<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT 0F 1934
For the Quarterly Period Ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _______________________.
COMMISSION FILE NUMBER 1-9718
PNC BANK CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
PENNSYLVANIA 25-1435979
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
ONE PNC PLAZA
FIFTH AVENUE AND WOOD STREET
PITTSBURGH, PENNSYLVANIA 15265
(Address of principal executive offices)
(Zip Code)
(412) 762-3900
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock ($5 par value): 228,536,110 shares outstanding
at April 30, 1995.
Exhibit Index appears on page 5
<PAGE> 2
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
The following consolidated financial information of PNC Bank Corp.
and subsidiaries ("Corporation") is incorporated herein by reference
to the 1995 First Quarter Corporate Financial Review ("Financial
Review") which is filed herewith as Exhibit 99. Page references
set forth below are to such Financial Review.
<TABLE>
<CAPTION>
Financial Information Page Reference
--------------------- --------------
<S> <C> <C>
Consolidated Balance Sheet as of March 31, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statement of Income for the three months
ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statement of Cash Flows for the
three months ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 24
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 25-29
</TABLE>
The statistical disclosure under the caption "Average Consolidated
Balance Sheet and Net Interest Analysis" in the Financial Review
at pages 30 and 31 is incorporated herein by reference. Certain
other statistical disclosure is included below in Part I, Item 2,
Management's Discussion and Analysis of Financial Condition and
Results of Operations, as permitted by Guide 3, Statistical
Disclosures by Bank Holding Companies.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information contained under the caption "Corporate Financial
Review" in the Financial Review at pages 2 through 21 is
incorporated herein by reference.
2
<PAGE> 3
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings
The Corporation's Annual Report on Form 10-K for the year ended
December 31, 1994 includes a description of a purported class
action lawsuit filed against the Corporation and two of its
executive officers, alleging violations of federal securities laws
and common law relating to certain disclosures. On May 2, 1995, the
Corporation filed a motion to dismiss the consolidated complaint.
ITEM 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed on the Exhibit Index on Page 5 of this Form
10-Q are filed herewith.
(b) A Current Report on Form 8-K dated as of April 17, 1995, was
filed pursuant to Item 5 to report the Corporation's
consolidated financial results for the three months ended
March 31, 1995.
(c) A Current Report on 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.
(d) A Current Report on 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.
(e) A Current Report on 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.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PNC BANK CORP.
(Registrant)
Date: May 15, 1995 By /s/ Robert L. Haunschild
----------------------
Robert L. Haunschild
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
4
<PAGE> 5
EXHIBIT INDEX
The following exhibits are filed herewith:
11 Calculation of Primary and Fully Diluted Earnings Per Common Share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
27 Financial Data Schedule.
99 1995 First Quarter Corporate Financial Review.
5
<PAGE> 1
EXHIBIT 11
<TABLE>
PNC BANK CORP. AND SUBSIDIARIES
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER COMMON SHARE
<CAPTION>
Three months ended March 31
In thousands, except per share data 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Weighted average shares of common stock outstanding 231,408 234,863
Weighted average common shares to be issued
using average market price and assuming exercise
of stock options 1,181 1,835
----------------------------
Primary weighted average common shares outstanding 232,589 236,698
============================
FULLY DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Weighted average shares of common stock outstanding 231,408 234,863
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 208 241
Conversion of preferred stock Series C 651 705
Conversion of preferred stock Series D 833 873
Conversion of debentures 69 75
Exercise of stock options 1,294 1,835
----------------------------
Fully diluted weighted average
common shares outstanding 234,463 238,592
============================
PRIMARY EARNINGS PER COMMON SHARE
Net income $125,651 $205,689
Less: Preferred dividends declared 393 419
----------------------------
Net income applicable to primary earnings
per common share $125,258 $205,270
Primary earnings per common share $.54 $.87
============================
FULLY DILUTED EARNINGS PER COMMON SHARE
Net income $125,651 $205,689
Add: Interest expense on convertible
debentures (net of tax) 11 12
----------------------------
Net income applicable to fully diluted
earnings per common share $125,662 $205,701
Fully diluted earnings per common share $.54 $.86
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 12.1
<TABLE>
PNC BANK CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year ended December 31
Three months ended ------------------------------------------------------------------
Dollars in thousands March 31, 1995 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and
cumulative effect of changes in
accounting principles................ $183,708 $ 902,389 $1,116,612 $ 778,122 $ 548,201 $ 29,425
Fixed charges excluding interest
on deposits.......................... 353,761 1,043,195 649,898 517,424 513,370 918,698
--------------------------------------------------------------------------------------
Subtotal............................ 537,469 1,945,584 1,766,510 1,295,546 1,061,571 948,123
Interest on deposits.................. 292,334 935,876 742,772 1,063,422 1,727,765 1,973,087
--------------------------------------------------------------------------------------
Total............................... $829,803 $2,881,460 $2,509,282 $2,358,968 $2,789,336 $2,921,210
======================================================================================
FIXED CHARGES
Interest on notes and debentures...... $143,447 $ 515,732 $ 265,353 $ 145,125 $ 95,207 $ 84,045
Interest on borrowed funds............ 204,122 499,252 362,995 352,162 398,779 816,448
Amortization of notes and debentures.. 206 1,346 967 970 584 538
Interest component of rentals ........ 5,986 26,865 20,583 19,167 18,800 17,667
--------------------------------------------------------------------------------------
Subtotal............................ 353,761 1,043,195 649,898 517,424 513,370 918,698
Interest on deposits.................. 292,334 935,876 742,772 1,063,422 1,727,765 1,973,087
--------------------------------------------------------------------------------------
Total............................... $646,095 $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...... 1.52x 1.87x 2.72x 2.50x 2.07x 1.03x
Including interest on deposits...... 1.28 1.46 1.80 1.49 1.24 1.01
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 12.2
<TABLE>
PNC BANK CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<CAPTION>
Year ended December 31
Three months ended ------------------------------------------------------------------
Dollars in thousands March 31, 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative
effect of changes in accounting principles.. $183,708 $ 902,389 $1,116,612 $ 778,122 $ 548,201 $ 29,425
Fixed charges and preferred stock dividends
excluding interest on deposits.............. 354,336 1,045,609 652,432 521,908 518,004 922,156
-----------------------------------------------------------------------------------
Subtotal................................... 538,044 1,947,998 1,769,044 1,300,030 1,066,205 951,581
Interest on deposits......................... 292,334 935,876 742,772 1,063,422 1,727,765 1,973,087
-----------------------------------------------------------------------------------
Total...................................... $830,378 $2,883,874 $2,511,816 $2,363,452 $2,793,970 $2,924,668
===================================================================================
FIXED CHARGES
Interest on notes and debentures............. $143,447 $ 515,732 $ 265,353 $ 145,125 $ 95,207 $ 84,045
Interest on borrowed funds................... 204,122 499,252 362,995 352,162 398,779 816,448
Amortization of notes and debentures......... 206 1,346 967 970 584 538
Interest component of rentals................ 5,986 26,865 20,583 19,167 18,800 17,667
Preferred stock dividend requirements........ 575 2,414 2,534 4,484 4,634 3,458
-----------------------------------------------------------------------------------
Subtotal................................... 354,336 1,045,609 652,432 521,908 518,004 922,156
Interest on deposits......................... 292,334 935,876 742,772 1,063,422 1,727,765 1,973,087
-----------------------------------------------------------------------------------
Total...................................... $646,670 $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.............. 1.52x 1.86x 2.71x 2.49x 2.06x 1.03x
Including interest on deposits.............. 1.28 1.46 1.80 1.49 1.24 1.01
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
the consolidated financial information incorporated by reference to the 1995
First Quarter Corporate Financial Review 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
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,699
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,137
<INVESTMENTS-CARRYING> 17,070
<INVESTMENTS-MARKET> 16,369
<LOANS> 35,724
<ALLOWANCE> (981)
<TOTAL-ASSETS> 62,094
<DEPOSITS> 32,941
<SHORT-TERM> 13,780
<LIABILITIES-OTHER> 1,384
<LONG-TERM> 9,599
<COMMON> 1,181
0
1
<OTHER-SE> 3,208
<TOTAL-LIABILITIES-AND-EQUITY> 62,094
<INTEREST-LOAN> 707
<INTEREST-INVEST> 295
<INTEREST-OTHER> 22
<INTEREST-TOTAL> 1,024
<INTEREST-DEPOSIT> 292
<INTEREST-EXPENSE> 640
<INTEREST-INCOME-NET> 384
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 437
<INCOME-PRETAX> 184
<INCOME-PRE-EXTRAORDINARY> 126
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
<YIELD-ACTUAL> 2.72
<LOANS-NON> 294
<LOANS-PAST> 161
<LOANS-TROUBLED> 8
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,002
<CHARGE-OFFS> (40)
<RECOVERIES> 18
<ALLOWANCE-CLOSE> 981
<ALLOWANCE-DOMESTIC> 981
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
Exhibit 99
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three months ended March 31 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL PERFORMANCE (Dollars in thousands, except per share data)
Net interest income (taxable-equivalent basis) $392,168 $505,804
Net income 125,651 205,689
Fully diluted earnings per common share .54 .86
Return on average total assets .83% 1.41%
Return on average common shareholders' equity 11.71 19.32
Net interest margin 2.72 3.68
After-tax profit margin 19.97 26.91
Overhead ratio 69.50 55.84
SELECTED AVERAGE BALANCES (In millions)
Assets $ 61,693 $ 58,966
Earning assets 57,448 55,182
Loans, net of unearned income 35,315 32,023
Securities 20,903 21,238
Deposits 33,052 31,737
Shareholders' equity 4,357 4,330
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31 December 31 March 31
1995 1994 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SELECTED RATIOS
Capital
Risk-based capital
Tier I 8.26% 8.62% 9.86%
Total 11.14 11.45 12.42
Leverage 6.26 6.59 7.15
Common shareholders' equity to total assets 7.04 6.82 6.97
Average common shareholders' equity to average total assets 7.03 7.09 7.31
Asset quality
Net charge-offs to average loans .24 .29 .29
Nonperforming loans to total loans .85 .90 1.09
Nonperforming assets to total loans and foreclosed assets 1.25 1.25 1.56
Nonperforming assets to total assets .72 .69 .85
Allowance for credit losses to total loans 2.75 2.83 2.94
Allowance for credit losses to nonperforming loans 324.94 314.17 269.60
Book value per common share
As reported $19.08 $18.76 $18.14
Excluding net unrealized securities losses 19.36 19.26 18.53
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE OF CONTENTS
2 Corporate Financial Review 22 Consolidated Financial Statements
30 Average Consolidated Balance Sheet and Net Interest Analysis
32 Corporate Information
<PAGE> 2
CORPORATE FINANCIAL REVIEW
THE FOLLOWING CORPORATE FINANCIAL REVIEW SHOULD BE READ IN CONJUNCTION WITH THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PNC BANK CORP. AND SUBSIDIARIES
("CORPORATION") INCLUDED HEREIN AND THE CORPORATE FINANCIAL REVIEW AND AUDITED
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE CORPORATION'S 1994 ANNUAL
REPORT.
overview
- ---------------------------------------------------------------
Net income for the first quarter of 1995 was $125.7 million, or $.54 per fully
diluted share, compared with $205.7 million, or $.86 per share, for the first
quarter of 1994. Return on assets and return on common shareholders' equity were
.83 percent and 11.71 percent, respectively, in the first quarter of 1995
compared with 1.41 percent and 19.32 percent a year ago.
