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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 or the transaction period
from to
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PNC BANK CORP.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1435979
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE PNC PLAZA
249 FIFTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222-2707
(Address of principal executive offices)
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE - (412) 762-1553
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
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Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, par value $5.00 New York Stock Exchange
$1.60 Cumulative Convertible Preferred Stock - Series C, par value $1.00 New York Stock Exchange
$1.80 Cumulative Convertible Preferred Stock - Series D, par value $1.00 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
$1.80 Cumulative Convertible Preferred Stock - Series A, par value $1.00
$1.80 Cumulative Convertible Preferred Stock - Series B, par value $1.00
8.25% Convertible Subordinated Debentures Due 2008
8.1/4% Convertible Subordinated Debentures Due 2010
9.875% Subordinated Capital Notes Due 1999
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF THE DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AMOUNTED TO APPROXIMATELY $9.85 BILLION AT FEBRUARY 29, 1996.
NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK OUTSTANDING AT FEBRUARY 29, 1996:
341,535,524
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF PNC BANK CORP.'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1995 ("ANNUAL REPORT TO SHAREHOLDERS") ARE INCORPORATED BY
REFERENCE INTO PARTS I AND II AND PORTIONS OF THE DEFINITIVE PROXY STATEMENT OF
PNC BANK CORP. FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 23,
1996 ("PROXY STATEMENT") ARE INCORPORATED BY REFERENCE INTO PART III OF THIS
FORM 10-K. THE INCORPORATION BY REFERENCE HEREIN OF PORTIONS OF THE PROXY
STATEMENT SHALL NOT BE DEEMED TO SPECIFICALLY INCORPORATE BY REFERENCE THE
INFORMATION REFERRED TO IN ITEM 402(a)(8) OF REGULATION S-K.
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INDEX
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PART I
PAGE
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Item 1 Business 1
Item 2 Properties 11
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 12
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters 13
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 8 Financial Statements and Supplementary Data 13
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure *
PART III
Item 10 Directors and Executive Officers of the Registrant 13
Item 11 Executive Compensation 14
Item 12 Security Ownership of Certain Beneficial Owners and Management 14
Item 13 Certain Relationships and Related Transactions 14
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 18
* Not Applicable.
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PART I
ITEM 1 - BUSINESS
BUSINESS OVERVIEW
Introduction
PNC Bank Corp. ("PNC Bank" or "Corporation") is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended ("BHC
Act"). PNC Bank was incorporated under the laws of the Commonwealth of
Pennsylvania in 1983 with the consolidation of Pittsburgh National
Corporation and Provident National Corporation. Since 1983, PNC Bank has
diversified its geographical presence and product capabilities through
strategic bank and nonbank acquisitions and the formation of various
nonbanking subsidiaries. At December 31, 1995, the Corporation operated
banking subsidiaries in Pennsylvania, Delaware, Florida, Indiana,
Kentucky, Massachusetts, New Jersey and Ohio, and conducted nonbanking
operations throughout the United States. The Corporation's major
businesses include consumer banking, corporate banking, real estate
banking, mortgage banking and asset management. At December 31, 1995, the
Corporation's consolidated total assets, deposits and shareholders' equity
were $73.4 billion, $46.9 billion and $5.8 billion, respectively. Based
on total assets, PNC Bank was the 12th largest bank holding company in the
United States at December 31, 1995. During 1995, the Corporation and
subsidiaries employed approximately 25,400 persons on a full-time
equivalent basis.
Effective December 31, 1995, Midlantic Corporation ("Midlantic"), a
regional bank holding company headquartered in Edison, New Jersey, merged
with and into PNC Bancorp, Inc., a wholly-owned subsidiary of the
Corporation. Approximately 112 million shares of the Corporation's common
stock were issued in connection with the merger. At closing, Midlantic had
consolidated total assets, deposits and shareholders' equity of $13.6
billion, $11.0 billion and $1.4 billion, respectively, and 308 branch
offices in New Jersey and Pennsylvania. The transaction was accounted for
as a pooling of interests, and accordingly, all financial information has
been restated as if the entities were combined for all periods presented.
Midlantic Bank, N.A., Midlantic's principal subsidiary, will continue to
operate under its present name until integration and consolidation plans
are fully implemented in the third quarter of 1996. At that time, it is
expected that Midlantic Bank, N.A. will be merged or otherwise combined
with PNC Bank, National Association, a wholly-owned subsidiary of the
Corporation.
The in-market nature of the Midlantic transaction is expected to generate
substantial economies by reducing costs associated with overlapping and
duplicative operations and provide opportunities to enhance revenues
through marketing of the Corporation's products and services to a new
customer base. The extent and timing of cost savings and revenue
enhancements are dependent on various factors, some of which are beyond
the control of the Corporation. Such factors include conversion
strategies, customer attrition and competitive responses. Therefore, no
assurances can be given with respect to the ultimate level of cost savings
and revenue enhancements to be realized, or that such amounts will be
realized in the time frame initially anticipated.
Certain other merger and acquisition activities of the Corporation are
summarized under the section entitled "Mergers and Acquisitions" in the
"Corporate Financial Review" and in "Note 2 - Mergers and Acquisitions" of
the "Notes to Consolidated Financial Statements" included on pages 23 and
53, respectively, of the Annual Report to Shareholders, which discussion
is incorporated herein by reference.
LINES OF BUSINESS
PNC Bank delivers a broad range of financial services and products to its
customers through five lines of business: Consumer Banking, Corporate
Banking, Real Estate Banking, Mortgage Banking and Asset Management.
Additional information relating to the lines of business is set forth
under the caption entitled "Line of Business Results" in the "Corporate
Financial Review" included on pages 35 through 39 of the Annual Report to
Shareholders, which is incorporated herein by reference.
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CONSUMER BANKING Consumer Banking provides lending, deposit, personal
trust, brokerage, investment, payment system access and other financial
services to individuals and small businesses. Consumer Banking serves more
than 3.2 million households and 135,000 small businesses, with an average
loan portfolio exceeding $15.4 billion and more than $34.2 billion in
average deposits. The principal focus of Consumer Banking is on providing
products and services sought by its customers in a cost-effective manner.
In 1995, Consumer Banking reorganized its delivery channels around customer
segments. The "Private Bank" serves affluent customers. The "Community
Bank" serves traditional retail customers through its "Branch Bank",
entrepreneurs, community businesses, institutions and nonprofit
organizations through its "Business Bank" and customers who prefer
alternative delivery systems through the "Direct Bank". Consumer Banking's
services are provided through approximately 950 community banking offices
located in the Corporation's primary markets. In addition, services are
provided through alternative delivery systems, such as the Corporation's
telebanking center and automated teller machines ("ATMs"), and regional
banking centers which offer a wide array of products at each center.
Alternative delivery systems, such as the telebanking center, are expected
to allow the Corporation to provide products and services more efficiently
than traditional banking delivery systems.
The Corporation continues to invest in operating platforms and alternative
retail delivery systems, such as The National Financial Services Center,
its Pittsburgh-based telebanking center, and to consolidate its retail
branches. The Corporation also continues to evaluate strategic alliances
to leverage its delivery capabilities. During 1995, the Corporation
entered into agreements with third parties to provide certain
administrative, marketing, data processing, customer support and related
services for the Corporation's credit card and merchant services
businesses. In addition, an agreement with the American Automobile
Association announced in February 1996 is designed to offer the
Corporation's products and services nationally to the organization's more
than 34 million members through the Corporation's alternative delivery
capabilities.
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. Corporate
Banking serves businesses with annual revenues of $5 million or more,
including specialized industries such as communications, health care,
natural resources, metals, public finance, financial services and
automobile dealer finance. In addition to serving customers within its
primary markets, Corporate Banking has offices in several major United
States cities to reach the national market. Corporate Banking's focus is
on developing and delivering specific products and services to build and
enhance client relationships. This line of business has one of the largest
market share positions of middle-market companies located in the
Corporation's primary markets. In addition, Corporate Banking maintains
banking relationships with many of the largest companies in the United
States and is a major provider of treasury management products and
services to large corporate customers.
REAL ESTATE BANKING Real Estate Banking provides lending, deposit,
treasury management, syndication, commercial mortgage-backed
securitizations and other non-credit services to customers that manage and
develop commercial and residential real estate properties and facilities.
In 1995, Real Estate Banking focused on expanding its customer base and
product line. Its customers include developers, builders, investors,
mortgage bankers, property managers and institutions. In 1995, Real Estate
Banking formed a joint venture with a leading commercial mortgage banker
to provide its customers with better access to institutional debt and
equity markets and introduced a commercial mortgage-backed securitization
product as a real estate financing alternative. It also formed a team to
serve the real estate needs of the Corporation's treasury management
customers. In 1996, Real Estate Banking will further emphasize its
securitization capabilities and expand private debt/equity placement
opportunities.
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 loans are
originated through PNC Bank's branch network and PNC Mortgage's network of
85 origination offices in 29 states and nationally by telephone through
its National Mortgage Center. At December 31, 1995, PNC Mortgage was the
nation's 13th largest retail mortgage originator and 17th largest mortgage
servicer. At such date, PNC Mortgage's servicing portfolio totaled $37.3
billion, including $25.1 billion serviced for others. PNC Mortgage intends
to continue to develop new ways, using technology and multiple
distribution channels, to deliver mortgage loans and financial services to
meet the needs of its customers in the intensely competitive environment
in which it operates.
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ASSET MANAGEMENT Asset Management provides trust and mutual fund products
and services including investment management, strategy, research and asset
servicing. In 1995, the Corporation acquired BlackRock Financial
Management, L.P. ("BlackRock") to expand its asset management service
capabilities. At December 31, 1995, PNC Bank ranked as one of the top 20
investment managers in the United States. PNC Asset Management had
discretionary authority over $96 billion in assets and over $282 billion
in assets under administration. It is the second largest bank manager of
mutual funds and one of the largest mutual fund service providers. It
manages or acts as sub-advisor to 94 mutual funds with assets of $42
billion and provides custody services for mutual funds with $130 billion
in assets. PNC Bank also provides accounting and administrative services
for funds with over $100 billion in assets, transfer and shareholder
services for approximately 3.5 million mutual fund shareholder accounts
and investment research services to more than 250 financial institutions.
In 1996, the Corporation consolidated the PNC Funds, Midlantic's Compass
Funds and BlackRock's open-end mutual funds into one $10 billion fund
family with a portfolio of 28 mutual funds to facilitate broader
distribution capabilities and attract more customers. Most recently, the
Corporation established CastleInternational Asset Management Inc., an
international investment company in Edinburgh, Scotland, to expand
international equity money management capabilities.
SUBSIDIARY BANKS
While the Corporation manages its businesses on a line-of-business basis,
its corporate legal structure currently consists of 10 bank subsidiaries
and over 150 active nonbank subsidiaries. Selected information as of
December 31, 1995, for the Corporation's banks is set forth below.
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Dollars in billions PERCENTAGE
TOTAL OF TOTAL
SUBSIDIARY BANK/HEADQUARTERS ASSETS ASSETS
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PNC Bank, National Association,
Pittsburgh, PA $41.9 57%
Midlantic Bank, National Association,
Edison, NJ 13.6 18
PNC Bank, Kentucky, Inc., Louisville, KY 5.0 7
PNC Bank, Ohio, National Association,
Cincinnati, OH 4.0 5
PNC Mortgage Bank, National
Association, Pittsburgh, PA 3.2 4
PNC Bank, Delaware, Wilmington, DE 2.5 3
PNC Bank, New England, Boston, MA 1.3 2
PNC National Bank, Wilmington, DE .9 1
PNC Bank, Indiana, Inc., New Albany, IN .5 1
PNC Bank, FSB, Vero Beach, FL .1 -
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STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES
The "Statistical Information" contained on pages 73 through 81 of the
Annual Report to Shareholders is incorporated herein by reference.
RISK MANAGEMENT
In the normal course of business, the Corporation is subject to various
risks, the most significant of which are credit, liquidity and interest
rate. Although it cannot eliminate these risks, the Corporation has risk
management processes designed to provide for risk identification,
measurement, monitoring and control.
CREDIT RISK Credit risk represents the possibility that a customer or
counterparty may not perform in accordance with contractual terms. Credit
risk results from extending credit to customers, purchasing securities and
entering into certain off-balance-sheet financial derivative
transactions. Risk associated with the extension of credit includes
general risk, which is inherent in the lending business, and risk specific
to individual borrowers. The Corporation seeks to manage credit risk
through portfolio diversification, underwriting policies and procedures,
and loan monitoring practices. Information relating to the distribution of
the loan portfolio by type of loan, loan maturities and interest
sensitivity is set forth under the section entitled "Loans" in the
"Corporate Financial Review" and "Loans" in the "Statistical Information"
included on pages 27 and 28 and page 77, respectively, of the Annual
Report to Shareholders, which is incorporated herein by reference.
Credit Administration, which includes credit policy, loan review and loan
workout, is responsible for the overall management of credit risk and the
development, application and enforcement of uniform policies and
procedures across PNC Bank. One objective is diversification by industry
concentration, geographic distribution and the type of borrower. Policies
contain limits on amounts that may be committed for specified categories
of loans and individual borrowers. These limits are specified for both
consolidated and individual bank exposure levels. Specific underwriting
policies have been adopted for many categories of exposure including
commercial real estate, cable, cellular, broadcasting, health care and
automobile dealers, as well as general policies covering standards of
documentation, collateral coverage, guarantee provisions, environmental
risk protection and approval processes.
PNC Bank receives collateral to support credit extensions and commitments
when deemed necessary, the amount of which is based on management's credit
evaluation of the borrower. The most significant categories of collateral
include real estate, commercial business assets, cash on deposit and
marketable securities. In addition, for some loans made on the basis of
the general creditworthiness of the borrower, additional security in the
form of real and personal property may be obtained that may not be
directly related to the purpose of the loan.
In order to assess and monitor the degree of risk in the loan portfolio, a
lender-initiated credit risk grading system is used. A risk grade is
assigned to each loan at origination based on an assessment of the
borrower's financial capacity to service the debt and the presence and
value of collateral. Industry and economic risks are also considered when
assigning such grades. Risk grades are maintained by the loan officer
whose responsibilities include monitoring the risk inherent in such
individual credits. An independent corporate loan review function assesses
the credit granting process and reviews risk grades for compliance with
policies.
Asset and liability ("A&L") management seeks to minimize the credit risk
associated with its activities, including financial derivatives, primarily
by entering into transactions with only a select number of high-quality
institutions, establishing credit limits, requiring bilateral-netting
agreements, and in certain instances, requiring segregated collateral.
Additional information with respect to risk associated with the
Corporation's financial derivatives is set forth under the section entitled
"Financial Derivatives" in the "Corporate Financial Review" included on
pages 31 through 34 of the Annual Report to Shareholders, which is
incorporated herein by reference.
LIQUIDITY RISK Liquidity represents an institution's ability to generate
cash or otherwise obtain funds at reasonable rates to satisfy commitments
to borrowers and demands of depositors and debtholders, and invest in
strategic initiatives. Liquidity risk represents the likelihood the
Corporation would be unable to generate cash or otherwise obtain funds at
reasonable rates for such purposes. 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.
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As described under "Liquidity" in the "Corporate Financial Review" on page
41 of the Annual Report to Shareholders, which is incorporated herein by
reference, management believes that the Corporation has sufficient
liquidity to meet its current commitments and obligations to customers,
debtholders and others.
INTEREST RATE RISK Interest rate risk arises primarily through the
Corporation's normal business activities of extending loans and taking
deposits. Interest rate risk is the sensitivity of net interest income and
the market value of financial instruments to the timing, magnitude and
frequency of changes in interest rates. Interest rate risk results from
various repricing frequencies and the maturity structure of assets,
liabilities, and off-balance-sheet positions. Interest rate risk also
results from, among other factors, changes in the relationship or spread
between interest rates. 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 reliance
on a particular interest rate scenario as a source of earnings.
Accordingly, wholesale activities including securities, funding, financial
derivatives and capital market activities are used in managing core
business exposures within specified guidelines. Interest rate risk is
centrally managed by A&L management. As part of the overall interest rate
risk management process, A&L management will initiate various actions to
manage risks within the Corporation's guidelines. Such actions are
dependent on costs, existing and expected economic conditions, the
Corporation's business strategies and various other factors. A committee
composed of members of senior management and a committee of the
Corporation's Board of Directors oversees A&L management and periodically
reviews interest rate risk exposures.
The Corporation uses a number of measures to monitor and manage interest
rate risk, including income simulation and interest sensitivity ("gap")
analyses. In addition, the Corporation is in the process of developing
measures of longer-term interest rate sensitivity, including duration of
equity and equity at risk. Such models are designed to estimate the
impact on the value of equity resulting from changes in interest rates and
supplement the simulation model and gap analyses.
An income simulation model is the primary tool used by management 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 interest rate movements, balance sheet growth, 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. The assumptions are developed based on current business and
A&L management strategies, historical experience, the current economic
environment, forecasted economic conditions and other analyses. These
assumptions are inherently uncertain and subject to change as time passes.
Accordingly, under these scenarios the model is not an estimate of
expected net interest income nor does it 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 percent if interest rates gradually increase or
decrease from current rates by 100 basis points over a twelve month
period. At December 31, 1995, based on results of the simulation model,
the Corporation was within these guidelines. The impact of changes in
interest rates on these measures will differ from simulated results due to
various factors including timing, magnitude and frequency of interest rate
changes, the relationship or spread between various interest rates,
changes in market conditions, loan pricing and deposit sensitivity,
customer preferences and competition. In addition, the actual results will
be affected by the impact of mergers or acquisitions and business and A&L
management strategies that differ from those assumed in the model.
Additional interest rate scenarios are modeled to address a wider range of
rate movement, yield curve, term structure and basis risk exposures.
Depending on market conditions and other inherent risks, these scenarios
may be modeled more or less frequently. Such analyses are used as
supplemental measurements only and limits have not been established.
The Corporation also employs interest sensitivity (gap) analyses. 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. A cumulative asset-sensitive gap position indicates the
Corporation's assets are expected to reprice more quickly than its
liabilities. Alternatively, a cumulative liability-sensitive gap position
indicates the Corporation's liabilities are expected to reprice more
quickly than its assets. The gap analysis does not accurately measure the
magnitude of changes in net interest income since changes in interest
rates over time do not impact all categories of assets, liabilities and
off-balance-sheet instruments equally or simultaneously. The Corporation's
limit for the cumulative one-year gap position is 10 percent.
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During January 1996, to reduce exposure to declining interest rates, the
Corporation added receive-fixed interest rate swaps with a term of two
years which converted designated assets from variable rates to fixed
rates. As a result, the asset sensitivity of the Corporation's cumulative
one-year gap position was reduced from 7.0 percent at December 31, 1995,
to 3.8 percent.
The "Interest Rate Sensitivity (Gap) Analysis" table set forth in the
"Corporate Financial Review" on page 42 of the Annual Report to
Shareholders is incorporated herein by reference.
EFFECT OF GOVERNMENTAL MONETARY POLICIES
The earnings and operations of bank holding companies and their
subsidiaries are affected by the monetary and fiscal policies of the
United States government and its agencies, including the Federal Reserve
Board. An important function of the Federal Reserve Board is to regulate
the national supply of bank credit. The Federal Reserve Board employs
open market operations in U.S. Government securities, changes in the
discount rate on bank borrowings and changes in reserve requirements on
bank deposits to implement its monetary policy objectives. These
instruments of monetary policy are used in varying combinations to
influence the overall level of bank loans, investments and deposits, the
interest rates charged on loans and paid for deposits, the price of the
dollar in foreign exchange markets and the level of inflation. The
monetary policies of the Federal Reserve Board have had a significant
effect on the operating results of banking institutions in the past and
are expected to continue to do so in the future. It is not possible to
predict the nature or timing of future changes in monetary and fiscal
policies or the effect that they may have on the Corporation's business
and earnings.
SUPERVISION AND REGULATION
INTRODUCTION
Bank holding companies, banks and many of their nonbank affiliates are
extensively regulated under both federal and state law. The following
information describes certain aspects of that regulation applicable to the
Corporation and its subsidiaries, and does not purport to be complete. The
discussion is qualified in its entirety by reference to all particular
statutory or regulatory provisions.
The Corporation is a legal entity separate and distinct from its
subsidiary banks and its nonbank subsidiaries. Accordingly, the right of
the Corporation, and consequently the right of creditors and shareholders
of the Corporation, to participate in any distribution of the assets or
earnings of any subsidiary is necessarily subject to the prior claims of
creditors of the subsidiary, except to the extent that claims of the
Corporation in its capacity as creditor may be recognized. The principal
source of the Corporation's revenue and cash flow is dividends from its
subsidiary banks and nonbank subsidiaries. There are legal limitations on
the extent to which its subsidiary banks can finance or otherwise supply
funds to the Corporation and its nonbank subsidiaries.
BANK HOLDING COMPANIES
GENERAL As a registered holding company, the Corporation is regulated
under the BHC Act and is subject to supervision and regular inspection by
the Board of Governors of the Federal Reserve System ("Federal Reserve
Board"). The BHC Act requires, among other things, the prior approval of
the Federal Reserve Board in any case where the Corporation proposes to
(i) acquire all or substantially all of the assets of any bank, (ii)
acquire direct or indirect ownership or control of more than 5 percent of
the voting shares of any bank, or (iii) merge or consolidate with any
other bank holding company.
ACQUISITIONS/PERMISSIBLE BUSINESS ACTIVITIES The BHC Act currently permits
bank holding companies from any state to acquire banks and bank holding
companies located in any other state, subject to certain conditions,
including certain nationwide- and state-imposed concentration limits.
Effective June 1, 1997, the Corporation's subsidiary banks will have the
ability, subject to certain restrictions, including state opt-out
provisions, to consolidate with one another or to acquire by acquisition
or merger branches outside their home states. States may affirmatively
opt-in to permit these transactions earlier, which Delaware and
Pennsylvania, among other states, have done. The establishment of new
interstate branches also will be possible in those states with laws that
expressly permit it. Interstate branches will be subject to certain laws
of the states in which they are located. Competition may increase further
as banks branch across state lines and enter new markets.
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Under the BHC Act, the Corporation is prohibited, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5
percent of any class of voting shares of any nonbanking corporation.
Further, the Corporation may not engage in any business other than
managing and controlling banks or furnishing certain specified services to
subsidiaries, and may not acquire voting control of nonbanking
corporations except those corporations engaged in businesses or furnishing
services that the Federal Reserve Board deems to be closely related to
banking.
COMMUNITY REINVESTMENT Bank holding companies and their subsidiary banks
are subject to the provisions of the Community Reinvestment Act of 1977,
as amended ("CRA"). Under the terms of the CRA, each subsidiary bank's
record in meeting the credit needs of the community served by that bank,
including low- and moderate-income neighborhoods, is generally annually
assessed by that bank's primary regulatory authority. When a bank holding
company applies for approval to acquire a bank or other bank holding
company, the Federal Reserve Board will review the assessment of each
subsidiary bank of the applicant bank holding company, and such records
may be the basis for denying the application. At December 31, 1995, the
Corporation's subsidiary banks were rated "Outstanding" or "Satisfactory"
with respect to CRA.
SOURCE OF STRENGTH POLICY Under Federal Reserve Board policy, a bank
holding company is expected to act as a source of financial strength to
each of its subsidiary banks and to commit resources to support each such
bank. Consistent with its "source of strength" policy for subsidiary
banks, the Federal Reserve Board has stated that, as a matter of prudent
banking, a bank holding company generally should not maintain a rate of
cash dividends unless its net income available to common shareholders has
been sufficient to fund fully the dividends, and the prospective rate of
earnings retention appears to be consistent with the corporation's capital
needs, asset quality and overall financial condition.
SUBSIDIARY BANKS
GENERAL The Corporation's subsidiary banks are subject to supervision and
examination by applicable federal and state banking agencies, including,
with respect to national banks, the Office of the Comptroller of the
Currency ("OCC"). In addition, all of the subsidiary banks are insured by
and subject to some or all of the regulations of the Federal Deposit
Insurance Corporation ("FDIC"). The Corporation's subsidiary banks are
also subject to various requirements and restrictions under federal and
state law, including requirements to maintain reserves against deposits,
restrictions on the types, amounts and terms and conditions of loans that
may be granted and limitations on the types of investments that may be
made and the types of services that may be offered. Various consumer laws
and regulations also affect the operations of the subsidiary banks.
DIVIDEND RESTRICTIONS Dividends from the Corporation's subsidiary banks
constitute the principal source of income to the parent company. The
Corporation's subsidiary banks are subject to various statutory and
regulatory restrictions on their ability to pay dividends to the
Corporation. Under such restrictions, the amount available for payment of
dividends to the Corporation by all subsidiary banks totaled $650 million
at December 31, 1995. In addition, bank regulators may have authority to
prohibit a bank subsidiary from paying dividends, depending upon the
subsidiary's financial condition, if such payment is deemed to constitute
an unsafe or unsound practice. The OCC and the Federal Reserve Board have
indicated their view that it generally would be an unsafe and unsound
practice to pay dividends except out of current operating earnings. The
ability of the subsidiary banks to pay dividends in the future is
presently, and could be further, influenced by bank regulatory and
supervisory policies.
AFFILIATE TRANSACTION RESTRICTIONS The Corporation's subsidiary banks are
subject to federal laws that limit the transactions by subsidiary banks to
or on behalf of their parent company and to or on behalf of any nonbank
subsidiaries. Such transactions by a subsidiary bank to its parent company
or to any nonbank subsidiary are limited to 10 percent of a bank
subsidiary's capital and surplus and, with respect to such parent company
and all such nonbank subsidiaries, to an aggregate of 20 percent of such
bank subsidiary's capital and surplus. Further, loans and extensions of
credit generally are required to be secured by eligible collateral in
specified amounts. Federal law also prohibits subsidiary banks from
purchasing "low-quality" assets from affiliates.
FDIC CROSS-GUARANTEE PROVISIONS The Corporation's subsidiary banks are
subject to the "cross-guarantee" provisions under federal law that provide
that if one depository institution subsidiary of a multi-bank holding
company fails or requires FDIC assistance, the FDIC may assess a "commonly
controlled" depository institution for the estimated losses suffered by
the FDIC. Such liability could have a material adverse effect on the
financial condition of any assessed bank and the Corporation. While the
FDIC's claim is junior to the claims of depositors, holders of secured
liabilities, general creditors and subordinated creditors, it is superior
to the claims of shareholders and affiliates.
7
<PAGE> 10
FDIC INSURANCE ASSESSMENTS Deposits of the Corporation's bank subsidiaries
are insured by the FDIC and are subject to FDIC insurance assessments. The
amount of FDIC assessments paid by individual insured depository
institutions is based on their relative risk as measured by regulatory
capital ratios and certain other factors. During 1995, the FDIC's Board of
Directors significantly reduced premium rates assessed on deposits insured
by the Bank Insurance Fund ("BIF"). Under the current regulations, the
Corporation is not assessed a premium on BIF-insured deposits. The rates
assessed for deposits insured by the Savings Association Insurance Fund
("SAIF") continue to range from 23 cents per $100 of eligible deposits
to 31 cents per $100 of eligible deposits. Approximately $5.3 billion of
the Corporation's deposits are insured by the SAIF and assessed 23 cents
per $100 of eligible deposits. Congress and various governmental agencies
are considering a number of proposals to recapitalize the SAIF, including
a significant one-time assessment on all SAIF-insured deposits. Management
currently cannot predict the outcome of these proposals or the effect, if
any, on the Corporation or any of its subsidiary banks.
ENFORCEMENT POWERS OF FEDERAL BANKING AGENCIES Federal banking agencies
possess broad powers to take corrective action as deemed appropriate for
an insured depository institution and its holding company. The extent of
these powers depends on whether the institution in question is considered
"well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" or "critically undercapitalized". At
December 31, 1995, all of the Corporation's subsidiary banks exceeded the
required ratios for classification as "well capitalized." The
classification of depository institutions is primarily for the purpose of
applying the federal banking agencies' prompt corrective action powers and
is not intended to be, and should not be interpreted as, a representation
of the overall financial condition or prospects of any financial
institution.
The agencies' prompt corrective action powers can include, among other
things, requiring an insured financial institution to adopt a capital
restoration plan which cannot be approved unless guaranteed by the
institution's parent company; placing limits on asset growth and
restrictions on activities; including restrictions on transactions with
affiliates; restricting the interest rate the institution may pay on
deposits; prohibiting the payment of principal or interest on subordinated
debt; prohibiting the holding company from making capital distributions
without prior regulatory approval; and, ultimately, appointing a receiver
for the institution. Among other things, only a "well capitalized"
depository institution may accept brokered deposits without prior
regulatory approval and only an "adequately capitalized" depository
institution may accept brokered deposits with prior regulatory approval.
CAPITAL GUIDELINES Under the risk-based capital guidelines applicable to
the Corporation and each of its subsidiary banks, the minimum guideline for
the ratio of total capital to risk- weighted assets (including certain
off-balance-sheet activities, such as standby letters of credit) is 8.00
percent. At least half of the total capital must be "Tier 1" capital, which
primarily includes common shareholders' equity and qualifying preferred
stock, less goodwill and other disallowed intangibles. "Tier 2" capital
includes, among other items, certain cumulative and limited-life
preferred stock, qualifying subordinated debt and the allowance for credit
losses, subject to certain limitations, less required deductions as
prescribed by regulation.
In addition, the federal bank regulators established leverage ratio (Tier
1 capital to total adjusted average assets) guidelines providing for a
minimum leverage ratio of 3 percent for bank holding companies and banks
meeting certain specified criteria, including that such institutions have
the highest regulatory examination rating and are not contemplating
significant growth or expansion. Institutions not meeting these criteria
are expected to maintain a ratio which exceeds the 3 percent minimum by at
least 100 to 200 basis points. The federal bank regulatory agencies may,
however, set higher capital requirements when particular circumstances
warrant. Under the federal banking laws, failure to meet the minimum
regulatory capital requirements could subject a bank to a variety of
enforcement remedies available to federal bank regulatory agencies.
At December 31, 1995, all of the subsidiary banks' total and Tier 1
risk-based capital ratios and leverage ratios exceeded the minimum
regulatory capital requirements.
Additional discussion of the Corporation's current capital levels is set
forth under the caption entitled "Capital" in the "Corporate Financial
Review" on pages 30 and 31 of the Annual Report to Shareholders, which is
incorporated herein by reference.
Effective in January 1995, the federal banking agencies revised the
risk-based capital standards described above to include concentration of
credit risk and the risks of nontraditional activities. The Federal
Reserve Board, the FDIC and the OCC also subsequently amended their
capital standards to include a bank's exposure to declines in economic
value
8
<PAGE> 11
of its capital due to changes in interest rates. The Corporation
understands that such agencies intend to continue reviewing the issue of
interest rate risk as it may affect capital adequacy.
NONBANK SUBSIDIARIES
The nonbank subsidiaries of the Corporation are subject to regulatory
restrictions imposed by the Federal Reserve Board and other federal or
state regulatory agencies.
The Corporation's subsidiaries engaged in securities-related activities
are regulated by the Securities and Exchange Commission ("SEC"). The
activities of the Corporation's two subsidiaries which are registered
broker dealers are also monitored by the OCC in one instance and the
Federal Reserve Board in the other instance. Each such company is also
subject to rules and regulations promulgated by the National Association
of Securities Dealers, Inc., the Securities Investors Protection
Corporation and various state securities commissions, and with respect to
public finance activities the Municipal Securities Rulemaking Board.
Several nonbank subsidiaries of the Corporation are registered investment
advisers and are subject to the regulations of the SEC and may be subject
to regulations of one or more state securities commissions. Additionally,
these investment advisers, as subsidiaries of a national bank, are subject
to supervision by the OCC. Investment companies (as defined in the
Investment Company Act of 1940, as amended) advised by a subsidiary of the
Corporation are registered with the SEC.
Other nonbank subsidiaries of the Corporation are regulated under federal
and/or state mortgage lending, insurance and consumer laws, among others.
LEGISLATIVE PROPOSALS AND REFORMS
Significant legislative proposals and reforms affecting the financial
services industry have been discussed and evaluated by Congress. In 1995,
such proposals included legislation to revise the Glass-Steagall Act and
the BHC Act to expand permissible activities for banks, principally to
facilitate the convergence of commercial and investment banking. Certain
proposals also sought to expand insurance activities of banks. It is
unclear whether any of these proposals, or any form of them, will become
law. Consequently, it is not possible to determine what effect, if any,
they may have on the Corporation and its subsidiaries.
COMPETITION
Bank holding companies and their subsidiaries are subject to vigorous and
intense competition from various financial institutions and other
"nonbank" or non-regulated companies or firms that engage in similar
activities. The Corporation's subsidiary banks compete for deposits with
other commercial banks, savings banks, savings and loan associations,
insurance companies and credit unions, as well as issuers of commercial
paper and other securities, including shares in mutual funds. In making
loans, the Corporation's subsidiary banks compete with other commercial
banks, savings banks, savings and loan associations, consumer finance
companies, credit unions, leasing companies and other nonbank lenders. In
addition, various nonbank subsidiaries engaged in investment banking and
venture capital activities compete with commercial banks, investment
banking firms, insurance companies and venture capital firms. In providing
asset management services, the Corporation's subsidiaries compete with
many large commercial banks, trust companies, brokerage houses, mutual
fund managers, registered investment advisors and insurance companies.
The Corporation and its subsidiaries compete not only with financial
institutions based in the states in which the subsidiary banks are
located, but also with a number of large out-of-state and foreign banks,
bank holding companies and other financial and nonbank institutions. Some
of the financial and other institutions operating in the same markets are
engaged in national and international operations and have more assets and
personnel than the Corporation. Some of the Corporation's competitors are
not subject to the extensive bank regulatory structure and restrictive
policies which apply to the Corporation and its subsidiaries.
9
<PAGE> 12
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning each executive officer of the Corporation as of
March 1, 1996 is set forth below. Each executive officer held the position
indicated or another senior executive position with the same entity or one
of its affiliates or a predecessor corporation for the past five years,
except as otherwise noted in the footnotes below.
<TABLE>
<CAPTION>
YEAR
NAME AGE POSITION WITH CORPORATION EMPLOYED(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Thomas H. O'Brien 59 Chairman and Chief Executive Officer 1962
James E. Rohr 47 President and Director 1972
Garry J. Scheuring (2) 56 Vice Chairman and Director 1990
Howard I. Atkins 45 Executive Vice President, Asset and Liability Management 1990
Susan B. Bohn 51 Executive Vice President, Corporate Development and 1986
Communications
Richard C. Caldwell 51 Executive Vice President, Asset Management 1990
Walter E. Gregg, Jr. 54 Executive Vice President, Finance and Administration 1974
Frederick J. Gronbacher 53 Executive Vice President, Division Head - Consumer Banking 1976
Robert L. Haunschild 46 Senior Vice President and Chief Financial Officer 1990
William J. Johns 49 Senior Vice President and Chief Accounting Officer 1974
Edward P. Junker III 59 Vice Chairman 1964
Ralph S. Michael III 41 Executive Vice President, Corporate Banking 1979
Thomas E. Paisley III 48 Senior Vice President and Chairman, Corporate Credit Policy 1972
Committee
Helen P. Pudlin 46 Senior Vice President and General Counsel 1989
Bruce E. Robbins 51 Executive Vice President, Real Estate Banking 1973
- ---------------------------------------------------------------------------------------------------------
<FN>
(1) Where applicable, refers to year first employed by predecessor company or
acquired company.
(2) Mr. Scheuring became Vice Chairman of the Corporation in connection with
the Midlantic merger effective December 31, 1995. Since 1992, Mr. Scheuring
has been Chairman of the Board, President and Chief Executive Officer of
Midlantic Bank, N.A. From April 1991 until the merger, he was Chairman of the
Board, President and Chief Executive Officer of Midlantic. Prior thereto, he
was Vice Chairman of Continental Bank Corporation. In connection with the
Midlantic merger, the Corporation and Mr. Scheuring entered into an Employment
Agreement which is attached hereto as Exhibit 10.7.
