<PAGE> 1
PNC BANK CORP.
Quarterly Report on Form 10-Q
For the quarterly period ended June 30, 1996
Page 1 represents a portion of the second quarter 1996 Corporate Financial
Review which is not required by the Form 10-Q report and is not "filed" as part
of the Form 10-Q.
The Quarterly Report on Form 10-Q and cross reference index is on pages 30-32.
<PAGE> 2
financial highlights
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
----------------------------------------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
FINANCIAL PERFORMANCE (Dollars in thousands, except per share data)
Net interest income (taxable-equivalent basis) $619,926 $534,741 $1,236,034 $1,085,877
Net income 248,050 193,953 486,370 373,500
Fully diluted earnings per common share .72 .56 1.41 1.08
Return on average total assets 1.38% 1.03% 1.36% 1.00%
Return on average common shareholders' equity 17.33 13.65 16.99 13.24
Net interest margin 3.72 3.06 3.72 3.12
After-tax profit margin 25.93 22.87 25.68 22.17
Efficiency ratio 59.00 63.99 59.65 65.06
AVERAGE BALANCES (In millions)
Assets $72,440 $75,343 $72,087 $75,092
Earning assets 66,356 69,495 66,030 69,490
Loans, net of unearned income 49,191 44,765 48,908 44,240
Securities 14,740 23,137 14,779 23,558
Deposits 45,379 44,365 45,465 44,018
Shareholders' equity 5,767 5,727 5,766 5,719
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
June 30 March 31 December 31 June 30
As of or for the three months ended 1996 1996 1995 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PERIOD-END BALANCES (In millions)
Assets $71,961 $72,668 $73,404 $76,519
Earning assets 65,234 66,041 66,772 69,623
Loans, net of unearned income 49,223 48,800 48,653 45,491
Securities 14,107 14,692 15,839 22,397
Deposits 44,852 45,621 46,899 46,177
Shareholders' equity 5,832 5,786 5,768 5,793
SELECTED DATA
Capital ratios
Risk-based capital
Tier I 8.45% 8.18% 8.00% 8.84%
Total 11.99 11.70 11.56 12.46
Leverage 6.96 6.90 6.37 6.79
Common shareholders' equity to assets 8.08 7.94 7.83 7.55
Average common shareholders' equity to average assets 7.94 8.01 7.76 7.51
Asset quality ratios
Net charge-offs to average loans .29 .28 .45 .23
Nonperforming loans to loans .77 .76 .74 1.05
Nonperforming assets to loans and foreclosed assets 1.03 1.10 1.10 1.47
Nonperforming assets to total assets .71 .74 .73 .88
Allowance for credit losses to loans 2.42 2.51 2.59 2.86
Allowance for credit losses to nonperforming loans 312.19 328.88 351.68 272.54
Book value per common share
As reported $17.07 $16.88 $16.87 $17.24
Excluding net unrealized securities gains/losses 17.49 17.16 16.79 17.35
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PNC BANK CORP. 1
<PAGE> 3
The Corporate Financial Review should be read in conjunction with the unaudited
Consolidated Financial Statements of PNC Bank Corp. and subsidiaries
("Corporation") included herein and the Corporate Financial Review and audited
Consolidated Financial Statements included in the Corporation's 1995 Annual
Report.
TABLE OF CONTENTS Page
- ---------------------------------------------------------------
CORPORATE FINANCIAL REVIEW
Overview 2
Line of Business Results 4
Income Statement Review 9
Average Balance Sheet Review 11
Balance Sheet Review 12
Risk Management 14
Forward-Looking Statements 16
Financial Derivatives 17
Second Quarter 1996 vs. Second Quarter 1995 20
CONSOLIDATED FINANCIAL STATEMENTS 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST
ANALYSIS 28
QUARTERLY REPORT ON FORM 10-Q 30
CORPORATE INFORMATION 33
- ---------------------------------------------------------------
CORPORATE FINANCIAL REVIEW
OVERVIEW
PNC BANK CORP. The Corporation is one of the largest diversified financial
services companies in the United States. It operates five lines of business:
Consumer Banking, Corporate Banking, Real Estate Banking, Mortgage Banking, and
Asset Management. Each line of business focuses on specific customer segments
and offers financial products and services on a national level and in its
primary geographic locations in Pennsylvania, New Jersey, Delaware, Ohio and
Kentucky.
SUMMARY FINANCIAL RESULTS Earnings for the first six months of 1996 reflect
improvements in the Corporation's major businesses including growth in fee-based
revenues led by asset management, brokerage and corporate finance. The results
also reflect the benefits of previous actions taken to reposition the balance
sheet. Net income for the first six months of 1996 increased 30.3% to $486.4
million, or $1.41 per fully diluted share, compared with $373.5 million, or
$1.08 per fully diluted share, for the first six months of 1995. Returns on
average assets and average common shareholders' equity were 1.36% and 16.99%,
respectively, in the first six months of 1996 compared with 1.00% and 13.24% a
year ago.