Management took strategic actions in the latter part of 1994 to reduce
sensitivity to significantly higher interest rates and to realign the
Corporation's balance sheet. These actions substantially eliminated liability
sensitivity at one year and mitigated the impact of significantly higher
interest rates on net interest income. Financial results for the first quarter
of 1995 reflect the costs associated with these actions.
The Corporation's balance sheet realignment is expected to include further
reductions of the securities portfolio and certain low-spread loans through
scheduled maturities and repayments or sales. 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. During the first quarter of 1995,
approximately 4.5 million shares were purchased by the Corporation pursuant to
this plan.
In the first quarter of 1995, the nation's real gross domestic product grew at
a preliminary annual rate of 2.8 percent according to the United States Commerce
Department. The Federal Reserve has continued to exercise monetary policies
designed to reduce inflationary pressures associated with the economic
expansion. Based on recent economic indicators, management expects economic
growth to slow throughout 1995, which may reduce inflationary pressures. As a
result, management expects a modest increase in short-term interest rates during
the remainder of 1995. Should interest rates increase more than anticipated or a
flat yield curve persist, the Corporation's financial results would likely be
adversely affected.
mergers and acquisitions
- ---------------------------------------------------------------
During the first quarter of 1995, the Corporation completed the acquisition of
BlackRock Financial Management L.P. ("BlackRock"), a New York-based,
fixed-income investment management firm with approximately $25 billion in assets
under management at closing. The transaction was accounted for under the
purchase method and the Corporation paid $71 million in cash and issued $169
million of unsecured notes.
The Corporation also acquired Indian River Federal Savings Bank, Vero Beach,
Florida, and Brentwood Financial Corporation, Cincinnati, Ohio, for $33 million
in cash. The acquisitions added assets and deposits of approximately $175
million and $140 million, respectively.
In addition, the Corporation announced a definitive agreement to acquire the
Chemical Bank franchise in southern and central New Jersey. The transaction
includes approximately $3.3 billion of assets and $2.9 billion of retail
deposits and is expected to close by year-end 1995, pending regulatory
approvals. The acquisition has an indicated value of approximately $500 million
and will be accounted for under the purchase method.
During 1994, the Corporation completed the acquisitions of United Federal
Bancorp, Inc., State College, Pennsylvania, and First Eastern Corp.,
Wilkes-Barre, Pennsylvania. The acquisitions added assets and deposits of $2.8
billion and $2.4 billion, respectively. In addition, in June 1994, the
Corporation purchased a $10 billion residential mortgage servicing portfolio
from the Associates Corporation of North America.
2
<PAGE> 3
CORPORATE FINANCIAL REVIEW
income statement review
- ---------------------------------------------------------------
INCOME STATEMENT HIGHLIGHTS
<TABLE>
<CAPTION>
Three months ended
March 31 Change
-----------------
Dollars in millions 1995 1994 Amount Percent
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income
(taxable-equivalent
basis) $392 $506 $(114) (22.5)%
Provision for
credit losses 25 (25) (100.0)
Noninterest income
before securities
transactions 236 228 8 3.4
Net securities
gains 1 30 (29) (95.9)
Noninterest expense 437 427 10 2.5
Net income 126 206 (80) (38.9)
- --------------------------------------------------------------
</TABLE>
NET INTEREST INCOME AND NET INTEREST MARGIN On a fully taxable-equivalent
basis, net interest income for the first quarter of 1995 decreased $113.6
million, compared with the first quarter of 1994. A $2.3 billion increase in
average earning assets was more than offset by a narrower net interest margin
compared with the prior-year period.
NET INTEREST INCOME
<TABLE>
<CAPTION>
Three months ended
Taxable-equivalent
basis MARCH 31 December 31 March 31
In millions 1995 1994 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Net interest income
before swaps and caps
Interest income $1,045 $1,027 $855
Loans fees 17 15 19
Taxable-equivalent
adjustment 8 8 8
------------------------------------
Total interest
income 1,070 1,050 882
Interest expense 637 598 433
------------------------------------
Net interest income
before swaps and caps 433 452 449
Effect of swaps and
caps on
Interest income (37) (17) 21
Interest expense 4 2 (36)
------------------------------------
Total swaps and
caps (41) (19) 57
------------------------------------
Net interest income $ 392 $ 433 $506
- -------------------------------------------------------------
</TABLE>
VOLUME/RATE ANALYSIS
<TABLE>
<CAPTION>
Three months ended Increase (Decrease)
March 31 Due to Changes in
1995 versus 1994 -------------------------
Rate/
In millions Volume Rate Volume Total
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $36 $ 140 $12 $ 188
Interest expense 24 168 12 204
Interest rate swaps
and caps 3 (101) (98)
---------
Net interest income 21 (131) (4) $(114)
- ---------------------------------------------------------------
</TABLE>
Net interest income declined and net interest margin narrowed in the
comparisons primarily due to the adverse impact of interest rate swaps and caps
and the costs of actions taken in 1994 to reduce interest sensitivity and
down size the securities portfolio. These factors are expected to continue to
adversely impact net interest income and net interest margin in 1995. In
addition, the Corporation's net interest income and margin continue to be
adversely impacted by higher interest rates, competitive loan pricing, rising
deposit and borrowing costs and changes in deposit composition.
NET INTEREST MARGIN
<TABLE>
<CAPTION>
Three months ended
Taxable-equivalent MARCH 31 December 31 March 31
basis 1995 1994 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Interest rate spread
before swaps and caps
Book-basis yield on
earning assets 7.29% 6.91% 6.23%
Effect of loan fees .11 .10 .14
Taxable-equivalent
adjustment .06 .06 .06
------------------------------------
Taxable-equivalent
yield on earning
assets 7.46 7.07 6.43
Rate on
interest-bearing
liabilities 5.13 4.64 3.69
------------------------------------
Interest rate spread
before swaps and
caps 2.33 2.43 2.74
Effect of
Noninterest-bearing
sources .67 .62 .48
Interest rate swaps
and caps on
Interest income (.25) (.12) .16
Interest expense .03 .01 (.30)
------------------------------------
Total swaps and
caps (.28) (.13) .46
------------------------------------
Net interest margin 2.72% 2.92% 3.68%
- -------------------------------------------------------------
</TABLE>
3
<PAGE> 4
CORPORATE FINANCIAL REVIEW
PROVISION FOR CREDIT LOSSES The Corporation did not record a provision for
credit losses in the first quarter of 1995. The provisions for credit losses was
$25.0 million in the first quarter of 1994. Stronger economic conditions
combined with management's ongoing attention to asset quality resulted in a
stable level of nonperforming assets, lower 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 during the remainder of 1995.
Should risk profile of the loan portfolio or the economy deteriorate, asset
quality may be adversely impacted and a provision for credit losses may be
required.
NONINTEREST INCOME Noninterest income before securities transactions increased
3.4 percent to $235.9 million in the first quarter of 1995. Excluding securities
transactions, noninterest income was 37.6 percent of total revenue in the first
quarter of 1995 compared with 31.1 percent a year earlier. Net securities gains
totaled $1.3 million in the first quarter of 1995 compared with $30.4 million in
the year-earlier period.
NONINTEREST INCOME
<TABLE>
<CAPTION>
Change
Three months ended March 31 ---------------------
Dollars in thousands 1995 1994 Amount Percent
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment management and trust
Trust $ 50,967 $ 49,399 $ 1,568 3.2%
Mutual funds 28,173 23,568 4,605 19.5
--------------------------------------------
Total investment management and trust 79,140 72,967 6,173 8.5
Service charges, fees and commissions
Deposit account and corporate services 39,542 39,806 (264) (.7)
Credit card and merchant services 14,175 12,920 1,255 9.7
Brokerage 9,243 8,677 566 6.5
Corporate finance 10,707 10,679 28 .3
Other services 17,757 15,820 1,937 12.2
--------------------------------------------
Total service charges, fees and commissions 91,424 87,902 3,522 4.0
Mortgage banking
Servicing 31,123 29,877 1,246 4.2
Sale of servicing 12,258 5,145 7,113 138.3
Marketing 1,269 2,870 (1,601) (55.8)
--------------------------------------------
Total mortgage banking 44,650 37,892 6,758 17.8
Other 20,645 29,398 (8,753) (29.8)
--------------------------------------------
Total noninterest income before securities
transactions 235,859 228,159 7,700 3.4
Net securities gains 1,254 30,392 (29,138) (95.9)
--------------------------------------------
Total $237,113 $258,551 $(21,438) (8.3)%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
CORPORATE FINANCIAL REVIEW
INVESTMENT MANAGEMENT AND TRUST
<TABLE>
<CAPTION>
Assets at March 31
-------------------------------------------------------------------------- Revenue for the
three months
Discretionary Nondiscretionary Total ended March 31
---------------------- ------------------------- ------------------------- -------------------
In millions 1995 1994 1995 1994 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Personal and charitable $23,266 $23,940 $ 10,986 $ 9,280 $ 34,252 $ 33,220 $36 $36
Institutional 20,683 5,755 33,706 71,971 54,389 77,726 15 13
---------------------------------------------------------------------------------------------------
Total trust 43,949 29,695 44,692 81,251 88,641 110,946 51 49
Mutual funds 35,830 22,777 89,506 57,154 125,336 79,931 28 24
---------------------------------------------------------------------------------------------------
Total $79,779 $52,472 $134,198 $138,405 $213,977 $190,877 $79 $73
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment management and trust revenue increased 8.5 percent to $79.1 million
primarily due to the BlackRock acquisition which was completed on February 28,
1995. On an annualized basis, BlackRock is expected to increase investment
management and trust revenue by approximately 20 percent.