</TABLE>
10
<PAGE> 13
ITEM 2 - PROPERTIES
The executive and administrative offices of the Corporation and PNC Bank,
National Association ("PNC Bank, N.A."), are located at One PNC Plaza, 249
Fifth Avenue, Pittsburgh, Pennsylvania. The thirty-story structure is
owned by PNC Bank, N.A. The Corporation and PNC Bank, N.A. occupy
substantially all of the building. In addition, PNC Bank, N.A. owns a
thirty-four story structure adjacent to One PNC Plaza, known as Two PNC
Plaza, 620 Liberty Avenue, Pittsburgh, Pennsylvania, that houses
additional office space. PNC Bank, N.A. also owns a data processing and
telecommunications center located in a suburb of Pittsburgh, Pennsylvania.
The Corporation's subsidiaries also own or lease numerous other premises
for use in conducting banking and nonbanking activities. The facilities
owned or occupied under lease by the Corporation's subsidiaries are
considered by management to be adequate. Neither the location of any
particular office nor the unexpired term of any lease is deemed material
to the business of the Corporation.
Additional information pertaining to the Corporation's properties is set
forth in "Note 8 - Premises, Equipment and Leasehold Improvements" of the
Notes to Consolidated Financial Statements included on page 56 of the
Annual Report to Shareholders, which is incorporated herein by reference.
ITEM 3 - LEGAL PROCEEDINGS
A consolidated purported class action complaint was filed in March 1995 in
the United States District Court for the Western District of Pennsylvania
against the Corporation, its Chairman and Chief Executive Officer and its
Senior Vice President and Chief Financial Officer, on behalf of a
purported class of persons who purchased the Corporation's securities
between April 18, 1994 and November 15, 1994. The lawsuit was consolidated
from four lawsuits filed in November and December 1994. The consolidated
complaint alleges violations of federal securities laws and common law
relating to disclosures regarding the Corporation's net interest income,
interest rate risk, future prospects, and related matters, and seeks,
among other things, unquantified damages. The magistrate judge has
recommended that the district court deny the pending motion to dismiss as
to all claims except a common law claim, and the recommendation has been
appealed to the district court judge. Management believes there are
meritorious defenses to this consolidated lawsuit and intends to defend it
vigorously. Management believes that the final disposition will not be
material to the Corporation's financial position.
In January 1992, a purported class action lawsuit was filed against PNC
National Bank ("PNCNB"), a national bank subsidiary of the Corporation
located in Wilmington, Delaware, alleging that PNCNB violated Pennsylvania
law in connection with credit card annual fees, late fees, over-credit
limit fees, and returned check fees charged to Pennsylvania cardholders.
The lawsuit is brought on behalf of a purported class of resident
individuals of Pennsylvania who have contracted for, been charged, had
reserved, or had paid these fees, and seeks, among other things,
unquantified compensatory and triple damages and injunctive relief. The
lawsuit was filed in the Court of Common Pleas of Allegheny County and was
removed to the United States District Court for the Western District of
Pennsylvania. The district court dismissed the lawsuit, holding that
Pennsylvania law is preempted by federal banking laws. The Third Circuit
Court of Appeals, after initially holding that there was no federal court
jurisdiction and remanding the case to state court, has vacated its
opinion and granted a rehearing.
The case against PNCNB is one of several similar cases pending against
other credit card issuers. In cases not involving PNCNB, the Supreme
Courts of California and Colorado, and one federal appeals court, have
upheld dismissal on the ground that state law restrictions on credit card
late fees are preempted by federal law, but the Supreme Court of New
Jersey has reached a contrary conclusion. The United States Supreme Court
has agreed to review the California late fee case, the outcome of which
will resolve the conflict and affect the case against PNCNB. In an appeal
of Pennsylvania Superior Court decisions against other credit card issuers
holding that federal law does not preempt Pennsylvania law purportedly
restricting annual fees, late fees, over-credit limit fees, and returned
check fees, the Pennsylvania Supreme Court has indicated it will defer
further proceedings until after the United States Supreme Court renders
its decision. The impact of the final disposition of the lawsuit brought
against PNCNB cannot be assessed at this time.
In March 1996, the Superior Court of New Jersey, Middlesex County,
dismissed, pursuant to agreement of the parties, the previously reported
purported class action lawsuit commenced in July 1995 against Midlantic,
Midlantic's chief executive officer and its directors and the Corporation,
relating to the merger with Midlantic. No compensation was paid by any
defendant to plaintiff or plaintiff's attorneys.
11
<PAGE> 14
The Corporation, in the normal course of business, is subject to various
other pending and threatened lawsuits in which claims for monetary damages
are asserted. Management, after consultation with legal counsel, does not
anticipate that the ultimate aggregate liability, if any, arising out of
such other lawsuits will have a material effect on the Corporation's
financial position.
At the present time, management is not in a position to determine whether
any pending or threatened litigation will have a material adverse effect
on the Corporation's results of operations in any future reporting period.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
A special meeting of shareholders of the Corporation was held on November
17, 1995, for the purpose of approving the reorganization agreement and
related merger agreement with Midlantic. The Midlantic merger was approved
and the votes cast for, against or abstained and the number of broker
non-votes were as follows:
<TABLE>
<S> <C>
Aggregate Votes For: 134,723,297
Aggregate Votes Against: 31,698,946
Number of Abstentions: 1,426,164
Number of Broker Non-Votes: 800,649
</TABLE>
Holders of the Corporation's common stock and preferred stock voted
together as a single class. The following table sets forth as of September
29, 1995 record date, the number of shares of each class of stock that was
issued and outstanding and entitled to vote, the voting power per share
and the aggregate voting power of each class:
<TABLE>
<CAPTION>
NUMBER OF SHARES AGGREGATE
TITLE OF CLASS VOTING RIGHTS ENTITLED TO VOTE VOTING POWER
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock 1 vote per share 228,598,590 228,598,590
$1.80 Cumulative Convertible
Preferred Stock - Series A 8 votes per share 17,951 143,608
$1.80 Cumulative Convertible
Preferred Stock - Series B 8 votes per share 6,336 50,688
$1.60 Cumulative Convertible
Preferred Stock - Series C 4 votes per 2.4 shares 361,363 602,271
$1.80 Cumulative Convertible
Preferred Stock - Series D 4 votes per 2.4 shares 479,383 798,971
TOTAL POSSIBLE VOTES 230,194,128*
- --------------------------------------------------------------------------------------
<FN>
* Represents greatest number of votes possible. Actual aggregate voting
power was less since each holder of preferred stock is entitled to a
number of votes equal to the number of full shares of common stock into
which such holder's preferred stock is convertible.
</TABLE>
12
<PAGE> 15
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock is listed on the New York Stock Exchange
and is traded under the symbol "PNC". At the close of business on February
29, 1996, there were 65,572 common shareholders of record.
Holders of common stock are entitled to receive dividends when declared by
the Board of Directors out of funds legally available therefor. The Board
of Directors may not pay or set apart dividends on the common stock until
dividends for all past dividend periods on any series of outstanding
preferred stock have been paid or declared and set apart for payment. The
Board presently intends to continue the policy of paying quarterly cash
dividends. However, the amount of any future dividends will depend on
earnings, the financial condition of the Corporation and other factors
including applicable government regulations and policies (such as those
relating to the ability of the subsidiary banks and nonbank subsidiaries
to upstream dividends to the parent company). The Federal Reserve Board
has the power to prohibit the Corporation from paying dividends without
prior regulatory approval. Further discussion concerning dividend
restrictions is set forth under the caption "Supervision and Regulation"
in Part I, Item 1 of this Form 10-K and in "Regulatory Matters" on page 65
of the Annual Report to Shareholders, which is incorporated herein by
reference.
Additional information relating to the common stock is set forth under the
caption "Common Stock Prices/Dividends Declared" on page 85 of the Annual
Report to Shareholders, which is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
"Selected Consolidated Financial Data" on page 71 of the Annual Report to
Shareholders is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis of the Corporation's financial position and
its results of operations set forth under the section entitled "Corporate
Financial Review" on pages 23 through 44 of the Annual Report to
Shareholders are incorporated herein by reference. See also the additional
discussion included under the captions "Business Overview" and "Risk
Management" in Part I, Item 1-Business of this Form 10-K.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Report of Ernst & Young LLP, Independent Auditors," "Consolidated
Financial Statements" and "Selected Quarterly Financial Data" on pages 45,
46 through 70, and 72, respectively, of the Annual Report to Shareholders
are incorporated herein by reference.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the principal occupations of directors of the
Corporation, their ages, directorships in other companies, and respective
terms of office under the heading "Election of Directors - Information
Concerning Nominees" in the Proxy Statement is incorporated herein by
reference.
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 set forth under the heading "Certain Reports" in the
Proxy Statement is incorporated herein by reference.
Information regarding executive officers of the Corporation is included in
Part I of this Form 10-K under the caption "Executive Officers of the
Registrant".
Information regarding the involvement of the Corporation's Chairman and
Chief Executive Officer and Senior Vice President and Chief Financial
Officer in a certain legal proceeding set forth under the heading "Legal
Proceedings" in the Proxy Statement is incorporated herein by reference.
13
<PAGE> 16
ITEM 11 - EXECUTIVE COMPENSATION
Information regarding compensation of directors and executive officers
under the captions entitled "Election of Directors - Compensation of
Directors", "Election of Directors - Common Stock Purchase Guideline" and
"Compensation of Executive Officers", excluding the "Personnel and
Compensation Committee Report on Executive Compensation", in the Proxy
Statement is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the beneficial ownership of the equity securities of
the Corporation by all directors, each of the five highest compensated
executive officers, all directors and executive officers of the
Corporation as a group and certain other beneficial owners under the
heading "Security Ownership of Directors and Executive Officers and
Certain Beneficial Owners-Security Ownership of Directors and Executive
Officers" in the Proxy Statement is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding transactions and relationships with certain
directors and executive officers of the Corporation and their associates
under the heading "Compensation of Executive Officers-Compensation
Committee Interlocks and Insider Participation" in the Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following report of independent auditors of the Corporation and
consolidated financial statements, included in the Annual Report to
Shareholders, are incorporated herein by reference.
<TABLE>
<CAPTION>
PAGE OF
FINANCIAL STATEMENTS ANNUAL REPORT
-------------------------------------------------------------------------------------------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 45
Consolidated Balance Sheet as of December 31, 1995 and 1994 46
Consolidated Statement of Income for the three years ended December 31, 1995 47
Consolidated Statement of Changes in Shareholders' Equity for the
three years ended December 31, 1995 48
Consolidated Statement of Cash Flows for the three years ended December 31, 1995 49
Notes to Consolidated Financial Statements 50-70
Quarterly Selected Financial Data 72
FINANCIAL STATEMENT SCHEDULES
-------------------------------------------------------------------------------------------
Not applicable.
REPORTS ON FORM 8-K
-------------------------------------------------------------------------------------------
</TABLE>
The following reports on Form 8-K were filed during the quarter ended
December 31, 1995, or thereafter:
A Current Report on Form 8-K dated as of September 26, 1995, was filed
pursuant to Item 5 to report the Corporation's consolidated financial
results for the three months and nine months ended September 30, 1995, the
receipt of regulatory approvals in connection with the Midlantic merger
and other Midlantic merger-related matters, and the appointment of an
additional director to the Corporation's Board of Directors.
14
<PAGE> 17
A Current Report on Form 8-K dated as of December 31, 1995, was filed
pursuant to Item 2 to report 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. The following
financial statements were reported as having been previously filed: (a)
audited consolidated financial statements of Midlantic as of December 31,
1994 and 1993, and for each of the three years in the period ended
December 31, 1994, including the independent auditor's report thereon; (b)
unaudited consolidated interim financial statements of Midlantic as of
September 30, 1995 and 1994, and for the three months and nine months
ended September 30, 1995 and 1994; (c) pro forma consolidated financial
information (unaudited) as of September 30, 1995 and for the nine months
ended September 30, 1995 and 1994, giving effect to the Midlantic merger;
and (d) pro forma consolidated financial information (unaudited) for each
of the three years in the period ended December 31, 1994, giving effect to
the Midlantic merger.
A Current Report on Form 8-K dated January 24, 1996, was filed pursuant to
Item 5 to report the Corporation's consolidated financial results for the
three months and year ended December 31, 1995.
EXHIBITS
The exhibits listed on the Exhibit Index on pages 18 and 19 of this Form
10-K are filed herewith or are incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, PNC Bank Corp. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PNC BANK CORP.
(Registrant)
By: /s/ ROBERT L. HAUNSCHILD
-------------------------
Robert L. Haunschild
Senior Vice President and
Chief Financial Officer
Date: March 27, 1996
15
<PAGE> 18
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
PNC Bank Corp. and in the capacity and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------------------- ------------------------- -----------------------
<S> <C> <C>
/s/ THOMAS H. O'BRIEN
-------------------------- Chairman, Chief Executive March 27, 1996
Thomas H. O'Brien Officer and Director
(Principal Executive Officer)
/s/ ROBERT L.HAUNSCHILD
-------------------------- Senior Vice President and March 27, 1996
Robert L. Haunschild Chief Financial Officer
(Principal Financial Officer)
/s/ WILLIAM J. JOHNS
-------------------------- Senior Vice President and March 27, 1996
William J. Johns Chief Accounting Officer
(Principal Accounting Officer)
*
-------------------------- Director March 27, 1996
Paul W. Chellgren
*
-------------------------- Director March 27, 1996
Robert N. Clay
*
-------------------------- Director March 27, 1996
William G. Copeland
*
-------------------------- Director March 27, 1996
George A. Davidson
*
-------------------------- Director March 27, 1996
David F. Girard-diCarlo
*
-------------------------- Director March 27, 1996
Dianna L. Green
*
-------------------------- Director March 27, 1996
C. G. Grefenstette
*
-------------------------- Director March 27, 1996
Arthur J. Kania
</TABLE>
16
<PAGE> 19
<TABLE>
<S> <C>
*
-------------------------- Director March 27, 1996
Bruce C. Lindsay
*
-------------------------- Director March 27, 1996
Thomas Marshall
*
-------------------------- Director March 27, 1996
W. Craig McClelland
*
-------------------------- Director March 27, 1996
Donald I. Moritz
*
-------------------------- Director March 27, 1996
Jackson H. Randolph
*
-------------------------- President and Director March 27, 1996
James E. Rohr
*
-------------------------- Director March 27, 1996
Roderic H. Ross
*
-------------------------- Director March 27, 1996
Vincent A. Sarni
*
-------------------------- Vice Chairman and Director March 27, 1996
Garry J. Scheuring
*
-------------------------- Director March 27, 1996
Thomas J. Usher
*
-------------------------- Director March 27, 1996
Milton A. Washington
*
-------------------------- Director March 27, 1996
Helge H. Wehmeier
* March 27, 1996
By /s/ MELANIE S. CIBIK
--------------------------
Melanie S. Cibik
Attorney-in-fact, pursuant to
Powers of Attorney filed
herewith
</TABLE>
17
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Corporation, as amended,
incorporated herein by reference to Exhibit 3.1 of the Annual
Report on Form 10-K for the year ended December 31, 1993.
3.2 By-Laws of the Corporation, as amended, incorporated herein by
reference to Exhibit 4.2 to the Corporation's Registration
Statement on Form S-8 at File No. 33-62311.
4.1 Instruments defining the rights of holders of long-term debt of
the Corporation and its subsidiaries are not filed as Exhibits
because the amount of debt under each instrument is less than 10
percent of the consolidated assets of the Corporation. The
Corporation undertakes to file these instruments with the
Commission on request.
4.2 Designation of Series: $1.80 Cumulative Convertible Preferred
Stock -- Series A, incorporated herein as part of Exhibit 3.1.
4.3 Designation of Series: $1.80 Cumulative Convertible Preferred
Stock -- Series B, incorporated herein as part of Exhibit 3.1.
4.4 Designation of Series: $1.60 Cumulative Convertible Preferred
Stock -- Series C, incorporated herein as part of Exhibit 3.1.
4.5 Designation of Series: $1.80 Cumulative Convertible Preferred
Stock -- Series D, incorporated herein as part of Exhibit 3.1.
10.1 Supplemental Executive Retirement Income and Disability Plan of
the Corporation, incorporated herein by reference to Exhibit 10.2
of the Annual Report on Form 10-K for the year ended December 31,
1990 ("1990 Form 10-K"). *
10.2 Supplemental Executive Life Insurance and Spouse's Benefit Plan
of the Corporation, incorporated herein by reference to Exhibit
10.3 of the 1990 Form 10-K. *
10.3 1992 Long-Term Incentive Award Plan of the Corporation,
incorporated herein by reference to Exhibit 4.3 of the
Registration Statement on Form S-8 at File No. 33-54960. *
10.4 1992 Director Share Incentive Plan, incorporated herein by
reference to Exhibit 10.6 of the Annual Report on Form 10-K for
the year ended December 31, 1992.*
10.5 PNC Bank Corp. 1994 Annual Incentive Award Plan, incorporated by
reference to Exhibit 10.6 of the Annual Report on Form 10-K for
the year ended December 31, 1994 ("1994 Form 10-K").*
10.6 PNC Bank Corp. Directors Retirement Plan, incorporated by
reference to Exhibit 10.7 of the 1994 Form 10-K.*
10.7 Employment Agreement dated as of December 29, 1995, between the
Corporation and Garry J. Scheuring, filed herewith.*
10.8 PNC Bank Corp. 1996 Executive Incentive Award Plan, filed
herewith. *
11 Calculation of Primary and Fully Diluted Earnings Per Share,
filed herewith.
12.1 Computation of Ratio of Earnings to Fixed Charges, filed
herewith.
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Dividends, filed herewith.
13 Excerpts of the Annual Report to Shareholders for the year ended
December 31, 1995, filed herewith. Such Annual Report, except for those
portions thereof that are expressly incorporated by reference
herein, is furnished for information of the Securities and
Exchange Commission only and is not deemed to be "filed" as part
of this Form 10-K.
21 Schedule of Certain Subsidiaries of the Corporation, filed
herewith.
</TABLE>
18
<PAGE> 21
<TABLE>
<S> <C>
23 Consent of Ernst & Young LLP, independent auditors for the
Corporation, filed herewith.
24.1 Power of Attorney of certain directors and officers of the
Corporation, filed herewith.
24.2 Power of Attorney of Robert N. Clay, filed herewith.
24.3 Power of Attorney of David F. Girard-diCarlo, filed herewith.
24.4 Power of Attorney of Thomas Marshall, filed herewith.
24.5 Power of Attorney of Donald I. Moritz, filed herewith.
24.6 Power of Attorney of Vincent A. Sarni, filed herewith.
24.7 Power of Attorney of Helge H. Wehmeier, filed herewith.
27.1 Financial Data Schedule, filed herewith.
27.2 Restated Financial Data Schedule, filed herewith.
<FN>
* Denotes management contract or compensatory plan.
</TABLE>
19
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
by and between
PNC BANK CORP.
and
GARRY J. SCHEURING
Dated as of December 29, 1995
<PAGE> 2
CONFORMED COPY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION Page
<S> <C>
1. Employment ............................................. 1
2. Term ................................................... 1
3. Position and Duties .................................... 1
4. Place of Performance ................................... 1
5. Compensation and Related Matters ....................... 1
(a) Base Salary ................................. 1
(b) Bonuses ..................................... 2
(c) Expenses .................................... 2
(d) Other Benefits .............................. 2
(e) Vacation .................................... 2
(f) Services Furnished .......................... 2
6. Offices ................................................ 2
7. Termination ............................................ 2
(a) Death ....................................... 2
(b) Disability .................................. 2
(c) Cause ....................................... 2
(d) Good Reason ................................. 3
8. Termination Procedure .................................. 3
(a) Notice of Termination ....................... 3
(b) Date of Termination ......................... 3
(c) Compensation During Dispute ................. 3
9. Compensation upon Termination or During Disability ..... 4
(a) Disability; Death ........................... 4
(b) By Executive for Good Reason or by the
Company without Cause ..................... 4
(c) By Company for Cause or by the
Executive Other than for Good Reason ...... 5
(d) Compensation Plans .......................... 5
(e) Time of Payments ............................ 5
10. Mitigation ............................................. 6
11. Confidential Information; Noncompetition Requirement ... 6
(a) Confidential Information .................... 6
(b) Noncompetition Requirement .................. 6
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
12. Successors; Binding Agreement .......................... 6
(a) Company's Successors ........................ 6
(b) The Executive's Successors .................. 6
13. Notice ................................................. 7
14. Miscellaneous .......................................... 8
15. Validity ............................................... 8
16. Counterparts ........................................... 8
17. Entire Agreement ....................................... 8
</TABLE>
-ii-
<PAGE> 4
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Where Defined
- ---- -------------
<S> <C>
Annual Bonus ........................................ Section 5(b)
Base Salary.......................................... Section 5(a)
Board................................................ Introduction
Cause................................................ Section 7(c)
Code................................................. Section 9(b)
Company.............................................. Introduction
Date of Termination.................................. Section 8(b)
Disability........................................... Section 7(b)
Disability Period.................................... Section 9(a)
Effective Date....................................... Section 2
Employment Period.................................... Section 2
Executive............................................ Introduction
Good Reason.......................................... Section 7(d)
Incentive Plan....................................... Section 5(b)
Merger............................................... Introduction
Midlantic............................................ Introduction
Notice of Termination................................ Section 8(a)
Restricted Region.................................... Section 11(b)
Retirement Plan...................................... Section 9(b)
Severance Payment.................................... Section 9(b)
Tax Counsel.......................................... Section 9(b)
</TABLE>
-iii-
<PAGE> 5
EMPLOYMENT AGREEMENT
AGREEMENT, dated December 29, 1995 and effective as of the Effective Date
(as defined in Section 2 hereof) by and between Garry J. Scheuring (the
"Executive"), and PNC Bank Corp., a Delaware corporation (the "Company").
WHEREAS, the Executive is the Chief Executive Officer of Midlantic
Corporation, a New Jersey corporation ("Midlantic"); and
WHEREAS, the Company, PNC Bancorp., Inc. and Midlantic have entered into
an Agreement and Plan of Merger, dated July 10, 1995 (the "Merger Agreement"),
pursuant to which the Company will be the surviving corporation of the merger
contemplated thereby (the "Merger"); and
WHEREAS, upon consummation of the Merger the Board of Directors of the
Company (the "Board") desires to employ the Executive and the Executive desires
to furnish services to the Company on the terms and conditions hereinafter set
forth; and
WHEREAS, the parties desire to enter into this agreement setting forth the
terms and conditions of the employment relationship of the Executive with the
Company;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth below, the parties hereto, intending to be bound hereby, do hereby
agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, on the terms and conditions
hereinafter set forth.
2. TERM. The period of employment of the Executive by the Company
hereunder (the "Employment Period") shall commence on the effective date of the
Merger (the "Effective Date") and shall end on the third anniversary of the
Effective Date unless sooner terminated in the event that the Executive's
employment is terminated without breach of this Agreement as provided in
Section 7 hereof.
3. POSITION AND DUTIES. During the Employment Period, the Executive shall
serve as Vice Chairman of the Company and shall be a member of the office of
the Chairman. The Executive shall have operating responsibility for (i) the
Eastern Territory (consisting of New Jersey and Philadelphia) and Eastern
Territory Presidents, (ii) all retail banking operations of the Company, and
(iii) such further responsibilities and authority as may from time to time be
assigned to the Executive by the Chairman of the Board, provided that such
responsibilities and authority are consistent with the Executive's position as
Vice Chairman of the Company. The Executive shall report directly to the
Chairman of the Board of the Company. The Executive agrees to devote
substantially all of his working time and efforts to the performance of his
duties for the Company.
4. PLACE OF PERFORMANCE. In connection with the Executive's employment by
the Company, the Executive shall be based at the offices of the Eastern
Territory of the Company located in New Jersey, except for reasonably required
travel on the Company's business.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. As compensation for the performance by the Executive of
his obligations hereunder, during the Employment Period, the Company shall pay
the Executive a base salary at the rate of $650,000 or more per annum ("Base
Salary"). Base Salary shall be paid in approximately equal installments in
accordance with the Company's customary payroll practices, but no less frequent
than monthly. Base Salary may be increased from time to time in accordance with
the normal business practices of the Company and, if so increased, shall not
thereafter during the Employment Period be decreased.
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<PAGE> 6
(b) BONUSES. During the Employment Period, the Executive shall be
eligible to receive such annual bonus (the "Annual Bonus") as may be provided
in accordance with subsection (d) of this Section 5; provided, however, that
the Executive's Annual Bonus for the fiscal year ending in 1996 shall be not
less than 100% of the Executive's Base Salary for such year. The Annual Bonus
shall be paid at such time and in such form as is set forth in the Company's
applicable incentive plan (the "Incentive Plan").
(c) EXPENSES. The Company shall promptly reimburse the Executive for all
reasonable business expenses incurred during the Employment Period by the
Executive in performing services hereunder, including all expenses of travel
and living expenses while traveling on business or at the request of and in the
service of the Company, provided that such expenses are incurred and accounted
for in accordance with the policies and procedures established by the Company.
(d) OTHER BENEFITS. The Executive shall be entitled to participate in
all of the employee benefit plans and arrangements currently maintained by the
Company and shall be entitled to participate in or receive benefits under any
employee benefit plan or arrangement made available by the Company in the
future to its executives and key management employees (in the case of both
current and future plans, including without limitation each incentive plan,
pension and retirement plan and arrangement, supplemental pension and
retirement plan and arrangement, stock option plan, life insurance and
health-and-accident plan and arrangement, medical insurance plan, disability
plan, survivor income plan, relocation plan and vacation plan), in accordance
with the terms, conditions and overall administration of such plans and
arrangements; provided, however, that in the case of both current and future
plans, benefits shall be provided to the Executive on a basis no less favorable
than the basis on which such benefits are provided to any other member of the
Office of the Chairman (other than the Chairman of the Board). Nothing paid to
the Executive under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of the salary payable to
the Executive pursuant to subsection (a) of this Section 5.
(e) VACATION. The Executive shall be entitled to the number of paid
vacation days and holidays in each calendar year determined by the Company from
time to time for its senior executive officers.
(f) SERVICES FURNISHED. During the Employment Period, the Company shall
furnish the Executive with office space, stenographic assistance and such other
facilities and services as shall be suitable to the Executive's position and
adequate for the performance of his duties as set forth in Section 3 hereof.
6. OFFICES. Subject to Sections 3 and 4 hereof, the Executive agrees to
serve without additional compensation, if elected or appointed thereto, as a
director of the Company or any of its subsidiaries, and as a member of any
committees of the board of directors of any such corporations, and in one or
more executive positions of any of the Company's subsidiaries, provided that
the Executive is indemnified for serving in any and all such capacities on a
basis no less favorable than is currently provided to any other director of the
Company or any of its subsidiaries, or any such executive position, as the case
may be.
7. TERMINATION. The Executive's employment hereunder may be terminated
without any breach of this Agreement only under the circumstances set forth in
the following subsections (a), (b), (c) and (d):
(a) DEATH. The Executive's employment hereunder shall terminate upon his
death.
(b) DISABILITY. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from the
full-time performance of his duties hereunder for the entire period of six
consecutive months, and within thirty (30) days after written Notice of
Termination (as defined in Section 8 hereof) is given shall not have returned
to the performance of his duties hereunder on a full-time basis, the Company
may terminate the Executive's employment hereunder for "Disability."
(c) CAUSE. The Company may terminate the Executive's employment
hereunder for Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment hereunder only upon the
occurrence of any of the following events:
2
<PAGE> 7
(i) the willful and continuing failure by the Executive to
substantially perform his duties hereunder (other than any such failures
resulting from the Executive's incapacity due to physical or mental illness
or subsequent to the issuance of a Notice of Termination by the Executive
for Good Reason) after demand for substantial performance is delivered by
the Company in writing that specifically identifies the manner in which the
Company believes the Executive has not substantially performed his duties;
or
(ii) the willful misconduct by the Executive (including, but not
limited to, breach by the Executive of the provisions of Section 11(a)
hereof) that is demonstrably and materially injurious to the Company or its
subsidiaries, whether monetarily or otherwise; or
(iii) the order of a federal bank regulatory agency or a court of
competent jurisdiction requiring the Executive's termination.
Cause shall not exist unless and until the Company has delivered to
the Executive a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the
Board of Directors of the Company at a meeting of such board called and
held for such purpose (after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel, to be heard
before such board), finding that in the good faith opinion of such board,
the Executive was guilty of the conduct set forth in this Section 7(c) and
specifying the particulars thereof in detail. For purposes of this
Section 7(c), no act or failure to act on the Executive's part shall be
considered "willful" unless done or failed to be done by the Executive in
bad faith and without reasonable belief that the Executive's action or
omission was in the best interest of the Company.
(d) GOOD REASON. The termination of his employment by the Executive
during the Employment Period hereunder for any reason other than death or
Disability shall constitute a termination for "Good Reason."
8. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of the Executive's employment
by the Company or by the Executive (other than termination pursuant to Section
7(a) hereof) shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 14 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by his death, the date of his death; (ii)
if the Executive's employment is terminated for Disability (pursuant to Section
7(b) hereof), thirty (30) days after Notice of Termination (provided that the
Executive shall not have returned to the performance of his duties on a
full-time basis during such thirty (30) day period); (iii) if the Executive's
employment is terminated for Cause (pursuant to Section 7(c) hereof), the date
specified in the Notice of Termination; and (iv) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination
is given or any later date (within 30 days) set forth in such Notice of
Termination; provided, however, that, if within thirty (30) days after any
Notice of Termination is given the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, the
Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding and
final arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected); and further provided, however, that the Date of
Termination shall be extended by a notice of dispute given by the Executive
only if such notice is given in good faith and the Executive pursues the
resolution of such dispute with reasonable diligence.
(c) COMPENSATION DURING DISPUTE. If a purported termination occurs
during the Employment Period, and such termination is disputed in accordance
with subsection (b) of this Section 8, the Company shall continue to pay the
Executive the full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, Base Salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the
dispute was given, until the Date of Termination, determined in accordance with
subsection (b) of this Section B. Amounts paid under this Section 8(c) are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
3
<PAGE> 8
9. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) DISABILITY; DEATH. During any period that the Executive fails to
perform his duties hereunder as a result of incapacity due to physical or
mental illness ("Disability Period"), the Executive shall continue to receive
his full Base Salary at the rate in effect at the beginning of such period,
until his employment is terminated pursuant to Section 7(b) hereof. Subsequent
to the termination of the Executive's employment pursuant to Section 7(b)
hereof, or in the event the Executive's employment is terminated by reason of
his death, the Company shall have no further obligations to the Executive under
this Agreement and the Executive's benefits shall be determined under the
Company's retirement, insurance and other compensation programs then in effect
in accordance with the terms of such programs.
(b) BY EXECUTIVE FOR GOOD REASON OR BY THE COMPANY WITHOUT CAUSE. If
during the Employment Period the Executive's employment is terminated by the
Executive for Good Reason or by the Company other than for Cause, then --
(i) the Company shall pay the Executive his full Base Salary through
the Date of Termination at the highest annual rate in effect during the 12
months immediately preceding the time Notice of Termination is given;
(ii) in addition to any payments due the Executive pursuant to Section
5 hereof through the Date of Termination and in lieu of any further such
payments to the Executive for any periods subsequent to the Date of
Termination, the Company shall pay to the Executive a lump sum amount, in
cash, equal to 2.99 times his "base amount," as defined in section 28OG of
the Internal Revenue Code of 1986, as amended (the "Code"), as determined in
accordance with temporary, proposed or final regulations, if any,
promulgated under section 28OG of the Code, provided that increases in the
Executive's "base amount" attributable to the exercise or settlement of
stock options shall, if applicable, be disregarded for purposes of
determining the amount described in this Section 9(b)(ii) (the "Severance
Payment");
(iii) for the remaining stated period of this Agreement after the Date
of Termination, the Company shall arrange to provide the Executive with
life, disability, accident and health insurance benefits substantially
similar to those which the Executive is receiving immediately prior to the
Notice of Termination. Benefits otherwise receivable by the Executive
pursuant to this Section 9(b)(iii) shall be reduced to the extent comparable
benefits are actually received by the Executive during the period from the
Date of Termination until the expiration of the stated term of the
Agreement, and any such benefits actually received by the Executive shall be
reported to the Company. If the benefits provided to the Executive under
this Section 9(b)(iii) shall result in a decrease, pursuant to subsection
(iv) of this Section 9(b), in the Severance Payment and such benefits are
thereafter reduced pursuant to the immediately preceding sentence, the
Company shall, at the time of such reduction, pay to the Executive the
lesser of (a) the amount of such decrease in the Severance Payment (with
interest at the rate provided in section 1274(b)(2)(B) of the Code from the
Date of Termination) or (b) the maximum amount which can be paid to the
Executive without being, or causing any other payment to be, nondeductible
by reason of section 28OG of the Code;
(iv) the Severance Payment shall be reduced by the amount of any other
payment or the value of any benefit received or to be received by the
Executive that, in the opinion of tax counsel ("Tax Counsel") selected by
the Executive and acceptable to the Company's independent auditors, is
likely to constitute a "parachute payment" under section 28OG(b)(2) of the
Code (whether pursuant to the terms of this Agreement or any other plan,
agreement or arrangement with the Company or any subsidiary, any person
whose actions result in a change of control, or any person affiliated with
the Company or such person) unless (A) the Executive shall have effectively
waived his receipt or enjoyment of such payment or benefit prior to the date
of payment of the Severance Payment, (B) or in the opinion of Tax Counsel,
the Severance Payment (in its full amount or as partially reduced under this
Section 9(b)(iv), as the case may be) plus all other payments or benefits
that constitute "parachute payments" within the meaning of section 280(b)(2)
of the Code are likely to be reasonable compensation for services actually
rendered, within the meaning of section 28OG(b)(4) of the Code or are
otherwise not likely to be subject to disallowance as a deduction by reason
of section 28OG of the Code. The value of any noncash benefit or any
deferred payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of section 28OG(d)(3) and (4) of
the Code;
4
<PAGE> 9
(v) except to the extent that such payments and benefits would result
(or, if paid after the Severance Payment, would have resulted), under
subsection (iv) of this Section 9(b), in a reduction in the Severance
Payment, (A) notwithstanding any provision of any Incentive Plan, the
Company shall pay to the Executive a lump sum amount equal to the sum of (1)
any incentive compensation which has been allocated or awarded to the
Executive for a year or other measuring period preceding the Date of
Termination but which has not yet been paid, and (2) a pro rata portion of
the aggregate value of all contingent cash incentive compensation awards to
the Executive for all uncompleted periods under an Incentive Plan calculated
as to each such award by multiplying the maximum amount established for the
Executive for such award under such Incentive Plan by a fraction the
numerator of which is the number of months of the measuring period for such
award elapsed prior to the Date of Termination and the denominator of which
is the number of months in the measuring period; (B) with respect to shares
of common stock of the Company that represent an unvested award of common
stock of the Company for the benefit of the Executive under an Incentive
Plan at the Date of Termination, the Executive shall receive from the
Company with respect to each such unvested award the number of shares of
common stock of the Company subject to such unvested award multiplied by a
fraction the numerator of which is the number of months from the date of
grant of such award until the Date of Termination and the denominator of
which is the number of months from the date of grant of such award to the
date of vesting of such award; and (C) in addition to the retirement
benefits to which the Executive is entitled under all defined benefit plans
in which the Executive is a participant on the Date of Termination (the
"Retirement Plans"), the Company shall pay the Executive in one lump sum in
cash an amount equal to the actuarial equivalent of the excess of (a) over
(b), where (a) equals the aggregate retirement pension (determined as a
straight life annuity) to which the Executive would have been entitled under
the terms of the Retirement Plans, beginning at normal retirement age under
the Plan (without regard to any amendment to the Retirement Plans made
subsequent to the date of this Agreement, which amendment adversely affects
in any manner the computation of the retirement benefits under the
Retirement Plans, other than those amendments required by law to continue
any qualification of the Retirement Plans), determined as if the Executive
were fully vested thereunder and had accumulated (after any termination
pursuant to Section 7 hereof) an additional period of service thereunder
equal to the remaining term of this Agreement at the Executive's highest
rate of earnings used in computing his retirement benefits under the
Retirement Plans during the 12 months immediately preceding the Date of
Termination; and where (b) equals the aggregate retirement pension
(determined as a straight life annuity) to which the Executive is entitled
pursuant to the provisions of the Retirement Plans, beginning at normal
retirement age under the Plan; and for purposes of this provision,
"actuarial equivalent" shall be determined using the same and assumptions
utilized under the Midlantic Retirement Plan as of the date of this
Agreement; and
(vi) the Company shall also pay to the Executive all legal fees and
expenses incurred by the Executive as a result of such termination
(including all such fees and expenses, if any, reasonably incurred in
contesting or disputing any such termination or in seeking to obtain or
enforce any right or benefit provided by this Agreement).
