<PAGE> 1
PNC BANK CORP.
Quarterly Report on Form 10-Q
For the quarter ended March 31, 1996
Page 1 represents a portion of the first quarter 1996 Corporate Financial
Review which is not required by the Form 10-Q report and is not "filed"
as part of the Form 10-Q.
The Quarterly Report on Form 10-Q and cross reference index is on page 26.
<PAGE> 2
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL PERFORMANCE
THREE MONTHS ENDED MARCH 31
(Dollars in thousands, except per share data)
Net interest income (taxable-equivalent basis) $616,108 $551,136
Net income 238,320 179,547
Fully diluted earnings per common share .69 .52
Return on average total assets 1.34% .97%
Return on average common shareholders' equity 16.65 12.81
Net interest margin 3.73 3.16
After-tax profit margin 25.42 21.46
Efficiency ratio 60.32 66.14
AVERAGE BALANCES
THREE MONTHS ENDED MARCH 31
(In millions)
Assets $ 71,733 $ 74,841
Earning assets 65,705 69,486
Loans, net of unearned income 48,625 43,710
Securities 14,818 23,984
Deposits 45,553 43,667
Shareholders' equity 5,764 5,710
PERIOD-END BALANCES
MARCH 31 (In millions)
Assets $ 72,668 $ 75,750
Earning assets 66,041 69,369
Loans, net of unearned income 48,800 44,192
Securities 14,692 23,487
Deposits 45,621 43,598
Shareholders' equity 5,786 5,758
================================================================================
</TABLE>
<TABLE>
<CAPTION>
March 31 December 31 March 31
As of or for the three months ended 1996 1995 1995
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
SELECTED RATIOS
Capital ratios
Risk-based capital
Tier I 8.18% 8.00% 9.15%
Total 11.70 11.56 12.24
Leverage 6.90 6.37 6.88
Common shareholders' equity to assets 7.94 7.83 7.51
Average common shareholders' equity to average assets 8.01 7.76 7.54
Asset quality
Net charge-offs to average loans .28 .45 .33
Nonperforming loans to loans .76 .74 1.12
Nonperforming assets to loans and foreclosed assets 1.10 1.10 1.58
Nonperforming assets to total assets .74 .73 .93
Allowance for credit losses to loans 2.51 2.59 2.98
Allowance for credit losses to nonperforming loans 328.88 351.68 265.19
Book value per common share
As reported $16.88 $16.87 $16.90
Excluding net unrealized securities gains/losses 17.16 16.79 17.10
==========================================================================================
</TABLE>
TABLE OF CONTENTS
-----------------
2 Corporate Financial Review 17 Consolidated Financial Statements
24 Statistical Information 26 Quarterly Report on Form 10-Q
27 Corporate Information
<PAGE> 3
CORPORATE FINANCIAL REVIEW
The merger between PNC Bank Corp. and Midlantic Corporation ("Midlantic") was
completed on December 31, 1995 and accounted for as a pooling of interests.
Accordingly, all financial information has been restated as if the companies
were combined for all periods presented.
The 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 1995 Annual
Report.
OVERVIEW
Net income for the first quarter of 1996 increased 32% to $238.3 million, or
$.69 per fully diluted share, compared with $179.5 million, or $.52 per fully
diluted share, for the first quarter of 1995. Returns on average assets and
average common shareholders' equity were 1.34% and 16.65%, respectively, in the
first quarter of 1996 compared with .97% and 12.81% a year ago. Net interest
income increased as a result of the 1995 balance sheet realignment and higher
loan volumes. Fee-based revenue increased primarily due to asset management and
trust activities and operating expenses increased only modestly.
MERGERS AND ACQUISITIONS
Effective December 31, 1995, the Corporation acquired Midlantic, a bank holding
company with assets and deposits of $13.6 billion and $11.0 billion,
respectively. The transaction was accounted for as a pooling of interests.
On October 6, 1995, the Corporation acquired Chemical Bank's ("Chemical")
franchise in southern and central New Jersey with total assets of $3.2 billion
and retail core deposits of $2.7 billion. No nonperforming assets were
acquired. The Corporation paid $492 million in cash and the transaction was
accounted for under the purchase method.
On February 28, 1995, the Corporation acquired 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
Corporation paid $71 million in cash and issued $169 million of unsecured notes
and accounted for the transaction under the purchase method.
INCOME STATEMENT REVIEW
<TABLE>
<CAPTION>
INCOME STATEMENT HIGHLIGHTS
Three months ended March 31 Change
----------------
Dollars in millions 1996 1995 Amount Percent
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income
(taxable-equivalent basis) $616 $551 $65 11.8%
Provision for credit losses 1 (1) NM
Noninterest income 322 286 36 12.6
Noninterest expense 566 553 13 2.4
Net income 238 180 58 32.2
=============================================================================
</TABLE>
NM - not meaningful
NET INTEREST INCOME Taxable-equivalent net interest income was $616.1 million in
the first quarter of 1996 compared with $551.1 million a year earlier. As a
percent of total revenue, net interest income was 65.7% and 65.9% in the first
quarter of 1996 and 1995, respectively. The net interest margin widened 57 basis
points to 3.73% in the first quarter of 1996 compared with 3.16% in the first
quarter of 1995. The net interest income and margin increases reflect the
benefits of significantly lower securities and wholesale funding levels and the
reduced impact of associated financial derivatives. These changes, combined with
a $4.9 billion increase in average loans, benefited the margin as
higher-yielding loans replaced lower-yielding securities and rates paid on
interest-bearing liabilities declined.
<TABLE>
<CAPTION>
NET INTEREST INCOME
Three months ended March 31
Taxable-equivalent basis Change
-----------------
Dollars in millions 1996 1995 Amount Percent
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income/expense before
financial derivatives
Interest income $1,236 $1,279 $(43) (3.4)%
Loan fees 25 19 6 31.6
Taxable-equivalent adjustment 9 12 (3) (25.0)
--------------------------
Total interest income 1,270 1,310 (40) (3.1)
Interest expense 647 717 (70) (9.8)
--------------------------
Net interest income before
financial derivatives 623 593 30 5.1
Effect of financial derivatives on
Interest income (6) (37) 31 83.8
Interest expense 1 5 (4) (80.0)
--------------------------
Total effect of financial
derivatives (7) (42) 35 83.3
--------------------------
Net interest income $616 $551 $65 11.8
=============================================================================
</TABLE>
PNC BANK CORP. 2
<PAGE> 4
<TABLE>
<CAPTION>
NET INTEREST MARGIN
Basis
Three months ended March 31 Point
Taxable-equivalent basis 1996 1995 Change
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Rates earned/paid before financial
derivatives
Book-basis yield on earning assets 7.51% 7.34% 17 bp
Effect of loan fees .15 .11 4
Taxable-equivalent adjustment .06 .07 (1)
--------------------------------------
Taxable-equivalent yield on
earning assets 7.72 7.52 20
Rate on interest-bearing liabilities 4.74 4.86 (12)
--------------------------------------
Interest rate spread 2.98 2.66 32
Noninterest-bearing sources .79 .74 5
--------------------------------------
Net interest margin before
financial derivatives 3.77 3.40 37
Effect of financial derivatives on
Interest income (.03) (.21) 18
Interest expense .01 .03 (2)
--------------------------------------
Total effect of financial
derivatives (.04) (.24) 20
--------------------------------------
Net interest margin 3.73% 3.16% 57 bp
=================================================================================
</TABLE>
PROVISION FOR CREDIT LOSSES The Corporation did not record a provision for
credit losses in the first quarter of 1996. The provision for credit losses was
$1.5 million in the first quarter of 1995. Favorable economic conditions,
combined with management's ongoing attention to asset quality, resulted in a
stable level of nonperforming assets and net charge-offs. Based on the loan
portfolio's current risk profile, management does not expect to record a
provision for credit losses during the remainder of 1996. Should the risk
profile of the loan portfolio or the economy deteriorate, asset quality may be
adversely impacted and a provision for credit losses may be required.
NONINTEREST INCOME Noninterest income totaled $322 million in the first
quarter of 1996 and increased 12.6% compared with the prior-year period.
Noninterest income represented 34.3% of total revenue in the first quarter of
1996 and 34.1% a year ago.
<TABLE>
<CAPTION>
NONINTEREST INCOME
Three months ended March 31 Change
---------------------
Dollars in millions 1996 1995 Amount Percent
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset management and trust
Asset management services $26 $12 $14 NM
Trust 51 46 5 10.9%
Mutual fund services 44 32 12 37.5
---------------------------
Total asset management and trust 121 90 31 34.4
Service fees
Deposit 65 59 6 10.2
Brokerage 14 9 5 55.6
Consumer 13 12 1 8.3
Corporate finance 13 13
Credit card and merchant services 9 15 (6) (40.0)
Insurance 7 6 1 16.7
Other 9 8 1 12.5
---------------------------
Total service fees 130 122 8 6.6
Mortgage banking
Servicing 29 31 (2) (6.5)
Sale of servicing 12 (12) NM
Marketing 7 2 5 NM
----------------------------
Total mortgage banking 36 45 (9) (20.0)
Net securities gains 3 1 2 NM
Other 32 28 4 14.3
---------------------------
Total $322 $286 $36 12.6
===================================================================================
</TABLE>
NM - not meaningful
Asset management and trust revenue increased 34.4% to $121 million during the
first quarter of 1996. The increase was attributable to the BlackRock
acquisition, new business and an increase in the value of assets under
management. At March 31, 1996, assets under administration totaled $304 billion,
of which $103 billion were discretionary. The comparable amounts at March 31,
1995 were $224 billion and $85 billion, respectively. At March 31, 1996, the
discretionary asset composition was 45% fixed income, 31% money market, 23%
equity and 1% other assets.
Service fees increased 6.6% in the comparison to $130 million. Growth in deposit
related fees, which increased 10.2%, was primarily attributable to acquisitions
and fees charged in-lieu-of compensating balances on corporate accounts.
Brokerage fees increased $5 million, or 55.6%, due to growth in commission-based
transactions. The decline in credit card and merchant services fees reflects the
impact of agreements with third parties to provide certain support services for
the Corporation's credit card business.
PNC BANK CORP. 3
<PAGE> 5
During the first quarter of 1996, mortgage banking revenue was positively
impacted by higher mortgage origination volumes, but decreased $9 million to $36
million primarily due to lower gains from servicing sales. Other noninterest
income increased $4 million primarily due to higher venture capital income.