Total trust and mutual funds assets increased $23.1 billion to $214.0 billion
at March 31, 1995. BlackRock added approximately $25 billion in discretionary
assets, $15 billion of which are institutional funds and the remainder are
mutual funds. At March 31, 1995, the composition of total discretionary assets
was 45 percent fixed-income, 32 percent money market, 22 percent equity and one
percent other assets. The PNC Family of Funds is included in the discretionary
mutual funds category. Assets in these funds totaled $5.6 billion at March 31,
1995 compared with $4.0 billion a year ago. Nondiscretionary assets declined
in the comparison as a decline in institutional trust custody business
was partially offset by the addition of mutual fund custody services.
Service charges, fees and commissions increased $3.5 million, or 4.0 percent,
to $91.4 million, primarily due to acquisitions and growth in brokerage and
other consumer-related fees.
In April 1995, the Corporation announced an agreement with First Data
Corporation/Card Services Group and Card Issuer Program Management Corporation
to provide marketing expertise and processing technology designed to increase
the Corporation's share of the credit card business. Fee income and operating
expenses related to the credit card business are each expected to be reduced by
approximately $20 million during the remainder of 1995 as a result of this
relationship.
Mortgage banking income increased $6.8 million to $44.7 million primarily due
to gains from sales of servicing totaling $12.3 million in the first quarter of
1995 compared with $5.1 million in the prior-year period.
MORTGAGE SERVICING PORTFOLIO
<TABLE>
<CAPTION>
In millions 1995 1994
- ------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $40,966 $35,527
Originations 921 2,033
Acquisitions 64 461
Repayments (836) (2,284)
Sales (1,128) (488)
---------------------------
Balance at March 31 $39,987 $35,249
- ------------------------------------------------------------
</TABLE>
During the first quarter of 1995, the Corporation funded $921 million of
residential mortgages, approximately 89 percent of which represented new
financing. PNC Mortgage directly originated 63 percent of total volume in 1995.
At March 31, 1995, the Corporation's mortgage servicing portfolio totaled $40.0
billion, including $28.6 billion serviced for others. The servicing portfolio
had a weighted-average coupon rate of 7.90 percent, an unamortized carrying
value of $307 million and an estimated fair value of $513 million.
Other noninterest income decreased $8.8 million primarily due to lower venture
capital income and lower gains from sales of assets.
5
<PAGE> 6
CORPORATE FINANCIAL REVIEW
NONINTEREST EXPENSE Noninterest expense totaled $437.4 million in the first
quarter of 1995 compared with $426.8 million in the first quarter of 1994. The
increase was due to acquisitions. Excluding acquisitions, noninterest expense
decreased 3.6 percent in the comparison.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Three months ended March 31
Change
Dollars in ---------------
thousands 1995 1994 Amount Percent
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
Compensation $163,107 $ 164,792 $(1,685) (1.0)%
Employee benefits 38,751 42,107 (3,356) (8.0)
------------------------------
Total staff
expense 201,858 206,899 (5,041) (2.4)
Net occupancy 34,704 32,420 2,284 7.0
Equipment 34,146 32,862 1,284 3.9
Amortization of
intangible
assets 21,146 19,560 1,586 8.1
Federal deposit
insurance 18,376 18,176 200 1.1
Taxes other than
income 12,057 11,096 961 8.7
Other 115,092 105,833 9,259 8.7
------------------------------
Total $437,379 $ 426,846 $10,533 2.5%
- ---------------------------------------------------------------
</TABLE>
The overhead ratio was 69.5 percent in the first quarter of 1995 compared with
55.8 percent in the year-earlier period. The higher overhead ratio primarily
reflects the impact of lower net interest income.
Staff expense decreased 2.4 percent in the year-to-year comparison primarily
due to lower staff levels. Average full-time equivalent employees decreased to
approximately 20,300 for the first quarter of 1995 compared with approximately
21,000 a year ago. The impact of approximately 1,300 employees added from
acquisitions was more than offset by lower staffing in the Consumer Banking line
of business. The Mass Market sector experienced reductions due to centralization
and branch rationalization initiatives. Mortgage Banking benefitted from the
consolidation of operations centers and efficiencies gained from the use of
technology. Pension and postretirement benefit expense declined $4.2 million due
to lower staff levels and a higher discount rate used to estimate pension
obligations.
Amortization of intangibles increased $1.6 million as higher amortization of
goodwill from acquisitions was partially offset by the impact of slower mortgage
prepayments on the amortization of mortgage servicing rights. The increase in
the remaining noninterest expense categories was primarily due to acquisitions.
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 services
institution. Designations, assignments, and allocations may change from time to
time as the management accounting system is enhanced and business or product
lines change. In 1995, the Corporation realigned its line of business management
structure along customer segments. The principal change was segregating the
trust business, previously managed separately, into the corporate and consumer
banking organizations, as applicable. In addition, consistent with the
Corporation's strategic focus and balance sheet realignment, asset/liability
management has been redefined as a support function for the core lines of
business. Results for the first quarter of 1994 are presented on a basis
consistent with this new structure.
For management reporting purposes, the Corporation has designated three lines
of business: Corporate Banking, Consumer Banking, and Asset Management. 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. Consumer Banking and Asset Management were 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 interest rate spread on
the remaining securities, the impact of financial derivatives, and securities
transactions are excluded from line of business results and
6
<PAGE> 7
CORPORATE FINANCIAL REVIEW
are reported separately in asset/liability management activities.
Capital is assigned to each business unit based on management's assessment of
inherent risks. 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.
LINE OF BUSINESS HIGHLIGHTS
<TABLE>
<CAPTION>
Return on
Average Assigned
Three months ended March 31 Balance Sheet Revenue Earnings Equity
-----------------------------------------------------------------------------------
Dollars in millions 1995 1994 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Corporate Banking
Large Corporate $ 3,877 $ 3,494 $ 37 $ 53 $ 12 $ 24 10% 25%
Middle Market 10,906 9,860 139 136 39 55 11 17
Equity Management 186 169 4 12 2 7 15 58
----------------------------------------------------------
Total Corporate Banking 14,969 13,523 180 201 53 86 11 20
----------------------------------------------------------
Consumer Banking
Private Banking 1,045 844 57 51 9 8 26 33
Mass Market 25,609 23,891 304 272 57 50 17 14
Mortgage Banking 11,268 10,094 93 93 13 12 11 13
----------------------------------------------------------
Total Consumer Banking 37,922 34,829 454 416 79 70 16 15
----------------------------------------------------------
Asset Management 246 241 36 30 9 7 57 50
----------------------------------------------------------
Total lines of business 53,137 48,593 670 647 141 163 14 18
Asset/liability management activities 8,964 9,517 (27) 112 (19) 70
Unallocated provision 13 (19)
Other unallocated items (408) 856 (24) (3) (9) (8)
----------------------------------------------------------
Total $61,693 $58,966 $619 $756 $126 $206 12% 19%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total earnings contributed by the lines of business were $141 million in
the first quarter of 1995 compared with $163 million in the first quarter of
1994. The decline, attributable to Corporate Banking, primarily resulted from an
increase in the allocated provision for credit losses which was negative in the
prior-year period. Line of business earnings differ from reported consolidated
net income in both periods due to asset/liability management activities,
differences between specific reserve allocations to the lines of business and
the consolidated provision for credit losses, and certain unallocated revenues
and expenses. The decline in consolidated earnings was primarily due to the
impact of interest rate swaps and caps, and lower net securities gains which are
reported in asset/liability management activities.
7
<PAGE> 8
CORPORATE FINANCIAL REVIEW
CORPORATE BANKING Corporate Banking provides traditional financing, liquidity
and treasury management, corporate and employee benefit trust, capital markets,
direct investment and other financial services to businesses and governmental
entities. It serves customers within the Corporation's primary markets as well
as from a network of offices located in major U.S. cities. Corporate Banking
includes: Large Corporate--customers having annual sales of more than $250
million; Middle Market--customers with annual sales of $5 million to $250
million and those in certain specialized industries such as real estate,
communications, health care, natural resources, leasing and automobile dealer
finance; and Equity Management--private equity investments.
Corporate Banking provided 38 percent of line of business earnings in the
first quarter of 1995 compared with 53 percent in the first quarter of 1994.
Large Corporate earnings declined in 1995 as the benefit of an increase in
average loans was more than offset by the impact of narrower spreads in the loan
portfolio and the benefit from resolution of a problem asset a year ago that
negatively affected the comparison. Middle Market earnings declined primarily
due to a higher provision for credit losses in 1995 compared with a negative
provision a year ago resulting from a significant reduction of problem assets.
CONSUMER BANKING Consumer Banking provides lending, deposit, personal trust,
brokerage and investment, payment system access and other financial services to
consumers and small businesses. It provides services through a network of
community banking and mortgage offices, alternative delivery systems such as
ATMs and telephone banking, and regional banking centers offering a wide-array
of products at a single point of contact. Consumer Banking includes: Private
Banking--affluent consumers and charitable organizations with specialized
banking requirements; Mass Market--small business customers having annual sales
of up to $5 million and all other consumers who use traditional branch and
direct banking services; and Mortgage Banking--residential and loan origination,
acquisition and servicing activities and residential mortgage loans held in
portfolio.
The earnings contribution from Consumer Banking increased to 56 percent in the
first quarter of 1995 from 43 percent a year ago. Earnings from Private Banking
increased in the first quarter of 1995 as the benefit from loan growth, new
trust business and higher brokerage fees more than offset expense growth from
continued resource investment in this sector. Mass Market earnings benefitted
from an increase in average loans and deposits as a result of acquisitions and a
greater assigned value for core deposits in the higher interest rate environment
in 1995. Mortgage Banking continued to operate in an environment characterized
by significantly reduced volumes. Earnings increased as the impact of lower
originations was more than offset by the benefit of an increase in portfolio
loans and higher gains on sales of mortgage servicing rights.
ASSET MANAGEMENT Asset Management provides trust and mutual fund investment
management, strategy, and research, and asset servicing for institutional and
family wealth customers. It serves customers through one unified money
management organization.
Asset Management contributed 6 percent of line of business earnings in the
first quarter of 1995 compared with 4 percent a year ago. Asset management
earnings increased primarily due to a higher level of managed mutual fund
assets, and growth in fund accounting and administrative services business.
BlackRock is expected to increase earnings of this line of business during the
remainder of 1995.
