - - ----------------------------------------------------------------------------------------------------
Total interest-earning assets $397,940 $(371,290) $(47,772) $ (21,122)
- - - ----------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
Demand $ 9,064 $ (29,969) $ (5,653) $ (26,558)
Savings 6,412 (27,536) (3,483) (24,607)
Money market 19,268 (69,551) (8,322) (58,605)
Other time (90,868) (112,005) 13,175 (189,698)
Deposits 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 (7,568) (9,810) 1,114 (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 interest-bearing
liabilities $184,414 $(332,112) $(41,894) $(189,592)
- - - ----------------------------------------------------------------------------------------------------
Change in net interest income $207,464 $ (33,754) $ (5,240) $ 168,470
- - - ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 52
70 STATISTICAL INFORMATION
<TABLE>
<CAPTION>
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
- - - ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31 1994 1993
Taxable-equivalent basis --------------------------------------- ---------------------------------------
Average balance in millions, Average Average Average Average
interest in thousands Balances Interest Yields/Rates Balances Interest Yields/Rates
- - - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Short-term investments $ 808 $ 40,493 5.01% $ 575 $ 22,551 3.92%
Mortgages held for sale 667 47,832 7.18 351 23,113 6.59
Securities
U.S. Treasury 3,212 153,656 4.78 2,294 106,147 4.63
U.S. Government agencies and corporations 15,538 934,431 6.01 15,737 971,713 6.17
State and municipal 365 37,835 10.37 474 47,352 9.99
Other debt 2,701 160,348 5.94 1,780 87,368 4.91
Corporate stocks and other 300 17,901 5.97 118 7,332 6.20
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total securities 22,116 1,304,171 5.90 20,403 1,219,912 5.98
- - - ----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income
Commercial 12,051 870,535 7.22 10,877 733,727 6.75
Real estate project 1,687 135,849 8.05 1,845 128,252 6.95
Real estate mortgage 9,531 668,350 7.01 4,390 357,911 8.15
Consumer 8,782 733,402 8.35 7,974 697,261 8.74
Other 1,460 91,208 6.25 873 56,355 6.46
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income 33,511 2,499,344 7.46 25,959 1,973,506 7.60
- - - ----------------------------------------------------------------------------------------------------------------------------------
Other interest-earning assets 85 3,495 4.12 52 1,540 2.96
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets/
interest income 57,187 3,895,335 6.82 47,340 3,240,622 6.85
- - - ----------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets
Allowance for credit losses (1,013) (932)
Cash and due from banks 2,168 1,967
Other assets 2,554 1,946
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total assets $60,896 $50,321
- - - ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand $ 3,454 45,580 1.32 3,104 20,853 .67
Savings 2,432 36,699 1.51 2,255 21,691 .95
Money market 6,562 166,558 2.54 5,873 109,669 1.87
Other time 13,098 636,729 4.86 11,629 584,197 5.02
Deposits in foreign offices 1,071 50,310 4.70 211 6,362 3.02
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 26,617 935,876 3.52 23,072 742,772 3.22
- - - ----------------------------------------------------------------------------------------------------------------------------------
Borrowed funds
Federal funds purchased 2,815 122,645 4.36 1,639 49,890 3.04
Repurchase agreements 5,053 209,448 4.14 6,944 242,916 3.50
Commercial paper 1,072 49,459 4.61 691 22,830 3.30
Other 2,435 117,700 4.83 1,099 47,359 4.31
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total borrowed funds 11,375 499,252 4.39 10,373 362,995 3.50
- - - ----------------------------------------------------------------------------------------------------------------------------------
Notes and debentures 11,288 517,078 4.58 6,486 266,320 4.11
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities/
interest expense 49,280 1,952,206 3.96 39,931 1,372,087 3.44
- - - ----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities and
shareholders' equity
Demand and other noninterest-bearing
deposits 6,235 5,370
Accrued expenses and other liabilities 1,045 1,063
Shareholders' equity 4,336 3,957
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $60,896 $50,321
- - - ----------------------------------------------------------------------------------------------------------------------------------
Interest rate spread including interest
rate swaps 2.86 3.41
Impact of noninterest-bearing liabilities 0.54 .54
- - - ----------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin on
earning assets $1,943,129 3.40% $1,868,535 3.95%
- - - ----------------------------------------------------------------------------------------------------------------------------------
</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> 53
STATISTICAL INFORMATION 71
<TABLE>
<CAPTION>
- - - ----------------------------------------------------------------------------------------------------------------------------------
1992 1991 1990
--------------------------------------- -------------------------------------- --------------------------------------
Average Average Average Average Average Average
Balances Interest Yields/Rates Balances Interest Yields/Rates Balances Interest Yields/Rates
- - - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 759 $ 32,151 4.24% $ 906 $ 58,234 6.43% $ 1,145 $ 97,353 8.50%