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
Three months ended March 31 Change
--------------------
Dollars in millions 1996 1995 Amount Percent
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Compensation $228 $209 $19 9.1%
Employee benefits 51 55 (4) (7.3)
-------------------------------
Total staff expense 279 264 15 5.7
Net occupancy 51 46 5 10.9
Equipment 43 41 2 4.9
Intangible asset and MSR amortization 23 23
Taxes other than income 15 13 2 15.4
Federal deposit insurance 3 24 (21) (87.5)
Other 152 142 10 7.0
-------------------------------
Total $566 $553 $13 2.4
====================================================================================
</TABLE>
Noninterest expense increased 2.4% in the first quarter of 1996 compared with a
year ago. The modest increase reflects lower deposit insurance premiums,
successful acquisition integration, and continued emphasis on developing
alternative lower-cost delivery systems and rationalizing the traditional
branch delivery system. Conversion of Midlantic's products and systems are
expected to occur in the second and third quarters of 1996. Although the
extent and timing of cost savings are dependent on several factors, many of
which are outside of management's control, the Corporation continues to
believe it will exceed its original estimate of cost savings from the
consolidation or elimination of overlapping facilities and operations.
Excluding acquisitions and the benefit of lower deposit insurance premiums,
noninterest expense was flat in the comparison. The efficiency ratio improved
to 60.3% in the first quarter of 1996 compared with 66.1% in the first quarter
of 1995 reflecting effective cost control and higher revenue.
Staff expense increased 5.7% in the comparison primarily due to acquisitions,
incentive-based increases in asset management and brokerage, and expansion of
services in telebanking. Net occupancy increased $5 million primarily due to
acquisitions and costs associated with severe weather conditions. Equipment
expense increased $2 million due to depreciation of equipment primarily related
to the telebanking center.
The decline in Federal deposit insurance reflects a reduction in the Bank
Insurance Fund premium. Other noninterest expense increased 7.0%, or $10
million, primarily due to acquisitions and an increase in outsourcing of
certain services.
AVERAGE BALANCE SHEET REVIEW
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET HIGHLIGHTS
Three months ended Change
March 31 March 31 -----------------
Dollars in millions 1996 1995 Amount Percent
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets $71,733 $74,841 $(3,108) (4.2)%
Earning assets 65,705 69,486 (3,781) (5.4)
Loans, net of unearned income 48,625 43,710 4,915 11.2
Securities 14,818 23,984 (9,166) (38.2)
Deposits 45,553 43,667 1,886 4.3
Borrowed funds 7,823 13,902 (6,079) (43.7)
Notes and debentures 11,068 10,109 959 9.5
Shareholders' equity 5,764 5,710 54 .9
=======================================================================================
</TABLE>
Average assets and average earning assets totaled $71.7 billion and $65.7
billion, respectively, for the three months ended March 31, 1996 compared with
$74.8 billion and $69.5 billion, respectively, in the year-earlier period. The
declines reflect the balance sheet repositioning, which significantly reduced
the securities portfolio, partially offset by loan growth.
<TABLE>
<CAPTION>
AVERAGE LOANS
Three months ended March 31 1996 1995 Change
Dollars in millions
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer $13,370 $11,520 16.1%
Residential mortgage 11,619 10,060 15.5
Commercial 16,806 15,139 11.0
Commercial real estate 4,885 5,034 (3.0)
Other 1,945 1,957 (.6)
-----------------------
Total, net of unearned income $48,625 $43,710 11.2
=============================================================================
</TABLE>
Average loans increased $4.9 billion, or 11.2%, to $48.6 billion for the quarter
ended March 31, 1996. Excluding acquisitions, average loans increased 6.2% in
the comparison. Average loans were 74.0% of average earning assets during the
first quarter of 1996 compared with 62.9% a year ago. Average securities
declined $9.2 billion, or 38.2%, compared with the year-earlier period. Average
securities represented 22.6% of average earning assets compared with 34.5% for
the first quarter of 1995.
Average deposits increased $1.9 billion to $45.6 billion in the first quarter of
1996, or 4.3%, compared with a year ago. The Chemical acquisition, which was
completed in October 1995, added $2.7 billion of retail core deposits. The ratio
of average deposits to average sources of funds increased to 63.5% compared with
58.3% a year ago. During the first quarter of 1996, the ratio of average
wholesale funding to average sources of funds decreased to 28.4%, compared with
35.3% a year ago.
PNC BANK CORP. 4
<PAGE> 6
BALANCE SHEET REVIEW
Total assets were $72.7 billion at March 31, 1996 and $73.4 billion at year-end
1995. The decline was primarily due to a reduced securities portfolio.
LOANS Loans outstanding were $48.8 billion at March 31, 1996, substantially
unchanged compared with December 31, 1995. In addition, the composition of the
portfolio was consistent in the comparison.
<TABLE>
<CAPTION>
LOANS
March 31 December 31
In millions 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
Consumer
Home equity $4,510 $4,541
Automobile 4,114 4,236
Student 1,642 1,512
Credit card 975 1,004
Other 2,325 2,246
-------------------------------
Total consumer 13,566 13,539
Residential mortgage 11,620 11,689
Commercial
Manufacturing 3,464 3,363
Retail/Wholesale 3,112 3,148
Service providers 2,387 2,402
Communications 1,157 1,083
Financial services 1,010 1,082
Real estate related 1,338 1,291
Health care 1,044 1,028
Public utilities 331 335
Other 3,107 3,080
-------------------------------
Total commercial 16,950 16,812
Commercial real estate
Commercial mortgage 2,737 2,775
Medium-term financings 1,163 1,250
Construction and development 974 889
-------------------------------
Total commercial real estate 4,874 4,914
Lease financing and other 2,170 2,102
Unearned income (380) (403)
-------------------------------
Total, net of unearned income $48,800 $48,653
===================================================================================
</TABLE>
Unfunded commitments, net of participations and syndications increased $2.0
billion, or 5.9%, since year-end 1995. In addition, the Corporation had letters
of credit outstanding totaling $4.4 billion and $4.5 billion at March 31, 1996
and December 31, 1995, respectively, primarily consisting of standby letters
of credit.
<TABLE>
<CAPTION>
NET UNFUNDED COMMITMENTS TO EXTEND CREDIT
March 31 December 31
In millions 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Consumer $8,200 $7,335
Residential mortgage 955 554
Commercial 25,121 24,282
Commercial real estate 729 751
Other 814 892
-----------------------------
Total $35,819 $33,814
==================================================================================
</TABLE>
SECURITIES The securities portfolio declined $1.1 billion from year-end 1995 to
$14.7 billion at March 31, 1996. The expected weighted average life of the
securities portfolio was 3 years and 3 months at March 31, 1996 compared
with 2 years and 8 months at year-end 1995. The following table sets forth
the amortized cost and fair value of securities available for sale.
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
--------------------------------------------------
Amortized Fair Amortized Fair
In millions Cost Value Cost Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities
U.S. Treasury $2,000 $2,030 $3,211 $3,280
U.S. Government agencies and
corporations
Mortgage-related 7,278 7,095 7,510 7,453
Other 1,450 1,436 1,030 1,034
Asset-backed private placement 1,597 1,602 1,597 1,604
State and municipal 330 351 343 367
Other debt
Mortgage-related 1,031 1,018 1,121 1,113
Other 684 684 525 525
Corporate stocks and other 471 461 455 457
Associated derivatives 15 6
--------------------------------------------------
Total $14,841 $14,692 $15,792 $15,839
================================================================================================
</TABLE>
At March 31, 1996 and December 31, 1995, $6.1 billion notional value of interest
rate swaps and caps were associated with securities available for sale.
Securities classified as available for sale may be sold as part of the overall
asset/liability management process. Realized gains and losses resulting from
such sales would be reflected in the results of operations and would include the
fair value of associated financial derivatives.
PNC BANK CORP. 5
<PAGE> 7
At March 31, 1996, the securities portfolio included collateralized mortgage
obligations and mortgage-backed securities with a fair value of $5.9 billion
and $2.2 billion, respectively. The characteristics of these securities include
principal guarantees, primarily by U.S. Government agencies, and marketability.
Expected lives of such securities can vary as interest rates change. In a
declining interest rate environment, prepayments on the underlying mortgage
securities may accelerate and, therefore, shorten the expected lives.
Conversely, expected lives would lengthen in a rising interest rate
environment. The Corporation monitors the impact of this risk through the use
of an income simulation model as part of the asset/liability management
process.
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 the
initial term the maturity may be extended or the security may be called at the
option of the issuer.
Other mortgage-related debt securities consist primarily of private label
collateralized mortgage obligations.
<TABLE>
<CAPTION>
FUNDING SOURCES
March 31 December 31
In millions 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
Deposits
Demand, savings and money market $26,195 $27,145
Time 18,829 18,661
Foreign 597 1,093
-----------------------------------
Total deposits 45,621 46,899
Borrowed funds
Federal funds purchased 3,434 3,817
Repurchase agreements 2,754 2,851
Commercial paper 447 753
Treasury, tax and loan 504 567
Other 865 677
-----------------------------------
Total borrowed funds 8,004 8,665
Notes and debentures
Bank notes 7,894 6,256
Federal Home Loan Bank 1,904 2,393
Other 1,650 1,749
-----------------------------------
Total notes and debentures 11,448 10,398
-----------------------------------
Total $65,073 $65,962
====================================================================================
</TABLE>
The composition of the Corporation's funding sources will vary depending on
management's evaluation of the most cost-effective funding alternatives.
Total deposits decreased $1.3 billion, or 2.7%, to $45.6 billion at March 31,
1996 compared with $46.9 billion at year-end 1995. Demand, savings and money
market deposits declined $950 million primarily due to a seasonal decline in
corporate accounts.
Brokered deposits are included in time deposits and totaled $2.0 billion
at March 31, 1996 compared with $2.3 billion at December 31, 1995. Retail
brokered deposits, which are issued or participated-out by brokers in
denominations of $100,000 or less, represented 75.1% of total brokered
deposits at March 31, 1996 compared with 77.8% at year-end 1995.
Total borrowed funds and notes and debentures increased $389 million from
year-end 1995 primarily due to issuances of bank notes partially offset by
reductions in Federal funds purchased, commercial paper and Federal Home Loan
borrowings. During the first quarter of 1996, the Corporation added $2.6
billion of variable-rate bank notes with maturities of up to twelve months.
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 financial institution's capital strength.
The Corporation manages its capital position primarily through the issuance of
debt and equity instruments, treasury stock activities, dividend policies and
retained earnings.