8
<PAGE> 9
CORPORATE FINANCIAL REVIEW
balance sheet review
- ---------------------------------------------------------------
AVERAGE ASSETS
<TABLE>
<CAPTION>
MARCH 31 December
Three months ended 31 March 31
In millions 1995 1994 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Assets $61,693 $62,952 $58,966
Earning assets 57,448 59,173 55,182
Loans, net of
unearned income 35,315 34,955 32,023
Securities 20,903 22,923 21,238
- -------------------------------------------------------------
</TABLE>
LOANS Average loans for the first quarter of 1995 increased 10.3 percent over
the comparable period in 1994, to $35.3 billion. Acquisitions increased the loan
portfolio primarily in the Consumer Banking line of business. Excluding the
impact of acquisitions, average loans increased 6.2 percent. The proportion of
average loans to average earning assets increased to 61.5 percent in the first
quarter of 1995 compared with 58.0 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.
The Corporation manages credit risk associated with its lending activities
through underwriting policies and procedures, portfolio diversification and loan
monitoring practices. The loan portfolio composition did not change
significantly since year-end 1994.
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
December
Percent of gross MARCH 31 31 March 31
loans 1995 1994 1994
------------------------------------------------------------
<S> <C> <C> <C>
Commercial 34.3% 34.9% 38.2%
Real estate
project 4.6 4.6 5.0
Real estate
mortgage
Residential 27.8 26.0 24.0
Commercial 3.4 3.5 3.1
Total real
estate
mortgage 31.2 29.5 27.1
Consumer 24.9 25.8 25.4
Other 5.0 5.2 4.3
----------------------------------
Total 100.0% 100.0% 100.0%
------------------------------------------------------------
</TABLE>
At March 31, 1995, loan outstandings and net unfunded commitments increased
$2.2 billion, or 3.6 percent, since year-end 1994. Unfunded commitments are net
of participations and syndications.
In addition, the Corporation had letters of credit outstanding totaling $4.4
billion and $4.3 billion at March 31, 1995 and December 31, 1994, respectively,
consisting primarily of standby letters of credit.
Total commercial loan outstandings declined $104 million from year-end 1994,
reflecting a reduction in certain low-spread loans. Growth in commercial
unfunded commitments was broad based and increased $1.6 billion, or 8.6 percent,
in the comparison.
Total real estate project exposure increased slightly since year-end 1994.
Real estate projects primarily consist of retail and office, multi-family,
hotel/motel and residential projects. Approximately 72 percent of total
outstandings are located in the Corporation's primary markets. The remaining
projects are geographically dispersed throughout the United States.
Real estate mortgage outstandings increased 6.3 percent primarily due to
acquisitions and portfolio management strategies. 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 sold.
Consumer loan outstandings totaled $9.0 billion at March 31, 1995 compared
with $9.2 billion at year-end 1994. The decline was primarily due to a planned
reduction in indirect automobile loans.
9
<PAGE> 10
CORPORATE FINANCIAL REVIEW
LOANS
<TABLE>
<CAPTION>
MARCH 31, 1995 December 31, 1994
-----------------------------------------------------------------
NET UNFUNDED Net Unfunded
In millions OUTSTANDINGS COMMITMENTS Outstandings Commitments
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial
Manufacturing $ 2,375 $ 6,217 $ 2,434 $ 6,011
Retail/Wholesale 2,352 2,412 2,148 2,123
Service providers 1,512 1,506 1,534 1,384
Communications
Cable 711 209 691 215
Telephone/cellular 290 1,106 285 923
Other 161 181 125 93
-----------------------------------------------------------------
Total communications 1,162 1,496 1,101 1,231
Financial services 521 2,750 691 2,502
Real estate related 651 192 610 180
Health care 676 1,025 606 958
Public utilities 171 1,153 254 1,079
Other 2,921 3,793 3,067 3,447
-----------------------------------------------------------------
Total commercial 12,341 20,544 12,445 18,915
Real estate project
Construction and development 429 261 394 254
Medium-term financings 1,214 41 1,234 56
-----------------------------------------------------------------
Total real estate project 1,643 302 1,628 310
Real estate mortgage
Residential 9,990 1,049 9,283 769
Commercial 1,222 19 1,261 19
-----------------------------------------------------------------
Total real estate mortgage 11,212 1,068 10,544 788
Consumer
Home equity 2,576 1,513 2,625 1,761
Automobile 2,419 2,534
Student 1,304 5 1,258 30
Credit card 804 3,575 817 3,423
Other 1,871 351 1,953 330
-----------------------------------------------------------------
Total consumer 8,974 5,444 9,187 5,544
Other 1,790 998 1,843 917
Unearned income (236) (240)
-----------------------------------------------------------------
Total, net of unearned income $35,724 $28,356 $35,407 $26,474
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
CORPORATE FINANCIAL REVIEW
SECURITIES The securities portfolio declined $714 million from year-end 1994
to $20.2 billion at March 31, 1995. Securities represented 35.5 percent of
earning assets at March 31, 1995 compared with 36.3 percent at December 31, 1994
and 37.5 percent a year ago. As part of the Corporation's balance sheet
realignment, management anticipates a continued reduction in the securities
portfolio through scheduled maturities and anticipated repayments or sales. As a
result of the balance sheet realignment, the securities portfolio is expected to
represent approximately 30 percent of earning assets by the end of 1995.
At March 31, 1995, the securities portfolio included $11.3 billion and $2.6
billion of collateralized mortgage obligations and mortgage-backed securities,
respectively. 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 monitors the impact of this risk through the use of an income
simulation model as part of the asset/liability management process.
Other U.S. Government agencies 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.
<TABLE>
<CAPTION>
SECURITIES
MARCH 31, 1995 December 31, 1994
--------------------------------------------------------------------------------------------
UNREALIZED Unrealized
AMORTIZED --------------- Amortized ----------------
In millions COST GAINS LOSSES FAIR VALUE Cost Gains Losses Fair Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
Debt securities
U.S. Treasury $1,795 $37 $1,758 $1,794 $93 $1,701
U.S. Government agencies and
corporations
Mortgage-related 10,643 632 10,011 10,920 1,025 9,895
Other 1,000 15 985 1,000 28 972
State and municipal 344 $19 1 362 348 $12 2 358
Asset-backed private
placements 1,597 7 1,590 1,597 33 1,564
Other debt
Mortgage-related 700 21 679 726 43 683
Other 675 8 667 769 20 749
Other 316 1 317 310 1 311
--------------------------------------------------------------------------------------------
Total $17,070 $20 $721 $16,369 $17,464 $13 $1,244 $16,233
--------------------------------------------------------------------------------------------
Securities available for sale
Debt securities
U.S. Treasury $324 $3 $321 $401 $8 $393
U.S. Government agencies and
corporations
Mortgage-related 1,890 $19 21 1,888 2,161 69 2,092
Other 25 3 22 25 4 21
Other debt
Mortgage-related 703 6 697 749 17 732
Other 113 1 6 108 117 $2 119
Corporate stocks and other 104 1 4 101 105 1 6 100
-------------------------------------------------------------------------------------------
Total $3,159 $21 $43 $3,137 $3,558 $3 $104 $3,457
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
CORPORATE FINANCIAL REVIEW
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
conditions or other factors warrant. Gains and losses from such transactions
would be reflected in results of operations.
The table below sets forth the expected maturity distribution of the
securities portfolio as of March 31, 1995. Mortgage-related securities and other
instruments are distributed based on expected weighted average lives determined
by historical experience.
The expected weighted average life of the securities portfolio was 3 and
one-half years at March 31, 1995 compared with 4 years at year-end 1994.
EXPECTED MATURITY DISTRIBUTION OF SECURITIES
<TABLE>
<CAPTION>
Weighted
1997 and Average
Dollars in millions 1995 1996 beyond Total Life
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment securities
Debt securities
U.S. Treasury $ 1,795 $ 1,795 3.8 yr
U.S. Government agencies and corporations
Mortgage-related $ 1,361 $ 1,577 7,705 10,643 3.7
Other 1,000 1,000 1.3
State and municipal 14 22 308 344 9.1
Asset-backed private placements 1,347 250 1,597 1.5
Other debt
Mortgage-related 65 95 540 700 2.5
Other 236 237 202 675 1.4
Other 316 316 NM
------------------------------------------------------
Total investment securities 1,676 4,278 11,116 17,070 3.3
Securities available for sale
Debt securities
U.S. Treasury 56 226 39 321 1.5
U.S. Government agencies and corporations
Mortgage-related 239 271 1,378 1,888 5.4
Other 5 17 22 2.8
Other debt
Mortgage-related 102 120 475 697 3.7
Other 3 3 102 108 6.5
Corporate stocks and other 101 101 NM
------------------------------------------------------
Total securities available for sale 400 625 2,112 3,137 4.6
------------------------------------------------------
Total $ 2,076 $ 4,903 $13,228 $20,207 3.5 yr
------------------------------------------------------
Percent of total 10.3% 24.3% 65.4% 100.0%
------------------------------------------------------
Securities with interest rates that are
Fixed $ 1,757 $ 2,190 $11,077 $15,024
Variable 319 2,713 2,151 5,183
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NM--not meaningful
12
<PAGE> 13
CORPORATE FINANCIAL REVIEW
AVERAGE FUNDING SOURCES
<TABLE>
<CAPTION>
Three months ended MARCH 31 December 31 March 31
In millions 1995 1994 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------
Deposits $33,052 $33,409 $31,737
Borrowed funds 13,328 11,642 11,543
Notes and debentures 9,736 12,593 10,142
Shareholders' equity 4,357 4,386 4,330
- ---------------------------------------------------------------
</TABLE>
FUNDING SOURCES Average deposits increased $1.3 billion, or 4.1 percent,
compared with the first quarter of 1994 primarily due to acquisitions. Average
noninterest-bearing sources were 13.0 percent of total funding sources during
the first quarter of 1995 compared with 14.1 percent a year ago.
FUNDING SOURCES
<TABLE>
<CAPTION>
MARCH 31 December 31
In millions 1995 1994
<S> <C> <C>
- -----------------------------------------------------------
Deposits
Demand, savings and money
market $17,798 $19,313
Time 14,012 13,100
Foreign 1,131 2,598
-------------------------
Total deposits 32,941 35,011
Borrowed funds
Repurchase agreements 7,059 3,785
Treasury, tax and loan 886 1,989
Federal funds purchased 2,928 2,181
Commercial paper 825 1,226
Other 2,082 2,427
-------------------------
Total borrowed funds 13,780 11,608
Notes and debentures
Bank notes 6,815 8,825
Federal Home Loan Bank 1,287 1,384
Other 1,497 1,545
-------------------------
Total notes and debentures 9,599 11,754
-------------------------
Total $56,320 $58,373
- -----------------------------------------------------------
</TABLE>
Total deposits at March 31, 1995 decreased $2.1 billion, or 5.9 percent, since
year-end 1994. Demand, savings and money market deposits declined $1.5 billion
to $17.8 billion and time deposits increased $912 million to $14.0 billion at
March 31, 1995. The change in deposit composition was primarily due to customers
shifting to higher rate deposit products.