(c) BY COMPANY FOR CAUSE OR BY THE EXECUTIVE OTHER THAN FOR GOOD REASON.
If the Executive's employment shall be terminated by the Company for Cause or
by the Executive other than for Good Reason, then the Company shall pay the
Executive his Base Salary (at the rate in effect at the time Notice of
Termination is given) through the Date of Termination, and the Company shall
have no additional obligations to the Executive under this Agreement except as
set forth in subsection (d) of this Section 9.
(d) COMPENSATION PLANS. Following any termination of the Executive's
employment, the Company shall pay the Executive all unpaid amounts, if any, to
which the Executive is entitled as of the Date of Termination under any
compensation plan or program of the Company, at the time such payments are due.
(e) TIME OF PAYMENTS. The lump sum payments provided for in Sections
9(b)(ii) and (v) hereof shall be made not later than the fifth day following
the Date of Termination; provided, however, that if the amount of such payments
cannot be finally determined on or before such day, the Company shall pay the
Executive on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in section 1274(b)(2)(B)
of the Code) as soon as the amount thereof can be determined but in no event
later than the thirtieth day after the Date of Termination. In the event that
the amount of the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the Company to the
Executive, payable on the fifth day after demand by the Company (together with
interest at the rate provided in section 1274(b)(2)(B) of the Code).
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<PAGE> 10
10. MITIGATION. The Executive shall not be required to mitigate the amount
of any payment or benefit provided for the Executive hereunder by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for the Executive hereunder be reduced by any compensation earned by
the Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
the Company or the Company, or otherwise, except as is specifically provided in
Section 9(b)(iii) hereof.
11. CONFIDENTIAL INFORMATION; NONCOMPETITION REQUIREMENT.
(a) CONFIDENTIAL INFORMATION. During the period of his employment
hereunder, the Executive shall not, without the written consent of the Board or
a person authorized thereby, disclose to any person, other than an employee of
the Company or one of its subsidiaries or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Executive of his duties as an executive of the Company, any material
confidential information obtained by him while in the employ of the Company or
any of its subsidiaries with respect to any of the Company's or any of its
subsidiary's products, customers, methods or future plans the disclosure of
which he knows will be materially damaging to the Company; provided, however,
that confidential information shall not include any information known generally
to the public (other than as a result of unauthorized disclosure by the
Executive) or any information of a type not otherwise considered confidential
by persons engaged in the same business or a business similar to that conducted
by the Company. For the period ending two years following the termination of
employment hereunder, the Executive shall not disclose any confidential
information of the type described above. The foregoing provisions of this
Section 11(a) shall be binding upon the Executive's heirs, successors and legal
representatives.
(b) NONCOMPETITION REQUIREMENT. For a period of two (2) years
following a termination of the Executive's employment (other than a
termination of the Executive's employment by the Executive following a breach
of this Agreement by the Company), the Executive agrees that, without the
prior written consent of the Company, he shall not be connected as an
officer, employee, partner, director or otherwise with any commercial bank or
affiliate thereof that accepts deposits in the State of New Jersey or in
Philadelphia, Montgomery, Delaware, Chester or Bucks counties, Pennsylvania
(the "Restricted Region") if the Executive's responsibilities will relate
directly and primarily to the conduct of business within the Restricted
Region: provided, however, Section 11(b) shall not preclude the Executive
from being an executive officer or a director of a commercial bank or
affiliate thereof to whom other persons with such direct and primary
responsibility shall report as long as the principal operations of such
commercial bank or affiliate are not located in the Restricted Region.
12. SUCCESSORS; BINDING AGREEMENT.
(a) COMPANY'S SUCCESSORS. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation from
the Company in the same amount and on the same terms as he would be entitled to
hereunder if he terminated his employment for Good Reason (whether or not he
does terminate his employment), except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 13 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
(b) THE EXECUTIVE'S SUCCESSORS. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts would still be payable to him hereunder if he had
continued to live, all such amounts unless otherwise provided herein shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
6
<PAGE> 11
13. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Garry J. Scheuring
2 Woodmere Drive
Summit, New Jersey 07901
7
<PAGE> 12
If to the Company:
PNC Bank Corp.
One PNC Plaza
Pittsburgh, Pennsylvania 15265
Attention: Executive Vice President--Finance and Administration
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
14. MISCELLANEOUS. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and such officer of the Company, as may be
specifically designated by its Board of Directors or its compensation
committee. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. This Agreement shall
be binding on all successors to the Company. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New Jersey without regard to its conflicts of law principles. All
references to sections of the Securities Exchange Act of 1934, as amended, or
the Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Section 9 hereof shall survive the expiration
of the term of this Agreement. The compensation and benefits payable to the
Executive under this Agreement shall be in lieu of any other severance benefits
to which the Executive may otherwise be entitled upon his termination of
employment under any severance plan, program, policy or arrangement of the
Company.
15. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior
agreement of the parties hereto in respect of the subject matter contained
herein is hereby terminated and canceled. Without limiting the generality of
the foregoing, this Agreement supersedes and replaces the Employment Agreement
dated as of April 23, 1991 between Midlantic Corporation and the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
PNC BANK CORP.
By: /s/ WALTER E. GREGG
---------------------------
Name: Walter E. Gregg
Title: Executive Vice President
/s/ GARRY J. SCHEURING
---------------------------
Garry J. Scheuring
8
<PAGE> 1
EXHIBIT 10.8
PNC BANK CORP.
1996 EXECUTIVE INCENTIVE AWARD PLAN
1. GENERAL PURPOSES OF PLAN
The PNC Bank Corp. 1996 Executive Incentive Award Plan is designed to (i)
assist PNC Bank Corp. and its Subsidiaries in attracting, motivating, and
retaining the senior executive officers most critical to the long-term success
of the Corporation and its Subsidiaries, (ii) promote the identification of
their interests with those of the Corporation's shareholders, and (iii) enable
the Corporation to pay annual bonuses which are based upon the achievement of
specified levels of performance and deductible for purposes of federal income
taxation.
2. DEFINITIONS
Terms not otherwise defined herein shall have the following meanings:
2.1 "Award Period" means the Corporation's fiscal year, except to the extent
the Committee determines otherwise, provided that the last day of an Award
Period must be the last day of the Corporation's fiscal year.
2.2 "Board" means the Board of Directors of the Corporation.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the committee appointed by the Board to establish and
administer the Plan as provided herein; provided, that the Committee shall have
two or more members and each member of the Committee shall be an "outside
director" as defined for purposes of Section 162(m) of the Code. Unless
otherwise determined by the Board, the Personnel and Compensation Committee of
the Board shall be the Committee.
2.5 "Compensation Pool" means, with respect to each Award Period, an amount
equal to the sum of: (i) one-half of one percent of Net Income for the Award
Period, plus (ii) any amounts not paid out of a Compensation Pool for the
immediately preceding Award Period and added to the existing Compensation Pool,
as determined in the Committee's sole discretion; provided, that component (ii)
of a Compensation Pool shall not exceed an aggregate amount of $3 million
during any given Award Period and shall be available for the payment of
Incentive Awards only upon the achievement of one or more Performance
Conditions.
2.6 "Corporation" means PNC Bank Corp. and its successors and assigns and any
corporation which shall acquire substantially all of its assets.
2.7 "Incentive Award" means the share of the Compensation Pool paid to a
Participant for an Award Period, as determined by the Committee in the manner
described in Sections 3 and 5 hereof.
2.8 "Incentive Award Amount" means, with respect to each Participant, the
amount, expressed as a percentage, of a Compensation Pool which he or she may
be paid as an Incentive Award, as established by the Committee pursuant to
Section 5.1.
2.9 "Net Income" means the consolidated pre-tax net income of the Corporation
as determined in accordance with generally accepted accounting principles,
after adjustment to exclude or include unusual, infrequently occurring or
extraordinary items or cumulative effects of changes in accounting principles.
1
<PAGE> 2
2.10 "Participant" means a "covered employee" within the meaning of Section
162(m) of the Code who is eligible to receive an Incentive Award, subject to
the terms of the Plan.
2.11 "Performance Conditions" means any objective performance factors the
Committee may deem relevant in determining the availability of amounts carried
forward from the immediately preceding Award Period as described in Sections
5.2 and 5.4 hereof, including, but not limited to, the Corporation's return on
average assets, return on average equity, earnings per share, or other
financial measure or ratio, whether on an absolute basis or in comparison to a
predetermined peer group.
2.12 "Plan" means the PNC Bank Corp. 1996 Executive Incentive Award Plan.
2.13 "Subsidiary" means a corporation of which at least 50% of the total
combined voting power of all classes of stock is owned by the Corporation
either directly or through one or more other subsidiaries.
3. ADMINISTRATION
3.1 Subject to the express provisions of the Plan, the Committee shall have
plenary authority to interpret the Plan, to prescribe, amend and rescind rules
and regulations relating to it and to make all other determinations deemed
necessary or advisable for the administration of the Plan, including, but not
limited to, determinations regarding whether to make Incentive Awards, the
terms of all Incentive Awards, the Participants who receive Incentive Awards,
the time or times at which Incentive Award Amounts are established, the Award
Period to which each Incentive Award shall relate, and the actual dollar amount
of any Incentive Award. The determinations of the Committee pursuant to this
authority shall be conclusive and binding. The Committee may, in its
discretion, authorize the Chief Executive Officer of the Corporation to act on
its behalf, except with respect to matters relating to such Chief Executive
Officer or which are required to be certified by the Committee under the Plan,
or by Code Section 162(m) or the regulations promulgated thereunder.
4. ELIGIBILITY
Incentive Awards may be made only to a Participant who is not paid an
incentive award pursuant to the Corporation's 1994 Annual Incentive Award Plan
or any successor plan, with respect to that Award Period.
5. INCENTIVE AWARDS; TERMS OF AWARDS; PAYMENT
5.1 No later than 90 days after the commencement of an Award Period, the
Committee shall, in its sole discretion, establish in writing an Incentive
Award Amount for each Participant for that Award Period. For this purpose, each
Participant may be identified in terms of position or title held, or base
salary paid, during that Award Period, or by such other means as the Committee
may deem appropriate. No Participant shall be assigned an Incentive Award
Amount greater than 35% of the Compensation Pool and the sum of all Incentive
Award Amounts for an Award Period shall not exceed 100% of the Compensation
Pool under any circumstances.
5.2 As soon as practicable following the end of an Award Period, but in all
events prior to making any Incentive Awards, the Committee shall compute and
certify in writing the size of the Compensation Pool for that Award Period, and
shall determine whether any Performance Conditions established for that Award
Period were satisfied. In performing such computation, the Committee may rely
upon financial statements supplied by the Corporation's officers, provided that
the Committee believes such statements to have been prepared in accordance with
generally accepted accounting principles.
5.3 As soon as practicable following the Committee's completion of the
actions specified in Section 5.2, the Committee shall certify in writing the
Incentive Award, if any, to be made to each Participant for that Award Period
and shall authorize the Corporation to make such Incentive Award to each
Participant in accordance with the terms and conditions of the Plan.
2
<PAGE> 3
5.4 In the event that the Committee does not exhaust the full amount of the
Compensation Pool through the payment of Incentive Awards, the Committee may,
in its sole discretion and no later than 90 days after the commencement of an
Award Period, certify in writing that all or a portion of the remaining
Compensation Pool shall be added to the Compensation Pool for the Award Period
then commenced; provided, that the Committee shall not be authorized to direct
any such carryover if the amount in question would exceed $3 million; and,
provided further, that the Committee establishes one or more Performance
Conditions that must be achieved during the Award Period in order for such
carryover amount to be available for the payment of Incentive Awards for that
Award Period.
5.5 The Committee may, in its sole discretion, determine not to make an
Incentive Award or reduce an Incentive Award below the applicable Incentive
Award Amount, without the consent of a Participant. Unless otherwise determined
by the Committee, no Incentive Award shall be made to a Participant unless the
Participant is employed by the Corporation or a Subsidiary as of the date of
payment.
5.6 Incentive Awards shall be subject to applicable federal, state and local
withholding taxes and other applicable withholding in accordance with the
Corporation's payroll practices as in effect from time to time.
5.7 The Committee, subject to such terms and conditions as it may determine,
and a Participant pursuant to any deferred compensation plan of the
Corporation, shall have the right to defer the payment of an Incentive Award,
provided, in either case, that any additional amounts credited to such deferred
payment will be based either on a reasonable rate of interest or the actual
rate of return of one or more predetermined investments.
6. TRANSFERABILITY
Until paid to a Participant, Incentive Awards shall not be subject to the
claims of creditors and may not be assigned, alienated, transferred or
encumbered in any way other than by will or pursuant to the laws of descent and
distribution.
7. TERMINATION OR AMENDMENT
The Board may amend, modify or terminate the Plan in any respect at any time
without the consent of the Participants.
8. EFFECTIVENESS OF PLAN AND AWARDS
The Plan shall be void ab initio unless the Plan is approved by a vote of the
Corporation's shareholders at the first meeting of the Corporation's
shareholders following adoption of the Plan by the Board.
9. EFFECTIVE DATE; TERM OF THE PLAN
Subject to shareholder approval pursuant to Section 8, the Plan shall be
effective as of January 1, 1996 and the first Award Period shall be fiscal year
1996. The Plan shall remain in effect until terminated by the Board pursuant to
Section 7. No Incentive Awards may be made under the Plan after its
termination, provided that termination of the Plan shall not affect any
Incentive Awards payable on or after the date of termination and such awards
shall continue to be subject to the terms of the Plan notwithstanding its
termination.
10. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, each of the members of the Committee
shall be indemnified by the Corporation against the
3
<PAGE> 4
reasonable expenses, including attorneys' fees, actually and reasonably
incurred in connection with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan or any Incentive Award made hereunder, and against all amounts
reasonably paid by them in settlement thereof or paid by them in satisfaction
of a judgment in any such action, suit or proceeding to the maximum extent
permitted by law.
11. GENERAL PROVISIONS
11.1 The establishment of the Plan shall not confer upon any Participant any
legal or equitable right against the Corporation or any Subsidiary, except as
expressly provided in the Plan.
11.2 The Plan does not constitute an inducement or consideration for the
employment of any Participant, nor is it a contract between the Corporation, or
any Subsidiary, and any Participant. Participation in the Plan shall not give a
Participant any right to be retained in the employ of the Corporation or any
Subsidiary.
11.3 Nothing contained in this Plan shall prevent the Board or Committee from
adopting other or additional compensation arrangements, subject to shareholder
approval if such approval is required, and such arrangements may be either
generally applicable or applicable only in specific cases.
11.4 The Plan shall be governed, construed and administered in accordance
with the laws of the Commonwealth of Pennsylvania.
4
<PAGE> 1
EXHIBIT 11
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
PNC BANK CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year ended December 31
In thousands, except per share data 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CALCULATION OF PRIMARY EARNINGS PER COMMON SHARE
Income before cumulative effect of changes in accounting
principles $408,060 $891,456 $878,948 $536,468 $(153,517)
Cumulative effect of changes in accounting principles,
net of tax benefits of $4,598, $5,343 and $77,458 (7,528) 19,569 (148,287)
--------------------------------------------------------------
Net income 408,060 883,928 898,517 388,181 (153,517)
Add: ESOP dividends tax benefit 2,680 1,985
Less: Preferred dividends declared 3,327 6,163 5,458 6,728 7,107
--------------------------------------------------------------
Net income applicable to primary earnings per common $404,733 $877,765 $893,059 $384,133 $(158,639)
share
Weighted average shares of common stock outstanding 336,455 342,308 336,485 305,819 273,467
Weighted average common shares to be issued using
average market price and assuming:
Exercise of stock options 2,679 2,906 4,286 3,304
Exercise of warrants 48 117
--------------------------------------------------------------
Primary weighted average common shares outstanding 339,134 345,214 340,819 309,240 273,467
==============================================================
PRIMARY EARNINGS PER COMMON SHARE
Primary before cumulative effect of changes in
accounting principles $1.19 $2.56 $2.56 $1.72 $(.58)
Cumulative effect of changes in accounting principles (.02) .06 (.48)
--------------------------------------------------------------
Primary earnings per common share $1.19 $2.54 $2.62 $1.24 $(.58)
==============================================================
CALCULATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
Income before cumulative effect of changes in accounting
principles $408,060 $891,456 $878,948 $536,468 $(153,517)
Cumulative effect of changes in accounting principles,
net of tax benefit of $4,598, $5,343 and $77,458 (7,528) 19,569 (148,287)
--------------------------------------------------------------
Net income 408,060 883,928 898,517 388,181 (153,517)
Add: Interest expense on convertible debentures 3,842 4,012 4,141 4,226
(net of tax)
ESOP dividends tax benefit 2,680 1,985
Less: Dividends declared on non-convertible preferred
stock 1,813 4,531 3,660 4,551 4,691
Dividends declared on convertible preferred stock 2,416
--------------------------------------------------------------
Net income applicable to fully diluted earnings per
common share $410,089 $883,409 $898,998 $390,536 $(158,639)
--------------------------------------------------------------
Weighted average shares of common stock outstanding 336,455 342,308 336,485 305,819 273,467
Weighted average commons 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 198 225 256 296
Conversion of preferred stock Series C 616 681 748 870
Conversion of preferred stock Series D 815 859 946 1,186
Conversion of debentures 3,105 3,228 3,289 3,410
Exercise of stock options 3,733 2,917 4,415 4,632
Exercise of warrants 48 122
--------------------------------------------------------------
Fully diluted weighted average common shares
outstanding 344,922 350,218 346,187 316,335 273,467
==============================================================
FULLY DILUTED EARNINGS PER COMMON SHARE
Fully diluted before cumulative effect of changes in
accounting principles $1.19 $2.54 $2.54 $1.70 $(.58)
Cumulative effect of changes in accounting principles (.02) .06 (.47)
--------------------------------------------------------------
Fully diluted earnings per common share $1.19 $2.52 $2.60 $1.23 $(.58)
===========================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 12.1
PNC BANK CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS
TO COMBINED FIXED CHARGES
<TABLE>
<CAPTION>
Year ended December 31
Dollars in thousands 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative effect of changes in
accounting principles $627,012 $1,209,916 $1,140,487 $787,994 $(38,578)
Fixed charges excluding interest on deposits 1,487,279 1,104,573 704,228 582,854 613,590
--------------------------------------------------------------------
Subtotal 2,114,291 2,314,489 1,844,715 1,370,848 575,012
Interest on deposits 1,551,816 1,159,242 1,005,658 1,546,576 2,739,565
--------------------------------------------------------------------
Total $3,666,107 $3,473,731 $2,850,373 $2,917,424 $3,314,577
====================================================================
FIXED CHARGES
Interest on notes and debentures $620,415 $556,432 $316,031 $201,977 $137,323
Interest on borrowed funds 834,654 514,133 360,288 353,633 449,107
Amortization of notes and debentures 927 1,761 1,418 1,505 1,119
Interest component of rentals 31,283 32,247 26,491 25,739 26,041
--------------------------------------------------------------------
Subtotal 1,487,279 1,104,573 704,228 582,854 613,590
Interest on deposits 1,551,816 1,159,242 1,005,658 1,546,576 2,739,565
--------------------------------------------------------------------
Total $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 1.42x 2.10x 2.62x 2.35x .94x
Including interest on deposits 1.21 1.53 1.67 1.37 .99
===============================================================================================================================
</TABLE>
<PAGE> 1
PNC BANK CORP. AND SUBSIDIARIES EXHIBIT 12.2
COMPUTATION OF RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
Year ended December 31
Dollars in thousands 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative effect of changes in
accounting principles $627,012 $1,209,916 $1,140,487 $787,994 $(38,578)
Fixed charges and preferred stock dividends excluding
interest on deposits 1,492,391 1,112,564 712,339 592,902 624,000
--------------------------------------------------------------------
Subtotal 2,119,403 2,322,480 1,852,826 1,380,896 585,422
Interest on deposits 1,551,816 1,159,242 1,005,658 1,546,576 2,739,565
--------------------------------------------------------------------
Total $3,671,219 $3,481,722 $2,858,484 $2,927,472 $3,324,987
====================================================================
FIXED CHARGES
Interest on notes and debentures $620,415 $556,432 $316,031 $201,977 $137,323
Interest on borrowed funds 834,654 514,133 360,288 353,633 449,107
Amortization of notes and debentures 927 1,761 1,418 1,505 1,119
Interest component of rentals 31,283 32,247 26,491 25,739 26,041
Preferred stock dividend requirements 5,112 7,991 8,111 10,048 10,410
--------------------------------------------------------------------
Subtotal 1,492,391 1,112,564 712,339 592,902 624,000
Interest on deposits 1,551,816 1,159,242 1,005,658 1,546,576 2,739,565
--------------------------------------------------------------------
Total $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 1.42x 2.09x 2.60x 2.33x .94x
Including interest on deposits 1.21 1.53 1.66 1.37 .99
===============================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 13
Index to Financial Information
CORPORATE FINANCIAL REVIEW
1995 VERSUS 1994
23 Overview
23 Mergers and Acquisitions
24 Income Statement Review
27 Balance Sheet Review
31 Financial Derivatives
35 Line of Business Results
39 Risk Management
1994 VERSUS 1993
43 Overview
43 Mergers and Acquisitions
43 Income Statement Review
44 Balance Sheet Review
REPORTS ON CONSOLIDATED FINANCIAL STATEMENTS
45 Management's Report on the Financial Reporting Internal Control Structure
45 Report of Ernst & Young LLP, Independent Auditors
CONSOLIDATED FINANCIAL STATEMENTS
46 Consolidated Balance Sheet
47 Consolidated Statement of Income
48 Consolidated Statement of Changes in Shareholders' Equity
49 Consolidated Statement of Cash Flows
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
50 Accounting Policies
53 Mergers and Acquisitions
53 Cash Flows
54 Securities
55 Loans and Commitments to Extend Credit
56 Nonperforming Assets
56 Allowance for Credit Losses
56 Premises, Equipment and Leasehold Improvements
57 Intangible Assets and Mortgage Servicing Rights
57 Notes and Debentures
58 Shareholders' Equity
58 Financial Derivatives
62 Special Charges
62 Employee Benefit Plans
64 Incentive Plans
65 Income Taxes
65 Regulatory Matters
66 Litigation
66 Other Financial Information
68 Unused Line of Credit
69 Fair Values of Financial Instruments
STATISTICAL INFORMATION
71 Selected Consolidated Financial Data
72 Selected Quarterly Financial Data
73 Analysis of Year-to-Year Changes in Net Interest Income
74 Average Consolidated Balance Sheet and Net Interest Analysis
76 Securities
77 Loans
78 Nonperforming Assets
78 Past Due Loans
79 Allowance for Credit Losses
80 Maturity of Time Deposits of $100,000 or More
81 Borrowed Funds
81 Taxable-Equivalent Adjustment
<PAGE> 2
CORPORATE FINANCIAL REVIEW 1995 VERSUS 1994
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 PNC Bank
Corp. and subsidiaries ("Corporation") Consolidated Financial Statements and
Statistical Information included herein.
OVERVIEW
Net income for 1995 totaled $408.1 million, or $1.19 per fully diluted share,
compared with $883.9 million, or $2.52 per fully diluted share, for 1994.
Returns on average assets and average common shareholders' equity for 1995 were
.54 percent and 7.05 percent, respectively. The 1995 results include $380.2
million of after-tax charges recorded in connection with the Midlantic merger
and actions taken to reposition the Corporation's balance sheet. Excluding
these charges, 1995 earnings were $788.3 million, or $2.29 per fully diluted
share. On this basis, returns on average assets and average common
shareholders' equity were 1.05 percent and 13.67 percent, respectively.
The financial results for 1995 include the impact of several
major initiatives. The Midlantic and Chemical Bank New Jersey
("Chemical") transactions moved the Corporation into the second
and third largest retail deposit market share positions in
Philadelphia and New Jersey, respectively. The in-market nature
of these transactions is expected to generate substantial economies
by reducing costs associated with overlapping and duplicative
operations and provide opportunities to enhance revenues
through marketing of the Corporation's products and services
to a new customer base. The acquisitions also provided a more
stable consumer deposit funding base, reducing the need for
wholesale funding, and added attractive middle-market and
consumer assets.
The Corporation accelerated and substantially completed the
balance sheet repositioning begun in the latter half of 1994.
The securities portfolio and related reliance on wholesale
funding were significantly reduced. At year-end 1995,
securities represented 23.7 percent of earning assets compared
with 33.9 percent at the end of 1994. Wholesale funding,
which includes brokered and foreign deposits, borrowed funds
and certain notes and debentures, was reduced to 28.2 percent
of total sources of funds compared with 35.9 percent a year
ago. In addition, the Corporation terminated $15.1 billion
notional value of financial derivative contracts.
Asset management capabilities were strengthened with the
acquisition of BlackRock Financial Management, L.P.
("BlackRock"), which brought extensive fixed-income
investment management capabilities to the Corporation.
The Corporation continued to invest in operating platforms
and alternative retail delivery systems. The National Financial
Services Center, a state-of-the-art telebanking center, strengthened
the Corporation's ability to deliver cost-effective services and
products. In addition, strategic alliances designed to leverage
delivery capabilities were implemented in the credit card and
merchant processing businesses. In January 1996, an agreement
was entered into with the American Automobile Association to
offer financial services and products to the organization's 34
million members. These services and products will be offered
nationally and leverage the Corporation's alternative delivery
capabilities.
MERGERS AND ACQUISITIONS
On December 31, 1995, Midlantic, a bank holding company
with $13.6 billion in assets, merged with the Corporation.
Each outstanding share of Midlantic common stock was
converted into 2.05 shares of the Corporation's common
stock. Approximately 112 million shares of the Corporation's
common stock were issued in connection with the merger. The
transaction was accounted for as a pooling of interests.
On October 6, 1995, the Corporation acquired Chemical's
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.
In February 1995, the Corporation acquired 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.
23
<PAGE> 3
CORPORATE FINANCIAL REVIEW 1995 VERSUS 1994
INCOME STATEMENT REVIEW
<TABLE>
<CAPTION>
INCOME STATEMENT HIGHLIGHTS
Year ended December 31
Change
-------------------
Dollars in millions 1995 1994 Amount Percent
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income
(taxable-equivalent basis) $2,189 $2,530 $(341) (13.5)%
Provision for credit losses 6 84 (78) (92.9)
Noninterest income before
net securities losses 1,241 1,181 60 5.1
Net securities losses (280) (142) (138) (97.2)
Noninterest expense before
special charges 2,209 2,190 19 .9
Special charges 260 48 212 NM
Net income 408 884 (476) (53.8)
- -----------------------------------------------------------------------------
<FN>
NM - not meaningful
</TABLE>
NET INTEREST INCOME Net interest income is the difference
between interest income and interest expense. The level and
volatility of interest rates affect interest received or paid on
assets, liabilities and off-balance-sheet financial instruments
and, as a result, impact net interest income.
NET INTEREST INCOME
<TABLE>
<CAPTION>
Year ended December 31
Taxable-equivalent basis
Change
------------------
Dollars in millions 1995 1994 Amount Percent
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income/expense
before financial derivatives
Interest income $5,224 $4,600 $ 624 13.6%
Loan fees 82 83 (1) (1.2)
Taxable-equivalent adjustment 47 38 9 23.7
-------------------------------
Total interest income 5,353 4,721 632 13.4
Interest expense 2,979 2,320 659 28.4
-------------------------------
Net interest income before
financial derivatives 2,374 2,401 (27) (1.1)
Effect of financial derivatives on
Interest income (157) 41 (198) (482.9)
Interest expense 28 (88) 116 131.8
-------------------------------
Total effect of financial
derivatives (185) 129 (314) (243.4)
-------------------------------
Net interest income $2,189 $2,530 $(341) (13.5)
- ---------------------------------------------------------------------------------
</TABLE>
Taxable-equivalent net interest income totaled $2.2 billion in
1995 compared with $2.5 billion a year earlier. The net
interest margin, the ratio of taxable-equivalent net interest
income to average earning assets, was 3.15 percent compared
with 3.64 percent in 1994. In the year-to-year comparison,
interest income increased due to higher loan volume and
yields, partially offset by a reduction in the securities
portfolio. The growth in interest income was offset by higher
expense on deposits and borrowings, which was primarily due
to higher interest rates. During 1995, net interest income and
margin were adversely impacted by interest rate swaps and
caps. During the fourth quarter of 1995, the Corporation
terminated $5.1 billion notional value of pay-fixed interest
rate swaps and $5.5 billion notional value of interest rate caps.
Such actions substantially reduced the adverse impact of these
instruments on net interest income and margin. Management
expects these actions to favorably impact net interest income
and margin in 1996 compared with 1995.
NET INTEREST MARGIN
<TABLE>
<CAPTION>
Year ended December 31 Basis Point
Taxable-equivalent basis 1995 1994 Change
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Book-basis yield on earning assets 7.51% 6.63% 88 bp
Effect of loan fees .12 .12
Taxable-equivalent adjustment .07 .05 2
---------------------------
Taxable-equivalent yield on earning assets 7.70 6.80 90
Rate on interest-bearing liabilities 5.06 3.96 110
---------------------------
Interest rate spread 2.64 2.84 (20)
Noninterest-bearing sources .78 .59 19
---------------------------
Net interest margin before
financial derivatives 3.42 3.43 (1)
Effect of financial derivatives on
Interest income (.23) .06 (29)
Interest expense .04 (.15) 19
---------------------------
Total effect of financial derivatives (.27) .21 (48)
---------------------------
Net interest margin 3.15% 3.64% (49)bp
- -----------------------------------------------------------------------------
</TABLE>
PROVISION FOR CREDIT LOSSES The provision for credit losses
totaled $6.0 million in 1995 compared with $83.5 million in
1994 reflecting improved asset quality during the year. Based
on the current risk profile of the loan portfolio, management
does not expect to record a provision for credit losses during
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.
24
<PAGE> 4
NONINTEREST INCOME Noninterest income before net securities losses
totaled $1.2 billion in 1995, a 5.1 percent increase compared
with the prior year. Excluding net securities losses, noninterest
income was 36.2 percent of total revenue in 1995 compared
with 31.8 percent a year earlier.
<TABLE>
<CAPTION>
NONINTEREST INCOME
Year ended December 31 Change
---------------
Dollars in millions 1995 1994 Amount Percent
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment management and trust
Trust $ 266 $223 $43 19.3%
Mutual funds 154 112 42 37.5
---------------------------
Total investment management and
trust 420 335 85 25.4
Service fees
Deposit 240 242 (2) (.8)
Credit card and merchant 47 60 (13) (21.7)
Corporate finance 53 50 3 6.0
Brokerage 42 34 8 23.5
Consumer 52 44 8 18.2
Insurance 25 22 3 13.6
Other 36 38 (2) (5.3)
---------------------------
Total service fees 495 490 5 1.0
Mortgage banking
Servicing 120 122 (2) (1.6)
Sale of servicing 34 61 (27) (44.3)
Marketing 33 16 17 106.3
---------------------------
Total mortgage banking 187 199 (12) (6.0)
Other 139 157 (18) (11.4)
---------------------------
Total noninterest income before
securities losses 1,241 1,181 60 5.1
Net securities losses (280) (142) (138) (97.2)
---------------------------
Total $ 961 $1,039 $ (78) (7.5)
- -----------------------------------------------------------------------------
</TABLE>
During 1995, investment management and trust revenue
increased $84.8 million, or 25.4 percent, to $420.2 million.
BlackRock contributed $57.1 million of the increase, and the
remainder was attributable to new business and an increase in
the value of administered assets. The following table sets forth
investment management and trust revenue generated by line of
business.
<TABLE>
<CAPTION>
INVESTMENT MANAGEMENT AND TRUST REVENUE BY LINE OF BUSINESS
Year ended December 31
In millions 1995 1994
- -------------------------------------------------------------------
<S> <C> <C>
Trust
Consumer Banking $172 $159
Corporate Banking 51 52
Asset Management 43 12
------------------
Total trust 266 223
Mutual funds
Asset Management 154 112
------------------
Total $420 $335
- -------------------------------------------------------------------
</TABLE>
At December 31, 1995, assets under administration totaled
$282 billion, of which $96 billion were discretionary. The
comparable amounts at year-end 1994 were $221 billion and
$57 billion, respectively. The BlackRock acquisition added
approximately $25 billion of discretionary assets at closing.
Service fees increased $4.9 million in 1995 compared with
a year ago. Deposit services revenue declined as
corporate customers used compensating balances in lieu of
paying service charges. The decline in credit card and
merchant services fees reflects the impact of agreements with
third parties to provide certain administrative, marketing, data
processing and customer support services for the
Corporation's credit card business. Excluding the effect of
these agreements, credit card and merchant services fees
increased $5.8 million or 9.7 percent in the year-to-year
comparison.
During 1995, corporate finance fees increased 6.0 percent
reflecting higher syndication volume. Brokerage fee income
increased 23.5 percent due to higher transaction volumes.
Consumer fee income, which includes revenue from
automated teller machines ("ATM"), safe deposit services, and
other sources, increased $8.1 million, or 18.2 percent. The
increase was primarily due to higher ATM usage. Insurance
revenue increased 13.6 percent due to higher annuity sales.
During 1995, mortgage banking revenue decreased $11.9
million to $186.6 million primarily due to lower gains from
servicing sales. Marketing gains increased due to a change in
the method of accounting for the value of originated mortgage
servicing rights ("MSR"). In 1995, the Corporation adopted
new accounting guidance which provides for the immediate
recognition of the value of originated MSR. In 1995, the
Corporation recorded gains from originated MSR totaling
$37.1 million.
25
<PAGE> 5
CORPORATE FINANCIAL REVIEW 1995 VERSUS 1994
During 1995, other income totaled $138.7 million, a decrease
of $18.2 million compared with the prior year. A gain of
$11.2 million, included in other noninterest income, from
instruments used to hedge the economic value of MSR was
offset by a $10.9 million MSR impairment charge included in
noninterest expense. Excluding the mortgage-related hedge
gain, other income decreased $29.4 million, primarily due to
nonrecurring gains in 1994 from Midlantic's sales of assets
held for accelerated disposition.
Net securities losses totaled $279.7 million in 1995 and were
primarily associated with actions taken in the fourth quarter of
1995 to accelerate the Corporation's balance sheet
repositioning begun in the latter half of 1994. Approximately
$6.0 billion of securities were sold at a loss of $61.3 million.
In connection with the sales, losses totaling $228.2 million
were recognized on terminated pay-fixed interest rate swaps
designated to such securities. During 1994, net securities
losses totaled $141.6 million.
NONINTEREST EXPENSE Noninterest expense before special
charges increased .9 percent, or $19.0 million, in 1995. The
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. Excluding the impact of
acquisitions, special charges and the benefit of lower deposit
insurance premiums, noninterest expense decreased 1.8
percent in the comparison.
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
Change
Year ended December 31 ------------------
Dollars in millions 1995 1994 Amount Percent
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Compensation $ 863 $ 838 $ 25 3.0%
Employee benefits 202 203 (1) (.5)
-------------------------------
Total staff expense 1,065 1,041 24 2.3
Net occupancy 180 180
Equipment 166 154 12 7.8
Intangible asset and MSR
amortization 115 86 29 33.7
Federal deposit insurance 58 102 (44) (43.1)
Taxes other than income 53 48 5 10.4
Other 572 579 (7) (1.2)
-------------------------------
Total noninterest expense
before special charges 2,209 2,190 19 .9
Special charges 260 48 212 NM
-------------------------------
Total $2,469 $2,238 $231 10.3%
- -----------------------------------------------------------------------------
<FN>
NM - Not meaningful
</TABLE>
Staff expense increased 2.3 percent in the year-to-year
comparison due to acquisitions. Excluding acquisitions, staff
expense decreased 2.1 percent.
Amortization of intangible assets and MSR increased $28.4
million due to the BlackRock and Chemical acquisitions and
MSR impairment.