<TABLE>
<CAPTION>
RISK-BASED CAPITAL
March 31 December 31
Dollars in millions 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Capital components
Shareholders' equity $5,786 $5,768
Goodwill and other intangibles (1,006) (980)
Net unrealized securities (gains) losses 98 (26)
--------------------------------
Tier I risk-based capital 4,878 4,762
Subordinated debt 1,350 1,370
Eligible allowance for credit losses 751 750
--------------------------------
Total risk-based capital $6,979 $6,882
================================
Assets
Risk-weighted assets and off-balance-sheet
instruments $59,653 $59,539
Average tangible assets 70,730 74,756
================================
Capital ratios
Tier I risk-based capital 8.18% 8.00%
Total risk-based capital 11.70 11.56
Leverage 6.90 6.37
======================================================================================
</TABLE>
The minimum regulatory capital ratios are 4.00% for Tier I, 8.00% for total
risk-based and 3.00% for leverage. However, regulators may require higher
capital levels when a bank's particular circumstances warrant. To be classified
as well capitalized, regulators require capital ratios of at least 6.00% for
Tier I, 10.00% for total risk-based and 5.00% for leverage. At March 31, 1996,
the Corporation and each of its bank affiliates were classified as well
capitalized.
PNC BANK CORP. 6
<PAGE> 8
FINANCIAL DERIVATIVES
The Corporation uses a variety of off-balance-sheet financial derivatives as
part of its overall interest rate risk management process and to manage risk
associated with mortgage banking activities.
Financial derivatives involve, to varying degrees, interest rate and credit
risk in excess of the amount recognized in the balance sheet, but less than the
notional amount of the contract. For interest rate swaps, caps and floors, only
periodic cash payments and, with respect to caps and floors, premiums, are
exchanged. Therefore, cash requirements and exposure to credit risk are
significantly less than the notional value.
Interest rate swaps are agreements to exchange fixed and floating interest rate
payments calculated on a notional principal amount. The floating rate is based
on a money market index, primarily short-term LIBOR indices. The notional
values of receive-fixed index amortizing swaps amortize on predetermined dates
and in predetermined amounts based on market movements of the designated index.
Basis swaps are agreements under which both the receive and pay portions of the
contract are based on a variable index.
Interest rate caps and floors are agreements where, for a fee, the counterparty
agrees to pay the Corporation the amount, if any, by which a specified market
interest rate exceeds or is less than a defined rate applied to a notional
amount. Forward contracts provide for the delivery of financial instruments at
a specified future date and at a specified price or yield.
During the first quarter of 1996, the Corporation added $4.2 billion and $1.0
billion notional value of receive-fixed interest rate swaps and interest rate
floors, respectively. These contracts are predominantly associated with variable
rate loans and are designed to reduce exposure to declining interest rates.
During the first quarter of 1996, the Corporation terminated $2.1 billion
notional value of receive-fixed index amortizing interest rate swaps as part of
its overall interest rate risk management process. The terminations resulted in
a loss of $5.3 million which was deferred and is being amortized as an
adjustment to net interest income over a remaining period of 10 months.
The following table sets forth the changes in financial derivatives during the
first three months of 1996.
FINANCIAL DERIVATIVES ACTIVITY
<TABLE>
<CAPTION>
January 1 March 31
In millions 1996 Additions Maturities Terminations 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> C>
Interest rate risk management
Interest rate swaps
Receive fixed $2,785 $4,237 $(405) $6,617
Receive-fixed index amortizing 3,211 (511) $(2,117) 583
Pay fixed 2,629 38 (605) (550) 1,512
Basis swaps 765 (640) 125
Interest rate caps 5,510 (10) 5,500
Interest rate floors 1,000 1,000
---------------------------------------------------------------------------
Total interest rate risk management 14,900 5,275 (2,171) (2,667) 15,337
Mortgage banking activities
Forward contracts - commitments to purchase loans 431 1,187 (1,146) 472
Forward contracts - commitments to sell loans 751 1,762 (1,574) 939
Interest rate floors - MSR 500 700 (500) 700
Receive-fixed interest rate swaps - MSR 125 (125)
---------------------------------------------------------------------------
Total mortgage banking activities 1,807 3,649 (2,720) (625) 2,111
---------------------------------------------------------------------------
Total $16,707 $8,924 $(4,891) $(3,292) $17,448
=================================================================================================================================
</TABLE>
PNC BANK CORP. 7
<PAGE> 9
The following table sets forth the maturity distribution and weighted average
interest rates of financial derivatives used for interest rate risk management.
The expected maturity distribution is based on contractual terms except with
respect to receive-fixed index amortizing swaps which is based on implied
forward rates. Implied forward rates are derived from the fair value of the
underlying financial instrument. Weighted average interest rates represent
implied forward rates and contractual rates in effect at March 31, 1996 based on
the average outstanding notional amount.
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION AND WEIGHTED AVERAGE
INTERST RATES OF FINANCIAL DERIVATIVES
Weighted Average Rates
--------------------------------------------------------
Expected Based on
Notional Value Implied Forward At March 31, 1996
--------------------------------------------------------------------------------------------
Average
Dollars in millions Maturing Outstanding Paid Received Paid Received
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps (1)
Receive fixed
1996 $1,455 $6,014 5.53% 5.56% 5.36% 5.56%
1997 355 5,102 6.08 5.51 5.37 5.51
1998 4,607 772 6.37 5.93 5.35 5.93
1999 and beyond 200 167 7.46 6.79 5.34 6.79
-------
Total $6,617
------------------------------------------------------------------------------------------
Receive-fixed index amortizing
1996 $583 $487 5.51% 5.19% 5.32% 5.19%
------------------------------------------------------------------------------------------
Pay fixed
1996 $660 $1,120 5.67% 5.49% 5.67% 5.41%
1997 689 573 5.91 6.02 5.91 5.43
1998 50 141 8.32 6.44 8.32 5.42
1999 and beyond 113 82 8.44 6.94 8.44 5.42
-------
Total $1,512
------------------------------------------------------------------------------------------
Basis swaps
1996 $125 $9 5.56% 5.44% 5.48% 5.52%
------------------------------------------------------------------------------------------
Interest rate caps (2)
1996 $5,500 NM NM NM NM
1997 $5,500 4,507 NM NM NM NM
------------------------------------------------------------------------------------------
Interest rate floors (3)
1996 $1,000 NM NM NM NM
1997 1,000 NM NM NM NM
1998 $1,000 148 NM NM NM NM
=================================================================================================================================
</TABLE>
(1) The floating rate portion of interest rate contracts is based on
money-market indices. As a percent of notional value, 85% were based on
3-month LIBOR, 6% on one-month LIBOR and the remainder on other
short-term indices.
(2) Interest rate caps with a notional value of $5.5 billion require the
counterparty to pay the Corporation the excess, if any, of 3-month
LIBOR over 6.50%. At March 31, 1996, 3-month LIBOR was 5.50%.
(3) Interest rate floors with a notional value of $1 billion require the
counterparty to pay the Corporation the excess, if any, of 4.80% over
3-month LIBOR. At March 31, 1996, 3-month LIBOR was 5.50%.
NM - not meaningful
PNC BANK CORP. 8
<PAGE> 10
The following table sets forth the notional value, weighted average interest
rates, and estimated fair value of financial derivatives by designated assets
and liabilities. Weighted average interest rates represent implied forward
rates based on the average outstanding notional amount.
<TABLE>
<CAPTION>
FINANCIAL DERIVATIVES
March 31, 1996 Weighted Average Rates
Notional ---------------------- Estimated
Dollars in millions Value Paid Received Fair Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate risk management
Asset rate conversion
Interest rate swaps (1)
Receive fixed designated to
Loans $4,955 5.84% 5.41% $(35)
Short-term investments 200 6.00 7.23 5
Receive-fixed index amortizing designated to loans 500 5.52 5.19 (2)
Pay fixed designated to
Securities 599 4.68 5.74 5
Loans 328 7.81 5.85 (19)
Basis swaps designated to loans 100 5.58 5.50
Interest rate caps designated to securities (2) 5,500 NM NM 12
Interest rate floors designated to loans (3) 1,000 NM NM 1
------- ----
Total asset rate conversion 13,182 (33)
Liability rate conversion
Interest rate swaps (1)
Receive fixed designated to
Notes and debentures 657 5.40 5.74 18
Interest-bearing deposits 580 5.98 6.22 12
Borrowed funds 225 5.44 6.51 13
Receive-fixed index amortizing designated to interest-bearing 83 5.48 5.14 (2)
deposits
Pay fixed designated to
Borrowed funds 525 5.54 5.29 (6)
Notes and debentures 50 5.63 5.72 (1)
Interest-bearing deposits 10 4.75 5.40
Basis swaps designated to notes and debentures 25 5.40 5.00 1
------- ----
Total liability rate conversion 2,155 35
------- ----
Total interest rate risk management 15,337 2
Mortgage banking activities
Forward contracts - commitments to purchase loans 472 NM NM (2)
Forward contracts - commitments to sell loans 939 NM NM 9
Interest rate floors - MSR 700 NM NM 7
------ ----
Total mortgage banking activities 2,111 14
------- ----
Total financial derivatives $17,448 $16
=================================================================================================================================
</TABLE>
(1) The floating rate portion of interest rate contracts is based on
money-market indices. As a percent of notional value, 85% were based on
3-month LIBOR, 6% on one-month LIBOR and the remainder on other
short-term indices.
(2) Interest rate caps with a notional value of $5.5 billion require the
counterparty to pay the Corporation the excess, if any, of 3-month LIBOR
over 6.50%. At March 31, 1996, 3-month LIBOR was 5.50%.
(3) Interest rate floors with a notional value of $1 billion require the
counterparty to pay the Corporation the excess, if any, of 4.80% over
3 month LIBOR. At March 31, 1996, 3-month LIBOR was 5.50%.
NM - not meaningful
PNC BANK CORP. 9
<PAGE> 11
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.
For management reporting purposes, the Corporation has designated five lines of
business: Consumer Banking, Corporate Banking, Mortgage Banking, Real Estate
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 was a net generator of funds and, accordingly, was assigned securities,
while the other lines of business received an assignment of borrowings as net
asset generators.
Asset/liability management activities reflect the residual of the assignment of
wholesale assets and liabilities to the lines of business. These activities also
include securities transactions and the impact of financial derivatives used for
interest rate risk management.
Capital is assigned to each business unit based on management's assessment of
inherent risks and equity levels at independent companies that provide similar
products and services. Capital assignments are not equivalent to regulatory
capital guidelines and the total amount assigned may vary from consolidated
shareholders' equity.
Total earnings contributed by the lines of business increased $37 million, or
18%, to $243 million in the first quarter of 1996 compared with $206 million in
the prior-year period. The increase was primarily due to higher fee-based
revenue and higher net interest income associated with loan and deposit growth.