234 17,966 7.66 125 12,051 9.66 82 9,317 11.32
1,248 72,772 5.83 1,103 83,740 7.59 1,024 84,428 8.25
13,867 1,032,790 7.45 9,358 842,008 9.00 9,894 919,990 9.30
566 55,326 9.78 645 66,235 10.26 933 95,276 10.21
905 56,790 6.28 753 64,244 8.53 1,400 125,654 8.97
67 3,825 5.71 90 4,440 4.96 181 15,057 8.30
- - - ----------------------------------------------------------------------------------------------------------------------------------
16,653 1,221,503 7.33 11,949 1,060,667 8.88 13,432 1,240,405 9.23
- - - ----------------------------------------------------------------------------------------------------------------------------------
10,432 724,812 6.95 12,521 1,109,231 8.86 14,327 1,488,192 10.39
2,001 139,916 6.99 1,991 161,627 8.12 2,620 263,046 10.04
3,621 345,434 9.54 4,384 436,908 9.97 2,824 294,813 10.44
7,531 712,074 9.46 7,076 786,699 11.12 6,612 782,387 11.83
935 66,734 7.14 982 79,732 8.12 1,484 142,578 9.61
- - - ----------------------------------------------------------------------------------------------------------------------------------
24,520 1,988,970 8.11 26,954 2,574,197 9.55 27,867 2,971,016 10.66
- - - ----------------------------------------------------------------------------------------------------------------------------------
26 1,154 4.48 162 11,367 6.99 18 1,436 7.82
- - - ----------------------------------------------------------------------------------------------------------------------------------
42,192 3,261,744 7.73 40,096 3,716,516 9.27 42,544 4,319,527 10.15
- - - ----------------------------------------------------------------------------------------------------------------------------------
(852) (823) (584)
1,748 1,822 1,965
1,656 1,698 1,791
- - - ----------------------------------------------------------------------------------------------------------------------------------
$44,744 $42,793 $45,716
- - - ----------------------------------------------------------------------------------------------------------------------------------
$ 2,606 47,411 1.82 $ 2,272 99,631 4.39 $ 1,983 92,890 4.68
1,981 46,298 2.34 2,135 102,168 4.78 1,753 89,574 5.11
5,269 168,274 3.19 4,120 211,508 5.13 3,558 209,440 5.89
13,177 773,895 5.87 17,827 1,288,764 7.23 18,810 1,543,913 8.21
663 27,544 4.15 431 25,694 5.97 317 37,270 11.77
- - - ----------------------------------------------------------------------------------------------------------------------------------
23,696 1,063,422 4.49 26,785 1,727,765 6.45 26,421 1,973,087 7.47
- - - ----------------------------------------------------------------------------------------------------------------------------------
1,851 66,154 3.57 1,964 111,990 5.68 2,343 194,227 8.29
5,197 196,788 3.79 3,142 186,681 5.94 4,930 389,598 7.90
576 20,848 3.62 377 22,492 5.96 1,101 89,165 8.10
1,443 68,372 4.74 1,378 77,616 5.63 1,743 143,458 8.23
- - - ----------------------------------------------------------------------------------------------------------------------------------
9,067 352,162 3.88 6,861 398,779 5.81 10,117 816,448 8.07
- - - ----------------------------------------------------------------------------------------------------------------------------------
2,948 146,095 4.96 1,334 95,791 7.18 991 84,583 8.52
- - - ----------------------------------------------------------------------------------------------------------------------------------
35,711 1,561,679 4.37 34,980 2,222,335 6.35 37,529 2,874,118 7.66
- - - ----------------------------------------------------------------------------------------------------------------------------------
4,780 4,417 4,370
817 601 1,037
3,436 2,795 2,780
- - - ----------------------------------------------------------------------------------------------------------------------------------
$44,744 $42,793 $45,716
- - - ----------------------------------------------------------------------------------------------------------------------------------
3.36 2.92 2.49
0.67 0.81 0.91
- - - ----------------------------------------------------------------------------------------------------------------------------------
$1,700,065 4.03% $1,494,181 3.73% $1,445,409 3.40%
- - - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 54
72 STATISTICAL INFORMATION
SECURITIES
<TABLE>
<CAPTION>
CARRYING VALUE OF SECURITIES
- - - ----------------------------------------------------------------------------------------------------------------------------
December 31
In millions 1994 1993 1992
- - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities
Debt securities
U.S. Treasury $ 1,794 $ 1 $ 37
U.S. Government agencies and corporations 11,920 10,227 11,413
State and municipal 348 389 558
Asset-backed private placements 1,597 $ $
Other debt 1,495 810 1,246
Corporate stocks and other 310 245 73
- - - ---------------------------------------------------------------------------------------------------------------------------
Total investment securities $17,464 $11,672 $13,327
- - - ---------------------------------------------------------------------------------------------------------------------------
Securities available for sale
Debt securities
U.S. Treasury $ 393 $ 2,402 $ 2,768
U.S. Government agencies and corporations 2,113 8,121 4,011
Other debt 851 804 635
Corporate stocks and other 100 61
- - - ---------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 3,457 $11,388 $ 7,414
- - - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, securities available for sale are carried at
fair value.