The decline in Federal deposit insurance reflects a reduction in
the Bank Insurance Fund premium. Approximately $5.3
billion of the Corporation's deposits insured by the Savings
Association Insurance Fund ("SAIF") continue to be assessed
a higher rate. There are several proposals for legislative action
to address recapitalization of the SAIF including a significant
one-time assessment. Management currently cannot predict
the outcome of these proposals or the effect, if any, on the
Corporation.
In connection with the Midlantic merger, the Corporation
recorded special charges of $260 million consisting of $89
million to eliminate duplicate operations and facilities, $42
million for employee severance and related costs, $49 million
for professional services and various other costs incidental to
the merger and $80 million for termination of an interest rate
cap position.
In 1994, the Corporation recorded special charges totaling $48
million in connection with the consolidation of seven
telebanking centers and rationalization of retail delivery
systems.
INCOME TAX EXPENSE Income tax expense totaled $219.0
million in 1995 compared with $318.5 million in 1994. The
effective tax rates were 34.9 percent and 26.3 percent in 1995
and 1994, respectively. The lower effective tax rate in 1994
was primarily due to a $106.8 million benefit from the
realization of Midlantic's previously unrecognized deferred
tax assets. Income tax expense for 1995 included a $15.0
million writedown of state deferred tax assets related to the
Midlantic merger.
26
<PAGE> 6
BALANCE SHEET REVIEW
<TABLE>
<CAPTION>
BALANCE SHEET HIGHLIGHTS
Change
December 31 -------------------
In millions 1995 1994 Amount Percent
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets $73,404 $77,461 $(4,057) (5.2)%
Earning assets 66,772 69,751 (2,979) (4.3)
Loans, net of unearned income 48,653 44,043 4,610 10.5
Securities 15,839 23,670 (7,831) (33.1)
Deposits 46,899 45,818 1,081 2.4
Borrowed funds 8,665 12,193 (3,528) (28.9)
Notes and debentures 10,398 12,127 (1,729) (14.3)
Shareholders' equity 5,768 5,727 41 .7
- -----------------------------------------------------------------------------
</TABLE>
In 1995, the Corporation substantially reduced the securities
portfolio and level of related wholesale funding and, with
the Midlantic and Chemical acquisitions, significantly
increased retail core deposit liabilities. Selected balance sheet
composition ratios are set forth in the following table.
<TABLE>
<CAPTION>
BALANCE SHEET COMPOSITION
December 31 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Loans to earning assets 72.9% 63.1%
Securities to earning assets 23.7 33.9
Loans to deposits 103.7 96.1
Deposits to total sources of funds 63.9 59.1
Deposits to interest-bearing liabilities 84.9 76.0
Wholesale funds to total sources of funds 28.2 35.9
- -----------------------------------------------------------------------------
</TABLE>
Total assets and earning assets were $73.4 billion and $66.8
billion, respectively, at December 31, 1995 compared with
$77.5 billion and $69.8 billion at year-end 1994. The declines
reflect the securities portfolio downsizing partially offset by
loan growth. The securities portfolio declined $7.8 billion to
$15.8 billion at December 31, 1995, and loans totaled $48.7
billion at year-end 1995, compared with $44.0 billion a year
ago.
LOANS During 1995, loans increased $4.6 billion, or 10.5
percent. The ratio of loans to earning assets increased to 72.9
percent at year-end 1995 compared with 63.1 percent a year
ago. Excluding purchase acquisitions, average loans increased
4.8 percent, primarily due to consumer and residential
mortgage loan growth. The Corporation's focus with respect to
the loan portfolio was to increase the proportion of such loans
to total loans and to change the composition to improve
overall returns on invested capital.
<TABLE>
<CAPTION>
LOANS
December 31
In millions 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Consumer
Home equity $ 4,541 $ 3,896
Automobile 4,236 3,508
Student 1,512 1,311
Credit card 1,004 838
Other 2,246 2,298
------------------------
Total consumer 13,539 11,851
Residential mortgage 11,689 9,746
Commercial
Manufacturing 3,363 3,148
Retail/Wholesale 3,148 2,828
Service providers 2,402 2,174
Communications 1,083 1,239
Financial services 1,082 911
Real estate related 1,291 1,154
Health care 1,028 729
Public utilities 335 310
Other 3,080 3,052
------------------------
Total commercial 16,812 15,545
Commercial real estate
Commercial mortgage 2,775 2,837
Medium-term financings 1,250 1,432
Construction and development 889 794
------------------------
Total commercial real estate 4,914 5,063
Other 2,102 2,223
Unearned income (403) (385)
------------------------
Total loans, net of unearned income $48,653 $44,043
- -----------------------------------------------------------------------------
</TABLE>
Consumer loan outstandings increased 14.2 percent to $13.5
billion at December 31, 1995. The growth in consumer loans
was primarily due to initiatives to increase the Corporation's
credit card business and the impact of acquisitions. These
increases were partially offset by reductions in the indirect
automobile portfolio.
Residential mortgages increased 19.9 percent. As part of the
mortgage banking business, the Corporation retained for
portfolio certain originated mortgages, generally adjustable
rate mortgages with fixed initial terms of three, five, seven or
ten years. The remainder of originations were securitized and
sold, generally with servicing rights retained.
Excluding the impact of initiatives to reduce certain low-
spread loans, total commercial loan outstandings increased
approximately $2.0 billion from year-end 1994.
27
<PAGE> 7
CORPORATE FINANCIAL REVIEW 1995 VERSUS 1994
Commercial real estate exposure decreased slightly since year-
end 1994. Medium-term financings and construction and
development loans primarily consist of retail and office, multi-
family, hotel/motel and residential projects. Approximately 82
percent of total commercial real estate outstandings are
located in the Corporation's primary markets with the
remaining projects geographically dispersed throughout the
United States.
<TABLE>
<CAPTION>
LOAN PORTFOLIO COMPOSITION
December 31
Percent of gross loans 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Consumer 27.6% 26.7%
Residential mortgage 23.8 21.9
Commercial 34.3 35.0
Commercial real estate 10.0 11.4
Other 4.3 5.0
---------------
Total 100.0% 100.0%
- --------------------------------------------------------------
</TABLE>
Unfunded commitments represent agreements to lend funds
under specified terms provided no violations of specified
contractual conditions exist. Most commercial commitments
expire unfunded and, therefore, cash requirements are
substantially less than the total commitment. Unfunded
commitments are net of participations and syndications.
Growth in commercial unfunded commitments during 1995
was broad based and totaled $3.5 billion, or 16.8 percent. In
addition, the Corporation had letters of credit outstanding
totaling $4.5 billion and $4.6 billion at December 31, 1995
and December 31, 1994, respectively, primarily consisting of
standby letters of credit.
<TABLE>
<CAPTION>
NET UNFUNDED COMMITMENTS TO EXTEND CREDIT
December 31
In millions 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Consumer $ 7,335 $ 6,050
Residential mortgage 554 769
Commercial 24,282 20,794
Commercial real estate 751 669
Other 892 917
-----------------
Total $33,814 $29,199
- --------------------------------------------------------------
</TABLE>
SECURITIES During 1995, the Corporation reduced the size of
the securities portfolio relative to earning assets. The
securities portfolio was reduced by $7.8 billion to $15.8
billion at December 31, 1995, and represented 23.7 percent of
earning assets, compared with 33.9 percent a year ago. At
year-end 1995, all securities were classified as 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.
In connection with implementing new accounting guidance
issued in November 1995, the Corporation reassessed the
classifications of investment securities. All securities
previously classified as held to maturity were reclassified to
the available-for-sale portfolio. The reclassifications were
accounted for at fair value and included the fair value of
associated financial derivatives.
Subsequent to reclassifying the securities portfolio, to
accelerate the balance sheet repositioning begun in the latter
half of 1994, the Corporation sold $1.9 billion of U.S.
Treasury securities and $4.1 billion of collateralized mortgage
obligations at a loss of $61.3 million. In connection with the
sales, losses totaling $228.2 million were recognized on
terminated pay-fixed interest rate swaps with a notional value
of $5.1 billion that were designated to such securities.
At December 31, 1995, the securities portfolio included $6.2
billion of collateralized mortgage obligations and $2.4 billion
of mortgage-backed securities. The characteristics of these
investments 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
mortgages 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.
28
<PAGE> 8
<TABLE>
<CAPTION>
SECURITIES
1995 1994
--------------------------------------- -------------------------------------
Unrealized Unrealized
December 31 Amortized ---------------- Fair Amortized ------------- Fair
In millions Cost Gains Losses Value Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale
Debt securities
U.S. Treasury $ 3,211 $ 69 $ 3,280 $ 671 $ 8 $ 663
U.S. Government agencies
and corporations
Mortgage related 7,510 24 $75 7,459 2,161 69 2,092
Other 1,030 5 1 1,034 25 4 21
State and municipal 343 25 1 367 8 1 7
Asset-backed private placement 1,597 7 1,604
Other debt
Mortgage related 1,121 2 10 1,113 749 17 732
Other 525 3 3 525 149 $2 5 146
Corporate stocks and other 455 4 2 457 133 2 6 129
------------------------------------------------------------------------------------
Total securities
available for sale 15,792 139 92 15,839 3,896 4 110 3,790
Investment securities
Debt securities
U.S. Treasury 3,317 121 3,196
U.S. Government agencies
and corporations
Mortgage related 11,795 1 1,088 10,708
Other 1,000 28 972
State and municipal 360 12 2 370
Asset-backed private placement 1,597 33 1,564
Other debt
Mortgage related 726 43 683
Other 775 20 755
Other 310 1 311
-----------------------------------
Total investment securities 19,880 14 1,335 18,559
------------------------------------------------------------------------------------
Total securities $15,792 $139 $92 $15,839 $23,776 $18 $1,445 $22,349
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, $6.1 billion notional value of interest
rate swaps and caps were associated with securities available
for sale. The fair value of securities available for sale at year-
end 1995 set forth above includes unrealized gains of $6
million on related derivatives. No financial derivatives were
designated to securities available for sale at year-end 1994.
Interest rate swaps and caps with a notional value of $11.1
billion, fair value of $204 million and carrying value of $130
million were designated to investment securities at December
31, 1994. The fair value of these derivatives is not included in
the values set forth above.
<TABLE>
<CAPTION>
SECURITIES EXPECTED MATURITY DISTRIBUTION
Year ended December 31 Amortized
In millions Cost
- --------------------------------------------------------------
<S> <C>
1996 $6,590
1997 2,619
1998 and beyond 6,583
-------
Total $15,792
- --------------------------------------------------------------
</TABLE>
The expected weighted average life of the securities portfolio
was 2 years and 8 months at December 31, 1995 compared
with 3 years and 11 months at year-end 1994.
29
<PAGE> 9
CORPORATE FINANCIAL REVIEW 1995 VERSUS 1994
FUNDING SOURCES During 1995, the use of wholesale funding,
which includes brokered and foreign deposits, borrowed funds
and certain notes and debentures, was reduced. At December
31, 1995, the ratio of wholesale funding to total sources of
funds was 28.2 percent compared with 35.9 percent a year
ago. The ratio of deposits to total sources of funds increased to
63.9 percent compared with 59.1 percent a year ago. The
composition of the Corporation's funding sources will vary
depending on management's evaluation of the most cost-
effective funding alternatives.
<TABLE>
<CAPTION>
FUNDING SOURCES
December 31
In millions 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Deposits
Demand, savings and money market $27,145 $27,079
Time 18,661 16,125
Foreign 1,093 2,614
-----------------
Total deposits 46,899 45,818
Borrowed funds
Federal funds purchased 3,817 2,219
Repurchase agreements 2,851 4,302
Commercial paper 753 1,226
Treasury, tax and loan 567 1,989
Other 677 2,457
-----------------
Total borrowed funds 8,665 12,193
Notes and debentures
Bank notes 6,256 8,825
Federal Home Loan Bank 2,393 1,384
Other 1,749 1,918
-----------------
Total notes and debentures 10,398 12,127
-----------------
Total funding sources $65,962 $70,138
- --------------------------------------------------------------
</TABLE>
DEPOSITS During 1995, total deposits increased $1.1 billion, or
2.4 percent. A $2.5 billion increase in time deposits was partially
offset by a $1.5 billion decrease in foreign deposits. The Chemical
acquisition added $2.7 billion of deposits in the fourth quarter
of 1995.
Brokered deposits totaled $2.3 billion at December 31, 1995
compared with $2.8 billion at December 31, 1994. Retail
brokered deposits, which are issued or participated-out by
brokers in denominations of $100,000 or less, represented
77.8 percent of total brokered deposits at December 31, 1995
compared with 76.8 percent at year-end 1994.
BORROWED FUNDS AND NOTES AND DEBENTURES Total borrowed
funds and notes and debentures decreased $5.3 billion from
year-end 1994 primarily due to the balance sheet
repositioning.
Management believes the Corporation has sufficient liquidity
to meet its obligations to customers, debtholders and others.
The impact of maturing liabilities is reflected in the income
simulation model used in the Corporation's overall
asset/liability management process.
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 AND CAPITAL RATIOS
December 31
Dollars in millions 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
CAPITAL COMPONENTS
Shareholders' equity $ 5,768 $ 5,727
Goodwill and other intangibles (980) (458)
Net unrealized securities (gains) losses (26) 122
-----------------
Tier I risk-based capita 4,762 5,391
Subordinated debt 1,370 1,025
Eligible allowance for credit losses 750 727
-----------------
Total risk-based capital $ 6,882 $ 7,143
-----------------
ASSETS
Risk-weighted assets and off-
balance-sheet instruments $59,539 $57,578
Average tangible assets 74,756 75,883
-----------------
CAPITAL RATIOS
Tier I risk-based capital 8.00% 9.36%
Total risk-based capital 11.56 12.41
Leverage 6.37 7.10
- --------------------------------------------------------------
</TABLE>
The minimum regulatory capital ratios are 4.00 percent for
Tier I, 8.00 percent for total risk-based and 3.00 percent for
leverage. However, regulators may require higher capital
levels when a bank's particular circumstances warrant. To be
classified as well capitalized, regulators require capital ratios
of 6.00 percent for Tier I, 10.00 percent for total risk-based
and 5.00 percent for leverage. At December 31, 1995, the
Corporation and each of its bank affiliates were classified as
well capitalized. Tier I risk-based capital declined during 1995
primarily due to an increase in acquisition-related intangibles.
30
<PAGE> 10
During 1995, the Corporation repurchased 6.5 million common shares
pursuant to a stock repurchase plan authorized by the board of
directors in January 1995. The Corporation has not
repurchased any shares since the initiation of the Midlantic
merger due to constraints associated with the pooling of
interests method of accounting. Future share repurchases, if
any, are dependent on a number of additional factors
including capital adequacy, level of future earnings, balance
sheet growth and alternative capital reinvestment
opportunities.
FINANCIAL DERIVATIVES
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.
During 1995, the notional value of financial derivatives was
reduced by $9.8 billion. In connection with asset and liability
management objectives, the Corporation terminated $4.6
billion notional value of receive-fixed index amortizing
interest rate swaps and $5.1 billion notional value pay-fixed
interest rate swaps. In connection with the Midlantic merger,
the Corporation terminated a $5.5 billion notional value
interest rate cap position that reduced exposure to higher
interest rates within a specified range. The terminated caps
were replaced with contracts that reduce exposure to rates
above a specified rate without limitation.
<TABLE>
<CAPTION>
FINANCIAL DERIVATIVES ACTIVITY
January 1 Maturities/ December 31
In millions 1995 Additions Amortization Terminations 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rate risk management
Interest rate swaps
Receive-fixed index amortizing $11,400 $ (3,624) $ (4,565) $ 3,211
Received-fixed 2,644 $ 1,639 (1,498) 2,785
Pay-fixed 6,317 3,700 (2,320) (5,068) 2,629
Basis swaps 300 465 765
Interest rate caps 5,500 5,515 (5) (5,500) 5,510
Eurodollar futures 2,500 (2,500)
-------------------------------------------------------------
Total interest rate risk management 26,161 13,819 (9,947) (15,133) 14,900
Mortgage banking activities
Commitments to purchase forward contracts - originations 16 2,637 (2,222) 431
Commitments to sell forward contracts - originations 350 4,702 (4,301) 751
Interest rate floors- MSR 500 500
Receive-fixed interest rate swaps - MSR 125 125
-------------------------------------------------------------
Total mortgage banking activities 366 7,964 (6,523) 1,807
-------------------------------------------------------------
Total financial derivatives $26,527 $21,783 $(16,470) $(15,133) $16,707
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 11
CORPORATE FINANCIAL REVIEW 1995 VERSUS 1994
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. The
Corporation manages these risks as part of its asset/liability
management process and through the Corporation's credit
policies and procedures. The Corporation seeks to minimize
credit risk by entering into transactions with only a select
number of high-quality institutions, establishing credit limits,
requiring bilateral-netting agreements, and in certain
instances, segregated collateral. At December 31, 1995, credit
exposure related to interest rate swaps and caps totaled $32.7
million.
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 portion of the contract are based on a variable index. The
Corporation's swaps do not contain leverage or any similar
features. For interest rate risk management purposes, the
Corporation uses interest rate swaps to convert fixed-rate
assets or liabilities to floating-rate instruments, convert
floating-rate assets or liabilities to fixed-rate instruments, or
convert floating-rate instruments from one index to another.
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. These
contracts can also include a contractually specified limit of
such rate differentials under which payment is required. In
connection with interest rate risk management activities,
interest rate caps and floors are used to convert fixed-rate
assets or liabilities to variable-rate instruments or convert
variable-rate assets or liabilities to fixed-rate instruments
above or below contractually specified rates.
In connection with mortgage banking activities, the
Corporation uses interest rate swaps and floors and other
financial instruments primarily to hedge the economic value
of MSR.
Forward contracts provide for the delivery of financial
instruments at a specified future date and at a specified price
or yield. The Corporation uses forward contracts to manage
risk positions associated with certain mortgage banking
activities. Forward contracts are traded in over-the-counter
markets and do not have standardized terms. Counterparties to
the Corporation's forward contracts are primarily U.S.
Government agencies and brokers and dealers in mortgage-
backed securities. In the event the counterparty is unable to
meet its contractual obligations, the Corporation may be
exposed to selling or purchasing mortgage loans at prevailing
market prices. Substantially all forward contracts mature
within 90 days of origination.
32
<PAGE> 12
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 of receive-fixed index amortizing swaps is based
on implied forward rates. Weighted average interest rates paid
or received represent contractual interest rates in effect on
December 31, 1995 and expected rates based on implied
forward rates.
The expected weighted average maturity of receive-fixed
index amortizing swaps shortened to 7 months at December
31, 1995, compared with 2 years and 10 months at year-end
1994, reflecting the impact of terminations, amortization and
lower interest rates. Should interest rates increase, the maturity
of such swaps would extend. Subsequent to year-end 1995, the
Corporation terminated $2.1 billion of receive-fixed index
amortizing swaps resulting in a loss of $5.3 million. The loss
was deferred and will be amortized over the remaining life of
the contracts.
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF FINANCIAL DERIVATIVES
Weighted Average Rates
------------------------------------------------
Expected Based on
At December 31, 1995 Implied Forward Rates
------------------------------------------------
December 31, 1995 Notional
Dollars in millions Value Paid Received Paid Received
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rate swaps
Receive fixed index amortizing
1996 $3,169 5.90% 5.25% 5.34% 5.25%
1997 42 5.96 5.54 5.15 5.54
------
Total $3,211 5.90 5.25 5.34 5.25
------------------------------------------------------------
Receive fixed
1996 $1,855 5.89% 5.88% 5.31% 5.88%
1997 280 5.92 6.18 5.21 6.18
1998 575 5.84 7.01 5.27 7.01
1999 and beyond 75 5.85 7.00 5.54 7.00
------
Total $2,785 5.88 6.17 5.30 6.17
------------------------------------------------------------
Pay-fixed
1996 $1,515 5.77% 5.68% 5.77% 5.32%
1997 989 5.04 5.81 5.04 5.19
1998 50 8.28 5.88 8.28 5.31
1999 and beyond 75 9.43 5.94 9.43 5.60
------
Total $2,629 5.65 5.74 5.65 5.28
------------------------------------------------------------
Basis swaps
1996 $ 765 5.84% 5.63% 5.59% 5.21%
------------------------------------------------------------
Interest rate caps
1996 $ 10 NM NM NM NM
1997 5,500 NM NM NM NM
------
Total $5,510
- ----------------------------------------------------------------------------------------------------
<FN>
NM - Not meaningful
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
the specified cap rate. At December 31, 1995, 3-month LIBOR was 5.63 percent
and the specified cap rate was 6.50 percent.
</TABLE>
33
<PAGE> 13
CORPORATE FINANCIAL REVIEW 1995 VERSUS 1994
<TABLE>
<CAPTION>
FINANCIAL DERIVATIVES
December 31, 1995
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
Pay fixed designated to
Securities $ 599 4.68% 5.87% $ 6
Commercial loans 290 8.01 5.87 (24)
Receive-fixed index amortizing designated to commercial loans 2,471 5.90 5.23 (14)
Receive fixed designated to
Commercial loans 975 5.89 6.31 19
Short-term investments 200 5.84 7.23 9
Basis swaps designated to commercial real estate loans 300 5.96 5.85
Interest rate caps designated to
Securities 5,500 NM NM 6
Mortgage loans 10 NM NM
------- ----
Total asset rate conversion 10,345 2
Liability rate conversion
Interest rate swaps
Pay fixed designated to
Other borrowings 1,125 5.68 5.60 (5)
Bank notes 600 5.41 5.79
Deposits 15 4.98 5.94
Receive-fixed index amortizing designated to deposits 740 5.93 5.32 (4)
Receive fixed designated to
Certificates of deposit 625 5.94 5.76 7
Bank notes 650 5.85 5.90 14
Other borrowings 330 5.82 6.37 13
Deposit notes 5 5.93 8.48
Basis swaps designated to bank notes 465 5.76 5.49 8
------- ----
Total liability rate conversion 4,555 33
------- ----
Total interest rate risk management 14,900 35
Mortgage banking activities
Commitments to purchase forward contracts - originations 431 NM NM
Commitments to sell forward contracts - originations 751 NM NM (4)
Interest rate floors - MSR 500 NM NM 9
Receive-fixed interest rate swaps - MSR 125 NM NM 7
------- ----
Total mortgage banking 1,807 12
------- ----
Total financial derivatives $16,707 $ 47
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
NM - not meaningful
The floating rate portion of interest rate contracts is based on money-market
indices. As a percent of notional value, 71 percent were based on 3-month
LIBOR, 19 percent on 1-month LIBOR and the remainder on other short-term
indices.
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
the specified cap rate. At December 31, 1995, 3-month LIBOR was 5.63 percent
and the specified cap rate was 6.50 percent
</TABLE>
34
<PAGE> 14
LINE OF BUSINESS RESULTS
The management accounting process uses various methods of
balance sheet and income statement allocations, transfers and
assignments to evaluate the performance of various business
units. Unlike financial accounting, there is no comprehensive,
authoritative body of guidance for management accounting
equivalent to generally accepted accounting principles. The
following information is based on management accounting
practices which conform to and support the management
structure of the Corporation and is not necessarily comparable
with similar information for any other financial services
institution. Designations, assignments and allocations may
change from time to time as the management accounting
system is enhanced and business or product lines change.
In 1995, the Corporation realigned its line of business
management structure along customer segments. The principal
change was segregating the trust business, previously
managed separately, into the corporate and consumer banking
organizations. In addition, consistent with the Corporation's
strategic focus and balance sheet realignment, asset/liability
management has been redefined as a support function for the
core lines of business. Results for 1994 are presented on a
basis consistent with this new management reporting structure.
For management reporting purposes, the Corporation has
designated five lines of business: Consumer Banking,
Corporate Banking, Real Estate Banking, Mortgage 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. In 1995,
Consumer Banking was a generator of funds and, accordingly,
was assigned securities, while the other lines of business
received an assignment of borrowings as net asset generators.
An assignment of securities is accompanied by an assignment
of equity in accordance with the methodology described
below. The interest rate spread on the remaining securities, the
impact of financial derivatives used for interest rate risk
management and securities transactions are excluded from line
of business results and are reported separately in asset/liability
management activities.
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.
After-tax profit margin represents earnings expressed as a
percentage of revenue. The overhead ratio is the percentage of
noninterest expense to revenue. For purposes of these ratio
computations, revenue includes net interest income on a fully
taxable-equivalent basis and noninterest income.
Total earnings contributed by the lines of business were $820
million in 1995 compared with $894 million in 1994. The
decline primarily resulted from an increase in Corporate
Banking's allocated provision for credit losses which was a
credit in the prior year. 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, special charges and
certain unallocated revenues and expenses. The decline in
earnings from asset/liability management activities was
primarily due to actions taken to reposition the balance sheet.
LINE OF BUSINESS HIGHLIGHTS
<TABLE>
<CAPTION>
Average Return on
Year ended December 31 Balance Sheet Revenue Earnings Assigned Capital
----------------------------------------------------------------------------------
Dollars in millions 1995 1994 1995 1994 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer Banking $37,240 $36,052 $2,043 $1,926 $420 $384 21% 20%
Corporate Banking 16,193 15,728 788 827 236 301 12 16
Real Estate Banking 3,896 4,032 185 237 79 109 13 17
Mortgage Banking 12,379 10,751 374 408 49 69 8 13
Asset Management 344 246 193 142 36 31 38 49
---------------------------------------------------------------
Total lines of business 70,052 66,809 3,583 3,540 820 894 16 18
Asset/liability management activities 4,261 6,566 (458) (7) (335) (18)
Unallocated provision 71 (28)
Special charges (192) (31)
Other unallocated items 818 987 24 36 44 67
----------------------------------------------------------------
Total $75,131 $74,362 $3,149 $3,569 $408 $884 7 16
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 15
CORPORATE FINANCIAL REVIEW 1995 VERSUS 1994
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
one location. Consumer Banking includes: Private Banking--
affluent consumers and charitable organizations with
specialized banking requirements; and 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.
The earnings contribution from Consumer Banking increased
to 51 percent in 1995 from 43 percent a year ago. Earnings
from Private Banking increased in 1995 as the benefit from
loan growth, new trust business and higher brokerage fees
more than offset expense growth from marketing activities in
this sector. Community Banking earnings increased in 1995 as
the result of higher net interest income associated with loan
growth and a $28 million pretax gain on the sale of certain
branches partially offset by expenses associated with
establishing the National Financial Services Center.
<TABLE>
<CAPTION>
CONSUMER BANKING
Private Banking Community Banking Total
Year ended December 31 ----------------------------------------------------------------
Dollars in millions 1995 1994 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 82 $ 75 $ 1,420 $ 1,375 $ 1,502 $ 1,450
Noninterest income 217 195 324 281 541 476
----------------------------------------------------------------
Total revenue 299 270 1,744 1,656 2,043 1,926
Provision 1 65 39 66 39
Noninterest expense 213 194 1,102 1,094 1,315 1,288
----------------------------------------------------------------
Pretax earnings 85 76 577 523 662 599
Income taxes 31 27 211 188 242 215
----------------------------------------------------------------
Earnings $ 54 $ 49 $ 366 $ 335 $ 420 $384
----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans $1,927 $1,507 $13,455 $12,345 $15,382 $13,852
Assigned assets 20,752 21,392 20,752 21,392
Other assets 426 435 680 373 1,106 808
----------------------------------------------------------------
Total assets $2,353 $1,942 $34,887 $34,110 $37,240 $36,052
----------------------------------------------------------------
Net deposits $1,456 $1,251 $32,785 $32,122 $34,241 $33,373
Assigned funds 167 153 167 153
Other funds 494 333 326 284 820 617
Assigned equity 236 205 1,776 1,704 2,012 1,909
----------------------------------------------------------------
Total funds $2,353 $1,942 $34,887 $34,110 $37,240 $36,052
----------------------------------------------------------------
PERFORMANCE RATIOS
After-tax profit margin 18% 18% 21% 20% 21% 20%
Overhead 71 72 63 66 64 67
Return on assigned equity 23 23 21 20 21 20
- -------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 16
<TABLE>
<CAPTION>
CORPORATE BANKING
Large Corporate Middle Market Equity Management Total
Year ended December 31 ---------------------------------------------------------------------------------------
Dollars in millions 1995 1994 1995 1994 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 110 $ 130 $ 439 $ 437 $ (4) $ (3) $ 545 $ 564
Noninterest income 61 72 149 148 33 43 243 263
---------------------------------------------------------------------------------------
Total revenue 171 202 588 585 29 40 788 827
Provision 43 (4) 43 (4)
Noninterest expense 85 84 294 282 3 3 382 369
---------------------------------------------------------------------------------------
Pretax earnings 86 118 251 307 26 37 363 462
Income taxes 27 39 91 109 9 13 127 161
---------------------------------------------------------------------------------------
Earnings $ 59 $ 79 $ 160 $ 198 $ 17 $ 24 $ 236 $ 301
---------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans $4,212 $4,437 $11,330 $10,604 $ 31 $ 37 $15,573 $15,078
Other assets 106 163 357 341 157 146 620 650
---------------------------------------------------------------------------------------
Total assets $4,318 $4,600 $11,687 $10,945 $188 $183 $16,193 $15,728
---------------------------------------------------------------------------------------
Net deposits $ 505 $ 522 $ 1,655 $ 1,646 $ 2,160 $ 2,168
Assigned funds 3,313 3,487 8,203 7,425 $115 $110 11,631 11,022
Other funds 23 51 444 582 17 19 484 652
Assigned equity 477 540 1,385 1,292 56 54 1,918 1,886
---------------------------------------------------------------------------------------
Total funds $4,318 $4,600 $11,687 $10,945 $188 $183 $16,193 $15,728
---------------------------------------------------------------------------------------
PERFORMANCE RATIOS
After-tax profit margin 35% 39% 27% 34% 58% 60% 30% 36%
Overhead 50 42 50 48 11 7 49 45
Return on assigned equity 12 15 12 15 30 45 12 16
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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: Large Corporate -- customers having annual sales of
more than $250 million; Middle Market -- customers with
annual sales of $5 million to $250 million and those in certain
specialized industries such as communications, health care,
natural resources, metals, public finance, financial services
and automobile dealer finance; and Equity Management --
private equity investments.
Corporate Banking provided 29 percent of line of business
earnings in 1995 compared with 34 percent in 1994. Large
Corporate earnings declined in the comparison due to a
decrease in average loans and the impact of a $15 million
pretax benefit recorded in 1994 from resolution of a problem
asset. Average loans declined primarily due to initiatives to
reduce certain low-spread loans. Middle Market earnings
declined as the benefit of an increase in average loans was
more than offset by an increase in the allocated provision for
credit losses and narrower spreads on loans. A provision was
allocated in 1995 primarily due to loan growth compared with
a credit provision in 1994 that resulted from a significant
reduction of problem assets. The contribution from Equity
Management declined in 1995 as a result of lower venture
capital income.
37
<PAGE> 17
CORPORATE FINANCIAL REVIEW 1995 VERSUS 1994
<TABLE>
<CAPTION>
REAL ESTATE BANKING
Year ended December 31
Dollars in millions 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Net interest income $ 168 $ 178
Noninterest income 17 59
----------------
Total revenue 185 237
Provision (1)
Noninterest expense 66 73
----------------
Pretax earnings 119 165
Income taxes 40 56
----------------
Earnings $ 79 $ 109
----------------
AVERAGE BALANCE SHEET
Loans $3,957 $4,140
Other assets (61) (108)
----------------
Total assets $3,896 $4,032
----------------
Net deposits $ 159 $ 130
Assigned funds 3,131 3,120
Other funds (7) 142
Assigned equity 613 640
----------------
Total funds $3,896 $4,032
----------------
PERFORMANCE RATIOS
After-tax profit margin 43% 46%
Overhead 36 31
Return on assigned equity 13 17
- --------------------------------------------------------------
</TABLE>
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 provided 10 percent of line of business
earnings in 1995 compared with 12 percent in 1994. Earnings
declined in the comparison due to lower loan volume and
nonrecurring gains in 1994 on Midlantic's sales of assets held
for accelerated disposition.
<TABLE>
<CAPTION>
MORTGAGE BANKING
Year ended December 31
Dollars in millions 1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Net interest income $ 164 $ 201
Noninterest income 210 207
-----------------
Total revenue 374 408
Provision 6 6
Noninterest expense 291 298
-----------------
Pretax earnings 77 104
Income taxes 28 35
-----------------
Earnings $ 49 $ 69
-----------------
AVERAGE BALANCE SHEET
Loans $10,651 $ 8,748
Other assets 1,728 2,003
-----------------
Total assets $12,379 $10,751
-----------------
Net deposits $ 2,637 $ 2,973
Assigned funds 8,121 6,178
Other funds 1,035 1,086
Assigned equity 586 514
-----------------
Total funds $12,379 $10,751
-----------------
PERFORMANCE RATIOS
After-tax profit margin 13% 17%
Overhead 78 73
Return on assigned equity 8 13
- ---------------------------------------------------------------
</TABLE>
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 6 percent of line of business
earnings in 1995 compared with 8 percent a year ago.
Mortgage Banking continued to operate in a competitive
environment characterized by significantly reduced loan
origination volumes. Earnings declined in 1995 as the benefit
of an increase in portfolio loans was more than offset by
narrower loan spreads and lower gains from sales of servicing.
<TABLE>
<CAPTION>
MORTGAGE SERVICING PORTFOLIO
In millions 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
January 1 $40,389 $34,768
Originations 5,423 6,437
Acquisitions 364 10,599
Repayments (4,751) (5,945)
Sales (4,126) (5,470)
-----------------
December 31 $37,299 $40,389
- --------------------------------------------------------------
</TABLE>
38
<PAGE> 18
During 1995, the Corporation funded $5.4 billion of
residential mortgages of which 81 percent represented new
financing. The comparable amounts were $6.4 billion and 78
percent, respectively, in 1994. At December 31, 1995, the
Corporation's mortgage servicing portfolio totaled $37.3
billion, had a weighted-average coupon rate of 7.98 percent
and an estimated fair value of $419 million. The servicing
portfolio included $25.1 billion serviced for others with a
MSR carrying value of $268 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. A gain of $11.2 million, included in
noninterest income, from instruments used to hedge the
economic value of MSR was offset by a $10.9 million MSR
impairment charge included in noninterest expense.
ASSET MANAGEMENT Asset Management provides trust and
mutual fund investment management, strategy, research and
asset servicing for institutional and family wealth customers.
It serves customers through one unified money management
organization.
<TABLE>
<CAPTION>
ASSET MANAGEMENT
Year ended December 31
Dollars in millions 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Net interest income $ (4) $ 8
Noninterest income 197 134
--------------
Total revenue 193 142
Provision
Noninterest expense 135 93
--------------
Pretax earnings 58 49
Income taxes 22 18
--------------
Earnings $ 36 $ 31
--------------
AVERAGE BALANCE SHEET
Loans $ 68 $105
Assigned assets 113
Other assets 276 28
--------------
Total assets $344 $246
--------------
Net deposits $127 $142
Assigned funds 88
Other funds 33 41
Assigned equity 96 63
--------------
Total funds $344 $246
--------------
PERFORMANCE RATIOS
After-tax profit margin 19% 22%
Overhead 70 65
Return on assigned equity 38 49
- --------------------------------------------------------------
</TABLE>
Asset Management contributed 4 percent of line of business
earnings in 1995 compared with 3 percent a year ago. Asset
Management earnings increased due to the impact of
BlackRock, new business and an increase in the value of
managed assets.
During 1995, assets under administration increased by $60.9
billion to $282.4 billion at December 31, 1995. The
BlackRock acquisition added approximately $25 billion in
discretionary assets, including $15 billion of institutional
funds and $10 billion of mutual funds. At year-end 1995, the
composition of discretionary assets under administration was
47 percent fixed income, 27 percent money market, 24 percent
equity and 2 percent other.
<TABLE>
<CAPTION>
ASSETS UNDER ADMINISTRATION
December 31 Non-
In billions Discretionary Discretionary Total
- -------------------------------------------------------------------------
<S> <C> <C> <C>
1995
Personal and charitable $30 $ 15 $ 45
Institutional 24 41 65
Mutual funds 42 130 172
--------------------------------
Total $96 $186 $282
- -------------------------------------------------------------------------
1994
Personal and charitable $25 $ 11 $ 36
Institutional 4 75 79
Mutual funds 28 78 106
--------------------------------
Total $57 $164 $221
- -------------------------------------------------------------------------
</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.