Line of business earnings differed from reported consolidated net income in
both years 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.
<TABLE>
<CAPTION>
LINE OF BUSINESS HIGHLIGHTS
Average Return on
Three months ended March 31 Balance Sheet Revenue(1) Earnings Assigned Capital
-------------------------------------------------------------------------------------------------
Dollars in millions 1996 1995 1996 1995 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer Banking
Community Banking $36,453 $34,047 $468 $418 $111 $93 23% 22%
Private Banking 2,609 2,201 83 70 16 12 26 22
----------------------------------------------------------------------------
Total Consumer Banking 39,062 36,248 551 488 127 105 23 22
Corporate Banking
Middle Market 12,595 12,042 156 160 51 45 13 13
Large Corporate 4,248 3,734 35 34 12 11 10 10
Equity Management 207 186 11 4 6 2 43 16
----------------------------------------------------------------------------
Total Corporate Banking 17,050 15,962 202 198 69 58 14 12
Mortgage Banking 13,394 11,799 95 95 18 16 11 12
Real Estate Banking 4,098 3,801 40 50 17 19 11 13
Asset Management 429 198 59 38 12 8 41 47
----------------------------------------------------------------------------
Total lines of business 74,033 68,008 947 869 243 206 17 16
Asset/liability management (3,350) 6,461 (16) (32) (13) (25)
activities
Unallocated provision 22 19
Other unallocated items 1,050 372 7 (14) (21)
----------------------------------------------------------------------------
Total $71,733 $74,841 $938 $837 $238 $179 17 13
===================================================================================================================================
</TABLE>
(1) Revenue is fully-taxable equivalent net interest income and
fee-based income
PNC BANK CORP. 10
<PAGE> 12
CONSUMER BANKING Consumer Banking provides lending, deposit, personal trust,
brokerage, investment, payment system access and other financial services to
individuals and small businesses. Services are provided through a network of
community banking offices, alternative delivery systems such as the National
Financial Services Center and ATMs and regional banking centers offering a wide
array of products at each location. Consumer Banking includes: Community
Banking-- small business customers having annual sales of up to $5 million and
all other consumers who use traditional branch and direct banking services, and
Private Banking--affluent consumers and charitable organizations with
specialized banking requirements.
In January 1996, an agreement was entered into with the American Automobile
Association (AAA) to offer financial products and services to the
organizations's 34 million members. The agreement provides for an initial term
of ten years, with two five-year renewal options. A full range of consumer
products and services will be offered including credit card, automobile,
student, home equity and residential mortgage loans, as well as deposit accounts
and money market mutual funds. Beginning in the second half of 1996, these
products and services will be marketed in conjunction with AAA and will be
delivered through the Corporation's direct banking channels.
In addition, in March 1996, the Corporation acquired $500 million of deposits
located in New Jersey for a cash premium of $37 million.
The earnings contribution from Consumer Banking increased modestly to 52% of
total line of business earnings in the first quarter of 1996 compared with 51%
in the prior-year period. Community Banking earnings increased 19% in the first
quarter of 1996 as a result of higher net interest income associated with loan
and deposit growth primarily from the Chemical acquisition. This revenue growth
more than offset an increase in the allocated provision for credit losses
resulting primarily from credit card activities. Expenses increased less than 3%
despite the impact of acquisitions and continued investment in direct banking.
Earnings from Private Banking increased 33% in first quarter of 1996 as new
trust business and higher brokerage revenue more than offset expense growth from
sales and marketing activities.
CORPORATE BANKING Corporate Banking provides traditional and asset-based
financing, liquidity and treasury management, corporate and employee benefit
trust, capital markets, direct investment, leasing 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: Middle Market -- customers with
annual sales of $5 million to $250 million and those in certain specialized
industries such as communications, health care, natural resources, metals,
public finance, financial institutions and automobile dealer finance; Large
Corporate -- customers having annual sales of more than $250 million; and
Equity Management -- private equity investments.
Corporate Banking contributed 28% of line of business earnings in both periods.
Middle Market and Large Corporate earnings increased 13% and 9%, respectively,
in the comparison due to a decline in the allocated provision for credit losses,
reflecting improved credit quality of the loan portfolio, and an increase in
loan outstandings. The contribution from Equity Management increased in first
quarter of 1996 as a result of higher venture capital income.
MORTGAGE BANKING Mortgage Banking activities include acquisition, origination,
securitization and servicing of residential mortgages, as well as retention of
selected loans in the portfolio.
Mortgage Banking contributed 8% of line of business earnings in both periods.
Earnings increased 13% in the first quarter of 1996 due to the impact of
increased originations and portfolio loans which more than offset lower gains
from sales of servicing.
PNC BANK CORP. 11
<PAGE> 13
<TABLE>
<CAPTION>
MORTGAGE SERVICING PORTFOLIO
In millions 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
January 1 $37,299 $40,389
Originations 1,378 934
Acquisitions 3,516 92
Repayments (1,638) (829)
Sales (25) (1,128)
--------------------------------
March 31 $40,530 $39,458
=============================================================================
</TABLE>
During the first quarter of 1996, the Corporation funded $1.4 billion of
residential mortgages of which 54% represented new financing. The comparable
amounts were $934 million and 89%, respectively, in the first quarter of 1995.
At March 31, 1996, the Corporation's mortgage servicing portfolio totaled $40.5
billion, had a weighted-average coupon rate of 7.97% and an estimated fair value
of $463 million. The servicing portfolio included $28.1 billion serviced for
others with a MSR carrying value of $316 million and fair value of $367 million.
If interest rates decline and the rate of prepayment increases, the underlying
servicing fee income stream and related MSR fair value would be reduced. The
Corporation seeks to manage this risk by using certain off-balance-sheet
financial derivatives and on-balance-sheet instruments whose values move in the
opposite direction of MSR value changes. During the first quarter of 1996,
hedging costs of $5 million, recorded in other noninterest income, from
instruments used to hedge the economic value of MSR were offset by lower MSR
impairment.
REAL ESTATE BANKING Real Estate Banking provides lending, deposit, treasury
management, syndication, commercial mortgage-backed securitizations and other
noncredit services to small, middle market and large customers. Real Estate
Banking services are provided to customers seeking short- and intermediate-term
credit for construction, acquisition and holding of commercial or residential
real estate projects.
Real Estate Banking contributed 7% of line of business earnings in the first
quarter of 1996 compared with 9% in the first quarter of 1995. Earnings declined
in the comparison due to lower loan volume and nonrecurring gains in the first
quarter of 1995 on Midlantic's sale of assets held for accelerated disposition.
ASSET MANAGEMENT Asset Management provides trust and mutual fund investment
management, strategy, research and asset servicing on behalf of Consumer
Banking and Corporate Banking customers and directly for institutional and
family wealth customers. It serves customers through one unified money
management organization.
Asset Management contributed 5% of line of business earnings in the first
quarter of 1996 compared with 4% a year ago. Earnings increased 50% due to the
impact of BlackRock, new business and an increase in the value of administered
assets.
Revenues and earnings from asset management and mutual fund servicing
are included in Asset Management. Revenue and earnings from marketing asset
management products and trust services are included in the Corporate Banking
and Consumer Banking lines of business. The following table sets forth line of
business revenue and earnings related to these activities.
<TABLE>
<CAPTION>
Revenue
----------------------------------------
Three months ended March 31 Fees and
Dollars in millions Commissions Other Total Earnings
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Asset Management $61 $(2) $59 $12
Consumer Banking 46 2 48 10
Corporate Banking 14 2 16 2
----------------------------------------------------
Total $121 $2 $123 $24
===========================================================================================
1995
Asset Management $37 $ 1 $38 $8
Consumer Banking 40 3 43 8
Corporate Banking 13 2 15 2
----------------------------------------------------
Total $90 $6 $96 $18
===========================================================================================
</TABLE>
PNC BANK CORP. 12
<PAGE> 14
During the first quarter of 1996, assets under administration increased by $80
billion to $304 billion compared with a year ago. Discretionary assets under
management totaled $103 billion at March 31, 1996 compared with $85 billion a
year ago. At March 31, 1996, the composition of discretionary assets under
administration was 45% fixed income, 31% money market, 23% equity and 1% other
assets.
<TABLE>
<CAPTION>
ASSETS UNDER ADMINISTRATION
March 31
In billions Discretionary Non-Discretionary Total
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
Mutual funds $46 $144 $190
Personal and charitable 32 16 48
Institutional 25 41 66
--------------------------------------------
Total $103 $201 $304
====================================================================================
1995
Mutual funds $38 $90 $128
Personal and charitable 26 12 38
Institutional 21 37 58
-------------------------------------------
Total $85 $139 $224
====================================================================================
</TABLE>
RISK MANAGEMENT
The Corporation's ordinary course of business involves varying degrees of risk
taking, the most significant of which are credit, liquidity and interest rate
risk. To manage these risks, the Corporation has risk management processes
designed to provide for risk identification, measurement, monitoring and
control.
CREDIT RISK MANAGEMENT Credit risk represents the possibility that a customer
or counterparty may not perform in accordance with contractual terms. Credit
risk is inherent in the financial services business and results from extending
credit to customers, purchasing securities and entering into certain
off-balance-sheet financial derivative transactions. The Corporation seeks to
manage credit risk through diversification, utilizing exposure limits to any
single industry or customer, requiring collateral and selling participations to
third parties.
NONPERFORMING ASSETS At March 31, 1996, nonperforming assets were $540 million
compared with $536 million at year-end. The following tables set forth
nonperforming assets by category at March 31, 1996 and December 31, 1995 and
the changes in nonperforming assets during the first three months of 1996 and
1995.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
March 31 December 31
Dollars in millions 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans
Commercial $141 $118
Commercial real estate
Commercial mortgage 116 108
Real estate project 40 45
Consumer 7 10
Residential mortgage 51 54
-----------------------------
Total nonaccrual loans 355 335
Restructured loans 17 23
-----------------------------
Total nonperforming loans 372 358
Foreclosed assets
Commercial real estate 98 105
Residential mortgage 26 24
Other 44 49
-----------------------------
Total foreclosed assets 168 178
-----------------------------
Total nonperforming assets $540 $536
=============================
Nonperforming loans to loans .76% .74%
Nonperforming assets to loans and
foreclosed assets 1.10 1.10
Nonperforming assets to assets .74 .73
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN NONPERFORMING ASSETS
In millions 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
January 1 $536 $757
Transferred from accrual 111 117
Acquisitions 1
Returned to performing (10) (37)
Principal reductions (59) (90)
Sales (22) (17)
Charge-offs and valuation adjustments (16) (29)
-----------------------------
March 31 $540 $702
=============================================================================
</TABLE>
PNC BANK CORP. 13
<PAGE> 15
At March 31, 1996, $92 million of nonperforming loans were current as to
principal and interest compared with $89 million at December 31, 1995. Office,
retail and land projects accounted for 69.0% of total nonperforming real estate
project assets at March 31, 1996. The Corporation's primary markets accounted
for 61.0% of total nonperforming real estate project assets. The southeast
region of the United States and metropolitan Washington D.C. area accounted for
18.4% and 6.4%, respectively.