<PAGE> 55
STATISTICAL INFORMATION 73
<TABLE>
<CAPTION>
CONTRACTUAL MATURITY DISTRIBUTION OF SECURITIES
- - - ------------------------------------------------------------------------------------------------------------------------
After After
One Year Five Years
December 31, 1994 One Year Through Through After No Fixed
Dollars in millions 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 $1,794 $ 1,794
U.S. Government agencies and corporations $11,920 11,920
State and municipal $ 16 88 $ 64 $ 180 348
Asset-backed private placements 1,597 1,597
Other debt 1 7 5 1,482 1,495
Corporate stocks and other 310 310
- - - ------------------------------------------------------------------------------------------------------------------------
Total investment securities $ 17 $1,889 $ 69 $ 180 $15,309 $17,464
- - - ------------------------------------------------------------------------------------------------------------------------
Percent of total investment securities .10% 10.81% .40% 1.03% 87.66% 100.00%
Weighted average yield 10.43 5.35 10.46 10.75 6.17 6.14
- - - ------------------------------------------------------------------------------------------------------------------------
Securities available for sale
Debt securities
U.S. Treasury $ 140 $ 236 $ 13 $ 4 $ 393
U.S. Government agencies and corporations $ 2,113 2,113
Other debt 11 6 2 57 775 851
Corporate stocks and other 100 100
- - - ------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 151 $ 242 $ 15 $ 61 $ 2,988 $ 3,457
- - - ------------------------------------------------------------------------------------------------------------------------
Percent of total securities available for sale 4.37% 7.00% .43% 1.76% 86.44% 100.00%
Weighted average yield 5.43 5.73 6.25 7.66 6.19 6.15
- - - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Collateralized mortgage obligations and mortgage-backed and asset-backed
securities are included in the No Fixed Maturity Category. Based on
management's most likely interest rate environment and historical experience,
the weighted-average expected maturity of all collateralized mortgage
obligations and mortgage-backed and asset-backed securities was 4 years at
December 31, 1994. 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> 56
74 STATISTICAL INFORMATION
LOANS
<TABLE>
<CAPTION>
LOAN OUTSTANDINGS
- - - ---------------------------------------------------------------------------------------------------------------------------
December 31
In millions 1994 1993 1992 1991 1990
- - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $12,445 $12,463 $10,985 $11,245 $12,713
Real estate project 1,628 1,730 1,955 2,047 2,194
Real estate mortgage 10,544 8,941 4,114 3,763 3,041
Consumer 9,187 8,525 7,950 7,458 8,933
Other 1,843 1,871 1,105 1,349 1,476
- - - ---------------------------------------------------------------------------------------------------------------------------
Total loans 35,647 33,530 26,109 25,862 28,357
Less unearned income 240 222 292 419 724
- - - ---------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $35,407 $33,308 $25,817 $25,443 $27,633
- - - ---------------------------------------------------------------------------------------------------------------------------
</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, 1994 One Year One Through After
In millions or Less Five Years Five Years Gross Loans
- - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $5,387 $4,805 $2,253 $12,445
Real estate project 520 877 231 1,628
- - - ---------------------------------------------------------------------------------------------------------------------------
Total $5,907 $5,682 $2,484 $14,073
- - - ---------------------------------------------------------------------------------------------------------------------------
Loans with predetermined rate $ 932 $1,206 $ 235 $ 2,373
Loans with floating rate 4,975 4,476 2,249 11,700
- - - ---------------------------------------------------------------------------------------------------------------------------
Total $5,907 $5,682 $2,484 $14,073
- - - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 1994 1993 1992 1991 1990
- - - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 310 $ 356 $ 529 $ 740 $ 986
Restructured loans 9 28 25 21 33
- - - -----------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 319 384 554 761 1,019
- - - -----------------------------------------------------------------------------------------------------------------------------