Credit Administration, which includes credit policy, loan
review and loan workout, manages and monitors credit risk by
promulgating and enforcing uniform credit policies and
exercising centralized oversight, review and approval
procedures. Credit Policy, at the
39
<PAGE> 19
CORPORATE FINANCIAL REVIEW 1995 VERSUS 1994
direction of the board of directors, establishes uniform underwriting
standards that set forth the criteria used in extending credit.
To support consistent application of underwriting standards,
credit officers work with lending officers in evaluating the
creditworthiness of borrowers and structuring transactions.
Credit decisions are made at the specific affiliate or market
level. However, credit requests above certain limits or that
involve exceptions to credit policies require additional
corporate approvals.
NONPERFORMING ASSETS During 1995, nonperforming assets
declined $221 million reflecting continued improvement in
asset quality. The following tables outline nonperforming assets
by category and set forth the changes in nonperforming assets
during 1995 and 1994.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
December 31
Dollars in millions 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans
Commercial $118 $219
Commercial real estate
Commercial mortgage 108 103
Real estate project 45 98
Consumer 10 20
Residential mortgage 54 56
--------------
Total nonaccrual loans 335 496
Restructured loans 23 69
--------------
Total nonperforming loans 358 565
Foreclosed assets
Commercial real estate 105 117
Residential mortgage 24 21
Other 49 54
--------------
Total foreclosed assets 178 192
--------------
Total nonperforming assets $536 $757
--------------
Nonperforming loans to loans .74% 1.28%
Nonperforming assets to loans and
foreclosed assets 1.10 1.71
Nonperforming assets to assets .73 .98
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN NONPERFORMING ASSETS
In millions 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
January 1 $ 757 $1,124
Transferred from accrual 399 536
Acquisitions 14 69
Returned to performing (97) (131)
Principal reductions (315) (450)
Sales (111) (205)
Charge-offs and valuation adjustments (111) (186)
---------------
December 31 $ 536 $ 757
- --------------------------------------------------------------
</TABLE>
At December 31, 1995, $88.7 million of nonperforming loans
were current as to principal and interest compared with $89.8
million at December 31, 1994. Office, retail and land projects
accounted for 76.0 percent of total nonperforming real estate
project assets at December 31, 1995. The Corporation's primary
markets accounted for 62.0 percent of total nonperforming real
estate project assets. The southeast region of the United States
and metropolitan Washington D.C. area accounted for 16.6
percent and 7.0 percent, respectively.
<TABLE>
<CAPTION>
ACCRUING LOANS CONTRACTUALLY PAST DUE 90 DAYS OR MORE
Amount Percent of Loans
December 31 ---------------------------------
Dollars in millions 1995 1994 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer
Student $ 44 $ 37 2.90% 2.84%
Other 51 31 .44 .31
--------------
Total consumer 95 68 .72 .60
Residential mortgage 63 52 .54 .53
Commercial 22 21 .13 .14
Commercial real estate 45 34 .92 .68
--------------
Total $225 $175 .46 .40
- ------------------------------------------------------------------------------
</TABLE>
Loans not included in past due, nonaccrual or restructured
categories, but where known information about possible credit
problems causes management to be uncertain as to the ability
of the borrowers to comply with the present loan repayment
terms over the next six months, totaled $176 million at
December 31, 1995.
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. The allocations to
pools of loans are developed by risk rating and industry
classifications and are based on management's judgment
concerning historical loss trends and other relevant factors.
These factors may include, among others, local, regional and
national economic conditions, portfolio concentrations,
industry competition and consolidation, and the impact of
government regulation. Consumer loan allocations are based
on historical loss experience adjusted for portfolio activity and
current economic conditions.
The allowance for credit losses totaled $1.3 billion at
December 31, 1995 compared with $1.4 billion at December
31, 1994. The allowance as a percentage of period-end loans
and nonperforming loans was 2.59 percent and 351.7 percent,
respectively, at December 31, 1995. The comparable year-end
1994 amounts were 3.07 percent and
40
<PAGE> 20
239.3 percent, respectively. Net charge-offs were .29 percent of total
loans in 1995 compared with .40 percent in 1994. Management
expects net charge-offs to increase modestly in 1996.
CHARGE-OFFS AND RECOVERIES
<TABLE>
<CAPTION>
Percent
Net of
Year ended December 31 Charge- Charge- Average
Dollars in millions offs Recoveries offs Loans
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Consumer $109 $ 41 $ 68 .57%
Residential mortgage 10 2 8 .07
Commercial 84 49 35 .22
Commercial real estate 37 15 22 .44
----------------------------
Total $240 $107 $133 .29
- --------------------------------------------------------------------------
1994
Consumer $ 93 $ 41 $ 52 .46%
Residential mortgage 16 1 15 .17
Commercial 116 59 57 .38
Commercial real estate 64 19 45 .87
----------------------------
Total $289 $120 $169 .40
- --------------------------------------------------------------------------
</TABLE>
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 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 1995, cash and due from banks increased $267 million
to $3.7 billion compared with an increase of $882 million
during the prior year. Net cash provided by operating
activities decreased $718 million in the comparison, primarily
due to an increase in loans held for sale associated with the
Corporation's mortgage banking activities. Cash provided by
investing activities increased to $7.0 billion compared with
$1.3 billion used a year ago reflecting the Corporation's
reduction of the securities portfolio. Net cash used by
financing activities totaled $7.9 billion in 1995 compared with
$311 million provided a year earlier as the Corporation
reduced wholesale liabilities.
Liquid assets consist of cash and due from banks, short-term
investments, loans held for sale and securities available for
sale. At December 31, 1995, such assets totaled $21.8 billion
of which $7.6 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 December 31, 1995, approximately $5.3
billion of residential mortgages were available as collateral for
borrowings from the Federal Home Loan Bank system. The
reduction in the securities portfolio and related wholesale
funding sources is not expected to materially affect overall
liquidity.
Liquidity for the parent company and its affiliates is also
generated through the issuance of securities in public or
private markets, lines of credit and dividends from
subsidiaries. Under effective shelf registration statements at
December 31, 1995, the Corporation had available $140
million of debt, $300 million of preferred stock and $350
million of securities that may be issued as either debt or
preferred stock. In addition, the Corporation had a $300
million unused committed line of credit. Funds obtained from
any of these sources can be used for both bank and nonbank
activities.
Management believes the Corporation has sufficient liquidity
to meet its current obligations to customers, debtholders and
others. The impact of replacing liabilities is reflected in the
income simulation model used in the Corporation's overall
asset/liability management process.
INTEREST RATE RISK Interest rate risk arises primarily through the
Corporation's normal business activities of extending loans and
taking deposits. Many factors, including economic and financial
conditions, general movements in market interest rates, and
consumer preferences, affect the spread between interest earned
on assets and interest paid on liabilities. Financial derivatives,
primarily interest rate swaps, caps and floors, are used to alter
the interest rate characteristics of assets and liabilities. For
example, receive-fixed interest rate swaps effectively convert
variable-rate assets to fixed-rate assets.
In managing interest rate risk, the Corporation seeks to
minimize the reliance on a particular interest rate scenario as a
source of earnings. Accordingly, wholesale activities,
including securities, funding, financial derivatives and capital
markets activities, are used in managing core business
exposures within specified guidelines. Interest rate risk is
centrally managed by asset and liability (A&L) management.
Senior management and Board of Directors' committees
oversee A&L management and periodically review interest
rate risk exposures.
41
<PAGE> 21
CORPORATE FINANCIAL REVIEW 1995 VERSUS 1994
A number of measures are used to monitor and manage
interest rate risk, including income simulation and interest
sensitivity (gap) analyses. In addition, the Corporation is in
the process of developing longer-term measures of interest
rate sensitivity including duration of equity and equity at risk.
Such models are designed to estimate the impact on the value
of equity resulting from changes in interest rates and
supplement the simulation model and gap analyses.
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 percent if interest rates
gradually increase or decrease from current rates by 100 basis
points over a twelve month period. At December 31, 1995,
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.
Additional interest rate scenarios are modeled to address a
wider range of rate movement, yield curve, term structure and
basis risk exposures. Depending on market conditions and
other inherent risks, these scenarios may be modeled more or
less frequently. Such analyses are used as supplemental
measurements only and limits have not been established.
The Corporation also employs interest sensitivity (gap)
analysis 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. The Corporation's limit for the cumulative one-year
gap position is 10 percent. 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. The cumulative one-year gap position was
7.0 percent asset sensitive at December 31, 1995. During
January 1996, to reduce exposure to declining rates, the
Corporation added receive-fixed interest rate swaps with a
term of two years which converted assets from variable rates
to fixed rates. As a result, the asset sensitivity of the
cumulative one-year gap position was reduced to 3.8 percent.
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.
INTEREST RATE SENSITIVITY (GAP) ANALYSIS
<TABLE>
<CAPTION>
December 31, 1995 1 to 91 to 181 to 1 to 2 2 to 5 Beyond
In millions 90 Days 180 Days 365 Days Years Years 5 Years Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans $23,970 $3,089 $4,039 $4,665 $ 7,550 $ 5,340 $48,653
Securities 4,958 789 2,346 2,100 3,987 1,659 15,839
Other earning assets 2,279 2,279
Other assets 443 22 44 84 292 5,748 6,633
----------------------------------------------------------------------------------------------
Total assets $31,650 $3,900 $6,429 $6,849 $11,829 $12,747 $73,404
----------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Noninterest-bearing deposits $ 1,416 $ 9,291 $10,707
Interest-bearing deposits 11,892 $3,126 $3,548 $2,694 $ 2,477 12,455 36,192
Borrowings 14,766 929 886 208 453 1,821 19,063
Other liabilities 122 1,552 1,674
Shareholders' equity 5,768 5,768
----------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $28,196 $4,055 $4,434 $2,902 $2,930 $30,887 $73,404
----------------------------------------------------------------------------------------------
Off-balance-sheet items $(2,120) $1,085 $429 $96 $529 $(19)
-----------------------------------------------------------------------------------
Interest rate sensitivity $1,334 $930 $2,424 $4,043 $9,428 $(18,159)
-----------------------------------------------------------------------------------
Cumulative gap $1,334 $2,264 $4,688 $8,731 $18,159
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 22
CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
OVERVIEW
Net income for 1994 was $883.9 million, or $2.52 per fully
diluted share, compared with $898.5 million, or $2.60 per
share, for 1993. Return on average assets and return on
average common shareholders' equity were 1.19 percent and
16.09 percent, respectively, in 1994 compared with 1.40
percent and 18.55 percent, respectively, in 1993.
Effective January 1, 1994, the Corporation adopted Statement
of Financial Accounting Standards ("SFAS") No. 112,
"Employers' Accounting for Postemployment Benefits." SFAS
No. 112 requires accrual of a liability for benefits to be paid to
former or inactive employees after employment, but before
retirement. The cumulative effect of the change in accounting
decreased net income by $7.5 million or, $.02 per fully diluted
share.
Effective January 1, 1993, the Corporation adopted SFAS No.
109, "Accounting for Income Taxes," and changed its
accounting method for certain intangible assets. The combined
effect of these changes increased net income by $19.6 million,
or $.06 per fully diluted share.
Income before the cumulative effect of the changes in
accounting principles was $891.5 million or $2.54 per fully
diluted share, in 1994 compared with $878.9, or $2.54 per fully
diluted share, in 1993.
MERGERS AND ACQUISITIONS
During 1994, the Corporation acquired First Eastern Corp.,
Wilkes-Barre, Pennsylvania, and United Federal Bancorp,
Inc., State College, Pennsylvania. The acquisitions added
assets and deposits of $2.8 billion and $2.4 billion,
respectively.
In November 1993, the Corporation acquired PNC Mortgage.
This acquisition added mortgage-related assets of $7.6 billion
and a mortgage servicing portfolio totaling $27 billion,
including $21 billion serviced for others. In June 1994, the
Corporation purchased a $10 billion residential mortgage
servicing portfolio from the Associates Corporation of North
America.
INCOME STATEMENT REVIEW
During 1994, taxable-equivalent net interest income
represented 68.2 percent of total revenue before net securities
transactions compared with 71.8 percent in 1993. Noninterest
income before net securities transactions represented 31.8
percent of total revenue in 1994 and 28.2 percent in 1993.
<TABLE>
<CAPTION>
INCOME STATEMENT HIGHLIGHTS
Change
Year ended December 31 -------------------
Dollars in millions 1994 1993 Amount Percent
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income
(taxable-equivalent
basis) $2,530 $2,391 $ 139 5.8%
Provision for credit losses 84 350 (266) (76.0)
Noninterest income
before securities
transactions 1,181 941 240 25.5
Net securities gains
(losses) (142) 195 (337) (172.8)
Noninterest expense
before special charges 2,190 1,985 205 10.3
Special charges 48 48 NM
Net income 884 898 (14) (1.6)
- -----------------------------------------------------------------------------
<FN>
NM - not meaningful
</TABLE>
NET INTEREST INCOME On a fully taxable-equivalent basis, net
interest income for 1994 increased $139.5 million, or 5.8
percent, primarily due to a $9.4 billion increase in average
earning assets partially offset by a narrower interest rate spread.
<TABLE>
<CAPTION>
NET INTEREST INCOME
Year ended December 31 Change
Taxable-equivalent basis -------------------
Dollars in millions 1994 1993 Amount Percent
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income/expense
before financial
derivatives
Interest income $4,600 $3,852 $ 748 19.4%
Loan fees 83 80 3 3.8
Taxable-equivalent
adjustment 38 51 (13) (25.5)
--------------------------------
Total interest income 4,721 3,983 738 18.5
Interest expense 2,320 1,857 463 24.9
--------------------------------
Net interest income
before financial
derivatives 2,401 2,126 275 12.9
Effect of financial
derivatives on
Interest income 41 91 (50) (54.9)
Interest expense (88) (174) 86 49.4
--------------------------------
Total effect of
financial derivatives 129 265 (136) (51.3)
--------------------------------
Net interest income $2,530 $2,391 $ 139 5.8
- -----------------------------------------------------------------------------
</TABLE>
43
<PAGE> 23
CORPORATE FINANCIAL REVIEW 1994 VERSUS 1993
The 1994 net interest margin narrowed to 3.64 percent
compared with 3.99 percent in 1993 as deposit and
borrowings costs increased more rapidly than loan yields. In
addition, the narrower margin reflects the impact of actions
begun in the latter half of 1994 to reposition the balance sheet
and to reduce interest rate sensitivity.
PROVISION FOR CREDIT LOSSES The provision for credit losses was
$83.5 million and $350.2 million in 1994 and 1993,
respectively. Continued improvement in economic conditions,
combined with management's ongoing efforts to improve asset
quality, resulted in lower nonperforming asset and charge-off
levels, and a higher reserve coverage of nonperforming loans.
NONINTEREST INCOME Noninterest income before securities
transactions increased $239.7 million, or 25.5 percent, to $1.2
billion in 1994. Investment management and trust revenue
increased $20.0 million, or 6.4 percent, due to an increase in
new business partially offset by a decline in the value of
managed assets. Mortgage banking income increased $148.0
million to $198.5 million as a result of the PNC Mortgage
acquisition and the purchase of the Associates mortgage
servicing portfolio.
Other noninterest income increased $57.9 million to $156.9
million due to gains from Midlantic's sales of assets held for
accelerated disposition totaling $32.3 million, sales of other
assets, and higher venture capital income.
Net securities losses totaled $141.6 million in 1994 compared
with net securities gains of $194.7 million in 1993. During
1994, securities were sold in connection with initiatives to
downsize the securities portfolio and to reduce interest rate
sensitivity.
NONINTEREST EXPENSE Noninterest expense totaled $2.2 billion in
1994 compared with $2.0 billion in 1993. The increase was
primarily due to acquisitions and a $48.3 million special
charge related to the consolidation of telebanking centers and
rationalization of the retail branch network.
Staff expense totaled $1.0 billion in 1994 compared with
$901.2 million in 1993. The increase was primarily due to
acquisitions in the mortgage banking and consumer banking
businesses. Average full-time equivalent employees increased
13.5 percent.
Net occupancy and equipment expense increased $32.8
million and intangible amortization increased $48.4 million
primarily attributable to acquisitions. Other noninterest
expense decreased 3.0 percent to $626.2 million primarily due
to lower foreclosed asset expense.
BALANCE SHEET REVIEW
Total assets increased $1.4 billion to $77.5 billion at
December 31, 1994 primarily due to acquisitions.
Total consumer and residential mortgage loans increased $2.0
billion primarily due to acquisitions and portfolio
management strategies. Commercial loans outstanding were
$15.5 billion at December 31, 1994 and 1993. Total
commercial real estate loans were $5.1 and $5.2 billion at
December 31, 1994 and December 31, 1993, respectively.
Securities totaled $23.7 billion at December 31, 1994
compared with $25.5 billion at December 31, 1993. Securities
represented 33.9 percent of earning assets at December 31,
1994 compared with 35.8 percent at the prior year end. The
reduction reflects management's actions to reduce the size of
the securities portfolio and to reduce interest rate sensitivity.
Deposits increased $1.1 billion to $45.8 billion in the year-to-
year comparison as increases from acquired deposits were
partially offset by lower brokered and time deposits.
Borrowed funds totaled $12.2 billion at December 31, 1994
compared with $12.3 billion at December 31, 1993. During
1994, certain repurchase agreements and treasury, tax and
loan borrowings were replaced with commercial paper and
term Federal funds purchased.
ASSET QUALITY During 1994, asset quality continued to improve.
Nonperforming assets totaled $757 million at December 31,
1994 compared with $1.1 billion at year-end 1993.
Accruing loans contractually past due 90 days or more as to
the payment of principal or interest totaled $175 million at
December 31, 1994 compared with $171 million at December
31, 1993. Residential mortgage and student loans of $52
million and $37 million were included in the total at
December 31, 1994 compared with $61 million and $42
million, respectively, at year-end 1993.
ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses
was $1.4 billion at December 31, 1994 and 1993, representing
3.07 percent of total loans at December 31, 1994 compared
with 3.26 percent at year-end 1993. As a percentage of period-
end nonperforming loans, the allowance for credit losses was
239.3 percent at December 31, 1994 compared with 160.3
percent at year-end 1993.
CAPITAL Shareholders' equity totaled $5.7 billion and $5.4
billion at December 31, 1994 and 1993, respectively, and the
leverage ratio was 7.10 percent and 7.69 percent in the
comparison. Tier I and total risk-based capital ratios were 9.36
percent and 12.41 percent, respectively, at December 31,
1994. The comparable December 31, 1993 ratios were 9.75
percent and 12.55 percent.
44
<PAGE> 24
REPORTS ON CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S REPORT ON THE FINANCIAL
REPORTING INTERNAL CONTROL STRUCTURE
PNC Bank Corp. is responsible for the preparation, integrity
and fair presentation of its published financial statements. The
consolidated financial statements included in this annual
report have been prepared in accordance with generally
accepted accounting principles and, as such, include
judgments and estimates of management. PNC Bank Corp.
also prepared the other information included in the annual
report and is responsible for its accuracy and consistency with
the consolidated financial statements.
Management is responsible for establishing and maintaining
an effective internal control structure over financial reporting.
The internal control system is augmented by written policies
and procedures and by audits performed by an internal audit
staff which reports to the Audit Committee of the Board of
Directors. Internal auditors monitor the operation of the
internal control system and report findings to management and
the Audit Committee, and corrective actions are taken to
address identified control deficiencies and other opportunities
for improving the system. The Audit Committee, composed
solely of outside directors, provides oversight to the financial
reporting process.
There are inherent limitations in the effectiveness of any
system of internal control, including the possibility of human
error and circumvention or overriding of controls.
Accordingly, even an effective internal control system can
provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in
conditions, the effectiveness of an internal control system may
vary over time.
Management assessed PNC Bank Corp.'s internal control
structure over financial reporting as of December 31, 1995.
This assessment was based on criteria for effective internal
control over financial reporting described in "Internal Control-
Integrated Framework" issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management believes that PNC
Bank Corp. maintained an effective internal control system
over financial reporting as of December 31, 1995.
/s/ THOMAS H. O'BRIEN /s/ ROBERT L. HAUNSCHILD
- --------------------- -------------------------
Thomas H. O'Brien Robert L. Haunschild
Chairman and Senior Vice President and
Chief Executive Officer Chief Financial Officer
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Shareholders and Board of Directors
PNC Bank Corp.
We have audited the accompanying consolidated balance
sheet of PNC Bank Corp. and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for
each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of PNC
Bank Corp.'s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of PNC Bank Corp. and subsidiaries at
December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in Notes to Consolidated Financial Statements,
PNC Bank Corp. changed its method of accounting for
mortgage servicing rights in 1995, postemployment benefits in
1994, and income taxes and intangible assets in 1993.
/s/ ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 8, 1996
45
<PAGE> 25
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
Dollars in millions, except par values 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,679 $ 3,412
Short-term investments 1,611 1,550
Loans held for sale 659 487
Securities available for sale 15,839 3,790
Investment securities, fair value of $18,559 19,880
Loans, net of unearned income of $403 and $385 48,653 44,043
Allowance for credit losses (1,259) (1,352)
--------------------
Net loans 47,394 42,691
Other 4,222 5,651
--------------------
Total assets $73,404 $77,461
--------------------
LIABILITIES
Deposits
Noninterest-bearing $10,707 $9,840
Interest-bearing 36,192 35,978
--------------------
Total deposits 46,899 45,818
Borrowed funds
Federal funds purchased 3,817 2,219
Repurchase agreements 2,851 4,302
Commercial paper 753 1,226
Other 1,244 4,446
--------------------
Total borrowed funds 8,665 12,193
Notes and debentures 10,398 12,127
Other 1,674 1,596
--------------------
Total liabilities 67,636 71,734
SHAREHOLDERS' EQUITY
Preferred stock 1 51
Common stock - $5 par value
Authorized: 450,000,000 shares
Issued: 340,863,348 and 343,820,327 shares 1,704 1,719
Capital surplus 545 692
Retained earnings 3,571 3,535
Deferred benefit expense (79) (83)
Net unrealized securities gains (losses) 26 (122)
Common stock held in treasury at cost: 2,814,910 shares (65)
--------------------
Total shareholders' equity 5,768 5,727
--------------------
Total liabilities and shareholders' equity $73,404 $77,461
- --------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
46
<PAGE> 26
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31
In thousands, except per share data 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans $3,742,877 $3,188,611 $2,641,910
Securities 1,282,929 1,407,104 1,295,067
Other 123,625 127,432 85,794
--------------------------------------------------
Total interest income 5,149,431 4,723,147 4,022,771
INTEREST EXPENSE
Deposits 1,551,816 1,159,242 1,005,658
Borrowed funds 834,654 514,133 360,288
Notes and debentures 621,092 557,778 316,998
--------------------------------------------------
Total interest expense 3,007,562 2,231,153 1,682,944
--------------------------------------------------
Net interest income 2,141,869 2,491,994 2,339,827
Provision for credit losses 6,000 83,458 350,249
--------------------------------------------------
Net interest income less provision for credit losses 2,135,869 2,408,536 1,989,578
NONINTEREST INCOME
Investment management and trust 420,160 335,315 315,308
Service fees 494,649 489,785 475,919
Mortgage banking 186,617 198,548 50,590
Net securities gains (losses) (279,694) (141,582) 194,699
Other 138,687 156,934 99,082
--------------------------------------------------
Total noninterest income 960,419 1,039,000 1,135,598
NONINTEREST EXPENSE
Staff expense 1,065,057 1,040,926 901,198
Net occupancy and equipment 346,064 333,633 300,811
Intangible asset and MSR amortization 114,671 86,297 37,923
Federal deposit insurance 57,669 102,309 99,329
Other 625,889 626,155 645,428
Special charges 259,926 48,300
--------------------------------------------------
Total noninterest expense 2,469,276 2,237,620 1,984,689
--------------------------------------------------
Income before income taxes and cumulative effect of changes in accounting
principles 627,012 1,209,916 1,140,487
Applicable income taxes 218,952 318,460 261,539
--------------------------------------------------
Income before cumulative effect of changes in accounting principles 408,060 891,456 878,948
Cumulative effect of changes in accounting principles, net of tax benefits of
$4,598 and $5,343 (7,528) 19,569
--------------------------------------------------
Net income $ 408,060 $ 883,928 $ 898,517
--------------------------------------------------
EARNINGS PER COMMON SHARE
Primary before cumulative effect of changes in accounting principles $1.19 $2.56 $2.56
Cumulative effect of changes in accounting principles (.02) .06
--------------------------------------------------
Primary $1.19 $2.54 $2.62
--------------------------------------------------
Fully diluted before cumulative effect of changes in accounting principles $1.19 $2.54 $2.54
Cumulative effect of changes in accounting principles (.02) .06
--------------------------------------------------
Fully diluted $1.19 $2.52 $2.60
--------------------------------------------------
CASH DIVIDENDS DECLARED PER COMMON SHARE $1.40 $1.31 $1.175
--------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING
Primary 339,134 345,214 340,819
Fully diluted 344,922 350,218 346,187
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
47
<PAGE> 27
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Common Capital Retained
Dollars in million, except per share data Stock Stock Surplus Earnings Other Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $ 51 $1,636 $ 599 $2,363 $(106) $4,543
Net income 898 898
Cash dividends declared (PNC-$1.175 per share) (277) (277)
Common stock issued (14,437,783 shares) 72 84 156
Common stock issued for preferred stock dividend
(335,290 shares) 2 2 (4)
Preferred stock redeemed (9) (9)
Tax benefit of ESOP plans 3 3
Deferred benefit expense 11 11
Treasury stock activity (9) (9)
Net unrealized securities gains 88 88
-----------------------------------------------------------------
Balance at December 31, 1993 51 1,710 676 2,983 (16) 5,404
Net income 884 884
Cash dividends declared (PNC-$1.31, Midlantic-$.62
per share) (333) (333)
Common stock issued (1,796,092 shares) 9 12 21
Common stock issued for preferred stock dividend
(73,341 shares) 1 (1)
Tax benefit of ESOP and stock option plans 3 2 5
Deferred benefit expense 12 12
Treasury stock activity (56) (56)
Net unrealized securities losses (210) (210)
-----------------------------------------------------------------
Balance at December 31, 1994 51 1,719 692 3,535 (270) 5,727
Net income 408 408
Cash dividends declared (PNC-$1.40, Midlantic-$.96
per share) (386) (386)
Common stock issued (4,532,108 shares) 23 (8) 15
Preferred stock redeemed (50) (50)
Treasury stock activity 5 (119) (114)
Midlantic merger - treasury stock issued (38) (146) 184
Tax benefit of ESOP and stock option plans 2 14 16
Deferred benefit expense 4 4
Net unrealized securities gains 148 148
-----------------------------------------------------------------
Balance at December 31, 1995 $ 1 $1,704 $ 545 $3,571 $(53) $5,768
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
48
<PAGE> 28
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
In millions 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 408 $ 884 $ 898
Adjustments to reconcile net income to net cash provided by operating activities
Cumulative effect of changes in accounting principles 8 (20)
Provision for credit losses 6 84 350
Provision for OREO losses 6 66
Depreciation, amortization and accretion 296 252 139
Deferred income taxes 128 6 (133)
Net securities (gains) losses 280 142 (195)
Net gain on sales of assets (77) (104) (20)
Valuation adjustments (15) (13) (22)
Changes in
Loans held for sale (172) 957 (42)
Other 266 (384) 211
--------------------------------------
Net cash provided by operating activities 1,120 1,838 1,232
INVESTING ACTIVITIES
Net change in loans (2,021) (1,279) (2,736)
Repayment
Securities available for sale 1,791 2,746 1,196
Investment securities 1,944 3,478 9,278
Sales
Securities available for sale 7,983 12,318 17,239
Loans 160 575 86
Foreclosed assets 125 178 284
Purchases
Securities available for sale (3,409) (11,116) (13,620)
Investment securities (161) (8,754) (14,208)
Loans (702) (29) (433)
Bulk sales of loans and OREO 6 235 221
Net cash received (paid) for acquisitions/divestitures 49 (475) (175)
Other 1,270 856 87
--------------------------------------
Net cash provided (used) by investing activities 7,035 (1,267) (2,781)
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits 272 (385) 1,165
Interest-bearing deposits (2,134) (851) (2,533)
Federal funds purchased 1,595 114 (2,098)
Sale/issuance
Repurchase agreements 74,102 125,322 163,998
Commercial paper 4,376 5,621 5,221
Other borrowed funds 99,245 110,292 48,310
Notes and debentures 11,990 9,627 9,016
Common stock 88 53 162
Redemption/maturity
Repurchase agreements (75,553) (126,624) (165,133)
Commercial paper (4,849) (4,909) (5,687)
Other borrowed funds (102,446) (109,957) (46,569)
Notes and debentures (13,901) (7,569) (4,394)
Preferred stock (50)
Net acquisition of treasury stock (236) (90) (19)
Cash dividends paid to shareholders (387) (333) (276)
--------------------------------------
Net cash provided (used) by financing activities (7,888) 311 1,163
--------------------------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 267 882 (386)
Cash and due from banks at beginning of year 3,412 2,530 2,916
--------------------------------------
Cash and due from banks at end of year $ 3,679 $ 3,412 $ 2,530
================================================================================================================================
CASH PAID FOR
Interest $ 3,102 $ 2,201 $ 1,592
Income taxes 122 403 311
NONCASH ITEMS
Increase (decrease) in securities available for sale 18,078 (2,745)
Increase (decrease) in investment securities (18,078) 2,745
Transfers from loans to other assets 99 151 369
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
49
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES
BUSINESS PNC Bank Corp. provides a broad range of banking
and related financial services through its subsidiaries to
consumers, small businesses and corporate customers and is
subject to intense competition from other financial services
companies with respect to these services and customers. PNC
Bank Corp. is also subject to the regulations of certain federal
and state agencies and undergoes periodic examinations by
certain regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION The consolidated
financial statements include the accounts of PNC Bank Corp.
and its subsidiaries ("Corporation"), substantially all of which
are wholly owned. Such statements have been prepared in
accordance with generally accepted accounting principles. All
significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements. The
merger between PNC Bank Corp. and Midlantic Corporation
("Midlantic" or "MC") 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.
In preparing the consolidated 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.
LOANS HELD FOR SALE Loans held for sale primarily consist of
residential mortgages and are carried at the lower of cost or
aggregate market value. Gains and losses on these loans are
included in mortgage banking income.
SECURITIES Securities are classified as investments and carried
at amortized cost if management has the positive intent and
ability to hold the securities to maturity. Securities purchased
with the intention of recognizing short-term profits are placed
in the trading account and are carried at market value. Gains
and losses on trading securities are included in other income.
Securities not classified as investments or trading are
designated as securities available for sale and carried at fair
value with unrealized gains and losses reflected in
shareholders' equity. Gains and losses on sales of securities
available for sale are generally computed on a specific
security basis and recognized in results of operations.
LOANS Interest income with respect to loans is accrued on the
principal amount outstanding, except for lease financing
income and interest on certain consumer loans which are
recognized over their respective terms using methods which
approximate the level yield method. Significant loan fees are
deferred and accreted to interest income over the respective
lives of the loans.
NONPERFORMING ASSETS Nonperforming assets are comprised of
nonaccrual and restructured loans and foreclosed assets.
Generally, a loan is classified as nonaccrual and the accrual of
interest is discontinued when it is determined the collection of
interest or principal is doubtful or when a default of interest or
principal has existed for 90 days or more, unless the loan is
well secured and in the process of collection. When interest
accrual is discontinued, unpaid interest credited to income in
the current year is reversed and unpaid interest accrued in the
prior year, if any, is charged against the allowance for credit
losses. A loan is categorized as restructured if the original
interest rate, repayment terms, or both, are restructured due to
a deterioration in the financial condition of the borrower and it
was not previously classified as nonaccrual. Nonperforming
loans are generally not returned to performing status until the
obligation is brought current, has performed in accordance
with the contractual terms for a reasonable period of time and
the ultimate collectibility of the total contractual principal and
interest is no longer in doubt.
Foreclosed assets are comprised of property acquired through
a foreclosure proceeding or acceptance of a deed-in-lieu of
foreclosure. These assets are recorded at the lower of the
related loan balance or market value of the collateral less
estimated disposition costs at the date acquired. Subsequently,
foreclosed assets are valued at the lower of the amount
recorded at acquisition date or the then current market value
less estimated disposition costs. Any gains or losses realized
upon disposition of the property are reflected in income.
Market values are estimated primarily based upon appraisals.
Interest collected on impaired loans is recognized on the cash
basis or cost recovery method.
ALLOWANCE FOR CREDIT LOSSES Effective January 1, 1995, the
Corporation adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended. Under this Standard, the
Corporation estimates credit losses on impaired loans based on
the present value of expected cash flows or the fair value of
the underlying collateral if the loan repay-
50
<PAGE> 30
ment is expected to come from the sale or operation of such collateral.
For purposes of this Standard, nonaccrual and restructured
commercial and commercial real estate loans are considered to
be impaired. Prior to 1995, credit losses related to these loans
were estimated based on undiscounted cash flows or the fair
value of the underlying collateral.
The allowance for credit losses is established through
provisions for credit losses charged against income. Loans
deemed to be uncollectible are charged against the allowance
account.
The allowance is maintained at a level believed by
management to be sufficient to absorb estimated potential
credit losses. Management's determination of the adequacy of
the allowance is based on periodic evaluations of the credit
portfolio and other relevant factors. This evaluation is
inherently subjective as it requires material estimates,
including the amounts and timing of expected future cash
flows on impaired loans, which may be susceptible to
significant change. The allowance for credit losses on
impaired loans pursuant to SFAS No. 114 is one component
of the methodology for determining the allowance for credit
losses. The remaining components of the allowance for credit
losses provide for estimated losses on consumer loans and
residential mortgages, and general amounts for historical loss
experience, uncertainties in estimating losses and inherent
risks in the various credit portfolios.
INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS Effective
January 1, 1993, the Corporation changed its method of
accounting for certain identifiable intangible assets, consisting
primarily of purchased mortgage servicing rights. Such assets
are accounted for at the lower of amortized cost or the
estimated value of the discounted future net revenues on a
disaggregated basis. Previously, future net revenues were not
discounted for this purpose. The cumulative effect of the
change decreased net income by $10.4 million, or $.03 per
fully diluted share.
In 1995, the Corporation adopted SFAS No. 122, "Accounting
for Mortgage Servicing Rights," on a prospective basis as
required by the Standard. SFAS No. 122 provides for the
recognition of originated mortgage servicing rights ("OMSR")
retained for loans sold by allocating total costs incurred
between the loan and the servicing rights based on their
relative fair values. Previously, the value of OMSR was not
recognized as an asset when the related loan was sold.
Mortgage servicing rights ("MSR") are amortized in
proportion to, and over the period of, estimated net servicing
income. To determine the fair value of MSR, the Corporation
estimates the present value of future cash flows incorporating
numerous assumptions including servicing income, cost of
servicing, discount rates, prepayment speeds and default rates.
SFAS No. 122 also requires establishment of a valuation
allowance for the excess of the carrying amount of capitalized
MSR over estimated fair value. For purposes of measuring
impairment, MSR are disaggregated and stratified on
predominant risk characteristics, primarily loan type, interest
rate and investor type.
The after-tax amount of OMSR recognized in 1995 was $24.1
million, or $.07 per fully diluted share.
Intangible assets, which are included in other assets, are
amortized using accelerated and straight-line methods over
their respective estimated useful lives. Goodwill is amortized
on a straight-line basis over periods ranging from 15 to 25
years.
DEPRECIATION AND AMORTIZATION For financial reporting purposes,
premises and equipment are depreciated principally using the
straight-line method over the estimated useful lives of the
assets. Accelerated methods are used for federal income tax
purposes. Leasehold improvements are amortized over their
estimated useful lives or their respective lease terms,
whichever is shorter.
FINANCIAL DERIVATIVES The Corporation uses off-balance-sheet
financial derivatives as part of the overall asset/liability
management process and in mortgage banking activities.