<TABLE>
<CAPTION>
ACCRUING LOANS CONTRACTUALLY
PAST DUE 90 DAYS OR MORE
Amount Percent of Loans
---------------------------------------------------------
March 31 December 31 March 31 December 31
Dollars in millions 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer
Guaranteed student loans $39 $44 2.38% 2.90%
Other 53 51 .46 .44
----------------------
Total consumer 92 95 .70 .72
Residential mortgage 61 63 .52 .54
Commercial 40 22 .24 .13
Commercial real estate 16 45 .33 .92
----------------------
Total $209 $225 .43 .46
======================================================================================
</TABLE>
ALLOWANCE FOR CREDIT LOSSES In determining the adequacy of the allowance for
credit losses, the Corporation allocates reserves to specific problem loans
based on discounted cash flow analyses or collateral valuations for impaired
loans and to pools of watchlist and non-watchlist loans for various credit risk
factors.
The allowance for credit losses totaled $1.2 billion at March 31, 1996 compared
with $1.3 billion at December 31, 1995. The allowance as a percent of
period-end loans and nonperforming loans was 2.51% and 328.9%, respectively, at
March 31, 1996. The comparable year-end 1995 amounts were 2.59% and 351.7%,
respectively.
<TABLE>
<CAPTION>
CHARGE-OFFS AND RECOVERIES
Net Percent of
Three months ended March 31 Charge- Charge- Average
Dollars in millions offs Recoveries offs Loans
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Consumer $39 $9 $30 .90%
Residential mortgage 2 1 1 .03
Commercial 10 9 1 .02
Commercial real estate 4 2 2 .16
--------------------------------------
Total $55 $21 $34 .28
======================================================================================
1995
Consumer $23 $10 $13 .46%
Residential mortgage 3 3 .12
Commercial 30 13 17 .46
Commercial real estate 6 3 3 .24
--------------------------------------
Total $62 $26 $36 .33
======================================================================================
</TABLE>
Consumer net charge-offs increased $17 million in the comparison primarily due
to an increase in credit card charge-offs and the Midlantic and Chemical
acquisitions.
PNC BANK CORP. 14
<PAGE> 16
LIQUIDITY Liquidity represents an institution's ability to generate cash or
otherwise obtain funds at reasonable rates to satisfy commitments to borrowers
and demands of depositors and debtholders, and invest in other strategic
initiatives. Liquidity risk represents the likelihood the Corporation would be
unable to generate cash or otherwise obtain funds at reasonable rates to
satisfy commitments to borrowers, as well as the obligations to depositors and
debtholders. Liquidity is managed through the coordination of the relative
maturities of assets, liabilities and off-balance-sheet positions and is
enhanced by the ability to raise funds in capital markets through direct
borrowing or securitization of assets such as automobile and credit card loans.
During the first quarter of 1996, cash and due from banks decreased $428
million to $3.3 billion compared with an increase of $78 million during the
year-earlier period. Net cash provided by operating activities decreased $570
million in the comparison, primarily due to increases in loans held for sale
associated with the Corporation's mortgage banking activities and trading
account securities. Cash provided by investing activities declined to $1.3
billion compared with $2.2 billion provided a year ago reflecting higher cash
receipts from securities sales in the previous period. Net cash used by
financing activities totaled $1.5 billion in the first quarter of 1996 compared
with $2.5 billion used a year earlier reflecting a lower level of wholesale
liability activity.
Liquid assets consist of cash and due from banks, short-term investments, loans
held for sale and securities available for sale. At March 31, 1996, such assets
totaled $20.5 billion of which $7.5 billion was pledged as collateral.
Liquidity is also provided by residential mortgages which may be used as
collateral for funds obtained through the Federal Home Loan Bank system. At
March 31, 1996, approximately $5.7 billion of residential mortgages were
available as collateral for borrowings from the Federal Home Loan Bank system.
The principal source of the parent company's revenues and cash flow is
dividends from its subsidiary banks. PNC Bancorp, Inc. is a wholly owned
subsidiary of the parent company and is the holding company for all bank
subsidiaries. There are legal limitations on the ability of the bank
subsidiaries to pay dividends and make other distributions to PNC Bancorp, Inc.
and in turn the parent company. Without regulatory approval, the amount
available for payment of dividends to PNC Bancorp, Inc. and in turn the parent
company by all bank subsidiaries was $319 million at March 31, 1996. Dividends
may also be impacted by capital needs, regulatory requirements and policies, and
other factors.
Liquidity for the parent company and its affiliates is also generated through
the issuance of securities in public or private markets and lines of credit.
Under effective shelf registration statements at March 31, 1996, the
Corporation had available $140 million of debt, $300 million of preferred stock
and $350 million of securities that may be issued as either debt or preferred
stock. In addition, the Corporation had a $500 million unused committed line of
credit. Funds obtained from any of these sources can be used for both bank and
nonbank activities.
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.
PNC BANK CORP. 15
<PAGE> 17
INTEREST RATE RISK Interest rate risk arises primarily through the
Corporation's normal business activities of extending loans and taking
deposits. Many factors, including economic and financial conditions, general
movements in market interest rates, and consumer preferences, affect the spread
between interest earned on assets and interest paid on liabilities. Financial
derivatives, primarily interest rate swaps, caps and floors, are used to alter
the interest rate characteristics of assets and liabilities. For example,
receive-fixed interest rate swaps effectively convert variable-rate assets to
fixed-rate assets.
In managing interest rate risk, the Corporation seeks to minimize the reliance
on a particular interest rate scenario as a source of earnings. Accordingly,
wholesale activities including securities, funding, financial derivatives and
capital markets activities are used in managing core business exposures within
specified guidelines. Interest rate risk is centrally managed by asset and
liability (A&L) management.
An income simulation model is the primary tool used to assess the direction and
magnitude of changes in net interest income resulting from changes in interest
rates. Key assumptions employed in the model include prepayment speeds on
mortgage-related assets, cash flows and maturities of financial instruments,
changes in market conditions, loan volumes and pricing, deposit sensitivity,
customer preferences, and management's financial and capital plans. These
assumptions are inherently uncertain and, as a result, the model can not
precisely estimate net interest income or precisely predict the impact of
higher or lower interest rates on net interest income.
The Corporation's guidelines provide that net interest income should not
decrease by more than 3% if interest rates gradually increase or decrease from
current rates by 100 basis points over a twelve month period. At March 31,
1996, based on the results of the simulation model, the Corporation was within
these guidelines. Actual results will differ from simulated results due to
timing, magnitude and frequency of interest rate changes and changes in market
conditions and management strategies, among other factors.
The Corporation also employs interest sensitivity (gap) analyses to assess
interest rate risk. A gap analysis represents a point-in-time net position of
assets, liabilities and off-balance-sheet instruments subject to repricing in
specified time periods. Gap analysis alone does not accurately measure the
magnitude of changes in net interest income since changes in interest rates over
time do not impact all categories of assets, liabilities and off-balance-sheet
instruments equally or simultaneously. The Corporation's limit for the
cumulative one-year gap position is 10%. A cumulative asset-sensitive gap
position indicates assets are expected to reprice more quickly than liabilities.
Alternatively, a cumulative liability-sensitive gap position indicates
liabilities are expected to reprice more quickly than assets. At March 31, 1996,
the cumulative one-year gap position was neutral.