Foreclosed assets 127 170 266 322 286
- - - -----------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 446 $ 554 $ 820 $ 1,083 $ 1,305
- - - -----------------------------------------------------------------------------------------------------------------------------
Nonperforming loans to period-end loans .90% 1.15% 2.14% 2.99% 3.69
Nonperforming assets to period-end loans and foreclosed assets 1.25 1.65 3.14 4.21 4.67
Nonperforming assets to total assets .69 .89 1.60 2.41 2.87
Interest computed on original terms $31,490 $33,891 $53,362 $85,563 $111,074
Interest recognized 5,523 6,296 6,136 20,663 52,908
- - - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 57
75 STATISTICAL INFORMATION
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
Dollars in millions 1994 1993 1992 1991 1990
- - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Past due loans $148 $135 $192 $139 $111
- - - ----------------------------------------------------------------------------------------------------------------------------
As a percentage of total loans, net of unearned income .42% .41% .74% .55% .40%
- - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 1994 and 1993, 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.
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
- - - ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
Dollars In millions 1994 1993 1992 1991 1990
- - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 972 $ 897 $ 797 $ 784 $ 616
- - - ---------------------------------------------------------------------------------------------------------------------------
Acquisitions/divestitures 65 43 57 (17)
- - - ---------------------------------------------------------------------------------------------------------------------------
Amounts charged off
Commercial 61 92 212 241 214
Real estate project 20 60 39 90 166
Real estate mortgage 21 15 3 6 18
Consumer 67 78 82 99 79
Other 1 1 7 10 151
- - - ---------------------------------------------------------------------------------------------------------------------------
Total loans charged off 170 246 343 446 628
- - - ---------------------------------------------------------------------------------------------------------------------------
Recoveries on amounts previously charged off
Commercial 38 37 37 20 6
Real estate project 2 2 1 5 6
Real estate mortgage 3 3 3 7
Consumer 31 29 22 18 14
Other 1 3 2 2 3
- - - ---------------------------------------------------------------------------------------------------------------------------
Total recoveries 75 74 62 48 36
- - - ---------------------------------------------------------------------------------------------------------------------------
Net charge-offs 95 172 281 398 592
- - - ---------------------------------------------------------------------------------------------------------------------------
Provision for credit losses 60 204 324 428 760
- - - ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,002 $ 972 $ 897 $ 797 $ 784
- - - ---------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income
Average $33,511 $25,959 $24,520 $26,954 $27,867
At December 31 35,407 33,308 25,817 25,443 27,633
As a percent of average loans
Net charge-offs .29% .66% 1.15% 1.48% 2.12%
Provision for credit losses .18 .79 1.32 1.59 2.73
Allowance for credit losses 2.99 3.74 3.66 2.96 2.82
Allowance as a percent of period-end
Loans 2.83 2.92 3.47 3.13 2.84
Nonperforming loans 314.17 253.12 162.08 104.71 76.99
Allowance as a multiple of net charge-offs 10.55x 5.65x 3.19x 2.00x 1.32x
- - - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 58
STATISTICAL INFORMATION 76
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 1994 1993 1992 1991 1990
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 512 $467 $448 $432 $477
Real estate project 179 216 285 230 171
Real estate mortgage 138 103 17 13 14
Consumer 143 175 134 106 103
Other 30 11 13 16 19
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total $1,002 $972 $897 $797 $784
- - - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE DISTRIBUTION OF ALLOWANCE ALLOCATION AND CATEGORIES OF LOANS AS A PERCENTAGE OF GROSS LOANS
- - - ---------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------------ ----------------- ----------------- ----------------- -----------------
December 31 Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial 51.1% 34.9% 48.1% 37.2% 50.0% 42.1% 54.2% 43.5% 60.8% 44.8%
Real estate project 17.8 4.6 22.2 5.2 31.8 7.5 28.9 7.9 21.8 7.7