Brokered deposits totaled $2.4 billion at March 31, 1995 compared with $2.8
billion at December 31, 1994. Retail brokered deposits are issued or
participated-out by brokers in denominations of $100,000 or less. Such deposits
represented 75.0 percent of the total brokered at March 31, 1995 compared with
77.2 percent at year-end 1994.
The change in the composition of borrowed funds and notes and debentures
reflects asset/liability management activities to utilize less costly sources of
funds. In addition, the Corporation extended the maturity structure of
approximately $15.5 billion of interest-bearing funding sources that matured in
the first quarter of 1995. These initiatives were achieved through a variety of
funding sources, primarily repurchase agreements and term Federal funds, with
maturities ranging from six months to one year.
CAPITAL 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 March 31, 1995, the capital position of each bank affiliate was
classified as well capitalized.
RISK-BASED CAPITAL AND CAPITAL RATIOS
<TABLE>
<CAPTION>
MARCH 31 December 31
Dollars in millions 1995 1994
<S> <C> <C>
- ------------------------------------------------------------
CAPITAL COMPONENTS
Shareholders' equity $4,390 $ 4,394
Goodwill (622) (373)
Net unrealized securities
losses 65 119
----------------------------
Total Tier I risk-based
capital 3,833 4,140
Subordinated debt 752 752
Eligible allowance for
credit losses 585 605
----------------------------
Total risk-based capital $5,170 $ 5,497
----------------------------
ASSETS
Risk-weighted assets and
off-balance-sheet
instruments $46,401 $48,007
Average tangible assets 61,175 62,842
CAPITAL RATIOS
Tier I risk-based capital 8.26% 8.62%
Total risk-based capital 11.14 11.45
Leverage 6.26 6.59
- ------------------------------------------------------------
</TABLE>
13
<PAGE> 14
CORPORATE FINANCIAL REVIEW
Shareholders' equity declined slightly at March 31, 1995 compared with
year-end 1994 primarily due to the impact of the Corporation's share repurchase
program. Goodwill increased in the comparison due to the acquisition of
BlackRock in February 1995. The pending acquisition of Chemical Bank New Jersey
is not expected to significantly impact capital ratios.
In January 1995, the board of directors approved a stock repurchase program
which authorized the Corporation to purchase up to 24 million additional common
shares over the next two years. As of March 31, 1995, approximately 4.5 million
shares were purchased by the Corporation pursuant to this plan at an average
price of $24.14 per share.
The Corporation maintains its capital positions primarily through the issuance
of debt and equity instruments, its dividend policy and retained earnings.
risk management
- ---------------------------------------------------------------
The Corporation's ordinary course of business involves varying degrees of risk
taking, two of the most significant of which are interest rate risk and credit
risk. In order to manage these risks, the Corporation has risk management
processes designed to provide for risk identification, measurement, monitoring
and control.
INTEREST RATE 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, changes in the relationship or spread between
interest rates and the maturity structure of assets, liabilities, and
off-balance-sheet positions. 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 income.
The results of the simulation model are highly dependent on numerous
assumptions. These assumptions 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 interest 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 speeds 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 volumes and
pricing, deposit sensitivity, customer preferences, competition, and
management's financial 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 inherently uncertain and subject to change
as time passes. Accordingly, they are updated on at least a quarterly basis and
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 the
base case scenario and 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 do 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, direction, magnitude and fre-
14
<PAGE> 15
CORPORATE FINANCIAL REVIEW
quency of interest rate changes, the relationship or spread between various
interest rates, changes in market conditions, loan volumes and pricing, 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
scenario, 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.
Based on recent economic indicators, management expects economic growth in
1995 to be at a slower pace than recently experienced. The slower economic
growth may reduce inflationary pressures and, accordingly, the Federal Reserve
may be less aggressive with respect to increases in interest rates during 1995
compared with 1994. The simulated results of management's base case scenario
for 1995 are consistent with previously reported expectations.
The following table sets forth interest rates for the periods indicated
including management's base case scenario and the industry consensus for the
twelve months ended March 31, 1996 as reported in the Blue Chip Financial
Forecasts.
INTEREST RATES
[CAPTION]
<TABLE>
Industry
Consensus
Base case scenario Average for
------------------ Twelve Months
March December March Ended March
1995 1995 1996 1996
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
Federal funds 6.00% 6.50% 6.50% 6.23%
3-month LIBOR 6.28 6.75 6.75 6.50
5-year U.S.
Treasury Note 7.05 7.40 7.40 7.10
Spread between Fed
funds and 5-year
Treasury 105bp 90bp 90bp 87bp
- ---------------------------------------------------------------
</TABLE>
The Corporation's current base case scenario assumes a 50 basis point increase
in the Federal funds rate in September 1995.
The results of the simulation model include the impact of actions taken by
management during the latter part of 1994 to reduce the adverse impact of
interest rates significantly above the base case scenario. The model also
includes the impact of management's plans to reduce further the securities
portfolio, through scheduled maturities and repayments, and to repurchase common
stock. The model does not reflect the impact of pending acquisitions.
If interest rates increase evenly over the next four quarters by 100 basis
points more than the base case scenario, the simulation model projects net
interest income would decline from the base case scenario by 3.6 percent.
Conversely, if interest rates decline by 100 basis points, net interest income
would exceed the base case scenario by 3.3 percent.
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
liabilities are expected to reprice more quickly than assets over a specified
time period. Alternatively, a cumulative asset-sensitive gap position indicates
assets are expected to reprice more quickly than liabilities. The gap analysis
alone does not accurately measure the magnitude of changes in net interest
income since changes in interest rates over time do not impact all categories of
assets, liabilities and off-balance-sheet instruments equally or simultaneously.
The liability sensitivity of the cumulative one-year gap position was 1.9
percent of total earning assets at March 31, 1995, compared with 1.5 percent at
December 31, 1994, and 19.1 percent a year ago.
FINANCIAL DERIVATIVES As part of its overall asset/liability management
process, the Corporation enters into or may terminate off-balance-sheet
financial derivatives positions. Substantially all such instruments are used to
manage interest rate risk and consist of interest rate swaps, interest rate
caps, and futures and forward contracts.
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 features are used to alter the
repricing characteristics of interest-bearing assets or liabilities.
15
<PAGE> 16
CORPORATE FINANCIAL REVIEW
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, up to a contractually specified limit, applied
to a notional amount.
Futures contracts are agreements to purchase or sell a financial instrument at
a specified future date, quantity and price or yield. Futures contracts are
standardized contractual terms traded on organized exchanges.
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
$311 million and $532 million, respectively, at March 31, 1995. Substantially
all contracts mature within 90 days.
Financial derivatives involve, to varying degrees, interest rate and credit
risks 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.
FINANCIAL DERIVATIVES
[CAPTION]
<TABLE>
Positive Negative Total
In millions Notional Fair Notional Fair Notional
March 31, 1995 Value Value Value Value Value
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
Interest rate
swaps
Receive-fixed $ 219 $ 6 $11,281 $ (393) $11,500
Pay-fixed 2,045 5,423 (130) 7,468
Basis swap 440 440
------------------------------------------------
Total swaps 2,704 6 16,704 (523) 19,408
Interest rate
caps 5,500 69 5,500
Eurodollar
futures 2,500 2,500
------------------------------------------------
Total $10,704 $ 75 $16,704 $ (523) $27,408
------------------------------------------------
December 31,
1994
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
- ------------------------------------------------------------------------------
</TABLE>
The Corporation is currently considering various alternatives regarding
financial derivatives, including termination of certain contracts. Fair values
of financial derivatives are estimates of amounts that would be received or paid
upon termination of such contracts. Such fair values are not recorded in the
Corporation's financial statements. Under current accounting guidance, if the
interest rate swaps or futures are terminated, the net loss would be deferred
and amortized over the shorter of the remaining original life of the agreements
or the designated instrument. Upon termination of the interest rate caps, any
losses, measured by the difference between the unamortized premium, $118.3
million at March 31, 1995, and the estimated fair value, would be recognized
immediately. If the underlying designated instruments are no longer reflected in
the financial statements, a net loss would be recognized immediately for
derivatives related to such instruments.
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 one-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. In management's base case
scenario, substantially all index-amortizing swaps would fully extend. Should
interest rates remain at current levels, or decline, expected lives will decline
as the swaps begin to amortize.
Approximately $5.0 billion of 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 of these pay-fixed swaps mature by the end of 1998.
During the first quarter of 1995, the Corporation entered into forward start,
pay-fixed interest rate swap contracts with a $2.0 billion notional value to
alter the repricing characteristics of overnight borrowings. The Corporation
pays 6.20 percent and receives the average Federal funds rate over the term of
the contracts. The contracts were effective April 3, 1995 and mature June 30,
1995.
During the first quarter of 1995, the Corporation entered into a "basis swap"
with a notional value of $440 million to modify the interest rate
characteristics of one-year bank notes.
16
<PAGE> 17
CORPORATE FINANCIAL REVIEW
The bank notes bear interest based on the 6-month Treasury bill index. Under
this swap, the Corporation receives payments based on the 6-month Treasury bill
index and makes payments based on 1-month LIBOR. The contract matures in
February 1996.
FINANCIAL DERIVATIVES ACTIVITY
<TABLE>
<CAPTION>
Notional value January 1 Maturities/ March 31
In millions 1995 Additions Amortization 1995
<S> <C> <C> <C> <C>
---------------------------------------------------------------
Interest rate
swaps
Receive-fixed $11,494 $ 100 $ (94) $11,500
Pay-fixed 5,718 2,000 (250) 7,468
Basis swaps 440 440
Interest rate
caps 5,500 5,500
Eurodollar
futures 2,500 2,500
----------------------------------------------
Total $22,712 $5,040 $(344) $27,408
---------------------------------------------------------------
</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 fixed-rate
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, applied
to the notional value of the contracts. At March 31, 1995, 3-month LIBOR was
6.25 percent. The cap rate adjusts to 6.50 percent during the fourth quarter of
1995 and the contracts expire during the fourth quarter 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.
In March 1995, the Corporation sold June 1995 Eurodollar futures contracts
with a notional value of $2.5 billion. The futures contracts hedge interest rate
risk associated with the anticipated rollover of approximately $2.5 billion of
short-term borrowings maturing in June 1995.
For interest rate swaps and caps, interest payments and with respect to caps,
the premium, are exchanged; therefore, cash requirements and exposure to credit
risk are significantly less than the notional principal amounts. The Corporation
seeks to minimize the credit risk associated with its interest rate swaps and
caps 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. Eurodollar futures are traded on a regulated
exchange and settlement of gains and losses occurs daily; therefore there is
minimal credit risk to the Corporation.