PNC BANK CORP. 16
<PAGE> 18
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31 December 31
Dollars in millions, except share data 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $3,251 $3,679
Short-term investments 1,170 1,611
Loans held for sale 1,369 659
Securities available for sale 14,692 15,839
Loans, net of unearned income of $380 and $403 48,800 48,653
Allowance for credit losses (1,225) (1,259)
-------------------------------------
Net loans 47,575 47,394
Goodwill and other intangibles 1,019 997
Mortgage servicing rights 316 268
Other 3,276 2,957
-------------------------------------
Total assets $72,668 $73,404
=====================================
LIABILITIES
Deposits
Noninterest-bearing $9,899 $10,707
Interest-bearing 35,722 36,192
-------------------------------------
Total deposits 45,621 46,899
Borrowed funds
Federal funds purchased 3,434 3,817
Repurchase agreements 2,754 2,851
Commercial paper 447 753
Other 1,369 1,244
-------------------------------------
Total borrowed funds 8,004 8,665
Notes and debentures 11,448 10,398
Other 1,809 1,674
-------------------------------------
Total liabilities 66,882 67,636
SHAREHOLDERS' EQUITY
Preferred stock - $1 par value
Authorized: 17,503,967 and 17,529,342 shares
Issued and outstanding: 823,409 and 848,784 shares
Aggregate liquidation value: $16,906 and $17,428 1 1
Common stock - $5 par value
Authorized: 450,000,000 shares
Issued: 341,858,521 and 340,863,348 shares 1,709 1,704
Capital surplus 563 545
Retained earnings 3,689 3,571
Deferred benefit expense (77) (79)
Net unrealized securities gains (losses) (98) 26
Common stock held in treasury at cost: 15,291 shares (1)
-------------------------------------
Total shareholders' equity 5,786 5,768
-------------------------------------
Total liabilities and shareholders' equity $72,668 $73,404
=========================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP. 17
<PAGE> 19
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three months ended March 31
In thousands, except per share data 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans and fees on loans $980,836 $887,421
Securities 237,442 345,404
Other 37,060 28,452
-----------------------------------
Total interest income 1,255,338 1,261,277
INTEREST EXPENSE
Deposits 370,983 357,721
Borrowed funds 112,457 211,129
Notes and debentures 165,041 153,147
-----------------------------------
Total interest expense 648,481 721,997
-----------------------------------
Net interest income 606,857 539,280
Provision for credit losses 1,500
-----------------------------------
Net interest income less provision for credit losses 606,857 537,780
NONINTEREST INCOME
Service fees 130,269 121,472
Asset management and trust 120,877 90,368
Mortgage banking 35,982 44,723
Net securities gains 2,943 1,254
Other 31,491 27,740
-----------------------------------
Total noninterest income 321,562 285,557
NONINTEREST EXPENSE
Staff expense 278,657 263,401
Net occupancy and equipment 93,283 86,734
Intangible asset and MSR amortization 23,664 23,335
Federal deposit insurance 3,190 24,320
Other 166,852 155,561
-----------------------------------
Total noninterest expense 565,646 553,351
-----------------------------------
Income before income taxes 362,773 269,986
Applicable income taxes 124,453 90,439
-----------------------------------
Net income $238,320 $179,547
===================================
EARNINGS PER COMMON SHARE
Primary $.69 $.52
Fully diluted .69 .52
CASH DIVIDENDS DECLARED PER COMMON SHARE .35 .35
AVERAGE COMMON SHARES OUTSTANDING
Primary 342,872 341,740
Fully diluted 347,367 347,008
===============================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP. 18
<PAGE> 20
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31
In millions 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $238 $180
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses 1
Depreciation, amortization and accretion 61 63
Deferred income taxes 37 47
Net securities gains (3) (1)
Net gain on sales of assets (14) (14)
Changes in
Loans held for sale (316) 62
Other (235)
--------------------------
Net cash provided (used) by operating activities (232) 338
INVESTING ACTIVITIES
Net change in loans (334) (243)
Repayment
Securities available for sale 1,081 263
Investment securities 435
Sales
Securities available for sale 1,496 614
Loans 7 102
Foreclosed assets 24 17
Purchases
Securities available for sale (1,601) (878)
Investment securities (126)
Loans (286) (30)
Net cash received in acquisitions 460 44
Other 438 2,017
--------------------------
Net cash provided by investing activities 1,285 2,215
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits (817) (695)
Interest-bearing deposits (952) (1,850)
Federal funds purchased (382) 767
Sale/issuance
Repurchase agreements 17,601 28,250
Commercial paper 523 1,179
Other borrowed funds 20,203 26,620
Notes and debentures 4,082 1,354
Common stock 20 9
Redemption/maturity
Repurchase agreements (17,699) (24,571)
Commercial paper (829) (1,580)
Other borrowed funds (20,079) (28,078)
Notes and debentures (3,027) (3,682)
Acquisition of treasury stock (5) (104)
Cash dividends paid to shareholders (120) (94)
--------------------------
Net cash used by financing activities (1,481) (2,475)
--------------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (428) 78
Cash and due from banks at beginning of year 3,679 3,412
--------------------------
Cash and due from banks at end of period $3,251 $3,490
==============================================================================================================================
CASH ITEMS
Interest paid $690 $784
Income taxes refunded 81 55
NONCASH ITEMS
Transfers from loans to foreclosed assets 12 29
==============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP. 19
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES
BUSINESS PNC Bank Corp. provides a broad range of banking and related financial
services through its subsidiaries to retail consumers, small businesses and
corporate customers. PNC Bank is subject to intense competition from other
financial services companies with respect to these services and customers and
is also subject to the regulations of certain federal and state agencies and
undergoes periodic examinations by certain regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION The unaudited consolidated interim
financial statements have been prepared in accordance with generally accepted
accounting principles and include the accounts of PNC Bank Corp. and its
subsidiaries ("Corporation"), substantially all of which are wholly owned. In
the opinion of management, the financial statements reflect all adjustments,
which are of a normal recurring nature, necessary for a fair statement of the
results for the interim periods presented. The merger between PNC Bank Corp.
and Midlantic Corporation ("Midlantic") was completed December 31, 1995 and
accounted for as a pooling of interests. Accordingly, all financial information
has been restated as if the companies were combined for all periods presented.
In preparing the unaudited consolidated interim financial statements,
management is required to make estimates and assumptions that affect the
amounts reported in the financial statements. Actual results will differ from
such estimates and such differences may be material to the financial
statements.
The notes included herein should be read in conjunction with the audited
consolidated financial statements included in the Corporation's 1995 Annual
Report.
ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is maintained at a
level believed by management to be sufficient to absorb estimated potential
credit losses. Management's determination of the adequacy of the allowance is
based on periodic evaluations of the credit portfolio and other relevant
factors. This evaluation is inherently subjective as it requires material
estimates, including the amounts and timing of expected future cash flows on
impaired loans, which may be susceptible to significant change. The allowance
for credit losses on impaired loans pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 114 "Accounting by Creditors for Impairment
of a Loan," is one component of the methodology for determining the allowance
for credit losses. The remaining components of the allowance for credit losses
provide for estimated losses on consumer loans and residential mortgages, and
general amounts for historical loss experience, uncertainties in estimating
losses and inherent risks in the various credit portfolios.
EARNINGS PER COMMON SHARE Primary earnings per common share is calculated by
dividing net income adjusted for preferred stock dividends declared by the sum
of the weighted average number of shares of common stock outstanding and the
number of shares of common stock which would be issued assuming the exercise of
stock options during each period. Fully diluted earnings per common share is
based on net income adjusted for interest expense, net of tax, on outstanding
convertible debentures and dividends declared on nonconvertible preferred
stock. The weighted average number of shares of common stock outstanding is
increased by the assumed conversion of outstanding convertible preferred stock
and convertible debentures from the beginning of the year or date of issuance,
if later, and the number of shares of common stock which would be issued
assuming the exercise of stock options. Such adjustments to net income and the
weighted average number of shares of common stock outstanding are made only
when such adjustments dilute earnings per common share.
PNC BANK CORP. 20
<PAGE> 22
CHANGE IN ACCOUNTING PRINCIPLE In the first quarter of 1996, the Corporation
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of." This Standard requires that long-lived
assets and certain identifiable intangible assets, such as goodwill, be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment is measured based
on the present value of expected future cash flows from the asset and its
eventual disposition. The adoption of SFAS No. 121 did not have a material
effect on the Corporation's financial position or results of operation.
CASH FLOWS
For the statement of cash flows, the Corporation defines cash and cash
equivalents as cash and due from banks.
The table below sets forth information pertaining to acquisitions and
divestitures which affect cash flows.
<TABLE>
<CAPTION>
Three months ended March 31
In millions 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Assets acquired $538 $654
Liabilities assumed 501 535
Cash paid 37 120
Cash and due from banks received 497 164
======================================================================
</TABLE>
MERGERS AND ACQUISITIONS
On December 31, 1995, Midlantic merged with the Corporation. Each share of
Midlantic common stock outstanding on such date was converted into 2.05 shares
of the Corporation's common stock. The Corporation issued approximately 112
million shares of common stock in connection with the merger. The transaction
was accounted for as a pooling of interests and, accordingly, all financial
data prior to the merger has been restated as if the entities were combined for
all such periods.
PNC BANK CORP. 21
<PAGE> 23
On October 6, 1995, the Corporation acquired Chemical New Jersey Holdings,
Inc., and its wholly-owned subsidiary Chemical Bank New Jersey, N.A.
("Chemical") with total assets of $3.2 billion and retail core deposits of $2.7
billion. The Corporation paid $492 million in cash and the transaction was
accounted for under the purchase method.
In February 1995, the Corporation acquired BlackRock Financial Management L.P.,
a fixed-income investment management firm with approximately $25 billion in
assets under management at closing. The Corporation paid $71 million in cash
and issued $169 million of unsecured notes.
SECURITIES
The following table sets forth the amortized cost and fair value of the
Corporation's securities portfolio, all of which are available for sale and the
fair value of financial derivatives designated to such instruments.
At March 31, 1996 and December 31, 1995, $6.1 billion notional value of
interest rate swaps and caps were associated with securities available for
sale.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE March 31, 1996 December 31, 1995
---------------------------------------------- ------------------------- ------------------
Unrealized Unrealized
Amortized ------------------ Fair Amortized ------------------ Fair
In millions Cost Gains Losses Value Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities
U.S. Treasury $2,000 $42 $12 $2,030 $3,211 $69 $3,280
U.S. Government agencies and
corporations
Mortgage-related 7,278 10 193 7,095 7,510 18 $75 7,453
Other 1,450 1 15 1,436 1,030 5 1 1,034
Asset-backed private placement 1,597 5 1,602 1,597 7 1,604
State and municipal 330 21 351 343 25 1 367
Other debt
Mortgage-related 1,031 2 15 1,018 1,121 2 10 1,113
Other 684 4 4 684 525 3 3 525
Corporate stocks and other 471 2 12 461 455 4 2 457
Associated derivatives 15 15 6 6
----------------------------------------------------------------------------------------------
Total securities available
for sale $14,841 $102 $251 $14,692 $15,792 $139 $92 $15,839
==================================================================================================================================
</TABLE>
PNC BANK CORP. 22
<PAGE> 24
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 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $355 $335
Restructured loans 17 23
--------------------------
Total nonperforming loans 372 358
Foreclosed assets 168 178
--------------------------
Total nonperforming assets $540 $536
===========================================================================
</TABLE>
ALLOWANCE FOR CREDIT LOSSES
The following table presents changes in the allowance for credit losses:
<TABLE>
<CAPTION>
In millions 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
January 1 $1,259 $1,352
Charge-offs (55) (62)
Recoveries 21 26
--------------------------------
Net charge-offs (34) (36)
Provision for credit losses 1
Acquisitions 1
--------------------------------
March 31 $1,225 $1,318
======================================================================
</TABLE>
FINANCIAL DERIVATIVES
The following table sets forth notional and fair values of financial
derivatives.