Substantially all such instruments are used to manage risk
related to changes in interest rates. Financial derivatives
primarily consist of interest rate swaps, caps and floors, and
futures and forward contracts.
Interest rate swaps, including swaps with index-amortizing
characteristics, are agreements with a counterparty to
exchange periodic interest payments calculated on a notional
principal amount. Interest rate swaps used to alter the
repricing structure of interest-bearing assets or liabilities are
accounted for under the accrual method. To qualify for such
accounting, the swaps must be designated to interest-bearing
assets or liabilities and alter their interest rate characteristics
(such as from fixed to variable, variable to fixed, or one
variable index to another) over the expected term of the swap
agreements or the designated instruments, whichever is
shorter. Under this method, the net amount payable or
receivable from interest rate swaps is accrued as an adjustment
to interest income or expense of the designated instruments.
51
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in fair value of interest rate swaps accounted for
under the accrual method are not reflected in the
accompanying financial statements unless designated to an
instrument accounted for at fair value. Realized gains and
losses on terminated interest rate swaps are deferred as an
adjustment to the carrying amount of the designated
instruments and amortized over the shorter of the remaining
original life of the agreements or the designated instruments.
If the designated instruments are disposed of, the fair value of
the interest rate swap or unamortized deferred gains or losses
are included in the determination of the gain or loss on the
disposition of such instruments. Interest rate swaps not
qualifying for accrual accounting are marked to market in the
results of operations.
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 is higher or
lower than a defined rate applied to a notional amount. To
qualify for accrual accounting, interest rate caps and floors
must be designated to interest-bearing assets or liabilities and
modify their interest rate characteristics (such as modifying a
fixed-rate asset to a floating-rate asset when rates exceed the
defined cap rate) over the term of the agreement or the
designated instruments, whichever is shorter. Premiums on
interest rate caps and floors are deferred and amortized over
the life of the agreement as an adjustment to interest income
or interest expense of the designated instruments.
Unamortized premiums are included in other assets. Payments
received on interest rate caps and floors are recognized under
the accrual method as an adjustment to interest income or
expense of the designated instruments. Changes in fair value
of interest rate caps accounted for under the accrual method
are not reflected in the accompanying financial statements
unless designated to an instrument accounted for at fair value.
Upon termination of an interest rate cap or floor, any losses,
measured by the difference between the unamortized premium
and fair value, would be recognized immediately in the results
of operations. Any gains resulting from such terminations
would be deferred and amortized as an adjustment to interest
income or expense of the designated instruments over the
shorter of the remaining life of the interest rate contract or the
designated instrument. If the designated instruments are
disposed of, any unrealized gains associated with the interest
rate caps or floors or unamortized deferred gains, are included
in the determination of the gain or loss on the disposition of
such instruments. Interest rate caps or floors not qualifying for
accrual accounting are marked to market in the results of
operations.
Forward contracts provide for the delivery of financial
instruments at a specified future date and at a specified price
or yield. The Corporation uses forward contracts primarily to
manage risk associated with its mortgage banking activities.
Realized gains and losses on mandatory and optional delivery
forward commitments are recorded in mortgage banking
income in the period settlement occurs. Unrealized gains or
losses are considered in the lower of cost or market valuation
of loans held for sale.
Futures contracts are used to hedge interest rate risk. To
qualify for hedge accounting, the futures contract must be
designated as a hedge of an asset, liability, firm commitment
or anticipated transaction that is probable of occurring and
whose significant terms have been identified. Such
instruments must expose the Corporation to interest rate risk
and the futures contract must reduce such risk. Under hedge
accounting, gains and losses on futures contracts are deferred
and included in the carrying value of related assets and
liabilities. The deferred gains and losses are amortized as a
yield adjustment over the expected life of the hedged
instrument. If the hedged instruments are disposed of, the
unamortized deferred gains or losses are included in the
determination of the gain/loss on the disposition of such
instruments.
In addition, the Corporation enters into foreign currency
exchange contracts to accommodate customers. The fair value
of such activity is recorded in other assets. Realized and
unrealized gains and losses are included in other income.
INCOME TAXES Effective January 1, 1993, the Corporation
adopted SFAS No. 109, "Accounting for Income Taxes,"
which requires the liability method to account for deferred
income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and law that will be
in effect when the differences are expected to reverse.
Previously, deferred income taxes were accounted for using
the deferred method. The cumulative effect of the change
increased 1993 net income by $29.9 million, or $.09 per fully
diluted share.
POSTEMPLOYMENT BENEFITS Effective January 1, 1994, the
Corporation adopted SFAS No. 112, "Employers' Accounting
for Postemployment Benefits." SFAS No. 112 requires accrual
of a liability for benefits to be paid to former or inactive
employees after employment, but before retirement. The
cumulative effect of the change in accounting decreased net
income by $7.5 million, or $.02 per
52
<PAGE> 32
fully diluted share. Prior to 1994, the Corporation accounted for
postemployment benefits on a cash basis.
STOCK OPTIONS Employee stock options are accounted for under
Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees". Stock options are granted at
exercise prices not less than the fair market value of common
stock on the date of grant. Under APB No. 25, no compensation
expense is recognized pursuant to the Corporation's stock option plans.
TREASURY STOCK The Corporation records common stock
purchased for treasury at cost. At the date of subsequent
reissue, the treasury stock account is reduced by the cost of
such stock on the first-in, first-out basis.
EARNINGS PER COMMON SHARE Primary earnings per common
share is calculated by dividing net income adjusted for
preferred stock dividends declared by the sum of the weighted
average number of shares of common stock outstanding and
the number of shares of common stock which would be issued
assuming the exercise of stock options during each period.
Fully diluted earnings per common share is based on net
income adjusted for interest expense, net of tax, on
outstanding convertible debentures and dividends declared on
nonconvertible preferred stock. The weighted average number
of shares of common stock outstanding is increased by the
assumed conversion of outstanding convertible preferred stock
and convertible debentures from the beginning of the year or
date of issuance, if later, and the number of shares of common
stock which would be issued assuming the exercise of stock
options. Such adjustments to net income and the weighted
average number of shares of common stock outstanding are
made only when such adjustments dilute earnings per
common share.
NOTE 2 MERGERS AND ACQUISITIONS
On December 31, 1995, Midlantic merged with the
Corporation. Each share of Midlantic common stock
outstanding was converted into 2.05 shares of the
Corporation's common stock. The Corporation issued
approximately 112 million shares of common stock and cash
in lieu of fractional shares in connection with the merger. The
transaction was accounted for as a pooling of interests and,
accordingly, all financial information has been restated as
if the entities were combined for all prior periods.
The following table sets forth separate company financial
information immediately prior to the merger and, accordingly,
such information does not include special charges related to
the merger.
<TABLE>
<CAPTION>
Year ended December 31, 1995
In millions PNC Midlantic
- ------------------------------------------------------------
<S> <C> <C>
Net interest income $1,502 $640
Net income 367 233
- ------------------------------------------------------------
</TABLE>
On October 6, 1995, the Corporation acquired Chemical New
Jersey Holdings, Inc., and its wholly-owned subsidiary Chemical
Bank New Jersey, N.A. ("Chemical") consisting of 81 branches in
southern and central New Jersey 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 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. The transaction was accounted for under the purchase
method.
During 1994, the Corporation acquired United Federal
Bancorp, Inc., State College, Pennsylvania, and First Eastern
Corp., Wilkes-Barre, Pennsylvania. The acquisitions added
assets and deposits of $2.8 billion and $2.4 billion,
respectively. The Corporation paid $486 million and
accounted for the acquisitions under the purchase method.
NOTE 3 CASH FLOWS
For the statement of cash flows, the Corporation defines cash
and due from banks as cash and cash equivalents.
The table below sets forth information pertaining to
acquisitions and divestitures which affect cash flows.
<TABLE>
<CAPTION>
Year ended December 31
In millions 1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Assets acquired $3,932 $3,197 $8,896
Liabilities assumed 3,230 2,594 8,477
Cash paid 661 603 419
Cash and due from banks received 710 128 244
- -------------------------------------------------------------------
</TABLE>
53
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 SECURITIES
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------- ---------------------------------------------
Unrealized Unrealized
December 31 Amortized ----------------- Fair Amortized ----------------- Fair
In millions Cost Gains Losses Value Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale
Debt securities
U.S. Treasury $ 3,211 $ 69 $ 3,280 $ 671 $ 8 $ 663
U.S. Government
agencies and
corporations
Mortgage-related 7,510 24 $75 7,459 2,161 69 2,092
Other 1,030 5 1 1,034 25 4 21
State and municipal 343 25 1 367 8 1 7
Asset-backed private
placement 1,597 7 1,604
Other debt
Mortgage-related 1,121 2 10 1,113 749 17 732
Other 525 3 3 525 149 $ 2 5 146
Corporate stocks and other 455 4 2 457 133 2 6 129
------------------------------------------------------------------------------------------------
Total securities
available for sale 15,792 139 92 15,839 3,896 4 110 3,790
Investment securities
Debt securities
U.S. Treasury 3,317 121 3,196
U.S. Government
agencies and
corporations
Mortgage-related 11,795 1 1,088 10,708
Other 1,000 28 972
State and municipal 360 12 2 370
Asset-backed private
placements 1,597 33 1,564
Other debt
Mortgage-related 726 43 683
Other 775 20 755
Other 310 1 311
------------------------------------------
Total investment
securities 19,880 14 1,335 18,559
------------------------------------------------------------------------------------------------
Total securities $15,792 $139 $92 $15,839 $23,776 $18 $1,445 $22,349
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In connection with implementing accounting guidance issued
in November 1995, the Corporation reassessed its investment
securities' classifications. All securities previously classified
as held to maturity were reclassified to the available-for-sale
portfolio. The reclassifications were accounted for at fair
value and included the fair value of associated financial
derivatives. Subsequently, to accelerate the balance sheet
repositioning begun in the latter half of 1994, the Corporation
sold $1.9 billion of U.S. Treasury securities and $4.1 billion of
collateralized mortgage obligations at a loss of $61.3 million.
In connection with the sales, losses totaling $228.2 million,
included in net securities losses, were recognized on
terminated pay-fixed interest rate swaps with a notional value
of $5.1 billion that were designated to such securities.
At December 31, 1995, $6.1 billion notional value of interest
rate swaps and caps were associated with securities available
for sale. The fair value of securities available for sale at year-
end 1995 set forth above includes unrealized gains of $6 million
on related derivatives. No financial derivatives were designated
to securities available for sale at year-end 1994. Interest rate
swaps and caps with a notional value of $11.1 billion, fair value
of $204 million and carrying value of $130 million were designated
to investmentsecurities at December 31, 1994. The fair value of
these derivatives is not included in the values set forth above.
54
<PAGE> 34
The following table presents the amortized cost and fair value
of debt securities at December 31, 1995 by remaining
contractual maturity. Based on expected prepayment rates and
historical experience, the expected weighted average maturity
of U.S. Government agency debt and mortgage-related and
asset-backed securities was approximately 2 years and 10
months at December 31, 1995.
<TABLE>
<CAPTION>
December 31, 1995 Amortized Fair
In millions Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
One year or less $ 1,985 $ 1,989
After one year through five years 1,327 1,394
After five years through ten years 87 93
After ten years 254 267
U.S. Government agency debt 1,030 1,034
Mortgage-related securities 8,631 8,572
Asset-backed securities 2,023 2,033
-----------------------------------------
Total $15,337 $15,382
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Information relating to sales of securities, including the effects
of related financial derivatives, is set forth in the following
table:
<TABLE>
<CAPTION>
Year ended December 31 Gross Gross
In millions Proceeds Gains Losses
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995 $ 8,125 $ 11.9 $291.6
1994 14,147 65.1 206.7
1993 17,250 199.7 5.0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying value of securities pledged to secure public and
trust deposits, repurchase agreements and for other purposes at
December 31, 1995 was $7.6 billion.
NOTE 5 LOANS AND COMMITMENTS TO EXTEND CREDIT
Loans and commitments to extend credit were as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- -------------------------
Net Net
Unfunded Underfunded
December 31 Out- Com- Out- Com-
In millions standing mitments standing mitments
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer $13,539 $ 7,335 $11,851 $ 6,050
Residential mortgage 11,689 554 9,746 769
Commercial 16,812 24,282 15,545 20,794
Commercial real estate
Commercial mortgage 2,775 9 2,837 20
Real estate project 2,139 742 2,226 649
Other 2,102 892 2,223 917
Unearned income (403) (385)
----------------------------------------------------
Total, net of unearned income $48,653 $33,814 $44,043 $29,199
- -----------------------------------------------------------------------------------------
</TABLE>
Commitments to extend credit represent arrangements to lend
funds provided there is no violation of specified contractual
conditions. Such amounts are net of participations and
syndications, primarily to financial institutions, totaling $4.2
billion and $2.5 billion at December 31, 1995 and 1994,
respectively. Commercial commitments generally have fixed
expiration dates, may require payment of a fee, and contain
termination clauses in the event of deterioration in the
customer's credit quality. Most commercial commitments
expire unfunded, and therefore cash requirements are
substantially less than the total commitment. Consumer
commitments are primarily for home equity and credit card
lines.
Loan outstandings and related unfunded commitments are
concentrated within affiliate markets, which include Delaware,
Indiana, Kentucky, New Jersey, Ohio and Pennsylvania. At
December 31, 1995, no specific industry concentration
exceeded 5 percent of total outstandings and unfunded
commitments.
Letters of credit totaled $4.5 billion and $4.6 billion at
December 31, 1995 and 1994, respectively, and consist
primarily of standby letters of credit which commit the
Corporation to make payments on behalf of customers when
certain specified future events occur. Such instruments are
typically issued to support industrial revenue bonds,
commercial paper, and bid or performance related contracts.
At year-end 1995, the largest industry concentration within
standby letters of credit was healthcare, which accounted for
approximately 18 percent of the total. Maturities for standby
letters of credit ranged from 1996 to 2020.
At December 31, 1995, $475 million of loans were pledged to
secure borrowings and for other purposes.
Certain directors and executive officers of the Corporation and
its significant subsidiaries, as well as certain affiliated
companies of these directors and officers, were customers of
and had loans with subsidiary banks in the ordinary course of
business. All such loans were on substantially the same terms,
including interest rates and collateral, as those prevailing at
the time for comparable transactions with other customers and
did not involve more than a normal risk of collectibility. The
aggregate dollar amounts of these loans were $379 million
and $436 million at December 31, 1995 and 1994,
respectively. During 1995, new loans of $657 million were
funded, and repayments totaled $714 million.
55
<PAGE> 35
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 NONPERFORMING ASSETS
Nonperforming assets are comprised of nonaccrual and
restructured loans, and foreclosed assets. These assets were as
follows:
<TABLE>
<CAPTION>
December 31
In millions 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $335 $496
Restructured loans 23 69
----------------------
Total nonperforming loans 358 565
Foreclosed assets 178 192
----------------------
Total nonperforming assets $536 $757
- -------------------------------------------------------------
</TABLE>
Interest on nonperforming loans was as follows:
<TABLE>
<CAPTION>
Year ended December 31
In millions 1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
Interest computed on
original terms $36 $54 $74
Interest recognized 10 14 19
- -------------------------------------------------------------
</TABLE>
At December 31, 1995 and 1994, unfunded commitments to
lend additional funds with respect to nonperforming assets
totaled $4 million and $14 million, respectively. At December
31, 1995 and 1994, foreclosed assets are reported net of
valuation allowances of $37 million and $52 million,
respectively. Gains on sales of foreclosed assets resulted in net
foreclosed asset income of $11 million and $15 million in
1995 and 1994, respectively. Net foreclosed asset expense
totaled $42 million in 1993. Net foreclosed asset income or
expense is included in other noninterest expense.
NOTE 7 ALLOWANCE FOR CREDIT LOSSES
The following table presents changes in the allowance for
credit losses:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
January 1 $1,352 $1,372 $1,568
Charge-offs (240) (289) (707)
Recoveries 107 120 119
------------------------------
Net charge-offs (133) (169) (588)
Provision for credit losses 6 84 350
Acquisitions 34 65 42
------------------------------
December 31 $1,259 $1,352 $1,372
- -------------------------------------------------------------
</TABLE>
Information with respect to impaired loans and the related
allowance determined in accordance with SFAS No. 114 is set
forth below.
<TABLE>
<CAPTION>
In millions 1995
- -------------------------------------------------------------
<S> <C>
December 31
Impaired loans
With a related allowance for credit losses $154
Without a related allowance for credit losses 143
-----
Total impaired loans $297
-----
Allowance for credit losses $ 29
Year ended December 31
Average impaired loans $365
Interest income recognized 6
- -------------------------------------------------------------
</TABLE>
NOTE 8 PREMISES, EQUIPMENT AND
LEASEHOLD IMPROVEMENTS
Premises, equipment and leasehold improvements, stated at
cost less accumulated depreciation and amortization, were as
follows:
<TABLE>
<CAPTION>
December 31
In millions 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Land $ 101 $ 87
Buildings 553 538
Equipment 1,069 949
Leasehold improvements 186 175
------------------
1,909 1,749
Accumulated depreciation and
amortization (1,002) (899)
------------------
Net book value $ 907 $ 850
- -------------------------------------------------------------
</TABLE>
Depreciation and amortization expense on premises,
equipment and leasehold improvements totaled $134.7 million
in 1995, $124.1 million in 1994 and $115.7 million in 1993.
Certain facilities and equipment are leased under agreements
expiring at various dates until the year 2066. Substantially all
such leases are accounted for as operating leases. Rental
expense on such leases amounted to $95.0 million in 1995,
$96.7 million in 1994 and $79.5 million in 1993.
At December 31, 1995 and 1994, required minimum annual
rentals due on noncancelable leases having terms in excess of
one year aggregated $478.3 million and $364.2 million,
respectively. Minimum annual rentals for each of the years
1996 through 2000 are $77.5 million, $67.3 million, $53.1
million, $45.9 million and $37.6 million, respectively.
56
<PAGE> 36
NOTE 9 INTANGIBLE ASSETS AND MORTGAGE
SERVICING RIGHTS
Intangible assets and MSR, net of amortization, and, with
respect to mortgage servicing rights, allowances for
impairment, consisted of the following:
<TABLE>
<CAPTION>
December 31
In millions 1995 1994
---------------------------------------------------------------------------
<S> <C> <C>
Goodwill and other $ 997 $476
Mortgage servicing rights 268 303
--------------------
Total $1,265 $779
- ---------------------------------------------------------------------------
</TABLE>
At December 31, 1995, the fair value of capitalized MSR and
the allowance for impairment totaled $328.7 million and $10.9
million, respectively. Amortization of MSR totaled $71.5
million, $63.1 million and $17.1 million in 1995, 1994 and
1993, respectively.
In March 1995, SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of," was issued. 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. Management expects to
adopt this Standard effective January 1, 1996 and such
adoption is not expected to have a material impact on financial
position or results of operations.
NOTE 10 NOTES AND DEBENTURES
Notes and debentures consist of the following:
<TABLE>
<CAPTION>
December 31
In millions 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Bank notes $ 6,256 $ 8,825
Federal Home Loan Bank 2,393 1,384
Subordinated notes 1,359 1,019
Senior notes 2 164
Student Loan Marketing Association 500
ESOP 101 110
Other 287 125
-----------------------
Total $10,398 $12,127
- ------------------------------------------------------------------------
</TABLE>
Substantially all bank notes mature in 1996 and have various
interest rates that range from 5.23 percent to 6.63 percent.
Obligations to the Federal Home Loan Bank have various
maturities ranging from 1996 to 2002 and interest rates that
range from 1.25 percent to 8.76 percent. The Student Loan
Marketing Association obligations matured in 1995 and had
various interest rates that ranged from 4.97 percent to 6.08
percent.
Senior and subordinated notes are not redeemable prior to
maturity. Interest is payable semiannually, and the payment of
principal and interest is unconditionally guaranteed by the
parent company. The senior and subordinated notes have
various maturities ranging from 1997 to 2008 and interest
rates that range from 6.13 percent to 10.55 percent.
Subordinated notes totaling $200 million are to be exchanged
at maturity for common stock or perpetual preferred stock of
the Corporation having a market value equal to the principal
amount of the notes or, upon satisfaction of certain conditions,
the Corporation may elect to repay the notes in cash.
Subordinated notes totaling $67.7 million are convertible into
common stock at a conversion price of $23.41 per share. The
debentures are redeemable by the Corporation at a price equal
to 100.8 percent of principal amount and at prices declining to
par value on or after July 1, 1996.
The Employee Stock Ownership Plan ("ESOP") borrowing is
unconditionally guaranteed by the parent company and
consists of a series of medium-term, fixed-rate notes with
maturities that range from 1996 to 2000 and interest rates
ranging from 4.25 percent to 5.43 percent. Interest expense on
the borrowing was $5.0 million in 1995, $5.4 million in 1994
and $4.9 million in 1993.
Notes and debentures have scheduled repayments for the years
1996 through 2000 and thereafter of $7.8 billion, $394
million, $152 million, $290 million, $70 million, and $1.6
billion, respectively.
57
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 SHAREHOLDERS' EQUITY
Information related to the Corporation's preferred stock is as
follows:
<TABLE>
<CAPTION>
Shares Outstanding
Redemption/Liquidation --------------------------
December 31 Value Per Share 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Authorized
$1 par value 17,529,342 17,601,524
No par value 40,000,000
Issued and outstanding
$1.80 Series A $ 40 17,846 19,348
1.80 Series B 40 4,752 7,425
1.60 Series C 20 356,347 393,089
1.80 Series D 20 469,839 501,104
MC - Series A (no par value) 100 500,000
-----------------------------
Total 848,784 1,420,966
- -------------------------------------------------------------------------------------------------------
</TABLE>
Series A through D are cumulative and except for Series B,
are redeemable at the option of the Corporation. During 1995,
the MC-Series A preferred stock was redeemed.
Holders of preferred stock are entitled to a number of votes
equal to the number of full shares of common stock into
which such preferred stock is convertible. Holders of
preferred stock are entitled to the following conversion
privileges: (i) one share of Series A or Series B is convertible
into eight shares of common stock; and (ii) 2.4 shares of
Series C or Series D are convertible into four shares of
common stock.
The Corporation has a dividend reinvestment and stock
purchase plan. Holders of preferred stock and common stock
may participate in the plan which provides that additional
shares of common stock may be purchased at market value
with reinvested dividends and voluntary cash payments. The
following numbers of shares of common stock were purchased
by shareholders pursuant to such plan: 1,177,481 shares in
1995; 877,639 shares in 1994; and 591,785 shares in 1993.
The Corporation had reserved approximately 20.3 million
common shares to be issued in connection with certain
employee benefit plans and the conversion of certain debt and
equity securities.
The following table sets forth purchases and issuances of the
Corporation's common stock held in treasury.
TREASURY STOCK ACTIVITY
<TABLE>
<CAPTION>
Shares in thousands, dollars in millions Shares Amount
- ----------------------------------------------------------------------------
<S> <C> <C>
January 1, 1993 (3)
Shares purchased (819) $ (19)
Shares issued 533 10
----------------------------
December 31, 1993 (289) (9)
Shares purchased (3,684) (89)
Shares issued 1,158 33
----------------------------
December 31, 1994 (2,815) (65)
Shares purchased (10,252) (236)
Shares issued 5,578 117
Midlantic merger - shares issued 7,489 184
----------------------------
December 31, 1995 - $ -
- ----------------------------------------------------------------------------
</TABLE>
NOTE 12 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. The
Corporation manages these risks as part of its asset/liability
management process and through the Corporation's credit
policies and procedures. The Corporation seeks to minimize
the credit risk by entering into transactions with only a select
number of high-quality institutions, establishing credit limits,
requiring bilateral-netting agreements, and, in certain
instances, segregated collateral.
Receive-fixed interest rate swaps are primarily designated to
securities available for sale, commercial loans, interest-
bearing deposits, and borrowed funds. Interest-bearing
deposits include time deposits and transaction accounts, such
as demand and money market. Historical data indicate there is
a fixed-rate component to the rates paid on transaction
accounts. Receive-fixed interest rate swaps convert this fixed
component to a variable rate.
The notional value of index-amortizing interest rate swaps
amortize on predetermined dates and in predetermined
amounts based on market movements of the designated
indices, which are pri-
58
<PAGE> 38
marily 3-year U.S. Treasury constant maturities and 3-month LIBOR.
Periodically, the Corporation receives payments based on fixed
interest rates and makes payments based on floating money market
indices, primarily 1-month and 3-month LIBOR, calculated on the
notional amounts.
The following tables set forth the notional value of
financial derivatives at December 31, 1995 and 1994, related
weighted average interest rates and estimated fair values.
<TABLE>
<CAPTION>
FINANCIAL DERIVATIVES Weighted Average Rates
December 31, 1995 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
Pay fixed designated to
Securities $ 599 4.68% 5.87% $ 6
Commercial loans 290 8.01 5.87 (24)
Receive-fixed index amortizing designated to commercial loans 2,471 5.90 5.23 (14)
Receive fixed designated to
Commercial loans 975 5.89 6.31 19
Short-term investments 200 5.84 7.23 9
Basis swaps designated to commercial real estate loans 300 5.96 5.85
Interest rate caps designated to
Securities 5,500 NM NM 6
Mortgage loans 10 NM NM
------- ----
Total asset rate conversion 10,345 2
Liability rate conversion
Interest rate swaps
Pay fixed designated to
Other borrowings 1,125 5.68 5.60 (5)
Bank notes 600 5.41 5.79
Deposits 15 4.98 5.94
Receive-fixed index amortizing designated to deposits 740 5.93 5.32 (4)
Receive fixed designated to
Certificates of deposit 625 5.94 5.76 7
Bank notes 650 5.85 5.90 14
Other borrowings 330 5.82 6.37 13
Deposit notes 5 5.93 8.48
Basis swaps designated to bank notes 465 5.76 5.49 8
------- ----
Total liability rate conversion 4,555 33
------- ----
Total interest rate risk management 14,900 35
Mortgage banking activities
Commitments to purchase forward contracts - originations 431 NM NM
Commitments to sell forward contracts - originations 751 NM NM (4)
Interest rate floors - MSR 500 NM NM 9
Receive-fixed interest rate swaps - MSR 125 NM NM 7
------- ----
Total mortgage banking 1,807 12
------- ----
Total financial derivatives $16,707 $ 47
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
NM - not meaningful
</TABLE>
The floating rate portion of interest rate contracts is based on money-market
indices. As a percent of notional value, 71 percent were based on 3-month
LIBOR, 19 percent on 1-month LIBOR and the remainder on other short-term
indices.
59
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL DERIVATIVES Weighted Average Rates
December 31, 1994 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
Pay fixed designated to
Securities $ 5,649 7.53% 3.91% $ 72
Commercial loans and mortgages 303 8.87 6.05 (14)
Receive-fixed index amortizing designated to commercial loans 6,950 6.36 5.54 (498)
Receive fixed designated to commercial loans 1,625 5.85 5.56 (38)
Basis swaps designated to long-term commercial real estate loans 300 5.96 6.04 (3)
Interest rate caps designated to securities 5,500 NM NM 132
------- -----
Total asset rate conversion 20,327 (349)
Liability rate conversion
Interest rate swaps
Pay fixed designated to
Overnight and other borrowings 350 5.94 6.16 (3)
Deposits 15 4.98 6.13
Receive-fixed index amortizing designated to
Deposits 3,950 6.14 5.69 (238)
Certificates of deposit 500 5.76 5.29 (36)
Receive-fixed index amortizing designated to
Certificates of deposit 1,010 5.76 5.75 (19)
Deposits 9 6.13 8.65
------- -----
Total liability rate conversion 5,834 (296)
Mortgage banking activities
Commitments to purchase forward contracts - originations 16 NM NM
Commitments to sell forward contracts - originations 350 NM NM
-------
Total mortgage banking 366
------- -----
Total financial derivatives $26,527 $(645)
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
NM - not meaningful
The floating rate portion of interest rate contracts is based on money-market
indices. As a percent of notional value, 83 percent were based on 3-month
LIBOR, 13 percent on 1-month LIBOR and the remainder on other short-term
indices.
</TABLE>
The Corporation's pay-fixed interest rate and basis swaps are
primarily used to alter the repricing characteristics of
overnight and other short term borrowings. With respect to
pay-fixed swaps, the Corporation receives payments based on
floating money market indices, primarily 3-month LIBOR,
and pays fixed interest rates. Basis swaps convert variable rate
borrowings from one variable index to another. The
Corporation's swaps do not contain leverage or any similar
features.
The Corporation uses a combination of on-balance-sheet
instruments and financial derivatives to manage risk
associated with its mortgage banking activities. The inherent
risk affecting the value of MSR is the potential for the related
mortgages to prepay, thereby eliminating the underlying servicing
fee income stream. Prepayment is primarily related to declining
interest rates. In 1995, the Corporation entered into a combination
of interest rate floors and receive-fixed interest rate swaps
designed to reduce this risk. If interest rates decrease, the value of the
interest rate swaps and floors should increase and the value of the related MSR
should decline.
Forward contracts are used to manage risk positions associated
with mortgage origination activities. Substantially all forward
contracts mature within 90 days of origination. Forward
contracts are traded in over-the-counter markets and do not
have standardized terms. Counterparties to the Corporation's
forward contracts are primarily U.S. Government agencies and
brokers and dealers in mortgage-backed securities. In the
event the counterparty is unable to meet its contractual
obligations, the Corporation may be exposed to selling or
purchasing mortgage loans at prevailing market prices.
60
<PAGE> 40
<TABLE>
<CAPTION>
FAIR VALUES OF FINANCIAL DERIVATIVES
Positive Negative Total
December 31 Notional Fair Notional Fair Notional
In millions Value Value Value Value Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------
1994
Interest rate swaps $ 5,878 $ 80 $14,783 $(857) $20,661
Interest rate caps 5,500 132 5,500
Mortgage banking activities 366 366
-------------------------------------------------
Total mortgage banking $11,744 $212 $14,783 $(857) $26,527
- -----------------------------------------------------------------------------------
</TABLE>
The following table sets forth the maturity distribution and
weighted average interest rates of financial derivatives used
for interest rate risk management. The maturity distribution of
receive-fixed index amortizing swaps is based on implied
forward rates. Weighted average interest rates paid or received
represent contractual interest rates in effect on December 31,
1995 and expected rates based on implied forward rates.
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF FINANCIAL DERIVATIVES
Weighted Average Rates
-----------------------------------------------------
Expected Based on
At December 31, 1995 Implied Forward Rates
December 31, 1995 Notional -----------------------------------------------------
Dollars in millions Value Paid Received Paid Received
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rate swaps
Receive fixed index amortizing
1996 $3,169 5.90% 5.25% 5.34% 5.25%
1997 42 5.96 5.54 5.15 5.54
------
Total $3,211 5.90 5.25 5.34 5.25
------------------------------------------------------------------
Receive fixed
1996 $1,855 5.89% 5.88% 5.31% 5.88%
1997 280 5.92 6.18 5.21 6.18
1998 575 5.84 7.01 5.27 7.01
1999 and beyond 75 5.85 7.00 5.54 7.00
------
Total $2,785 5.88 6.17 5.30 6.17
------------------------------------------------------------------
Pay-fixed
1996 $1,515 5.77% 5.68% 5.77% 5.32%
1997 989 5.04 5.81 5.04 5.19
1998 50 8.28 5.88 8.28 5.31
1999 and beyond 75 9.43 5.94 9.43 5.60
------
Total $2,629 5.65 5.74 5.65 5.28
------------------------------------------------------------------
Basis swaps
1996 $ 765 5.84% 5.63% 5.59% 5.21%
------------------------------------------------------------------
Interest rate caps
1996 $ 10 NM NM NM NM
1997 5,500 NM NM NM NM
------
Total $5,510
- -------------------------------------------------------------------------------------------------------------
<FN>
NM - Not meaningful
</TABLE>
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
the specified cap rate. At December 31, 1995, 3-month LIBOR was 5.63 percent
and the specified cap rate was 6.50 percent.
61
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1995, $4.6 billion notional value of index amortizing
receive-fixed interest rate swaps and $5.1 billion notional
value of pay-fixed interest rate swaps were terminated. The
loss on the index amortizing swaps was deferred and is being
amortized as an adjustment to interest income or expense of
the designated instruments. At December 31, 1995, the
unamortized loss was $6.1 million and will be amortized over
a weighted-average remaining period of 6 months. Losses
totaling $228.2 million on terminated pay-fixed swaps
associated with securities sold are included in net securities
losses.
In connection with the Midlantic merger, $5.5 billion notional
value of interest rate caps that reduced exposure to higher
interest rates within a specified range were terminated at a loss
of $79.9 million. The interest rate cap was terminated as part
of the realignment of the combined asset and liability position
of the Corporation taking into account the interest rate risk
profile of Midlantic. The amount is included as a component
of special charges. Concurrently, the Corporation purchased
$5.5 billion notional value interest rate caps that require the
counterparty to pay the Corporation the excess, if any, of 3-
month LIBOR over a specified cap rate without limitation,
currently 6.50 percent, computed quarterly based on the
notional value of the contracts. At December 31, 1995, 3-
month LIBOR was 5.63 percent. The contracts expire during
the third and fourth quarters of 1997.
At December 31, 1995, credit exposure related to interest rate
swaps and caps totaled $32.7 million.
NOTE 13 SPECIAL CHARGES
In connection with the Midlantic merger, the Corporation
recorded special charges totaling $260 million in 1995. These
charges represent 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.
Branch network integration and consolidation will begin
during the first half of 1996 with the closing or consolidation
of overlapping and unprofitable facilities and operations.
Consolidation of the back office and administrative facilities is
expected to begin later in 1996.
<TABLE>
<CAPTION>
SPECIAL CHARGES
Year ended December 31
In millions 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Staff related $ 42 $ 18
Net occupancy 72 12
Equipment 17 2
Professional services 31
Other 18 16
Interest rate cap termination 80
-----------------
Total special charges $260 $48
- -------------------------------------------------------------
</TABLE>
Special charges in 1994 were for costs to consolidate the
Corporation's telebanking centers and rationalization of the
retail branch networks.
NOTE 14 EMPLOYEE BENEFIT PLANS
INCENTIVE SAVINGS PLANS The Corporation sponsors incentive
savings plans covering substantially all employees. Under the
plans, employee contributions up to 3 percent or 6 percent of
base pay, subject to Internal Revenue Service limitations, are
matched with cash or shares of the Corporation's common
stock. Contributions for one of the plans are matched
primarily by shares of common stock held by the
Corporation's ESOP.
The Corporation makes annual contributions to the ESOP
equal to the debt service requirements on the ESOP borrowing
less dividends received by the ESOP. All dividends received
by the ESOP are used to pay debt service. During 1995, 1994
and 1993, dividends used for debt service totaled $9.9 million,
$9.5 million and $8.5 million, respectively. To satisfy
additional debt service requirements, the Corporation
contributed $8.5 million in 1995, $7.6 million in 1994 and
$8.8 million in 1993.
As the ESOP borrowing is repaid, shares are allocated to
employees who made contributions during the year based on
the proportion of annual debt service to total debt service. The
Corporation includes all ESOP shares as common shares
outstanding in its earnings per share computation. The
components of ESOP shares are as follows:
<TABLE>
<CAPTION>
Year end December 31
In thousands 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Allocated shares 2,503 1,956
Shares released for allocation 792 673
Unallocated shares 3,825 4,617
Shares retired during year (238) (126)
-------------------
Total ESOP shares 6,882 7,120
- -------------------------------------------------------------
</TABLE>
62
<PAGE> 42
Compensation expense related to the portion of contributions
matched with ESOP shares is determined based on the number
of ESOP shares allocated. Compensation expense related to
these plans was $18.1 million for 1995, $12.7 million for 1994
and $6.8 million for 1993.
DEFINED BENEFIT PLANS The Corporation sponsors funded
defined benefit pension plans covering substantially all
employees. The plans provide pension benefits that are based
on the average base salary for specified years of service prior
to retirement. Pension contributions are made to the extent
deductible under existing federal tax regulations. The
Corporation also has unfunded non-qualified supplemental
defined benefit retirement plans covering certain employees as
defined in the plans.