Real estate mortgage 13.8 29.6 10.6 26.7 1.9 15.8 1.6 14.6 1.8 10.7
Consumer 14.3 25.8 18.0 25.4 14.9 30.5 13.3 28.8 13.1 31.5
Other 3.0 5.1 1.1 5.5 1.4 4.1 2.0 5.2 2.5 5.3
- - - ---------------------------------------------------------------------------------------------------------------------------------
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, 1994 Certificates Other Time
In millions of Deposit Deposits Total
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Three months or less $ 376,217 $ 62,854 $ 439,071
Over three through six months 198,695 80,918 279,613
Over six through twelve months 234,431 78,768 313,199
Over twelve months 1,557,204 437,361 1,994,565
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total $2,366,547 $659,901 $3,026,448
- - - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 59
77 STATISTICAL INFORMATION
BORROWED FUNDS
Federal funds purchased represent overnight borrowings. Repurchase agreements
generally have maturities of 18 months or less. At December 31, 1994, 1993 and
1992, $51 million, $2.7 billion and $3.4 billion, 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>
- - - ---------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
---------------- ---------------- ----------------
Dollars in millions Amount Rate Amount Rate Amount Rate
- - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased
Year-end balance $2,181 5.89% $2,066 3.06% $2,037 3.12%
Average during year 2,815 4.36 1,639 3.04 1,851 3.57
Maximum month-end balance during year 4,675 3,662 2,833
Repurchase agreements
Year-end balance 3,785 5.62 4,995 3.61 6,452 3.46
Average during year 5,053 4.14 6,944 3.50 5,197 3.79
Maximum month-end balance during year 6,431 8,917 7,356
Commercial paper
Year-end balance 1,226 5.71 514 3.24 980 3.57
Average during year 1,072 4.61 691 3.30 576 3.62
Maximum month-end balance during year 1,861 1,117 980
Other
Year-end balance 4,416 5.46 4,087 3.11 2,342 3.49
Average during year 2,435 4.83 1,099 4.31 1,443 4.74
Maximum month-end balance during year 5,571 4,088 3,377
- - - ---------------------------------------------------------------------------------------------------------------------------
</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 1994 and 1993, and 34 percent for
all other years.
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31
In thousands 1994 1993 1992 1991 1990
- - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income, book basis $3,861,812 $3,201,120 $3,218,971 $3,657,533 $4,223,375
Taxable-equivalent adjustment 33,523 39,502 42,773 58,983 96,152
- - - ---------------------------------------------------------------------------------------------------------------------------
Interest income, taxable-equivalent basis 3,895,335 3,240,622 3,261,744 3,716,516 4,319,527
Interest expense 1,952,206 1,372,087 1,561,679 2,222,335 2,874,118
- - - ---------------------------------------------------------------------------------------------------------------------------
Net interest income, taxable-equivalent basis $1,943,129 $1,868,535 $1,700,065 $1,494,181 $1,445,409
- - - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 21
PNC BANK CORP.
SCHEDULE OF CERTAIN SUBSIDIARIES+
(AS OF FEBRUARY 28, 1995)
<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, Ohio, National Association United States
PNC Bank, Kentucky, Inc.* Kentucky
PNC Mortgage Bank, National Association* United States
PNC Bank, Delaware* Delaware
PNC Bank, Northern Kentucky, National Association United States
PNC National Bank* United States
PNC Bank, Indiana, Inc.* Indiana
PNC Bank, New England Massachusetts
PNC Bank, New Jersey, National Association United States
PNC Bank, FSB Florida
PNC Holding Corp. Delaware
Alpine Indemnity Limited Grand Cayman, B.W.I.
PINACO, Inc. Pennsylvania
Pittsburgh National Life Insurance Company Arizona
PNC Equity Management Corp Pennsylvania
PNC Capital Corp. Delaware
PNC Commercial Corp Florida
PNC Venture Corp Delaware
PNC ESOP Funding Corporation Delaware
PNC Financial Services, Inc. Kentucky
PNC Funding Corp Pennsylvania
PNC Investment Corp.* Delaware
PNC Management Services Corp Delaware
PNC Network Holdings Corp* Delaware
PNC Realty Holding Corp* Pennsylvania
PNC Securities Corp Pennsylvania
PNC Trust Company of New York New York
PNC Asset Management Corp. Pennsylvania
<FN>
+ All first tier subsidiaries of the Corporation's two primary holding
companies, PNC Bancorp, Inc. and PNC Holding Corp., have been listed.