<TABLE>
<CAPTION>
Positive Negative Total
Notional Fair Notional Fair Notional
In millions Value Value Value Value Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MARCH 31, 1996
Interest rate swaps $3,699 $75 $5,138 $(86) $8,837
Interest rate caps 5,500 12 5,500
Interest rate floors 1,000 1 1,000
Mortgage banking activities 1,639 16 472 (2) 2,111
--------------------------------------------------------------------------------------
Total $11,838 $104 $5,610 $(88) $17,448
=============================================================================================================================
DECEMBER 31, 1995
Interest rate swaps $4,249 $77 $5,141 $(48) $9,390
Interest rate caps 5,510 6 5,510
Mortgage banking activities 769 16 1,038 (4) 1,807
--------------------------------------------------------------------------------------
Total $10,528 $99 $6,179 $(52) $16,707
=============================================================================================================================
</TABLE>
PNC BANK CORP. 23
<PAGE> 25
SPECIAL CHARGES
In connection with the Midlantic merger, the Corporation recorded special
charges totaling $260 million. These charges represented estimated costs of
integrating and consolidating branch networks, back office and administrative
facilities, professional services and the cost to terminate an interest rate
cap position. The following table sets forth changes in accrued special
charges:
<TABLE>
<CAPTION>
1996 Balance at Balance at
In millions January 1 Incurred March 31
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Staff related $42 $6 $36
Net occupancy 72 8 64
Equipment 17 2 15
Professional services 31 18 13
Other 18 10 8
Interest rate cap termination 80 80
----------------------------------------------
Total $260 $124 $136
=================================================================================
</TABLE>
OTHER FINANCIAL INFORMATION
Summarized financial information for PNC Bancorp, Inc. and subsidiaries is as
follows:
PNC BANCORP. INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31 December 31
In millions 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $3,257 $3,678
Securities 14,531 15,683
Loans, net of unearned income 49,076 48,583
Allowance for credit losses (1,225) (1,259)
----------------------------------
Net loans 47,851 47,324
Other assets 6,038 6,053
----------------------------------
Total assets $71,677 $72,738
==================================
LIABILITIES
Deposits $45,743 $47,024
Borrowed funds 7,512 8,093
Notes and debentures 10,790 9,726
Other liabilities 1,294 1,167
----------------------------------
Total liabilities 65,339 66,010
SHAREHOLDER'S EQUITY 6,338 6,728
----------------------------------
Total liabilities and
shareholder's equity $71,677 $72,738
======================================================================================
</TABLE>
In connection with the Midlantic merger, notes and debentures of Midlantic in
the aggregate principal amount of $368 million have been jointly and severally
assumed by the parent company and its wholly-owned subsidiary, PNC Bancorp, Inc.
PNC BANCORP. INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three months ended March 31
In millions 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Interest income $1,248 $1,252
Interest expense 633 705
---------------------------------
Net interest income 615 547
Provision for credit losses 4
---------------------------------
Net interest income less provision for
credit losses 615 543
Noninterest income 296 268
Noninterest expense 549 534
---------------------------------
Income before income taxes 362 277
Applicable income taxes 126 93
---------------------------------
Net income $236 $184
======================================================================================
</TABLE>
The amount of dividends that may be paid by bank subsidiaries to PNC Bancorp,
Inc., a first-tier holding company, and in turn to the parent company, are
subject to certain legal limitations. Without regulatory approval, the amount
available for payment of dividends by all subsidiary banks to PNC Bancorp, Inc.
was $319 million at March 31, 1996. Dividends may also be impacted by capital
needs, regulatory requirements and policies, and other factors.
PNC BANK CORP. 24
<PAGE> 26
STATISTICAL INFORMATION
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
First Quarter 1996 Fourth Quarter 1995
-----------------------------------------------------------------------------
Taxable-equivalent basis Average Average Average Average
Average balance in millions, interest in thousands Balances Interest Yields/Rates Balances Interest Yields/Rates
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Short-term investments $1,102 $17,211 6.29% $950 $15,557 6.49%
Loans held for sale 1,150 19,728 6.86 965 17,318 7.18
Securities
U.S. Treasury 2,258 37,559 6.69 3,729 50,159 5.34
U.S. Government agencies and corporations 8,564 131,844 6.16 11,582 162,719 5.62
State and municipal 330 8,138 9.88 352 7,866 8.95
Other debt 3,311 57,169 6.87 3,471 61,201 6.98
Corporate stocks and other 355 5,342 6.04 316 5,575 7.00
---------------------- ---------------------
Total securities 14,818 240,052 6.48 19,450 287,520 5.89
Loans, net of unearned income
Consumer 13,370 293,624 8.83 13,188 293,742 8.84
Residential mortgage 11,619 218,118 7.51 11,462 213,544 7.45
Commercial 16,806 330,938 7.79 16,590 329,890 7.78
Commercial real estate 4,885 112,409 9.16 5,029 119,047 9.38
Other 1,945 32,325 6.66 2,035 34,240 6.70
---------------------- ---------------------
Total loans, net of unearned income 48,625 987,414 8.10 48,304 990,463 8.11
Other interest-earning assets 10 184 7.37 12 221 7.55
---------------------- ---------------------
Total interest-earning assets/
interest income 65,705 1,264,589 7.69 69,681 1,311,079 7.46
Noninterest-earning assets
Allowance for credit losses (1,253) (1,304)
Cash and due from banks 3,095 3,093
Other assets 4,186 4,237
-------- ---------
Total assets $71,733 $75,707
-------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand and money market $12,625 $84,919 2.71 $12,789 $93,788 2.91
Savings 3,579 19,125 2.15 3,626 21,374 2.34
Other time 18,638 252,534 5.45 18,723 265,010 5.62
Deposits in foreign offices 1,030 14,405 5.53 1,439 20,790 5.65
---------------------- ---------------------
Total interest-bearing deposits 35,872 370,983 4.16 36,577 400,962 4.35
Borrowed funds
Federal funds purchased 3,540 48,388 5.50 4,044 60,246 5.91
Repurchase agreements 2,739 36,959 5.34 4,823 72,407 5.87
Commercial paper 549 7,708 5.65 763 11,320 5.89
Other 995 19,402 7.79 1,881 33,430 7.00
---------------------- ------------------------
Total borrowed funds 7,823 112,457 5.74 11,511 177,403 6.07
Notes and debentures 11,068 165,041 5.94 10,637 168,889 6.26
---------------------- ------------ ------------
Total interest-bearing liabilities/interest
expense 54,763 648,481 4.75 58,725 747,254 5.03
Noninterest-bearing liabilities and shareholders'
equity
Demand and other noninterest-bearing deposits 9,681 9,639
Accrued expenses and other liabilities 1,525 1,450
Shareholders' equity 5,764 5,893
-------- --------
Total liabilities and shareholders' equity $71,733 $75,707
-------- ------------------------ ------------
Interest rate spread 2.94 2.43
Impact of noninterest-bearing liabilities .79 .79
---------------------- ---------------------
Net interest income/margin on earning assets $616,108 3.73% $563,825 3.22%
==================================================================================================================================
</TABLE>
Nonaccrual loans are included in loans, net of unearned income. The impact of
financial derivatives used in interest rate risk management is included in the
interest income/expense and average yields/rates of the related assets and
liabilities.
PNC BANK CORP. 25
<PAGE> 27
<TABLE>
<CAPTION>
Third Quarter 1995 Second Quarter 1995 First Quarter 1995
-------------------------------------------------------------------------------------------------------------------
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>
$815 $14,623 7.12% $1,042 $19,147 7.37% $1,333 $19,243 5.85%
939 17,667 7.52 539 10,367 7.70 447 9,009 8.05
4,276 54,689 5.07 4,412 57,478 5.23 4,310 53,997 5.08
13,415 186,608 5.56 14,177 202,753 5.72 14,973 214,036 5.72
361 8,978 9.94 370 9,436 10.21 369 9,316 10.11
3,678 64,575 6.95 3,868 66,694 6.86 4,017 66,821 6.65
315 5,454 6.87 310 5,345 6.92 315 5,272 6.79
--------------------- --------------------- ---------------------
22,045 320,304 5.79 23,137 341,706 5.91 23,984 349,442 5.84
11,822 266,234 8.93 11,603 265,604 9.18 11,520 252,840 8.90
11,066 211,464 7.64 10,629 195,079 7.34 10,060 187,761 7.47
15,914 323,724 7.96 15,620 323,284 8.19 15,139 308,095 8.14
5,096 120,759 9.39 5,016 118,732 9.42 5,034 113,885 9.05
1,748 30,292 6.90 1,897 32,413 6.85 1,957 32,657 6.73
--------------------- --------------------- --------------------
45,646 952,473 8.25 44,765 935,112 8.33 43,710 895,238 8.23
13 232 7.39 12 230 7.59 12 201 7.07
--------------------- -------------------- --------------------
69,458 1,305,299 7.45 69,495 1,306,562 7.45 69,486 1,273,133 7.31
(1,306) (1,317) (1,351)
2,996 3,191 2,895
4,118 3,974 3,811
-------- -------- --------
$75,266 $75,343 $74,841
-------- -------- --------
$11,899 $86,404 2.88 $11,819 $87,729 2.98 $12,509 $88,972 2.88
3,635 21,484 2.35 3,759 23,126 2.47 3,912 23,464 2.43
17,974 255,883 5.65 17,522 243,905 5.58 16,820 219,642 5.29
2,437 38,608 6.20 2,307 35,994 6.17 1,713 25,643 5.99
--------------------- --------------------- ---------------------
35,945 402,379 4.44 35,407 390,754 4.42 34,954 357,721 4.14
3,637 54,227 5.91 2,684 41,631 6.22 2,174 31,999 5.97
6,426 99,360 6.05 7,477 116,282 6.15 7,367 109,954 5.97
492 7,396 5.96 621 9,423 6.08 1,078 15,640 5.88
3,461 59,022 6.71 3,358 58,943 6.98 3,283 53,374 6.55
---------------------- --------------------- ---------------------
14,016 220,005 6.18 14,140 226,279 6.36 13,902 210,967 6.10
8,829 144,106 6.44 9,586 154,788 6.44 10,109 153,309 6.11
---------------------- --------------------- ---------------------
58,790 766,490 5.15 59,133 771,821 5.16 58,965 721,997 4.89
9,132 8,958 8,713
1,542 1,525 1,453
5,802 5,727 5,710
------- ------- --------
$75,266 $75,343 $74,841
-------- --------------------- ---------------------- -------------
2.30 2.29 2.42
.79 .77 .74
---------------------- ---------------------- ----------------------
$538,809 3.09% $534,741 3.06% $551,136 3.16%
==========================================================================================================================
</TABLE>
PNC BANK CORP. 26
<PAGE> 28
QUARTERLY REPORT ON FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 1996.
Commission File Number 1-9718
PNC BANK CORP.
Incorporated in the State of Pennsylvania
IRS Employer Identification No. 25-1435979
Address: One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Telephone: (412) 762-1553
As of April 30, 1996, PNC Bank Corp. had 342,049,106 shares of common stock ($5
par value) outstanding.
PNC Bank Corp. (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
The following sections of the Corporate Financial Review set forth in the
cross-reference index are incorporated in the Quarterly Report on Form 10-Q.
<TABLE>
<CAPTION>
Cross-Reference Page(s)
---------------------------------------------------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheet as of March 31,
1996 and December 31, 1995 17
Consolidated Statement of Income for the
three months ended March 31, 1996 and
1995 18
Consolidated Statement of Cash Flows for
the three months ended March 31, 1996
and 1995 19
Notes to Consolidated Financial
Statements 20-23
Average Consolidated Balance Sheet and
Net Interest Analysis 24-25
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 2-16
- -------------------------------------------------------------
</TABLE>
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
The following exhibit index lists Exhibits to the Quarterly Report on
Form 10-Q:
11 Calculation of primary and fully diluted earnings per common share
for the three months ended March 31, 1996 and 1995.