The following table sets forth the estimated funded status of
defined benefit plans:
<TABLE>
<CAPTION>
December 31
In millions 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation
Vested $550 $428
Nonvested 35 22
---- ----
Accumulated benefit obligation 585 450
Effect of future compensation levels 149 103
---- ----
Projected benefit obligation for services
rendered to date 734 553
Plan assets at fair value, primarily listed
common stocks, U.S. Government and
agency securities, and collective funds 644 561
---- ----
Plan assets (greater) less than projected
benefit obligation 90 (8)
Unrecognized net gain (loss) due to
experience different from assumptions
and the effect of changes in
assumptions (62) 15
Unrecognized net asset 26 30
Unrecognized prior service cost (19) (22)
---------------
Accrued pension cost $35 $15
- -------------------------------------------------------------
</TABLE>
Net periodic defined benefit plan costs include the following
components:
<TABLE>
<CAPTION>
Year ended December 31
In millions 1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 24 $ 29 $ 23
Interest cost on projected benefit
obligation 49 44 37
Actual return on plan assets (112) (9) (63)
Net amortization and deferral 60 (42) 11
------------------------
Net periodic pension costs $ 21 $ 22 $ 8
- -------------------------------------------------------------
</TABLE>
Assumptions used to measure the projected benefit obligation
and the expected return on assets included in net periodic
pension costs are set forth in the following table.
<TABLE>
<CAPTION>
December 31 1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
Discount 7.15% 8.75/8.50% 7.25/7.50%
Increase in compensation
levels 4.75 5.00/5.00 5.18/5.00
Expected long-term
return on assets 9.50 10.00/8.50 10.00/8.50
- -------------------------------------------------------------
</TABLE>
In addition to providing pension benefits, the Corporation
provides certain health care and life insurance benefits for
retired employees ("postretirement benefits") through various
plans. A reconciliation of the accrued postretirement benefit
obligation is as follows:
<TABLE>
<CAPTION>
December 31
In millions 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation
Retirees $156 $143
Active employees 8 6
Other active plan participants 59 47
----------------
Total accumulated postretirement
obligation 223 196
Unrecognized prior service cost credit 56 62
Unrecognized net loss (27) (7)
----------------
Accrued postretirement benefit obligation $252 $251
- -------------------------------------------------------------
</TABLE>
Net periodic postretirement benefit costs include the following
components:
<TABLE>
<CAPTION>
Year ended December 31
In millions 1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during period $ 3 $ 3 $ 3
Interest cost on benefit
obligation 15 15 11
Amortization of prior service
cost (4) (3) (3)
--- --- ---
Net periodic
postretirement benefit
costs $14 $15 $11
- -------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the plans were:
<TABLE>
<CAPTION>
December 31 1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.15% 8.75/8.00% 7.25/7.00%
Expected health care
cost trend rate
Medical 7.50 9.10/5.00 10.70/5.00
Dental 7.00 7.40 7.80
- --------------------------------------------------------------
</TABLE>
63
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The health care cost trend rate declines until it stabilizes at 5.0
percent beginning 2001. A one percent increase in the health
care trend rate would result in an increase of $255 thousand
and $1.0 million in the service cost and interest cost
components, respectively, and a $12.8 million increase in the
accumulated postretirement benefit obligation.
In connection with the Midlantic merger, the Corporation
conformed Midlantic's accounting policy for postretirement
benefits. As a result, a cumulative effect adjustment of $45.8
million net of tax was recorded, effective January 1, 1992.
This change increased net income by $2.3 million for each of
the three years in the period ended December 31, 1995.
The Corporation has an employee stock purchase plan which
covers a maximum of 5.2 million shares of common stock of
which 1.0 million were available to be issued. Persons who
have been continuously employed for at least one year are
eligible to participate. Offering periods cover six months
beginning June 1 and December 1 of each year. Common
stock is purchased by participants at 85 percent of the lesser of
fair market value on the first or last day of each offering
period. No charge to earnings is required with respect to such
noncompensatory plan. Shares issued pursuant to this plan
were as follows:
<TABLE>
<CAPTION>
Year ended December 31 Shares Prices Per Share
- ---------------------------------------------------------------
<S> <C> <C>
1995 463,907 $17.32 and $22.95
1994 403,692 $17.64 and $24.76
1993 276,517 $24.12 and $25.18
- ---------------------------------------------------------------
</TABLE>
NOTE 15 INCENTIVE PLANS
The Corporation has a senior executive long-term incentive
award plan ("Incentive Plan") that provides for the granting of
incentive stock options, nonqualified options, stock
appreciation rights ("SARs"), performance units and incentive
shares. In any given year, the number of shares of common
stock available for grants under the Incentive Plan may range
from 1.5 percent to 3 percent of total issued shares of common
stock, determined at the end of the preceding calendar year.
Options are granted at exercise prices not less than the fair
market value of common stock on the date of grant. Such
options are exercisable twelve months from the date of grant.
Payment of the option price may be in cash or shares of
common stock at fair market value on the exercise date.
The following table presents share data related to the Incentive
Plan, a similar predecessor plan and other plans assumed in
certain mergers.
<TABLE>
<CAPTION>
Option Price per
Shares in thousands Common Share Shares
- -----------------------------------------------------------------
<S> <C> <C>
January 1, 1993 $ 1.59 - $27.56 13,380
Granted 29.25 - 30.13 1,930
SARs exercised (10)
Options exercised 1.59 - 27.56 (1,561)
Terminated (235)
------
December 31, 1993 1.59 - 30.13 13,504
Granted 13.81 - 29.75 4,454
SARs exercised (73)
Options exercised 1.59 - 27.56 (1,127)
Terminated (172)
------
December 31, 1994 1.59 - 30.13 16,586
Granted 16.46 - 29.06 157
Options exercised 1.59 - 29.25 (2,996)
Terminated (420)
Options exchanged for PNC
stock in connection with
Midlantic merger (3,457)
------
December 31, 1995 $11.38 - $29.88 9,840
- -----------------------------------------------------------------
</TABLE>
At December 31, 1995, options for 9,729,070 shares of
common stock were exercisable. Shares of common stock
available for the granting of options under the Incentive Plan
and the predecessor plans were as follows: 10,225,990 at
December 31, 1995, 13,094,887 at December 31, 1994 and
12,967,457 at December 31, 1993.
During 1995, incentive share awards for 323,000 shares of
restricted common stock were granted under the Incentive
Plan to certain executive officers. Such shares will
be earned when market prices of the Corporation's common
stock equal or exceed specified levels for defined periods.
Any shares issued will be forfeited if the named executive officer
leaves the Corporation's employ within two years after the
applicable performance condition has been satisfied. During
1995, compensation expense recognized with respect to
incentive share awards was $1.2 million.
64
<PAGE> 44
NOTE 16 INCOME TAXES
Income taxes related to operations, the tax effect of securities
transactions, and the current and deferred portions of income
taxes were as follows:
<TABLE>
<CAPTION>
Year ended December 31
In millions 1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Operations $317 $365 $193
Securities transactions
Equity and other 10 1
Debt (98) (57) 68
------------------------------------
Total $219 $318 $262
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
In millions 1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 77 $293 $381
State 14 19 14
------------------------------------
Total current 91 312 395
Deferred
Federal 84 44 (112)
State 44 (38) (21)
------------------------------------
Total deferred 128 6 (133)
------------------------------------
Total $219 $318 $262
- --------------------------------------------------------------------
</TABLE>
Significant components of deferred tax assets and liabilities
are as follows:
<TABLE>
December 31
In millions 1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Allowance for credit losses $413 $462
Compensation and benefits 113 116
Foreclosed assets 12 24
Net unrealized securities losses 44
Net operating loss and AMT
carryforwards 23 85
Purchase accounting - deposits and
other borrowings 32 60
Purchase accounting-other 27 22
Other 120 87
--------------------
Total deferred tax assets 740 900
Deferred tax liabilities
Leasing 218 203
Depreciation 37 34
Net unrealized securities gains 19
Purchase accounting - loans and leases 45 48
Other 47 34
--------------------
Total deferred tax liabilities 366 319
--------------------
Net deferred tax asset $374 $581
- --------------------------------------------------------------------
</TABLE>
At December 31, 1995, the Corporation had net operating loss
carryforwards totaling $12.5 million which expire in 2008 and
2009, and $18.7 million of alternative minimum tax ("AMT")
credit carryforwards. The AMT credit can be carried forward
indefinitely.
A reconciliation between the statutory and effective tax rates
follows:
<TABLE>
<CAPTION>
Year ended December 31 1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
State taxes 6.0 2.2 .8
Tax-exempt interest (4.5) (2.2) (3.0)
Goodwill 1.7 1.8 1.2
Deferred tax valuation
allowance reduction (8.8) (9.6)
Other, net (3.3) (1.7) (1.5)
------------------------------------
Effective tax rate 34.9% 26.3% 22.9%
- --------------------------------------------------------------------
</TABLE>
NOTE 17 REGULATORY MATTERS
The Corporation is subject to the regulations of certain federal
and state agencies and undergoes periodic examinations by
such regulatory authorities. At any time, various bank and
nonbank examinations are ongoing. Neither the Corporation
nor any of its subsidiaries is subject to written regulatory
agreements.
Dividends that may be paid by subsidiary banks to the parent
company are subject to certain legal limitations. Without
regulatory approval, the amount available for payment of
dividends by all subsidiary banks was $650 million at
December 31, 1995. Dividends also may be impacted by
capital needs, regulatory requirements and policies, and other
factors deemed relevant.
Under federal law, generally no bank subsidiary may extend
credit to the parent company or its nonbank subsidiaries on
terms and under circumstances which are not substantially the
same as comparable extensions of credit to nonaffiliates. No
extension of credit may be made to the parent company or a
nonbank subsidiary which is in excess of 10 percent of the
capital stock and surplus of such bank subsidiary as to
aggregate extensions of credit to the parent company and its
subsidiaries. In certain circumstances, federal regulatory
authorities may impose more restrictive limitations. Such
extensions of credit, with limited exceptions, must be fully
collateralized. The maximum amount available under statutory
limitations for transfer from subsidiary banks to the parent
company in the form of loans and dividends approximated 23
percent of consolidated net assets at December 31, 1995.
65
<PAGE> 45
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS
Federal Reserve Board regulations require depository
institutions to maintain cash reserves with the Federal Reserve
Bank. During 1995, subsidiary banks maintained reserves
which averaged $1.1 billion.
NOTE 18 LITIGATION
A consolidated purported class action complaint is pending
against the Corporation and certain officers, alleging
violations of federal securities laws and common law relating
to disclosures and seeking, among other things, unquantified
damages on behalf of purchasers of the Corporation's
securities during specified portions of 1994. Management
believes there are meritorious defenses to this consolidated
lawsuit and intends to defend it vigorously. Management
believes that the final disposition will not be material to the
Corporation's financial position.
A purported class action lawsuit was filed in 1992 against
PNC National Bank ("PNCNB"), alleging that certain credit
card fees charged to Pennsylvania cardholders violated
Pennsylvania law and seeking, among other things,
unquantified compensatory and triple damages and injunctive
relief. The federal district court dismissed the lawsuit, holding
that Pennsylvania law is preempted by federal banking laws.
The court of appeals, after initially holding that there was
no federal court jurisdiction and remanded the case to state court,
has vacated its opinion and granted a rehearing. The case against
PNCNB is one of a number of similar cases pending against several
credit card issuers. The United States Supreme Court is reviewing
one such case, the outcome of which will affect the lawsuit against
PNCNB. The impact of the final disposition of the lawsuit
brought against PNCNB cannot be assessed at this time.
The Corporation, in the normal course of business, is subject
to various other pending and threatened lawsuits in which
claims for monetary damages are asserted. Management, after
consultation with legal counsel, does not anticipate that the
ultimate aggregate liability, if any, arising out of such other
lawsuits will have a material adverse effect on the
Corporation's financial position.
At the present time, management is not in a position to
determine whether any pending or threatened litigation will
have a material adverse effect on the Corporation's results of
operations in any future reporting period.
NOTE 19 OTHER FINANCIAL INFORMATION
Summarized financial information of the parent company is as
follows:
PARENT COMPANY ONLY
BALANCE SHEET
<TABLE>
<CAPTION>
December 31
In millions 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2 $ 7
Securities available for sale 48 108
Investments in
Bank subsidiaries 6,735 6,551
Nonbank subsidiaries 240 291
Advances to subsidiary banks 8 12
Other assets 115 116
----------------------
Total assets $7,148 $7,085
----------------------
LIABILITIES
Notes and debentures $ 368 $ 374
Nonbank affiliate borrowings 701 679
Accrued expenses and other liabilities 311 305
----------------------
Total liabilities 1,380 1,358
SHAREHOLDERS' EQUITY 5,768 5,727
----------------------
Total liabilities and shareholders'
equity $7,148 $7,085
- ----------------------------------------------------------------------
</TABLE>
Notes and debentures have scheduled repayments of $200
million in 1999 and $168 million in 2001 and thereafter.
Commercial paper and all other debt issued by PNC Funding
Corp. is guaranteed by the parent company. In addition, in
connection with certain affiliates' mortgage servicing
operations, the parent company has committed to maintain
such affiliates' net worth above minimum requirements.
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.
66
<PAGE> 46
PARENT COMPANY ONLY
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31
In thousands 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE
Dividends from
Bank subsidiaries $446,928 $379,362 $358,110
Nonbank subsidiaries 24,903 55,507 11,708
Interest income 3,396 8,542 10,436
Other income 273 979 781
-----------------------------------------
Total operating revenue 475,500 444,390 381,035
OPERATING EXPENSE
Interest expense 73,381 65,478 41,309
Other expense 32,938 28,169 56,440
-----------------------------------------
Total operating expense 106,319 93,647 97,749
Income before income taxes
and equity in undistributed
net income of subsidiaries 369,181 350,743 283,286
Applicable income tax
benefits (35,309) (48,547) (23,556)
-----------------------------------------
Income before equity in
undistributed net income
of subsidiaries 404,490 399,290 306,842
Net equity in undistributed
net income (excess
dividends)*
Bank subsidiaries (18,968) 478,441 566,710
Nonbank subsidiaries 22,538 6,197 39,988
-----------------------------------------
Income before cumulative
effect of changes in
accounting principles 408,060 883,928 913,540
Cumulative effect of changes
in accounting principles (15,023)
-----------------------------------------
Net income $408,060 $883,928 $898,517
- ------------------------------------------------------------------------------
<FN>
*Amounts for 1994 and 1993 include the cumulative effect of changes in
accounting principles at the respective subsidiaries.
</TABLE>
PARENT COMPANY ONLY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
In millions 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 408 $ 884 $ 898
Adjustments to reconcile net income
to net cash provided by operating
activities
Cumulative effect of changes in
accounting principles 15
Equity in undistributed net
earnings of subsidiaries (3) (485) (606)
Other 10 (4) 78
-------------------------------------
Net cash provided by operating
activities 415 395 385
INVESTING ACTIVITIES
Net change in interest-earning
deposits with subsidiary bank 4 (8) (4)
Net capital returned from
subsidiaries 548 25 116
Securities available for sale
Sales 646 2,158 2,674
Purchases (586) (2,005) (2,770)
Cash paid in acquisitions (527) (503) (383)
Other (2) (2) (87)
-------------------------------------
Net cash provided (used) by
investing activities 83 (335) (454)
FINANCING ACTIVITIES
Borrowings from nonbank
subsidiary 275 330 250
Redemption of preferred stock (50)
Acquisition of treasury stock (236) (90) (19)
Cash dividends paid to shareholders (387) (333) (276)
Issuance of stock 88 53 162
Repayment of long-term debt (193) (14) (50)
-------------------------------------
Net cash provided (used) by
financing activities (503) (54) 67
-------------------------------------
Increase (decrease) in cash and due
from banks (5) 6 (2)
Cash and due from banks at
beginning of year 7 1 3
-------------------------------------
Cash and due from banks at end of
year $ 2 $ 7 $ 1
- ------------------------------------------------------------------------------
</TABLE>
67
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1995, 1994 and 1993, the parent company received
income tax refunds of $20.4 million, $23.4 million and $24.8
million, respectively. Such refunds represent the parent
company's portion of consolidated income taxes. During 1995,
1994 and 1993, the parent company paid interest on
contractual debt obligations of $68.0 million, $63.3 million
and $38.4 million, respectively.
Summarized financial information for PNC Bancorp, Inc. and
subsidiaries is as follows:
PNC BANCORP. INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
In millions 1995 1994
- ----------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,678 $ 3,414
Securities 15,683 23,493
Loans, net of unearned income 48,583 43,911
Allowance for credit losses (1,259) (1,311)
-----------------------
Net loans 47,324 42,600
Other assets 6,053 7,191
-----------------------
Total assets $72,738 $76,698
-----------------------
LIABILITIES
Deposits $47,024 $46,686
Borrowed funds 8,093 11,110
Notes and debentures 9,726 11,280
Other liabilities 1,167 1,071
-----------------------
Total liabilities 66,010 70,147
SHAREHOLDER'S EQUITY 6,728 6,551
-----------------------
Total liabilities and shareholder's
equity $72,738 $76,698
-----------------------
</TABLE>
PNC BANCORP. INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31
In millions 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 5,117 $ 4,687 $ 3,987
Interest expense 2,941 2,173 1,647
--------------------------------------
Net interest income 2,176 2,514 2,340
Provision for credit losses 20 84 350
--------------------------------------
Net interest income less
provision for credit losses 2,156 2,430 1,990
Noninterest income 871 921 1,042
Noninterest expense 2,409 2,184 1,917
--------------------------------------
Income before income taxes and
cumulative effect of changes
in accounting principles 618 1,167 1,115
Applicable income taxes 217 320 247
--------------------------------------
Income before cumulative
effect of changes in
accounting principles 401 847 868
Cumulative effect of changes
in accounting principles (7) 34
--------------------------------------
Net income $ 401 $ 840 $ 902
- ------------------------------------------------------------------------------
</TABLE>
NOTE 20 UNUSED LINE OF CREDIT
At December 31, 1995, the Corporation maintained a line of
credit in the amount of $300 million, none of which was
drawn. This line is available for general corporate purposes.
The annual fee paid for the unused line is .13 percent.
68
<PAGE> 48
NOTE 21 FAIR VALUES OF FINANCIAL INSTRUMENTS
The following tables set forth the carrying value and estimated
fair value of financial instruments:
<TABLE>
<CAPTION>
1995 1994
-----------------------------------------------------------------------------------------
Related Financial Related Fiancial
Derivatives Derivatives
- -----------------------------------------------------------------------------------------------------------------------------------
December 31 Carrying Fair Carrying Fair Carrying Fair Carrying Fair
In millions Amount Value Amount Value Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and short-term investments $ 5,826 $ 5,826 $ 9 $ 5,923 $ 5,923
Securities 15,839 15,839 $ 6 12 23,670 22,349 $130 $ 204
Loans held for sale 659 659 487 487
Net loans (excludes leases) 46,372 46,384 (14) (19) 41,509 41,359 (27) (553)
LIABILITIES
Demand deposits 27,145 27,145 2 (4) 27,079 27,079 (238)
Time deposits 19,754 20,025 7 18,739 18,533 (55)
Borrowed funds 9,125 9,133 8 12,718 12,709 (3)
Notes and debentures 10,398 10,574 22 12,127 12,061
OFF-BALANCE-SHEET
Commitments to extend credit (32) (48) (23) (25)
Letters of credit (12) (14) (12) (13)
Interest rate swaps and floors 16 16
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Real and personal property, lease financings, loan customer
relationships, deposit customer intangibles, retail branch
networks, fee-based businesses, such as asset management,
mortgage banking and brokerage, trademarks and brand
names are excluded from the amounts set forth above.
Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the Corporation.
Fair value is defined as the estimated amount at which the
financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced
or liquidation sale. However, it is not management's intention
to immediately dispose of a significant portion of such
financial instruments, and unrealized gains or losses should
not be interpreted as a forecast of future earnings and cash
flows.
The fair value of securities is based primarily on quoted
market prices. For substantially all other financial instruments,
fair values were estimated using discounted cash flow
analyses, pricing models and other valuation techniques.
These derived fair values are subjective in nature, involve
uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in
assumptions could significantly impact the derived fair value
estimates.
The following methods and assumptions were used in
estimating fair value amounts for financial instruments:
GENERAL For short-term financial instruments realizable in three
months or less, the carrying amount reported in the balance
sheet approximates fair value. Unless otherwise stated, the
rates used in discounted cash flow analyses are based on
market yield curves.
69
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AND SHORT-TERM INVESTMENTS The carrying amounts
reported in the consolidated balance sheet for cash and short-
term investments approximate those assets' fair values
primarily due to their short-term nature. For purposes of this
disclosure only, short-term investments include due from
banks, interest-earning deposits with banks, federal funds sold
and resale agreements, trading securities, customer's
acceptance liability, accrued interest receivable and loans held
for accelerated disposition.
SECURITIES The fair value of investment securities and securities
available for sale are based on quoted market prices, where
available. If quoted market prices are not available, fair value
is estimated using the quoted market prices of comparable
instruments.
NET LOANS AND LOANS HELD FOR SALE For demand and variable-
rate commercial and certain consumer loans that reprice at
least quarterly, fair values are estimated by reducing carrying
amounts by estimated credit loss factors. For other
commercial loans, including nonaccrual loans, fair values are
estimated using discounted cash flow analyses, with cash
flows reduced by estimated credit loss factors and discount
rates equal to rates currently charged by the Corporation for
similar loans. In the case of nonaccrual loans, scheduled cash
flows exclude interest payments.
For automobile, home equity, student and credit card loans,
fair values are determined by using internal pricing models
incorporating assumptions about prepayment rates, credit
losses and servicing fees and costs and discounting the future
net revenues at an appropriate risk-weighted rate of return. For
credit cards and revolving home equity loans, this fair value
does not include any amount for new loans or the related fees
that will be generated from the existing customer
relationships. The fair value of residential mortgages was
estimated based on quoted market prices of similar loans sold
in conjunction with securitization transactions, adjusted for
differences in loan characteristics. Loans held for sale are
reported at the lower of cost or market value in the
consolidated balance sheet. For purposes of this disclosure
only, the carrying value approximates fair value.
DEPOSITS The carrying amounts of noninterest-bearing demand
and interest-bearing, money market and savings deposits
approximate fair values. For time deposits, fair values are
based on the discounted value of scheduled cash flows. The
discount rates used vary by instrument and are based on dealer
quotes or rates currently offered for deposits with similar
maturities.
BORROWED FUNDS The carrying amounts of federal funds
purchased, commercial paper, acceptances outstanding and
accrued interest payable are considered fair value because of
their short-term nature. Repurchase agreements and term
federal funds purchased are valued using discounted cash flow
analyses.
NOTES AND DEBENTURES The fair value of variable-rate notes and
debentures is equivalent to carrying value. For fixed-rate notes
and debentures, scheduled cash flows are discounted using
rates for similar debt with the same maturities.
UNFUNDED LOAN COMMITMENTS AND LETTER OF CREDIT Fair values
for commitments to extend credit and letters of credit are
estimated based upon the amount of deferred fees and the
creditworthiness of the counterparties.
FINANCIAL DERIVATIVES The fair value of index-amortizing
interest rate swaps, caps and floors is based on dealer quotes.
The fair value of other interest rate swaps is the discounted
value of the expected net cash flows. These fair values
represent the estimated amounts the Corporation would
receive or pay to terminate the contracts, taking into account
current interest rates.
70
<PAGE> 50
STATISTICAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
The merger between PNC Bank Corp. and Midlantic Corporation 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.
<TABLE>
<CAPTION>
Year ended December 31 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (In thousands)
Interest income $5,149,431 $4,723,147 $4,022,771 $4,281,178 $5,399,913
Interest expense 3,007,562 2,231,153 1,682,944 2,103,691 3,327,114
--------------------------------------------------------------------------------------
Net interest income 2,141,869 2,491,994 2,339,827 2,177,487 2,072,799
Provision for credit losses 6,000 83,458 350,249 493,830 1,152,431
Noninterest income before net
securities gains/losses 1,240,113 1,180,582 940,899 930,885 995,822
Net securities gains (losses) (279,694) (141,582) 194,699 246,256 60,564
Noninterest expense 2,469,276 2,237,620 1,984,689 2,072,804 2,015,332
--------------------------------------------------------------------------------------
Income (loss) before income taxes and
cumulative effect of changes in
accounting principles 627,012 1,209,916 1,140,487 787,994 (38,578)
Applicable income taxes 218,952 318,460 261,539 251,526 114,939
--------------------------------------------------------------------------------------
Income (loss) before cumulative effect
of changes in accounting principles 408,060 891,456 878,948 536,468 (153,517)
Cumulative effect of changes in accounting
principles, net of tax benefits of
$4,598, $5,343 and $77,458 (7,528) 19,569 (148,287)
--------------------------------------------------------------------------------------
Net income (loss) $ 408,060 $ 883,928 $ 898,517 $ 388,181 $ (153,517)
--------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Book value
As reported $16.87 $16.59 $15.61 $13.63 $13.51
Excluding net unrealized securities
gains/losses 16.79 16.95 15.35 13.63 13.51
Cash dividends declared 1.40 1.31 1.175 1.08 .795
Earnings (loss)
Primary before cumulative effect of
changes in accounting principles $1.19 $2.56 $2.56 $1.72 $(.58)
Cumulative effect of changes in
accounting principles (.02) .06 (.48)
--------------------------------------------------------------------------------------
Primary $1.19 $2.54 $2.62 $1.24 $(.58)
--------------------------------------------------------------------------------------
Fully diluted before cumulative effect
of changes in accounting principles $1.19 $2.54 $2.54 $1.70 $(.58)
Cumulative effect of changes in
accounting principles (.02) .06 (.47)
--------------------------------------------------------------------------------------
Fully diluted $1.19 $2.52 $2.60 $1.23 $(.58)
--------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS
(December 31, in millions)
Total assets $73,404 $77,461 $76,012 $65,802 $63,024
Securities 15,839 23,670 25,496 22,849 16,805
Loans, net of unearned income 48,653 44,043 42,113 35,943 38,762
Deposits 46,899 45,818 44,703 42,030 46,109
Borrowed funds 8,665 12,193 12,336 12,182 10,074
Notes and debentures 10,398 12,127 9,972 4,734 1,751
Shareholders' equity 5,768 5,727 5,404 4,543 4,044
SELECTED RATIOS
Return on average total assets .54% 1.19% 1.40% .64% (.24)%
Return on average shareholders' equity 7.05 16.09 18.55 9.38 (4.30)
Average common shareholders' equity to
average total assets 7.64 7.34 7.52 6.67 5.79
Dividend payout 94.76 37.42 30.79 61.72 (95.29)
Overhead 78.42 62.69 56.28 60.66 62.51
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
71
<PAGE> 51
STATISTICAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA
The merger between PNC Bank Corp. and Midlantic Corporation was completed on
December 31, 1995 and accounted for as a pooling of interests. Accordingly, the
unaudited selected quarterly financial data has been restated as if the
companies were combined for all periods presented.
<TABLE>
<CAPTION>
1995 1994
-----------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF
OPERATIONS
(In thousands)
Interest income $1,300,002 $1,293,509 $1,294,643 $1,261,277 $1,249,571 $1,228,631 $1,146,856 $1,098,089
Interest expense 747,254 766,490 771,821 721,997 674,297 581,562 509,880 465,414
-----------------------------------------------------------------------------------------------
Net interest income 552,748 527,019 522,822 539,280 575,274 647,069 636,976 632,675
Provision for credit losses 1,500 1,500 1,500 1,500 (433) 14,863 35,857 33,171
Noninterest income before net
securities gains (losses) 312,244 338,282 305,284 284,303 276,346 324,671 303,377 276,188
Net securities gains (losses) (288,958) 44 7,966 1,254 (124,313) (44,202) (4,722) 31,655
Noninterest expense 825,827 547,435 542,663 553,351 604,206 550,087 536,512 546,815
-----------------------------------------------------------------------------------------------
Income (loss) before income taxes
and cumulative effect of change
in accounting principle (251,293) 316,410 291,909 269,986 123,534 362,588 363,262 360,532
Applicable income taxes (benefits) (75,116) 105,673 97,956 90,439 17,206 97,771 102,565 100,918
-----------------------------------------------------------------------------------------------
Income (loss) before cumulative
effect of change in accounting
principle (176,177) 210,737 193,953 179,547 106,328 264,817 260,697 259,614
Cumulative effect of change in
accounting principle, net of
tax benefit of $4,598 (7,528)
-----------------------------------------------------------------------------------------------
Net income (loss) $(176,177) $210,737 $193,953 $179,547 $106,328 $264,817 $260,697 $252,086
-----------------------------------------------------------------------------------------------
PER COMMON SHARE
DATA
Book value:
As reported $16.87 $17.55 $17.24 $16.90 $16.59 $16.49 $15.96 $15.60
Excluding net unrealized
securities gains/losses 16.79 17.67 17.35 17.10 16.95 16.90 16.41 15.87
Earnings (losses)
Primary before cumulative
effect of change in
accounting principle $(.52) $.62 $.57 $.52 $.30 $.76 $.75 $.75
Cumulative effect of change
in accounting principle (.02)
-----------------------------------------------------------------------------------------------
Primary $(.52) $.62 $.57 $.52 $.30 $.76 $.75 $.73
-----------------------------------------------------------------------------------------------
Fully diluted before
cumulative effect of
change in accounting
principle $(.52) $.62 $.56 $.52 $.30 $.76 $.74 $.74
Cumulative effect of change
in accounting principle (.02)
-----------------------------------------------------------------------------------------------
Fully diluted $(.52) $.62 $.56 $.52 $.30 $.76 $.74 $.72
-----------------------------------------------------------------------------------------------
AVERAGE BALANCE
SHEET
HIGHLIGHTS (In millions)
Total assets $75,707 $75,266 $75,343 $74,841 $76,102 $75,287 $73,174 $72,863
Securities 19,450 22,045 23,137 23,984 25,351 24,460 23,981 23,605
Loans, net of unearned income 48,304 45,646 44,765 43,710 43,717 43,741 41,778 41,022
Deposits 46,216 45,077 44,365 43,667 44,193 44,936 43,399 43,193
Borrowed funds 11,511 14,016 14,140 13,902 12,102 11,862 11,612 12,260
Notes and debentures 10,637 8,829 9,586 10,109 12,966 11,731 11,404 10,519
Shareholders' equity 5,893 5,802 5,727 5,710 5,687 5,588 5,419 5,430
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
72
<PAGE> 52
ANALYSIS OF YEAR-TO-YEAR CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1995/1994 1994/1993
---------------------------------------------------------------------------------
Increase/(Decrease) in Income/Expense Increase/(Decrease) in Income/Expense
Due to Changes in: Due to changes in:
Taxable-equivalent basis
In thousands Volume Rate Total Volume Rate Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNINGS ASSETS
Short-term investments $(37,146) $29,512 $(7,634) $434 $14,457 $14,891
Loans held for sale (1,693) 4,790 3,097 23,469 3,299 26,768
Securities
U.S. Treasury (11,828) 19,995 8,167 46,394 11,240 57,634
U.S. Government agencies and corporations (170,403) (55,167) (225,570) 2,079 (24,867) (22,788)
State and municipal (813) (2,139) (2,952) (11,420) 1,221 (10,199)
Other debt 67,100 29,296 96,396 52,173 21,030 73,203
Corporate stocks and other (797) 3,031 2,234 10,504 10,504
---------------------------------------------------------------------------------
Total securities (131,303) 9,578 (121,725) 119,462 (11,108) 108,354
Loans, net of unearned income
Consumer 70,864 77,886 148,750 106,245 (35,861) 70,384
Residential mortgage 146,315 58,135 204,450 347,196 (53,075) 294,121
Commercial 50,719 109,077 159,796 67,451 57,570 125,021
Commercial real estate (13,394) 55,004 41,610 (51,389) 59,552 8,163
Other (18,661) 24,278 5,617 30,004 10,063 40,067
---------------------------------------------------------------------------------
Total loans, net of unearned income 237,040 323,183 560,223 534,184 3,572 537,756
Other interest-earning assets 569 252 821 180 (274) (94)
---------------------------------------------------------------------------------
Total interest-earning assets $7,476 $427,306 $434,782 $645,395 $42,280 $687,675
---------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
Demand and money market $(27,425) $103,549 $76,124 $14,070 $53,383 $67,453
Savings (6,539) 24,656 18,117 5,038 10,298 15,336
Other time 69,376 158,703 228,079 36,207 (9,462) 26,745
Deposits in foreign offices 51,161 19,093 70,254 38,598 5,452 44,050
---------------------------------------------------------------------------------
Total interest-bearing deposits 24,344 368,230 392,574 89,747 63,837 153,584
Borrowed funds
Federal funds purchased 13,670 50,302 63,972 44,850 27,994 72,844
Repurchase agreements 43,183 126,782 169,965 (64,566) 40,395 (24,171)
Commercial paper (17,781) 12,101 (5,680) 15,482 11,147 26,629
Other 27,933 64,331 92,264 54,610 23,933 78,543
---------------------------------------------------------------------------------
Total borrowed funds 66,999 253,522 320,521 43,194 110,651 153,845
Notes and debentures (99,086) 162,400 63,314 228,641 12,139 240,780
---------------------------------------------------------------------------------
Total interest-bearing liabilities 10,572 765,837 776,409 313,990 234,219 548,209
---------------------------------------------------------------------------------
Change in net interest income $3,870 $(345,497) $(341,627) $359,168 ($219,702) $139,466
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Changes attributable to rate/volume are prorated into rate and volume
components. Average balances are based on amortized historical cost (excluding
SFAS 115 adjustments to fair value).
73
<PAGE> 53
STATISTICAL INFORMATION
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------------------------------------------
Year ended December 31
Taxable-equivalent basis
Average balances in millions, Average Average Average Average
interest in thousands Balances Interest Yields/Rates Balances Interest Yields/Rates
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Short-term investments $ 1,034 $ 68,570 6.63% $ 1,721 $ 76,204 4.43%
Loans held for sale 725 54,361 7.50 749 51,264 6.84
Securities
U.S. Treasury 4,179 216,323 5.18 4,421 208,156 4.71
U.S. Government agencies and corporations 13,527 766,116 5.66 16,494 991,686 6.01
State and municipal 363 35,596 9.81 371 38,548 10.40
Other debt 3,757 259,291 6.90 2,742 162,895 5.94
Corporate stocks and others 314 21,646 6.89 327 19,412 5.93
------------------------ ------------------------
Total securities 22,140 1,298,972 5.87 24,355 1,420,697 5.83
Loans, net of unearned income
Consumer 12,013 1,078,420 8.98 11,192 929,670 8.31
Residential mortgage 10,812 807,848 7.47 8,806 603,398 6.85
Commercial 15,852 1,284,993 8.11 15,185 1,125,197 7.41
Commercial real estate 5,014 472,423 9.42 5,171 430,813 8.33
Other 1,933 129,602 6.70 2,245 123,985 5.52
--------------------------- ---------------------------
Total loans, net of unearned income 45,624 3,773,286 8.27 42,599 3,213,063 7.54
Other interest-earning assets 12 884 7.40 3 63 3.18
--------------------------- ---------------------------
Total interest-earning assets/interest income 69,535 5,196,073 7.47 69,427 4,761,291 6.86
Noninterest-earning assets
Allowance for credit losses (1,319) (1,391)
Cash and due from banks 3,044 2,951
Other assets 3,871 3,375
------------ ------------
Total assets $75,131 $74,362
---------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand and money market $12,254 356,893 2.91 $13,481 280,769 2.08
Savings 3,732 89,448 2.40 4,081 71,331 1.75
Other time 17,758 984,440 5.54 16,353 756,361 4.63
Deposits in foreign offices 1,974 121,035 6.13 1,083 50,781 4.69
--------------------------- ---------------------------
Total interest-bearing deposits 35,718 1,551,816 4.34 34,998 1,159,242 3.31
Borrowed funds
Federal funds purchased 3,142 188,103 5.99 2,850 124,131 4.35
Repurchase agreements 6,514 398,003 6.11 5,576 228,038 4.09
Commercial paper 737 43,779 5.94 1,072 49,459 4.61
Other 2,993 204,769 6.84 2,462 112,505 4.57
--------------------------- ---------------------------
Total borrowed funds 13,386 834,654 6.24 11,960 514,133 4.30
Notes and debentures 9,790 621,092 6.34 11,662 557,778 4.78
--------------------------- ---------------------------
Total interest-bearing
liabilities/interest expense 58,894 3,007,562 5.10 58,620 2,231,153 3.81
Noninterest-bearing liabilities and
shareholders' equity
Demand and other noninterest-bearing deposits 9,112 8,939
Accrued expenses and other liabilities 1,341 1,272
Shareholders' equity 5,784 5,531
------------ ------------
Total liabilities and shareholders' equity $75,131 $ 74,362
---------------------------------------------------------------------------------
Interest rate spread 2.37 3.05
Impact of noninterest-bearing liabilities .78 .59
-------------------------------------------------------------------
Net interest income/margin on earning assets $2,188,511 3.15% $2,530,138 3.64%
- ----------------------------------------------------------------------------------------------------------------------------------
</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.