Not all of such Subsidiaries are "significant subsidiaries" within the
meaning of Rule 1-02(v) of Regulation S-X.
* The names of the subsidiaries of the indicated entities are omitted becuase
such subsidiaries, considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary.
</TABLE>
<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 January 27, 1995, 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, 1994.
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)
Form S-8 relating to the 1987 Senior Executive Long-Term Award Plan of PNC Bank
Corp. (now known as the PNC Bank Corp. 1992 Long-Term Incentive Award Plan)
(File No. 33-28828)
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)
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 LLP
Pittsburgh, Pennsylvania
March 27, 1995
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Robert N. Clay, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
/s/ Robert N. Clay
----------------------------
Signature
<PAGE> 2
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, William G. Copeland, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, 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., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, 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, Dianna L. Green, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
/s/ Dianna L. Green
----------------------------
Signature
<PAGE> 5
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Carl G. Grefenstette, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
/s/ C. G. Grefenstette
----------------------------
Signature
<PAGE> 6
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Thomas Marshall, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, 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, W. Craig McClelland, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
/s/ W. Craig McClelland
----------------------------
Signature
<PAGE> 8
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Donald I. Moritz, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
/s/ Donald I. Moritz
----------------------------
Signature
<PAGE> 9
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Jackson H. Randolph, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
/s/ Jackson H. Randolph
----------------------------
Signature
<PAGE> 10
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Roderic H. Ross, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
/s/ Roderic H. Ross
----------------------------
Signature
<PAGE> 11
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Vincent A. Sarni, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
/s/ Vincent A. Sarni
----------------------------
Signature
<PAGE> 12
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Richard P. Simmons, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
/s/ Richard P. Simmons
----------------------------
Signature
<PAGE> 13
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Thomas J. Usher, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
/s/ Thomas J. Usher
----------------------------
Signature
<PAGE> 14
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Milton A. Washington, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
/s/ Milton A. Washington
----------------------------
Signature
<PAGE> 15
POWER OF ATTORNEY
(SEC Annual Report on Form 10-K)
I, Helge H. Wehmeier, a Director of PNC Bank Corp., a Pennsylvania
corporation (the "Corporation"), do hereby name, constitute and appoint
Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any of them,
with full power of substitution, my true and lawful attorneys-in-fact to
execute in my name, place and stead, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994.
And I do hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
/s/ H. H. Wehmeier
----------------------------
Signature
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial information incorporated by reference to the 1994 Annual
Report which is filed herewith as Exhibit 99 and is qualified in its entirety by
reference to such financial information.
</LEGEND>
<CIK> 0000713676
<NAME> PNC BANK CORP.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,592
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 17,464
<INVESTMENTS-MARKET> 16,233
<LOANS> 35,407
<ALLOWANCE> (1,002)
<TOTAL-ASSETS> 64,145
<DEPOSITS> 35,011
<SHORT-TERM> 11,608
<LIABILITIES-OTHER> 1,378
<LONG-TERM> 11,754
0
1
<COMMON> 1,115
<OTHER-SE> 3,278
<TOTAL-LIABILITIES-AND-EQUITY> 64,145
<INTEREST-LOAN> 2,479
<INTEREST-INVEST> 1,291
<INTEREST-OTHER> 92
<INTEREST-TOTAL> 3,862
<INTEREST-DEPOSIT> 936
<INTEREST-EXPENSE> 1,952
<INTEREST-INCOME-NET> 1,910
<LOAN-LOSSES> 60
<SECURITIES-GAINS> (135)
<EXPENSE-OTHER> 1,770
<INCOME-PRETAX> 902
<INCOME-PRE-EXTRAORDINARY> 610
<EXTRAORDINARY> 0
<CHANGES> 0
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<YIELD-ACTUAL> 3.40
<LOANS-NON> 310
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<LOANS-TROUBLED> 9
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<ALLOWANCE-OPEN> 972
<CHARGE-OFFS> (170)
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<ALLOWANCE-CLOSE> 1,002
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<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