12.1 Computation of Earnings to Fixed Charges for the three months ended
March 31, 1996 and for each of the five years in the period ended
December 31, 1995.
12.2 Computation of Earnings to Combined Fixed Charges and Preferred
Stock Dividends for the three months ended March 31, 1996, and for
each of the five years in the period ended December 31, 1995.
27 Financial Data Schedule
Copies of these Exhibits will be furnished without charge upon written
request to Glenn Davies, Vice President, Financial Reporting, at corporate
headquarters. Requests may also be directed to (412) 762-1553 or via e-mail
to [email protected] on the Internet.
Since December 31, 1995, the Corporation filed the following current reports on
Form 8-K:
Form 8-K dated as of December 31, 1995 pursuant to Item 2 reporting the
effectiveness of the merger with Midlantic and the appointment of 4 additional
directors to the Corporation's Board of Directors. The Form 8-K also reported
pursuant to Item 5 the completion of actions that accelerated the repositioning
of the Corporation's balance sheet and provided an estimate of combined
earnings for 1995 giving effect to the Midlantic transaction.
Form 8-K dated as of January 24, 1996, reporting the Corporation's consolidated
financial results for the three months and year ended December 31, 1995, filed
pursuant to Item 5.
Form 8-K dated as of April 17, 1996, reporting the Corporation's consolidated
financial results for the three months ended March 31, 1996, filed pursuant to
Item 5.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on May 15, 1996, on its
behalf by the undersigned thereunto duly authorized.
PNC Bank Corp.
Robert L. Haunschild
Senior Vice President and Chief Financial Officer
PNC BANK CORP. 27
<PAGE> 29
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
PNC Bank Corp.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
INQUIRIES
Inquiries or comments concerning PNC Bank Corp. are welcome.
Individual shareholders should contact:
Shareholder Relations at 800-843-2206
or the PNC Bank Hotline at 800-982-7652.
Analysts and institutional investors should contact:
William H. Callihan, Vice President,
Investor Relations, at 412-762-8257.
News media representatives and others seeking general information
should contact:
Jonathan Williams, Vice President,
Media Relations, at 412-762-4550.
FINANCIAL INFORMATION
Copies of the Corporation's filings with the Securities and Exchange
Commission, including Exhibits to the Quarterly Report on Form 10-Q, may be
obtained without charge upon written request to Glenn Davies, Vice President,
Financial Reporting, at corporate headquarters. Requests may also be directed
to (412) 762-1553 or via e-mail to [email protected] on the Internet.
STOCK LISTING
PNC Bank Corp. common stock is traded on the New York Stock Exchange (NYSE)
under the symbol PNC.
COMMON STOCK PRICES/DIVIDENDS DECLARED
The table below sets forth by quarter the high, low and closing sale prices for
PNC Bank Corp. common stock and the cash dividends declared per common share.
<TABLE>
<CAPTION>
Cash
Dividends
1996 Quarter High Low Close Declared
- --------------------------------------------------------------------------------
First $32.625 $28.375 $30.750 $.35
================================================================================
<S> <C> <C> <C> <C>
1995 Quarter
- --------------------------------------------------------------------------------
First $25.750 $21.125 $24.375 $.35
Second 28.125 24.250 26.375 .35
Third 28.625 23.625 27.875 .35
Fourth 32.375 26.125 32.250 .35
-----
Total $1.40
================================================================================
</TABLE>
REGISTRAR AND TRANSFER AGENT
Chemical Bank
85 Challenger Road
Overpeck Center
Ridgefield Park, NJ 07660
800-982-7652
TO EXCHANGE MIDLANTIC STOCK CERTIFICATES
Midlantic Bank, N.A.
Metro Park Plaza
P.O. Box 600
Edison, NJ 08818
Attn: Corporate Securities Services
908-205-4517
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The PNC Bank Corp. dividend reinvestment and stock purchase plan enables
holders of common and preferred stock to purchase additional shares of common
stock conveniently and without paying brokerage commissions or service charges.
A prospectus and enrollment card may be obtained by writing to Shareholder
Relations at corporate headquarters.
PNC BANK CORP. 28
<PAGE> 1
EXHIBIT 11
PNC BANK CORP. AND SUBSIDIARIES
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three months ended March 31
In thousands, except per share data 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALCULATION OF PRIMARY EARNINGS PER COMMON SHARE
Net income $238,320 $179,547
Less: Preferred dividends declared 358 1,299
------------------------------
Net income applicable to primary earnings per common share $237,962 $178,248
------------------------------
Weighted average shares of common stock outstanding 341,402 339,240
Weighted average common shares to be issued using average market price and assuming:
Exercise of stock options 1,470 2,500
-----------------------------
Primary weighted average common shares outstanding 342,872 341,740
-----------------------------
PRIMARY EARNINGS PER COMMON SHARE $.69 $.52
=============================
CALCULATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
Net income $238,320 $179,547
Add: Interest expense on convertible debentures (net of tax) 859 990
Less: Dividends declared on non-convertible preferred stock 906
-----------------------------
Net income applicable to fully diluted earnings per common share $239,179 $179,631
-----------------------------
Weighted average shares of common stock outstanding 341,402 339,240
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 180 208
Conversion of preferred stock Series C 574 651
Conversion of preferred stock Series D 777 833
Conversion of debentures 2,863 3,187
Exercise of stock options 1,571 2,889
-----------------------------
Fully diluted weighted average common shares outstanding 347,367 347,008
-----------------------------
FULLY DILUTED EARNINGS PER COMMON SHARE $.69 $.52
====================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 12.1
PNC BANK CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
<TABLE>
<CAPTION>
Year ended December 31
Three months ended ---------------------------------------------------------------------
Dollars in thousands March 31, 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative
effect of changes in accounting
principles $362,773 $627,012 $1,209,916 $1,140,487 $787,994 $(38,578)
Fixed charges excluding interest on
deposits 285,406 1,487,279 1,104,573 704,228 582,854 613,590
--------------------------------------------------------------------------------------
Subtotal 648,179 2,114,291 2,314,489 1,844,715 1,370,848 575,012
Interest on deposits 370,983 1,551,816 1,159,242 1,005,658 1,546,576 2,739,565
--------------------------------------------------------------------------------------
Total $1,019,162 $3,666,107 $3,473,731 $2,850,373 $2,917,424 $3,314,577
======================================================================================
FIXED CHARGES
Interest on notes and debentures $164,837 $620,415 $556,432 $316,031 $201,977 $137,323
Interest on borrowed funds 112,457 834,654 514,133 360,288 353,633 449,107
Amortization of notes and debentures 204 927 1,761 1,418 1,505 1,119
Interest component of rentals 7,908 31,283 32,247 26,491 25,739 26,041
--------------------------------------------------------------------------------------
Subtotal 285,406 1,487,279 1,104,573 704,228 582,854 613,590
Interest on deposits 370,983 1,551,816 1,159,242 1,005,658 1,546,576 2,739,565
--------------------------------------------------------------------------------------
Total $656,389 $3,039,095 $2,263,815 $1,709,886 $2,129,430 $3,353,155
======================================================================================
RATIO OF EARNINGS TO FIXED CHARGES
Excluding interest on deposits 2.27x 1.42x 2.10x 2.62x 2.35x .94x
Including interest on deposits 1.55 1.21 1.53 1.67 1.37 .99
==================================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 12.2
PNC BANK CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Year ended December 31
Three months ended ---------------------------------------------------------------------
Dollars in thousands March 31, 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative
effect of changes in accounting
principles $362,773 $627,012 $1,209,916 $1,140,487 $787,994 $(38,578)
Fixed charges and preferred stock
dividends excluding interest
on deposits 285,947 1,492,391 1,112,564 712,339 592,902 624,000
--------------------------------------------------------------------------------------
Subtotal 648,720 2,119,403 2,322,480 1,852,826 1,380,896 585,422
Interest on deposits 370,983 1,551,816 1,159,242 1,005,658 1,546,576 2,739,565
--------------------------------------------------------------------------------------
Total $1,019,703 $3,671,219 $3,481,722 $2,858,484 $2,927,472 $3,324,987
======================================================================================
FIXED CHARGES
Interest on notes and debentures $164,837 $620,415 $556,432 $316,031 $201,977 $137,323
Interest on borrowed funds 112,457 834,654 514,133 360,288 353,633 449,107
Amortization of notes and debentures 204 927 1,761 1,418 1,505 1,119
Interest component of rentals 7,908 31,283 32,247 26,491 25,739 26,041
Preferred stock dividend requirements 541 5,112 7,991 8,111 10,048 10,410
--------------------------------------------------------------------------------------
Subtotal 285,947 1,492,391 1,112,564 712,339 592,902 624,000
Interest on deposits 370,983 1,551,816 1,159,242 1,005,658 1,546,576 2,739,565
--------------------------------------------------------------------------------------
Total $656,930 $3,044,207 $2,271,806 $1,717,997 $2,139,478 $3,363,565
======================================================================================
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
Excluding interest on deposits 2.27x 1.42x 2.09x 2.60x 2.33x .94x
Including interest on deposits 1.55 1.21 1.53 1.66 1.37 .99
==================================================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial information incorporated by reference to the 1996
First Quarter Corporated Financial Review and is qualified in its entirety
by reference to such financial information.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,251
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,692
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 48,800
<ALLOWANCE> (1,225)
<TOTAL-ASSETS> 72,668
<DEPOSITS> 45,621
<SHORT-TERM> 8,004
<LIABILITIES-OTHER> 1,809
<LONG-TERM> 11,448
<COMMON> 1,709
0
1
<OTHER-SE> 4,076
<TOTAL-LIABILITIES-AND-EQUITY> 72,668
<INTEREST-LOAN> 981
<INTEREST-INVEST> 237
<INTEREST-OTHER> 37
<INTEREST-TOTAL> 1,255
<INTEREST-DEPOSIT> 371
<INTEREST-EXPENSE> 648
<INTEREST-INCOME-NET> 607
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 566
<INCOME-PRETAX> 363
<INCOME-PRE-EXTRAORDINARY> 363
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 238
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
<YIELD-ACTUAL> 3.73
<LOANS-NON> 355
<LOANS-PAST> 209
<LOANS-TROUBLED> 17
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,259
<CHARGE-OFFS> 55
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 1,225
<ALLOWANCE-DOMESTIC> 1,225
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