During the first quarter of 1995, interest rate swaps and caps negatively
affected net interest income by $40.8 million compared with a benefit of $56.7
million in 1994. Based on its base case scenario, and as reflected in the
results of the simulation model, management expects interest rate swaps and caps
will continue to adversely impact net interest income in 1995.
The following table sets forth the maturity distribution of the notional value
of interest rate swaps, assuming management's base case interest rate scenario
and the associated weighted average interest rates on the instruments maturing
in the respective year. Variable rates paid or received are subject to change as
the underlying index floats with changes in the market.
MATURITY DISTRIBUTION OF INTEREST RATE SWAPS
<TABLE>
<CAPTION>
1999 and
Dollars in millions 1995 1996 1997 1998 beyond Total
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Receive-fixed
Notional value $2,294 $3,256 $5,292 $ 658 $11,500
Weighted average fixed interest rate received 6.05% 5.48% 5.38% 5.04% 5.52%
Weighted average variable interest rate paid 6.41 6.41 5.70 5.75 6.05
Pay-fixed
Notional value $2,070 $ 165 $1,040 $4,050 $ 143 $ 7,468
Weighted average variable interest rate received 6.18% 6.37% 5.77% 5.75% 5.75% 5.87%
Weighted average fixed interest rate paid 6.27 7.50 7.90 7.93 9.59 7.49
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
CORPORATE FINANCIAL REVIEW
CREDIT RISK Credit risk represents the possibility that a customer or counter
party may not perform in accordance with contractual terms. Credit risk is
inherent in the lending business and results from extending credit to customers,
purchasing securities, and entering into certain off-balance-sheet financial
instruments. The Corporation seeks to manage credit risk through
diversification, utilizing exposure limits to any single industry or customer,
requiring collateral and selling participations to third parties.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
March 31 December 31
Dollars in millions 1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Nonaccrual loans
Commercial $129 $143
Real estate project 71 70
Real estate mortgage 94 97
------------------------------
Total nonaccrual
loans 294 310
Restructured loans 8 9
------------------------------
Total nonperforming
loans 302 319
Foreclosed assets
Real estate project 89 77
Real estate mortgage 32 26
Other 24 24
------------------------------
Total foreclosed
assets 145 127
------------------------------
Total $447 $446
------------------------------
Nonperforming loans to
total loans .85% .90%
Nonperforming assets to
total loans and
foreclosed assets 1.25 1.25
Nonperforming assets to
total assets .72 .69
- ----------------------------------------------------------
</TABLE>
The following table sets forth changes in nonperforming assets during the
first quarter of 1995.
CHANGE IN NONPERFORMING ASSETS
<TABLE>
<CAPTION>
In millions 1995
- ----------------------------------------------------------
<S> <C>
Balance at January 1 $446
Transferred from accrual 95
Acquisitions 1
Returned to performing (10)
Principal reductions (56)
Sales (8)
Charge-offs and valuation adjustments (21)
--------
Balance at March 31 $447
- ----------------------------------------------------------
</TABLE>
Accruing loans contractually past due 90 days or more as to the payment of
principal or interest totaled $161 million at March 31, 1995 compared with $148
million at December 31, 1994. Residential mortgages and student loans totaling
$57 million and $30 million, respectively, were included in the total at March
31, 1995 compared with $50 million and $36 million, respectively, at year-end
1994.
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. Effective January 1, 1995, the Corporation
adopted Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118.
Under this Standard, the Corporation estimates a portion of the allowance for
credit losses on impaired loans based on the present value of expected cash
flows or the fair value of the underlying collateral if the loan repayment is
expected to come from the sale or operation of such collateral.
The allowance for credit losses totaled $981 million at March 31, 1995
compared with $1.0 billion at December 31, 1994. The allowance as a percentage
of period-end loans and nonperforming loans was 2.75 percent and 324.9 percent,
respectively, at March 31, 1995. The comparable year-end 1994 amounts were 2.83
percent and 314.2 percent, respectively.
18
<PAGE> 19
CORPORATE FINANCIAL REVIEW
CHARGE-OFFS AND RECOVERIES
<TABLE>
<CAPTION>
Dollars in
millions
Three months Percent of
ended Net Average
March 31, 1995 Charge-offs Recoveries Charge-offs Loans
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $17 $ 9 $ 8 .27%
Real estate
project 1 1 .25
Real estate
mortgage 4 1 3 .11
Consumer 18 8 10 .45
------------------------------------
Total $40 $18 $22 .24%
------------------------------------------------
Three months
ended
March 31, 1994
Commercial $12 $ 7 $ 5 .18%
Real estate
project 3 3 .71
Real estate
mortgage 6 1 5 .22
Consumer 17 7 10 .48
------------------------------------
Total $38 $15 $23 .29%
-----------------------------------------------------------------
</TABLE>
Annualized net charge-offs as a percentage of average loans were .24 percent
for the first quarter of 1995 compared with .29 percent in the corresponding
1994 period.
LIQUIDITY RISK Liquidity represents an institution's ability to generate
cash or otherwise obtain funds at reasonable rates to satisfy commitments to
borrowers and demands of depositors and debtholders, and invest in other
strategic initiatives. Liquidity risk represents the 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. 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 March 31, 1995, such
assets totaled $6.8 billion. Liquidity is also provided by residential mortgages
which may be used as collateral for funds obtained through the Federal Home Loan
Bank system and by mortgage-related securities available as collateral for
securities sold under agreements to repurchase. At March 31, 1995, approximately
$5.2 billion of residential mortgages were available as collateral for
borrowings from the Federal Home Loan Bank system. Mortgage-related securities
available as collateral for securities sold under agreements to repurchase
totaled $3.5 billion at March 31, 1995. 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
March 31, 1995, the Corporation had available $140 million of debt, $300 million
of preferred stock and $350 million of securities that may be issued as either
debt or preferred stock. In addition, the Corporation had a $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.
Management believes the Corporation has sufficient liquidity to meet its
current obligations to customers, debtholders and others. The impact of
replacing maturing liabilities is reflected in the income simulation model used
in the Corporation's overall asset/liability management process. At March 31,
1995, the model assumed rising interest rates and a resulting higher cost of
replacement funding.
19
<PAGE> 20
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31 December 31
Dollars in millions, except par values 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,699 $ 2,592
Short-term investments 533 809
Loans held for sale 437 487
Securities available for sale 3,137 3,457
Investment securities, fair value of $16,369 and $16,233 17,070 17,464
Loans, net of unearned income of $236 and $240 35,724 35,407
Allowance for credit losses (981) (1,002)
----------------------------
Net loans 34,743 34,405
Other 3,475 4,931
----------------------------
Total assets $62,094 $64,145
----------------------------
LIABILITIES
Deposits
Noninterest-bearing $ 6,578 $ 6,992
Interest-bearing 26,363 28,019
----------------------------
Total deposits 32,941 35,011
Borrowed funds
Federal funds purchased 2,928 2,181
Repurchase agreements 7,059 3,785
Commercial paper 825 1,226
Other 2,968 4,416
----------------------------
Total borrowed funds 13,780 11,608
Notes and debentures 9,599 11,754
Accrued expenses and other liabilities 1,384 1,378
----------------------------
Total liabilities 57,704 59,751
----------------------------
SHAREHOLDERS' EQUITY
Preferred stock - $1 par value
Authorized: 17,592,735 and 17,601,524 shares
Issued and outstanding: 912,177 and 920,966 shares
Aggregate liquidation value: $19 1 1
Common stock - $5 par value
Authorized: 450,000,000 shares
Issued: 236,249,010 and 236,063,418 shares 1,181 1,180
Capital surplus 463 462
Retained earnings 3,062 3,018
Deferred ESOP benefit expense (83) (83)
Net unrealized securities losses (65) (119)
Common stock held in treasury at cost: 7,126,985 and 2,814,910 shares (169) (65)
----------------------------
Total shareholders' equity 4,390 4,394
----------------------------
Total liabilities and shareholders' equity $62,094 $64,145
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
20
<PAGE> 21
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three months ended March 31
In thousands, except per share data 1995 1994
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans and fees on loans $ 707,039 $572,836
Securities 295,423 295,808
Other 21,621 26,460
------------------------------
Total interest income 1,024,083 895,104
INTEREST EXPENSE
Deposits 292,334 200,004
Borrowed funds 204,121 96,737
Notes and debentures 143,654 101,022
------------------------------
Total interest expense 640,109 397,763
------------------------------
Net interest income 383,974 497,341
Provision for credit losses 25,015
------------------------------
Net interest income less provision for credit losses 383,974 472,326
NONINTEREST INCOME
Investment management and trust 79,140 72,967
Service charges, fees and commissions 91,424 87,902
Mortgage banking 44,650 37,892
Net securities gains 1,254 30,392
Other 20,645 29,398
------------------------------
Total noninterest income 237,113 258,551
NONINTEREST EXPENSE
Staff expense 201,858 206,899
Net occupancy and equipment 68,850 65,282
Other 166,671 154,665
------------------------------
Total noninterest expense 437,379 426,846
------------------------------
Income before income taxes 183,708 304,031
Applicable income taxes 58,057 98,342
------------------------------
Net income $ 125,651 $205,689
------------------------------
EARNINGS PER COMMON SHARE
Primary $ .54 $ .87
Fully diluted .54 .86
CASH DIVIDENDS DECLARED PER COMMON SHARE .35 .32
AVERAGE COMMON SHARES OUTSTANDING
Primary 232,589 236,698
Fully diluted 234,463 238,592
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
21
<PAGE> 22
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31
In millions 1995 1994
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 126 $ 206
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses 25
Depreciation, amortization and accretion 62 56
Deferred income taxes 29 (8)
Net securities gains (1) (30)
Net gain on sales of assets (10) (19)
Valuation adjustments on assets, net of gains on sales 1 (5)
Changes in
Loans held for sale 62 448
Other (641)
------------------------------
Net cash provided by operating activities 269 32
INVESTING ACTIVITIES
Net change in loans (298) (143)
Repayment
Securities available for sale 107 955
Investment securities 408 1,242
Sales
Securities available for sale 614 6,166
Loans 102 537
Foreclosed assets 8 25
Purchases
Securities available for sale (281) (5,651)
Investment securities (12) (2,360)
Loans (30) (10)
Net cash paid for acquisitions (68) (129)
Other 1,895 161
------------------------------
Net cash provided by investing activities 2,445 793
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits (445) (171)
Interest-bearing deposits (1,825) (508)
Federal funds purchased 744 (674)
Sale/issuance
Repurchase agreements 27,845 38,805
Commercial paper 1,179 608
Other borrowed funds 26,620 25,983
Notes and debentures 1,354 820
Common stock 7 8
Redemption/maturity
Repurchase agreements (24,571) (38,611)
Commercial paper (1,580) (691)
Other borrowed funds (28,075) (25,386)
Notes and debentures (3,682) (210)
Net acquisition of treasury stock (96) (4)
Cash dividends paid to shareholders (82) (75)
------------------------------
Net cash used by financing activities (2,607) (106)
------------------------------
INCREASE IN CASH AND DUE FROM BANKS 107 719
Cash and due from banks at beginning of year 2,592 1,817
------------------------------
Cash and due from banks at end of period $ 2,699 $ 2,536
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accounting policies
- ---------------------------------------------------------------
BUSINESS PNC Bank Corp. provides a full range of banking and related financial
services through its subsidiaries to consumers, small businesses 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 unaudited consolidated interim
financial statements have been prepared in accordance with generally accepted
accounting principles and include the accounts of PNC Bank Corp. and its
subsidiaries ("Corporation"), substantially all of which are wholly owned. In
the opinion of management, the financial statements reflect all adjustments,
which are of a normal recurring nature, necessary for a fair statement of the
results for the interim periods presented.