74
<PAGE> 54
<TABLE>
<CAPTION>
1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balances Interest Yields/Rates Balances Interest Yields/Rates Balances Interest Yields/Rates
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,709 $ 61,313 3.59% $ 1,498 $ 58,940 3.93% $ 1,979 $ 126,221 6.38%
402 24,496 6.10 258 18,915 7.33 249 17,952 7.21
3,425 150,522 4.40 3,307 204,127 6.17 3,065 236,662 7.72
16,460 1,014,474 6.16 14,288 1,066,101 7.46 9,750 876,519 8.99
481 48,747 10.14 716 70,748 9.89 947 98,634 10.42
1,818 89,692 4.93 976 61,539 6.31 865 73,963 8.55
150 8,908 5.93 108 5,598 5.18 160 7,432 4.63
- --------------------------- --------------------------- ---------------------------
22,334 1,312,343 5.88 19,395 1,408,113 7.26 14,787 1,293,210 8.75
9,924 859,286 8.66 9,586 907,111 9.46 9,939 1,095,354 11.02
3,834 309,277 8.07 3,182 311,083 9.78 3,893 411,904 10.58
14,257 1,000,176 7.02 15,035 1,054,014 7.01 19,093 1,698,677 8.90
5,838 422,650 7.24 7,263 508,837 7.01 9,100 746,615 8.20
1,688 83,918 4.97 1,207 76,574 6.34 1,295 99,374 7.67
- --------------------------- --------------------------- ---------------------------
35,541 2,675,307 7.53 36,273 2,857,619 7.88 43,320 4,051,924 9.35
1 157 20.68 2 205 8.99 38 5,466 14.26
- --------------------------- --------------------------- ---------------------------
59,987 4,073,616 6.79 57,426 4,343,792 7.56 60,373 5,494,773 9.10
(1,510) (1,663) (1,665)
2,757 2,637 2,911
2,819 2,613 2,937
- ------------ ------------ ------------
$64,053 $61,013 $64,556
- ----------------------------------------------------------------------------------------------------------------------------------
$12,685 213,316 1.68 $12,545 371,299 2.96 $11,763 594,714 5.06
3,760 55,995 1.49 3,434 96,139 2.80 3,917 188,950 4.82
15,571 729,616 4.69 18,578 1,051,088 5.66 26,680 1,928,832 7.23
222 6,731 3.03 676 28,050 4.15 452 27,069 6.00
- --------------------------- --------------------------- ---------------------------
32,238 1,005,658 3.12 35,233 1,546,576 4.39 42,812 2,739,565 6.40
1,686 51,287 3.04 1,917 68,460 3.57 2,102 121,183 5.76
7,263 252,209 3.47 5,606 209,933 3.74 3,726 219,062 5.88
691 22,830 3.30 576 20,848 3.62 379 22,658 5.97
1,128 33,962 3.01 1,494 54,927 3.68 1,562 86,739 5.55
- --------------------------- --------------------------- ---------------------------
10,768 360,288 3.35 9,593 354,168 3.69 7,769 449,642 5.79
6,882 316,998 4.61 3,391 202,947 5.98 1,795 137,907 7.68
- --------------------------- --------------------------- ---------------------------
49,888 1,682,944 3.37 48,217 2,103,691 4.36 52,376 3,327,114 6.35
7,986 7,539 7,464
1,293 1,104 888
4,886 4,153 3,828
- ------------ ------------ ------------
$64,053 $61,013 $64,556
- ----------------------------------------------------------------------------------------------------------------------------------
3.42 3.20 2.75
.57 .70 .84
-------------------------- -------------------------- --------------------------
$2,390,672 3.99% $2,240,101 3.90% $2,167,659 3.59%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE> 55
STATISTICAL INFORMATION
SECURITIES
CARRYING VALUE OF SECURITIES
December 31
<TABLE>
<CAPTION>
In millions 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities available for sale
Debt securities
U.S. Treasury $ 3,280 $ 663 $ 2,402
U.S. Government agencies and corporations
Mortgage related 7,459 2,092 8,097
Other 1,034 21 24
State and municipal 367 7 2
Asset-backed private placements 1,604
Other
Mortgage related 1,113 732 705
Other 525 146 97
Corporate stocks and other 457 129 61
-------------------------------
Total securities available for sale 15,839 3,790 11,388
Investment securities
Debt securities
U.S. Treasury $ 3,317 $ 1,280
U.S. Government agencies and corporations
Mortgage related 11,795 11,311
Other 1,000
State and municipal 360 394
Asset-backed private placements 1,597
Other
Mortgage related 726 513
Other 775 339
Other 310 271
-------------------
Total investment securities 19,880 14,108
-------------------------------
Total securities $15,839 $23,670 $25,496
- -------------------------------------------------------------------------------
</TABLE>
76
<PAGE> 56
CONTRACTUAL MATURITY DISTRIBUTION OF SECURITIES
<TABLE>
<CAPTION>
After After
One Year Five Years
December 31, 1995 One Year Through Through After No Fixed
Dollars in millions or Less Five Years Ten Years Ten Years Maturity Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale
Debt securities
U.S. Treasury $1,948 $1,314 $18 $ 3,280
U.S. Government agencies and corporations
Mortgage-related $ 7,459 7,459
Other 5 1,029 1,034
State and municipal 37 75 68 $187 367
Asset-backed private placements 1,604 1,604
Other debt
Mortgage-related 1,113 1,113
Other 4 5 7 80 429 525
Other 457 457
-------------------------------------------------------------------------
Total securities available for sale $1,994 $1,394 $93 $267 $12,091 $15,839
-------------------------------------------------------------------------
Percent of total securities available for sale 12.59% 8.80% .59% 1.69% 76.33% 100.00%
Weighted average yield 5.01 7.46 9.67 9.89 6.43 6.42
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above sets forth the contractual maturity distribution
of the securities portfolio at December 31, 1995. U.S.
Government agency debt and mortgage-backed and asset-
backed securities are included in the No Fixed Maturity
category. Based on expected prepayment rates and historical
experience, the weighted average expected maturity of such
securities was approximately 2 years and 10 months at
December 31, 1995.
Weighted average yields are based on historical cost with
effective yields weighted for the contractual maturity of each
security. Tax-exempt securities have been adjusted to a
taxable-equivalent basis using a federal income tax rate of 35
percent. At December 31, 1995, $6.1 billion notional value of
interest rate swaps and caps designated to the securities
portfolio altered the contractual weighted average yield from
6.42 percent to 6.45 percent.
LOANS
<TABLE>
<CAPTION>
December 31
In millions 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumer $13,539 $11,851 $10,940 $ 9,585 $ 9,881
Residential mortgage 11,689 9,746 8,611 3,577 3,737
Commercial 16,812 15,545 15,521 14,766 16,445
Commercial real estate 4,914 5,063 5,169 6,503 7,685
Other 2,102 2,223 2,231 1,900 1,643
---------------------------------------------------------------
Total loans 49,056 44,428 42,472 36,331 39,391
Unearned income (403) (385) (359) (388) (629)
---------------------------------------------------------------
Loans, net of unearned income $48,653 $44,043 $42,113 $35,943 $38,762
- ----------------------------------------------------------------------------------------------------------
</TABLE>
77
<PAGE> 57
STATISTICAL INFORMATION
LOAN MATURITIES AND INTEREST SENSITIVITY
<TABLE>
<CAPTION>
December 31, 1995 One Year One Through After Gross
In millions or Less Five Years Five Years Loans
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $6,197 $7,448 $3,167 $16,812
Real estate project 601 1,152 386 2,139
----------------------------------------------
Total $6,798 $8,600 $3,553 $18,951
----------------------------------------------
Loans with predetermined rate $ 963 $1,858 $ 673 $ 3,494
Loans with floating rate 5,835 6,742 2,880 15,457
----------------------------------------------
Total $6,798 $8,600 $3,553 $18,951
- -------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, $4.0 billion of interest rate swaps
designated to commercial and commercial real estate loans
altered the interest rate characteristics of such loans. The
impact of the interest rate swaps is not reflected in the table
above.
NONPERFORMING ASSETS
Generally, a loan is classified as nonaccrual when it is
determined that the collection of interest or principal is
doubtful, or when a default of interest or principal has existed
for 90 days or more, unless such loan is well secured and in
the process of collection. When interest accrual is
discontinued, unpaid interest credited to income in the current
year is reversed, and unpaid interest accrued in prior years is
charged to the allowance for credit losses. A loan is
categorized as restructured if the original interest rate on such
loan, repayment terms, or both were restructured due to a
deterioration in the financial condition of the borrower.
<TABLE>
<CAPTION>
December 31
Dollars in millions 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $335 $496 $ 656 $1,620 $2,431
Restructured loans 23 69 200 185 21
------------------------------------------------
Total nonperforming loans 358 565 856 1,805 2,452
Foreclosed assets 178 192 268 436 443
------------------------------------------------
Total nonperforming assets $536 $757 $1,124 $2,241 $2,895
------------------------------------------------
Nonperforming loans to period-end loans .74% 1.28% 2.03% 5.02% 6.33%
Nonperforming assets to period-end loans and foreclosed assets 1.10 1.71 2.65 6.16 7.38
Nonperforming assets to total assets .73 .98 1.48 3.41 4.59
Interest computed on original terms $ 36 $ 54 $ 74 $ 150 $ 260
Interest recognized 10 14 19 19 40
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAST DUE LOANS
The following table presents information concerning accruing
loans which are contractually past due 90 days or more as to
principal or interest payments and excludes loans reported as
either nonaccrual or restructured.
<TABLE>
<CAPTION>
December 31
In millions 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Past due loans $225 $175 $171 $237 $272
As a percentage of total loans, net of unearned income .46% .40% .41% .66% .70%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
78
<PAGE> 58
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is based on periodic
evaluations of the loan portfolio by management. These
evaluations consider, among other factors, historic losses
within specific industries, current economic conditions, loan
portfolio trends, specific credit reviews and estimates based on
subjective factors.
During 1995 and 1994, stronger economic conditions
combined with management's ongoing efforts to improve asset
quality resulted in lower nonperforming assets and net charge-
offs, and a higher reserve coverage of nonperforming loans.
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
Year ended December 31
Dollars in millions 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $1,352 $1,372 $1,568 $1,645 $1,526
Charge-offs
Consumer 107 92 102 111 139
Residential mortgage 10 16 8 4 7
Commercial 84 116 168 339 555
Commercial real estate
Commercial mortgage 23 15 49 23 58
Real estate project 14 37 186 210 272
Other 2 1 1 8 12
------------------------------------------
Total loans charged off 240 277 514 695 1,043
Recoveries
Consumer 39 40 36 31 28
Residential mortgage 2 1 1
Commercial 49 59 56 66 43
Commercial real estate
Commercial mortgage 9 5 4 1 4
Real estate project 6 10 8 7 7
Other 2 1 3 2 2
------------------------------------------
Total recoveries 107 116 108 107 84
------------------------------------------
Net charge-offs 133 161 406 588 959
Net charge-offs on bulk loan
sales and assets held for
accelerated disposition (8) (182)
Provision for credit losses 6 84 350 495 1,152
Acquisitions/divestitures 34 65 42 16 (74)
------------------------------------------
Balance at end of year $1,259 $1,352 $1,372 $1,568 $1,645
------------------------------------------
Allowance as a percent of
period-end
Loans 2.59% 3.07% 3.26% 4.36% 4.24%
Nonperforming loans 351.68 239.29 160.28 86.87 67.09
As a percent of average loans
Net charge-offs including bulk
loan sales and assets held
for accelerated disposition .29 .40 1.65 1.62 2.21
Net charge-offs excluding
bulk loan sales and assets
held for accelerated
disposition .29 .38 1.14 1.62 2.21
Provision for credit losses .01 .20 .99 1.36 2.66
Allowance for credit losses 2.76 3.17 3.86 4.32 3.80
Allowance as a multiple of net
charge-offs including bulk loan
sales and assets held for
accelerated disposition 9.47x 8.00x 2.33x 2.67x 1.72x
Allowance as a multiple of net
charge-offs excluding bulk loan
sales and assets held for
accelerated disposition 9.47 8.40 3.38 2.67 1.72
- -------------------------------------------------------------------------------
</TABLE>
79
<PAGE> 59
STATISTICAL INFORMATION
During 1993, management revised its methodology for
allocating the allowance for credit losses. The revisions had
the effect of reclassifying certain previously unallocated
reserves to loan categories. For purposes of this presentation,
remaining unallocated reserves have been assigned to loan
categories based on the relative specific allocation amounts.
Prior year unallocated reserve amounts have been similarly
assigned to loan categories.
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
December 31
In millions 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 585 $ 603 $ 572 $ 643 $ 912
Commercial real estate 332 419 498 746 569
Consumer 203 184 202 153 139
Residential mortgage 112 116 86 8 5
Other 27 30 14 18 20
----------------------------------------------
Total $1,259 $1,352 $1,372 $1,568 $1,645
- -------------------------------------------------------------------------------
</TABLE>
The following table presents the percentage distribution of the
allocation of allowance for credit losses and the categories of
loans as a percentage of gross loans.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------------------------------------------------------------------------------------------------------------
December 31 Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial 46.5% 34.3% 44.6% 35.0% 41.7% 36.5% 41.0% 40.7% 55.4% 41.7%
Commercial real
estate 26.4 10.0 31.0 11.4 36.3 12.2 47.6 17.9 34.6 19.5
Consumer 16.1 27.6 13.6 26.7 14.7 25.7 9.8 26.4 8.5 25.1
Residential mortgage 8.9 23.8 8.6 21.9 6.3 20.3 .5 9.8 .3 9.5
Other 2.1 4.3 2.2 5.0 1.0 5.3 1.1 5.2 1.2 4.2
--------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MATURITY OF TIME DEPOSITS OF $100,000
OR MORE
A majority of foreign deposits were in denominations of
$100,000 or more. The table below provides maturities of
domestic item deposits of $100,000 or more.
<TABLE>
<CAPTION>
December 31, 1995 Certificates Other Time
In millions of Deposit Deposits Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Three months or less $ 744 $107 $ 851
Over three through six months 262 53 315
Over six through twelve months 187 123 310
Over twelve months 1,219 157 1,376
--------------------------------------
Total $2,412 $440 $2,852
- -------------------------------------------------------------------------------
</TABLE>
80
<PAGE> 60
BORROWED FUNDS
Federal funds purchased represent overnight borrowings.
Repurchase agreements generally have maturities of 18
months or less. At December 31, 1995, 1994, and 1993, $361
million, $51 million and $2.7 billion, respectively, of
repurchase agreements had original maturities which exceeded
one year. Commercial paper is issued in maturities not to
exceed nine months and is stated net of discount.
Other borrowed funds consist primarily of term federal funds
purchased and U.S. Treasury, tax and loan borrowings which
are payable on demand. At December 31, 1995 and 1994, $1.5
billion and $350 million, respectively, notional value of
interest rate swaps were designated to borrowed funds. The
effect of these swaps is not included in the rates set forth in
the table.
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------------------------------
Dollars in millions Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased
Year-end balance $3,817 5.29% $2,219 5.88% $2,101 3.06%
Average during year 3,142 5.99 2,850 4.35 1,686 3.04
Maximum month-end balance during year 6,446 4,706 3,711
Repurchase agreements
Year-end balance 2,851 5.89 4,302 5.59 5,604 3.56
Average during year 6,514 6.11 5,576 4.09 7,263 3.47
Maximum month-end balance during year 7,981 6,971 9,256
Commercial paper
Year-end balance 753 5.74 1,226 5.71 514 3.24
Average during year 737 5.94 1,072 4.61 691 3.30
Maximum month-end balance during year 1,207 1,861 1,117
Other
Year-end balance 1,244 5.63 4,446 5.46 4,117 3.11
Average during year 2,993 6.84 2,462 4.57 1,128 3.01
Maximum month-end balance during year 4,134 5,601 6,027
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
TAXABLE-EQUIVALENT ADJUSTMENT
Interest income earned on certain loans, and obligations of
states, municipalities and other public entities is not subject to
federal income tax. In addition, certain interest expense
incurred to fund these assets is not deductible for federal
income tax purposes.
In order to make pre-tax income and resultant yields
comparable to taxable loans and investments, a taxable-
equivalent adjustment, less the effect of disallowed interest
expense, is added equally to interest income and to income tax
expense, with no effect on after-tax income.
The taxable-equivalent adjustment shown in the table below is
based on a federal income tax rate of 35 percent for 1995,
1994 and 1993, and 34 percent for all other years.
<TABLE>
<CAPTION>
Year ended December 31
In thousands 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income, book basis $5,149,431 $4,723,147 $4,022,771 $4,281,178 $5,399,913
Taxable-equivalent adjustment 46,642 38,144 50,845 62,614 94,860
--------------------------------------------------------------------------
Interest income taxable-equivalent basis 5,196,073 4,761,291 4,073,616 4,343,792 5,494,773
Interest expense 3,007,562 2,231,153 1,682,944 2,103,691 3,327,114
--------------------------------------------------------------------------
Net interest income, taxable-equivalent basis $2,188,511 $2,530,138 $2,390,672 $2,240,101 $2,167,659
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
81
<PAGE> 61
COMMON STOCK PRICES/DIVIDENDS DECLARED
The table below sets forth by quarter the range of high and low sale prices for
PNC Bank Corp. common stock and the cash dividends declared per common share.
<TABLE>
<CAPTION>
Cash Dividends
1995 QUARTER High Low Declared
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
First $25.750 $21.125 $.35
Second 28.125 24.250 .35
Third 28.625 23.625 .35
Fourth 32.375 26.125 .35
----------------
Total $1.40
- -----------------------------------------------------------------------------
1994 QUARTER
- -----------------------------------------------------------------------------
First $29.875 $25.250 $.32
Second 31.625 26.125 .32
Third 30.000 25.625 .32
Fourth 26.375 20.000 .35
----------------
Total $1.31
- -----------------------------------------------------------------------------
</TABLE>
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 POLICY
Holders of PNC Bank Corp. common stock are entitled to receive dividends
when declared by the board of directors out of funds legally available. The
board presently intends to continue the policy of paying quarterly cash
dividends. However, future dividends will depend upon earnings, the financial
condition of PNC Bank Corp. and other factors including applicable government
regulations and policies.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
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.
82
<PAGE> 1
EXHIBIT 21
PNC BANK CORP.
SCHEDULE OF CERTAIN SUBSIDIARIES +
(AS OF FEBRUARY 29, 1996)
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION OR ORGANIZATION
- -------------------------------------------------------------------------------
<S> <C>
PNC Bancorp, Inc. Delaware
Midlantic Bank, N.A.* United States
PNC Bank, Delaware* Delaware
PNC Bank, FSB United States
PNC Bank, Indiana, Inc.* Indiana
PNC Bank, Kentucky, Inc.* Kentucky
PNC Bank, National Association * United States
PNC Bank, New England * Massachusetts
PNC Bank, Ohio, National Association United States
PNC Mortgage Bank, National Association* United States
PNC National Bank* United States
PNC Holding Corp. Delaware
Alpine Indemnity Limited Grand Cayman, B.W.I.
CastleInternational Asset Management United Kingdom
Limited
Lenders Life Insurance Company Arizona
Midlantic Commercial Leasing Corp. New York
Midlantic Funding Corp. New Jersey
Parkway Management Inc.* New Jersey
Pittsburgh National Life Insurance Arizona
Company
PNC Equity Management Corp* Pennsylvania
PNC Capital Corp. Delaware
PNC Commercial Corp Florida
PNC Venture Corp Delaware
PNC ESOP Funding Corporation Delaware
PNC Financial Services, Inc. Kentucky
PNC Funding Corp Pennsylvania
PNC Investment Corp. * Delaware
PNC Management Services Corp Delaware
PNC Realty Holding Corp * Pennsylvania
PNC Realty Company, Ohio Ohio
PNC Securities Corp Pennsylvania
PNC Trust Company of New York New York
PNC Asset Management Corp. Pennsylvania
The Central Bancorp Financial, Inc. Delaware
</TABLE>
+ All active first tier subsidiaries of the Corporation's two primary
subsidiary holding companies, PNC Bancorp, Inc. and PNC Holding Corp.,
have been listed. Not all of such subsidiaries are "significant
subsidiaries" within the meaning of Rule 1-02(v) of Regulation S-X.
* The names of the subsidiaries of the indicated entities are omitted
because such subsidiaries, considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference, in the Registration Statements
listed below, of our report dated February 8, 1996, with respect to the
consolidated financial statements of PNC Bank Corp. and subsidiaries
incorporated by reference in this Annual Report on Form 10-K of PNC Bank Corp.
for the year ended December 31, 1995.
Form S-3 relating to the shelf registration of $1 billion of debt securities of
PNC Funding Corp, unconditionally guaranteed by PNC Bank Corp., and/or
preferred stock of PNC Bank Corp. (Registration No. 33-55114)
Form S-3 relating to the shelf registration of six million shares of PNC Bank
Corp. preferred stock (Registration No. 33- 40602)
Post-Effective Amendment No. 1 on Form S-3 relating to the shelf registration
of $500 million of debt securities of PNC Funding Corp, unconditionally
guaranteed by PNC Bank Corp. (Registration No. 33-42803)
Form S-3 relating to the Dividend Reinvestment and Stock Purchase Plan of PNC
Bank Corp. (Registration No. 33-52844)
Form S-3 relating to the Dividend Reinvestment and Stock Purchase Plan of PNC
Bank Corp. (Registration No. 33-61083)
Form S-8 relating to the 1987 Senior Executive Long-Term Award Plan of PNC Bank
Corp. (now known as the PNC Bank Corp. 1992 Long-Term Incentive Award Plan)
(Registration No. 33-28828)
Form S-8 relating to the PNC Bank Corp. 1992 Long-Term Incentive Award Plan
(Registration No. 33-54960)
Post-Effective Amendment No. 2 on Form S-8 relating to the PNC Bank Corp.
Employee Stock Purchase Plan (Registration No. 2-83510)
Form S-8 relating the PNC Bank Corp. Employee Stock Purchase Plan (Registration
No. 33-62311)
Post-Effective Amendment No. 1 on Form S-8 relating to the Stock Option Plan of
PNC Bank Corp. (Registration No. 2-92181)
Post-Effective Amendment No. 1 to Form S-8 relating to the PNC Bank Corp.
Incentive Savings Plan (Registration No. 33-25140)
Post-Effective Amendment No. 1 (on Form S-3) to Form S-4 relating to the
conversion of outstanding debentures assumed in connection with the merger of
PNC Bank Corp., Kentucky, Inc., with and into a wholly-owned subsidiary of PNC
Bank Corp. (Registration No. 33-10016)
Post-Effective Amendment No. 2 (on Form S-8) to Form S-4 relating to the
exercise of stock options assumed by PNC Bank Corp. in connection with the
merger of PNC Bank Corp., Kentucky, Inc., with and into a wholly-owned
subsidiary of PNC Bank Corp. (Registration No. 33-10016)
Post-Effective Amendment No. 1 (on Form S-8) to Form S-4 relating to the
exercise of stock options assumed by PNC Bank Corp. in connection with the
merger of a wholly-owned subsidiary of PNC Bank Corp. with and into Bank of
Delaware Corporation (Registration No. 33-25642)
Form S-8 relating to Midlantic Savings and Investment Plan (Registration No.
33-64557)
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 26, 1996
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
PNC BANK CORP.
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors and/or
Officers of PNC Bank Corp. (the "Corporation"), a Pennsylvania corporation,
hereby names, constitutes and appoints Walter E. Gregg, Jr., William F. Strome
and Melanie S. Cibik, or any of them, with full power of substitution, such
person's true and lawful attorney-in-fact and agent to execute in such person's
name, place and stead, in any and all capacities, the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1995.
And such persons hereby ratify and confirm all that said attorneys or attorney,
or any substitute, shall lawfully do or cause to be done by virtue hereof.
Witness the due execution hereof by the following persons in the capacities
indicated as of this February 15, 1996.
<TABLE>
<CAPTION>
Name/Signature Capacity
- --------------------------- ----------------------------------------------
<S> <C>
/s/ THOMAS H. O'BRIEN Chairman, Chief Executive Officer and Director
- ---------------------------
Thomas H. O'Brien
/s/ PAUL W. CHELLGREN Director
- ---------------------------
Paul W. Chellgren
Director
- ---------------------------
Robert N. Clay
/s/ WILLIAM G. COPELAND Director
- ---------------------------
William G. Copeland
/s/ GEORGE A. DAVIDSON, JR. Director
- ---------------------------
George A. Davidson, Jr.
Director
- ---------------------------
David F. Girard-diCarlo
/s/ DIANNA L. GREEN Director
- ---------------------------
Dianna L. Green
/s/ C. G. GREFENSTETTE Director
- ---------------------------
C. G. Grefenstette
</TABLE>
Power of Attorney - 1
<PAGE> 2
<TABLE>
<S> <C>
/s/ ARTHUR J. KANIA Director
- ---------------------------
Arthur Kania
/s/ BRUCE LINDSAY Director
- ---------------------------
Bruce Lindsay
Director
- ---------------------------
Thomas Marshall
/s/ CRAIG McCLELLAND Director
- ---------------------------
W. Craig McClelland
Director
- ---------------------------
Donald I. Moritz
/s/ JACKSON H. RANDOLPH Director
- ---------------------------
Jackson H. Randolph
/s/ JAMES E. ROHR President and Director
- ---------------------------
James E. Rohr
/s/ RODERIC H. ROSS Director
- ---------------------------
Roderic H. Ross
Director
- ---------------------------
Vincent A. Sarni
/s/ GARRY J. SCHEURING Vice Chairman and Director
- ---------------------------
Garry J. Scheuring
/s/ RICHARD P. SIMMONS Director
- ---------------------------
Richard P. Simmons
/s/ THOMAS J. USHER Director
- ---------------------------
Thomas J. Usher
</TABLE>
Power of Attorney - 2
<PAGE> 3
<TABLE>
<S> <C>
/s/ MILTON A. WASHINGTON Director
- ---------------------------
Milton A. Washington
Director
- ---------------------------
Helge H. Wehmeier
</TABLE>
Power of Attorney - 3
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
PNC BANK CORP.
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of PNC Bank Corp.
(the "Corporation"), a Pennsylvania corporation, hereby names, constitutes and
appoints Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any
of them, with full power of substitution, such person's true and lawful
attorney-in-fact and agent to execute in such person's name, place and stead,
in the undersigned capacity as a Director, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995.
And the undersigned Director hereby ratifies and confirms all that said
attorneys or attorney, or any substitute, shall lawfully do or cause to be done
by virtue hereof.
Witness the due execution hereof by the undersigned Director as of this
February 27, 1996.
/s/ ROBERT N. CLAY
- ---------------------------
Robert N. Clay
<PAGE> 1
EXHIBIT 24.3
POWER OF ATTORNEY
PNC BANK CORP.
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of PNC Bank Corp.
(the "Corporation"), a Pennsylvania corporation, hereby names, constitutes and
appoints Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any
of them, with full power of substitution, such person's true and lawful
attorney-in-fact and agent to execute in such person's name, place and stead,
in the undersigned capacity as a Director, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995.
And the undersigned Director hereby ratifies and confirms all that said
attorneys or attorney, or any substitute, shall lawfully do or cause to be done
by virtue hereof.
Witness the due execution hereof by the undersigned Director as of this
February 29, 1996.
/s/ DAVID F. GIRARD-diCARLO
- ---------------------------
David F. Girard-diCarlo
<PAGE> 1
EXHIBIT 24.4
POWER OF ATTORNEY
PNC BANK CORP.
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of PNC Bank Corp.
(the "Corporation"), a Pennsylvania corporation, hereby names, constitutes and
appoints Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any
of them, with full power of substitution, such person's true and lawful
attorney-in-fact and agent to execute in such person's name, place and stead,
in the undersigned capacity as a Director, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995.
And the undersigned Director hereby ratifies and confirms all that said
attorneys or attorney, or any substitute, shall lawfully do or cause to be done
by virtue hereof.
Witness the due execution hereof by the undersigned Director as of this
February 26, 1996.
/s/ THOMAS MARSHALL
- ---------------------------
Thomas Marshall
<PAGE> 1
EXHIBIT 24.5
POWER OF ATTORNEY
PNC BANK CORP.
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of PNC Bank Corp.
(the "Corporation"), a Pennsylvania corporation, hereby names, constitutes and
appoints Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any
of them, with full power of substitution, such person's true and lawful
attorney-in-fact and agent to execute in such person's name, place and stead,
in the undersigned capacity as a Director, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995.
And the undersigned Director hereby ratifies and confirms all that said
attorneys or attorney, or any substitute, shall lawfully do or cause to be done
by virtue hereof.
Witness the due execution hereof by the undersigned Director as of this
February 26, 1996.
/s/ DONALD I. MORITZ
- ---------------------------
Donald I. Moritz
<PAGE> 1
EXHIBIT 24.6
POWER OF ATTORNEY
PNC BANK CORP.
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of PNC Bank Corp.
(the "Corporation"), a Pennsylvania corporation, hereby names, constitutes and
appoints Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any
of them, with full power of substitution, such person's true and lawful
attorney-in-fact and agent to execute in such person's name, place and stead,
in the undersigned capacity as a Director, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995.
And the undersigned Director hereby ratifies and confirms all that said
attorneys or attorney, or any substitute, shall lawfully do or cause to be done
by virtue hereof.
Witness the due execution hereof by the undersigned Director as of this
February 28, 1996.
/s/ VINCENT A. SARNI
- ---------------------------
Vincent A. Sarni
<PAGE> 1
EXHIBIT 24.7
POWER OF ATTORNEY
PNC BANK CORP.
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of PNC Bank Corp.
(the "Corporation"), a Pennsylvania corporation, hereby names, constitutes and
appoints Walter E. Gregg, Jr., William F. Strome and Melanie S. Cibik, or any
of them, with full power of substitution, such person's true and lawful
attorney-in-fact and agent to execute in such person's name, place and stead,
in the undersigned capacity as a Director, the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995.
And the undersigned Director hereby ratifies and confirms all that said
attorneys or attorney, or any substitute, shall lawfully do or cause to be done
by virtue hereof.
Witness the due execution hereof by the undersigned Director as of this
February 28, 1996.
/s/ HELGE H. WEHMEIER
- ---------------------------
Helge H. Wehmeier
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial information incorporated by reference to the 1995 Annual
Report, excerpts of which are filed herewith as Exhibit 13, and is qualified in
its entirety by reference to such financial information.
</LEGEND>
<RESTATED>
<CIK> 0000713676
<NAME> PNC BANK CORP.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,679
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,839
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 48,653
<ALLOWANCE> (1,259)
<TOTAL-ASSETS> 73,404
<DEPOSITS> 46,899
<SHORT-TERM> 8,665
<LIABILITIES-OTHER> 1,674
<LONG-TERM> 10,398
<COMMON> 1,704
0
1
<OTHER-SE> 4,063
<TOTAL-LIABILITIES-AND-EQUITY> 73,404
<INTEREST-LOAN> 3,743
<INTEREST-INVEST> 1,283
<INTEREST-OTHER> 124
<INTEREST-TOTAL> 5,150
<INTEREST-DEPOSIT> 1,552
<INTEREST-EXPENSE> 3,008
<INTEREST-INCOME-NET> 2,142
<LOAN-LOSSES> 6
<SECURITIES-GAINS> (280)
<EXPENSE-OTHER> 2,469
<INCOME-PRETAX> 627
<INCOME-PRE-EXTRAORDINARY> 408
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 408
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.19
<YIELD-ACTUAL> 3.15
<LOANS-NON> 335
<LOANS-PAST> 225
<LOANS-TROUBLED> 23
<LOANS-PROBLEM> 176
<ALLOWANCE-OPEN> 1,352
<CHARGE-OFFS> 240
<RECOVERIES> 107
<ALLOWANCE-CLOSE> 1,259
<ALLOWANCE-DOMESTIC> 1,259
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule restates certain previously filed financial information to give
effect to the merger between PNC Bank Corp. and Midlantic Corporation. The
merger was completed on December 31, 1995 and was accounted for as a pooling of
interests.
</LEGEND>
<RESTATED>
<CIK> 0000713676
<NAME> PNC BANK CORP.
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995 DEC-31-1995 DEC-31-1994 DEC-31-1994
<PERIOD-END> SEP-30-1995 JUN-30-1995 MAR-31-1995 DEC-31-1994 SEP-30-1994
<CASH> 2,956 3,446 3,490 3,412 2,862
<INT-BEARING-DEPOSITS> 0 0 0 0 0
<FED-FUNDS-SOLD> 0 0 0 0 0
<TRADING-ASSETS> 0 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 3,035 3,261 3,915 3,790 5,478
<INVESTMENTS-CARRYING> 18,479 19,136 19,572 19,880 19,767
<INVESTMENTS-MARKET> 18,253 18,935 18,846 18,559 18,840
<LOANS> 45,900 45,492 44,192 44,043 44,546
<ALLOWANCE> (1,285) (1,300) (1,318) (1,352) (1,387)
<TOTAL-ASSETS> 75,100 76,519 75,750 77,461 77,315
<DEPOSITS> 43,870 46,177 43,598 45,818 44,465
<SHORT-TERM> 13,689 13,269 14,789 12,193 12,929
<LIABILITIES-OTHER> 1,643 1,912 1,633 1,596 1,997
<LONG-TERM> 9,985 9,368 9,972 12,127 12,212
<COMMON> 1,512 1,497 1,544 1,654 1,679
0 0 0 0 0
1 1 51 51 51
<OTHER-SE> 4,400 4,295 4,163 4,022 3,982
<TOTAL-LIABILITIES-AND-EQUITY> 75,100 76,519 75,750 77,461 77,315
<INTEREST-LOAN> 2,760 1,815 887 3,189 2,349
<INTEREST-INVEST> 999 683 345 1,407 1,028
<INTEREST-OTHER> 91 58 29 127 97
<INTEREST-TOTAL> 3,850 2,556 1,261 4,723 3,474
<INTEREST-DEPOSIT> 1,151 748 358 1,159 827
<INTEREST-EXPENSE> 2,260 1,494 722 2,231 1,557
<INTEREST-INCOME-NET> 1,590 1,062 539 2,492 1,917
<LOAN-LOSSES> 5 3 1 84 84
<SECURITIES-GAINS> 9 9 1 (142) (17)
<EXPENSE-OTHER> 1,643 1,096 553 2,238 1,633
<INCOME-PRETAX> 878 562 270 1,210 1,086
<INCOME-PRE-EXTRAORDINARY> 584 374 180 891 785
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 (8) (8)
<NET-INCOME> 584 374 180 884 778
<EPS-PRIMARY> 1.71 1.09 .52 2.54 2.24
<EPS-DILUTED> 1.70 1.08 .52 2.52 2.22
<YIELD-ACTUAL> 3.11 3.12 3.16 3.64 3.75
<LOANS-NON> 396 432 451 496 578
<LOANS-PAST> 174 181 189 175 168
<LOANS-TROUBLED> 45 45 46 69 50
<LOANS-PROBLEM> 0 0 0 134 0
<ALLOWANCE-OPEN> 1,352 1,352 1,352 1,372 1,372
<CHARGE-OFFS> 163 115 62 277 209
<RECOVERIES> 84 53 26 116 83
<ALLOWANCE-CLOSE> 1,285 1,300 1,318 1,352 1,387
<ALLOWANCE-DOMESTIC> 1,285 1,300 1,318 1,352 1,387
<ALLOWANCE-FOREIGN> 0 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0 0
</TABLE>