In preparing the unaudited consolidated interim financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ from such
estimates.
The notes included herein should be read in conjunction with the audited
consolidated financial statements included in the Corporation's 1994 Annual
Report.
ALLOWANCE FOR CREDIT LOSSES Effective January 1, 1995, the Corporation adopted
Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118. Under this
Standard, the Corporation estimates credit losses on impaired loans based on the
present value of expected cash flows or the fair value of the underlying
collateral if the loan repayment is expected to come from the sale or operation
of such collateral. For purposes of this Standard, nonaccrual and restructured
commercial, real estate project and commercial real estate loans are considered
to be impaired. Prior to 1995, the credit losses related to these loans were
estimated based on undiscounted cash flows or the fair value of the underlying
collateral.
The allowance is maintained at a level believed by management to be sufficient
to absorb estimated potential credit losses. Management's determination of the
adequacy of the allowance is based on periodic evaluations of the credit
portfolio and other relevant factors. This evaluation is inherently subjective
as it requires material estimates, including the amounts and timing of expected
future cash flows on impaired loans, which may be susceptible to significant
change. The allowance for credit losses on impaired loans pursuant to SFAS No.
114 is one component of the methodology for determining the allowance for credit
losses. The remaining components of the allowance for credit losses provide for
estimated losses on consumer loans and residential real estate mortgages, and
general amounts for historical loss experience, uncertainties in estimating
losses and inherent risks in the various credit portfolios.
NONPERFORMING ASSETS Foreclosed assets are comprised of property acquired
through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure
and loans where the Corporation has possession of the underlying collateral.
Foreclosed assets are recorded as other assets in the consolidated balance
sheet.
The interest collected on impaired loans is recognized on the cash basis or
cost recovery method depending on the collectibility of the loans.
FINANCIAL DERIVATIVES The Corporation uses off-balance-sheet financial
derivatives as part of its overall asset/liability management process.
Substantially all of such instruments are used to manage interest rate risk and
consist of interest rate swaps, interest rate caps, and futures and forward
contracts.
Futures contracts, which are used to manage interest rate risk, are
commitments to either purchase or sell a financial instrument at a future date
for a specified price and are settled in cash. To qualify for hedge accounting,
the futures contract must be designated as a hedge of an asset, liability, firm
commitment or anticipated transaction exposing the Corporation to interest rate
risk and the futures contract must reduce such risk. For anticipated
transactions, the significant characteristics and expected terms of the
anticipated transaction must be identified and the anticipated transaction must
be probable of
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
occurring. Under hedge accounting, gains and losses on futures contracts are
deferred and included in the carrying value of related assets and liabilities.
The deferred gains and losses are amortized as a yield adjustment over the
expected life of the hedged instrument. If the hedged instruments are disposed
of, the unamortized deferred gains or losses are included in the determination
of the gain/loss on the disposition of such instruments.
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.
mergers and acquisitions
- ---------------------------------------------------------------
During the first quarter of 1995, the Corporation completed the acquisition of
BlackRock Financial Management L.P., a New York-based, fixed-income investment
management firm with approximately $25 billion in assets under management at
closing. The transaction was accounted for under the purchase method and the
Corporation paid $71 million in cash and issued $169 million of unsecured notes.
In connection with this acquisition, the Corporation recorded $239 million of
intangible assets.
The Corporation also acquired Indian River Federal Savings Bank, Vero Beach,
Florida, and Brentwood Financial Corporation, Cincinnati, Ohio, for $33 million
in cash. The acquisitions added assets and deposits of approximately $175
million and $140 million, respectively.
In addition, the Corporation announced a definitive agreement to acquire
the Chemical Bank franchise in southern and central New Jersey. The transaction
includes approximately $3.3 billion of assets and $2.9 billion of retail
deposits and is expected to close by year-end 1995, pending regulatory
approvals. The acquisition has an indicated value of approximately $500 million
and will be accounted for under the purchase method.
During 1994, the Corporation completed the acquisitions of United Federal
Bancorp, Inc., State College, Pennsylvania, and First Eastern Corp.,
Wilkes-Barre, Pennsylvania. The acquisitions added assets and deposits of $2.8
billion and $2.4 billion, respectively. In addition, in June 1994, the
Corporation purchased a $10 billion residential mortgage servicing portfolio
from the Associates Corporation of North America.
cash flows
- ---------------------------------------------------------------
For purposes of the statement of cash flows, the Corporation defines cash and
due from banks as cash and cash equivalents. During the first quarter of 1995
and 1994, interest paid on deposits and other contractual debt obligations was
$705.3 million and $422.1 million, respectively. Income tax refunds of $47.6
million were received during the first quarter of 1995, and income taxes of
$34.5 million were paid in the prior-year period. Loans transferred to
foreclosed assets aggregated $24.8 million in 1995 and $9.4 million in the first
quarter of 1994.
The table below sets forth information pertaining to acquisitions which affect
the statement of cash flows for the three months ended March 31, 1995 and 1994.
<TABLE>
<CAPTION>
Three months ended March 31
In millions 1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Assets acquired $517 $944
Liabilities assumed 410 788
Cash paid 107 156
Cash and due from banks received 39 27
- ----------------------------------------------------------
</TABLE>
In addition, the Corporation issued $169 million of unsecured notes in
connection with the BlackRock acquisition.
24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
securities
- ----------------------------------------
The following table sets forth the
amortized cost, unrealized gains and
losses, and the fair value of the
securities portfolio at March 31, 1995
and December 31, 1994.
<TABLE>
<CAPTION>
SECURITIES
MARCH 31, 1995 December 31, 1994
------------------------------------------ --------------------------------------------
UNREALIZED Unrealized
AMORTIZED ------------------ Amortized ------------------
In millions COST GAINS LOSSES FAIR VALUE Cost Gains Losses Fair Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
Debt securities
U.S. Treasury $ 1,795 $ 37 $ 1,758 $ 1,794 $ 93 $ 1,701
U.S. Government agencies and
corporations
Mortgage-related 10,643 632 10,011 10,920 1,025 9,895
Other 1,000 15 985 1,000 28 972
State and municipal 344 $19 1 362 348 $12 2 358
Asset-backed private placements 1,597 7 1,590 1,597 33 1,564
Other debt
Mortgage-related 700 21 679 726 43 683
Other 675 8 667 769 20 749
Other 316 1 317 310 1 311
------------------------------------------------------------------------------------------
Total $17,070 $20 $721 $16,369 $17,464 $13 $1,244 $16,233
------------------------------------------------------------------------------------------
Securities available for sale
Debt securities
U.S. Treasury $324 $ 3 $321 $ 401 $ 8 $ 393
U.S. Government agencies and
corporations
Mortgage-related 1,890 $19 21 1,888 2,161 69 2,092
Other 25 3 22 25 4 21
Other debt
Mortgage-related 703 6 697 749 17 732
Other 113 1 6 108 117 $ 2 119
Corporate stocks and other 104 1 4 101 105 1 6 100
------------------------------------------------------------------------------------------
Total $ 3,159 $21 $ 43 $ 3,137 $ 3,558 $ 3 $ 104 $ 3,457
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
nonperforming assets
- ---------------------------------------------------------------
Nonperforming assets are comprised of nonaccrual and restructured loans, and
foreclosed assets. These assets were as follows:
<TABLE>
<CAPTION>
MARCH 31 December 31
In millions 1995 1994
<S> <C> <C>
- --------------------------------------------------------
Nonaccrual loans $294 $310
Restructured loans 8 9
------------------------
Total nonperforming loans 302 319
Foreclosed assets 145 127
------------------------
Total nonperforming assets $447 $446
- --------------------------------------------------------
</TABLE>
Information with respect to impaired loans and the related allowance
determined in accordance with SFAS No. 114 is set forth below.
<TABLE>
<CAPTION>
MARCH 31
In millions 1995
<S> <C>
- ------------------------------------------------------
Impaired loans
With a related allowance for credit
losses $ 148
Without a related allowance for credit
losses 97
-------
Total impaired loans $ 245
-------
Allowance for credit losses $ 25
Average recorded investment 256
- ------------------------------------------------------
</TABLE>
During the first quarter of 1995, interest income recognized on impaired loans
was $474 thousand.
allowance for credit losses
- ---------------------------------------------------------------
The following table presents changes in the allowance for credit losses:
<TABLE>
<CAPTION>
In millions 1995 1994
- ------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $1,002 $972
Charge-offs (40) (38)
Recoveries 18 15
--------------------
Net charge-offs (22) (23)
Provision for credit losses 25
Acquisitions 1 6
--------------------
Balance at March 31 $ 981 $980
- ------------------------------------------------------------
</TABLE>
26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
notes and debentures
- ---------------------------------------------------------------
Notes and debentures consisted of the following:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
In millions 1995 1994
- ------------------------------------------------------------
<S> <C> <C>
BANKING SUBSIDIARIES
Bank notes $6,815 $ 8,825
Federal Home Loan Bank 1,287 1,384
Student Loan Marketing
Association 300 500
Other 182
------------------------------
Total banking subsidiaries 8,584 10,709
OTHER SUBSIDIARIES
Senior notes 164 164
Subordinated notes 746 746
ESOP borrowing 101 110
Other 4 25
------------------------------
Total other subsidiaries 1,015 1,045
------------------------------
Total $9,599 $11,754
- ------------------------------------------------------------
</TABLE>
Notes and debentures have scheduled repayments for the years 1995 through 1999
and thereafter of $6.9 billion, $1.2 billion, $65 million, $153 million, and
$1.3 billion, respectively. In April 1995, the Corporation issued $350 million
of 7.875 percent unsecured subordinated bank notes due in 2005.
financial derivatives
- ---------------------------------------------------------------
The notional value of financial derivatives and the related fair values were
comprised of the following:
<TABLE>
<CAPTION>
Positive Negative Total
In millions Notional Fair Notional Fair Notional
March 31, 1995 Value Value Value Value Value
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------
Interest rate
swaps
Receive-fixed $ 219 $ 6 $11,281 $ (393) $11,500
Pay-fixed 2,045 5,423 (130) 7,468
Basis swap 440 440
-------------------------------------------------
Total swaps 2,704 6 16,704 (523) 19,408
Interest rate
caps 5,500 69 5,500
Eurodollar
futures 2,500 2,500
-------------------------------------------------
Total $10,704 $ 75 $16,704 $ (523) $27,408
-------------------------------------------------
December 31,
1994
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
- ---------------------------------------------------------------
</TABLE>
27
<PAGE> 28
STATISTICAL INFORMATION
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
1995 1994
FIRST QUARTER Fourth Quarter
Taxable-equivalent basis -----------------------------------------------------------------------------------
Average balances in millions, interest in AVERAGE AVERAGE Average Average
thousands BALANCES INTEREST YIELDS/RATES Balances Interest Yields/Rates
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets
Short-term investments $ 771 $ 12,411 6.53% $ 771 $ 11,115 5.72%
Mortgages held for sale 412 8,469 8.23 477 8,884 7.45
Securities
U.S. Treasury 2,176 20,810 3.88 2,174 24,394 4.45
U.S. Government agencies and
corporations 14,110 198,622 5.63 15,930 243,014 6.10
State and municipal 347 8,864 10.23 352 9,239 10.49
Other debt 3,955 65,196 6.59 4,153 65,047 6.27
Corporate stocks and others 315 4,856 6.25 314 4,903 6.25
--------------------- ---------------------
Total securities 20,903 298,348 5.72 22,923 346,597 6.04
Loans, net of unearned income
Commercial 12,129 241,853 7.98 12,311 222,072 7.16
Real estate project 1,619 38,305 9.46 1,670 35,668 8.47
Real estate mortgage 10,882 204,069 7.50 10,236 184,382 7.21
Consumer 9,023 200,355 9.01 9,061 195,334 8.55
Other 1,662 27,726 6.72 1,677 27,847 6.62
--------------------- ---------------------
Total loans, net of unearned income 35,315 712,308 8.10 34,955 665,303 7.57
Other interest-earning assets 47 741 6.38 47 617 5.25
--------------------- ---------------------
Total interest-earning assets/interest
income 57,448 1,032,277 7.21 59,173 1,032,516 6.95
Noninterest-earning assets
Allowance for credit losses (1,000) (1,026)
Cash and due from banks 2,147 2,308
Other assets 3,098 2,497
------- -------
Total assets $61,693 $62,952
-------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand $ 3,310 17,378 2.13 $ 3,496 17,782 2.02
Savings 2,284 14,540 2.58 2,406 14,474 2.39
Money market 6,025 53,517 3.60 6,546 52,241 3.17
Other time 13,616 181,407 5.39 13,048 166,843 5.07
Deposits in foreign offices 1,702 25,492 5.99 1,447 19,759 5.42
--------------------- ---------------------
Total interest-bearing deposits 26,937 292,334 4.39 26,943 271,099 3.99
Borrowed funds
Federal funds purchased 2,132 31,382 5.97 2,621 35,272 5.34
Repurchase agreements 6,859 103,037 6.01 4,677 59,477 5.05
Commercial paper 1,078 15,639 5.88 1,443 19,340 5.32
Other 3,259 54,063 6.68 2,901 46,769 6.39
--------------------- ---------------------
Total borrowed funds 13,328 204,121 6.16 11,642 160,858 5.48
Notes and debentures 9,736 143,654 5.94 12,593 167,837 5.32
--------------------- ---------------------
Total interest-bearing liabilities/interest
expense 50,001 640,109 5.16 51,178 599,794 4.65
Noninterest-bearing liabilities and
shareholders' equity
Demand and other noninterest-bearing
deposits 6,115 6,466
Accrued expenses and other liabilities 1,220 922
Shareholders' equity 4,357 4,386
------- -------
Total liabilities and shareholders'
equity $61,693 $62,952
-------------------------------------------------------------------------------
Interest rate spread including interest
rate swaps and caps 2.05 2.30
Impact of noninterest-bearing
liabilities .67 .62
-------------------------------------------------------------------------------
Net interest income/margin on earning
assets $ 392,168 2.72% $ 432,722 2.92%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Nonaccrual loans are included in loans, net of unearned income. The impact of
interest rate swaps and caps is included in the interest income/expense and
average yields/rates for commercial loans, U.S. Government agencies and
corporations securities, all interest-bearing deposits, other borrowed funds and
notes and debentures.
28
<PAGE> 29
STATISTICAL INFORMATION
<TABLE>
<CAPTION>
1994 1994 1994
Third Quarter Second Quarter First Quarter
- ---------------------------------------------------------------------------------------------------------------------
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>
- ----------------------------------------------------------------------------------------------------------------------
$ 744 $ 9,493 5.06% $ 855 $ 10,666 5.00% $ 864 $ 9,220 4.32%
546 10,026 7.35 724 12,681 7.01 926 16,241 7.03
3,008 37,751 4.99 4,244 51,997 4.91 3,439 39,514 4.66
15,494 237,219 6.12 15,206 229,640 6.04 15,520 224,558 5.79
359 9,246 10.30 369 9,566 10.36 379 9,783 10.33
3,245 49,231 6.07 1,746 24,823 5.69 1,625 21,247 5.23
316 4,818 6.10 294 3,996 5.44 275 4,184 6.10
- ---------------------- -------------------- --------------------
22,422 338,265 6.03 21,859 320,022 5.86 21,238 299,286 5.65
12,454 230,552 7.34 12,075 213,853 7.10 11,349 204,046 7.29
1,621 34,587 8.46 1,736 33,767 7.80 1,723 31,827 7.49
9,836 175,174 7.12 8,981 156,806 6.98 9,055 151,988 6.71
8,993 192,343 8.49 8,617 175,131 8.15 8,450 170,595 8.19
1,590 24,587 6.16 1,122 19,448 6.94 1,446 19,337 5.38
- ---------------------- -------------------- --------------------
34,494 657,243 7.58 32,531 599,005 7.38 32,023 577,793 7.29
69 827 4.76 93 1,024 4.39 131 1,027 3.17
- ---------------------- -------------------- --------------------
58,275 1,015,854 6.94 56,062 943,398 6.74 55,182 903,567 6.59
(1,043) (997) (986)
2,107 2,029 2,228
2,649 2,531 2,542
- ------- ------- -------
$61,988 $59,625 $58,966
---------------------------------------------------------------------------------------------------------------
$ 3,561 13,139 1.46 $ 3,380 8,344 .99 $ 3,377 6,315 .76
2,547 11,504 1.79 2,381 6,851 1.15 2,391 3,870 .66
6,712 44,641 2.64 6,495 37,421 2.31 6,493 32,255 2.01
13,125 160,701 4.86 12,988 155,764 4.76 13,232 155,692 4.77
1,712 19,547 4.53 884 9,132 4.14 223 1,872 3.41
- ---------------------- -------------------- --------------------
27,657 249,532 3.58 26,128 217,512 3.34 25,716 200,004 3.15
3,550 40,613 4.54 2,821 28,434 4.04 2,254 18,326 3.30
4,615 49,901 4.29 4,879 48,241 3.97 6,065 51,828 3.47
1,405 16,343 4.61 925 9,681 4.20 500 4,095 3.32
1,776 24,304 5.43 2,342 24,218 4.15 2,724 22,488 3.21
- ---------------------- -------------------- --------------------
11,346 131,161 4.59 10,967 110,574 4.04 11,543 96,737 3.37
11,358 131,921 4.63 11,030 113,949 4.14 10,142 101,022 4.04
- ---------------------- -------------------- --------------------
50,361 512,614 4.04 48,125 442,035 3.68 47,401 397,763 3.39
6,325 6,124 6,021
942 1,108 1,214
4,360 4,268 4,330
- ------- ------- -------
$61,988 $59,625 $58,966
- ---------------------------------------------------------------------------------------------------------------------------
2.90 3.06 3.20
.55 .52 .48
- ---------------------------------------------------------------------------------------------------------------------------
$ 503,240 3.45% $501,363 3.58% $505,804 3.68%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 30
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
PNC Bank Corp.
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, Pennsylvania 15265
STOCK LISTING
PNC Bank Corp. common stock is traded on the New York
Stock Exchange (NYSE) under the symbol PNC.
REGISTRAR AND TRANSFER AGENT
Chemical Bank
J.A.F. Building
P. O. Box 3068
New York, New York 10116-3068
800-982-7652
INQUIRIES
Individual shareholders should contact:
Shareholder Relations at 800-843-2206 or
the PNC Bank Hotline at 800-982-7652
Analysts and institutional investors should contact:
William H. Callihan, Vice President,
Investor Relations, at 412-762-8257
News media representatives and others seeking general
information should contact:
Jonathan Williams, Vice President,
Media Relations, at 412-762-4550
FORM 10-Q
The Quarterly Report on Form 10-Q is filed with the Securities and Exchange
Commission. This report, excluding exhibits, may be obtained without charge by
writing to Glenn Davies, Vice President, Financial Reporting, at corporate
headquarters.
COMMON STOCK PRICES/DIVIDENDS DECLARED
The table below sets forth by quarter the range of high and low sale prices for
PNC Bank Corp. common stock and the cash dividends declared per common share.
<TABLE>
<CAPTION>
Cash Dividends
1995 Quarter High Low Declared
<S> <C> <C> <C>
- ---------------------------------------------------------------
First $25.750 $21.125 $ .35
- ---------------------------------------------------------------
1994 Quarter
- ---------------------------------------------------------------
First $29.875 $25.250 $ .32
Second 31.625 26.125 .32
Third 30.000 25.625 .32
Fourth 26.375 20.000 .35
-----------------------------------
Total $1.31
- ---------------------------------------------------------------
</TABLE>
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The PNC Bank Corp. dividend reinvestment and stock purchase plan enables holders
of common and preferred stock to purchase additional shares of common stock
conveniently and without paying brokerage commissions or service charges. A
prospectus and enrollment card may be obtained by writing to Shareholder
Relations at corporate headquarters.
30