Net interest income increased 13.8% to $1.2 billion and net interest margin
widened 60 basis points to 3.72% compared with the first six months of 1995
primarily due to loan growth, the Chemical Bank, New Jersey ("Chemical")
acquisition and a change in balance sheet composition. The Corporation
expects net interest income and margin to continue to increase in the second
half of 1996. The level of net interest income and margin will depend on a
number of factors including the composition of earning assets, loan growth, loan
yields, and deposit volumes and related costs.
At June 30, 1996, total assets were $72.0 billion. Average earning assets
declined $3.5 billion in the period-to-period comparison to $66.0 billion
primarily due to the reduction in securities and related wholesale funding
partially offset by a 10.6% increase in loans. Excluding acquisitions, average
loans increased 5.6%. Loan growth was tempered by competitive pricing pressures,
declining demand and the Corporation's assessment of national asset quality
trends in consumer lending. The Corporation substantially completed the
repositioning of its balance sheet in the fourth quarter of 1995 by reducing
wholesale investing activities and increasing the proportion of loans to earning
assets. In addition, a greater proportion of the Corporation's funding is
comprised of more stable and lower-cost retail consumer deposits.
Noninterest income increased 9.8% to $658.1 million reflecting success of
initiatives to expand such sources of revenue. The growth in fee-based revenue
was led by asset management, treasury management, brokerage and corporate
finance. The Corporation expects these businesses to continue to expand during
the second half of 1996. Continued growth will depend on, among other factors,
financial market and general economic conditions.
Noninterest expense increased 3.1% to $1.1 billion and the efficiency ratio
improved to 59.7% compared with 65.1% a year ago. Excluding the impact of
acquisitions, noninterest expense declined 2.4% reflecting the impact of the
Midlantic Corporation ("Midlantic") integration, cost control strategies and
lower Federal deposit insurance premiums. The integration of Midlantic's
operations is proceeding on schedule and will be substantially completed by the
end of the third quarter of 1996. Management continues to expect cost savings
from the integration to exceed its original estimate. The level of noninterest
expense for the remainder of 1996 is expected to remain relatively stable. The
integration of Midlantic and implementation of initiatives to support the
previously announced agreement with the American Automobile Association ("AAA"),
along with other factors, could impact the level of expenses.
PNC BANK CORP. 2
<PAGE> 4
corporate financial review
The Corporation's asset quality and coverage ratios remained strong. Net
charge-offs for the second quarter of 1996 were .29% of average loans compared
with .28% in the first quarter of 1996. The allowance for credit losses as a
percent of loans was 2.42% at June 30, 1996. Based on the loan portfolio's
current risk profile, management does not expect to record a provision for
credit losses during the remainder of 1996.
BUSINESS STRATEGIES The financial services industry is challenged by intense
competition. Loan pricing and credit standards are under competitive pressure
as lenders seek to leverage capital and capital markets are becoming more
accessible to a broader range of borrowers. Traditional deposit activities
are subject to pricing pressures and customer migration as the competition for
consumer investment dollars intensifies among banks and other financial
services companies. In this environment, the Corporation's strategic focus is
on expanding its consumer banking franchise and fee-based businesses,
leveraging national distribution capabilities and utilizing technology to
enhance delivery capabilities and control costs.
In Consumer Banking, which contributes 51% of total line of business earnings,
changes in consumer preferences and technological advancements are transforming
the way the Corporation delivers products and services. Traditional delivery
channels, such as retail branches, are being downsized and replaced with more
technologically advanced, cost-efficient means such as telebanking, automated
teller machines ("ATMs") and on-line banking through personal computers.
The retail branch network has been reduced from 955 branches at December 31,
1995 to 927 at June 30, 1996 and is expected to approximate 820 by year-end
1996. Since establishing the centralized telebanking facility, approximately
240 full-time equivalent ("FTE") employees were added to expand telebanking
capabilities. The Corporation manages the fifth largest network of ATMs in the
United States consisting of approximately 1,800 machines, 960 of which are
located at non-branch sites. By year-end 1996, management expects to have
approximately 2,100 machines, 1,250 of which will be located at non-branch
sites.
The agreement with the AAA gives the Corporation the exclusive right to offer
certain financial products and services to the organization's 34 million
members. This agreement represents a significant opportunity for the Corporation
to further expand the national distribution of a wide array of consumer products
and services. Substantially all of these will be offered though alternative
distribution channels thereby leveraging the infrastructure in place.
The Corporation continues to emphasize the growth of fee-based businesses,
particularly asset management and corporate finance. The Corporation's asset
management capabilities are among the largest in the country. Asset Management's
initiatives focus on growing internally and through acquisitions. For example,
the BlackRock Financial Management L.P. ("BlackRock") acquisition in the first
quarter of 1995 added $25 billion of assets under management and the
establishment of CastleInternational, in the first quarter of 1996, expanded
international asset management capabilities. The Corporation is the second
largest U.S. bank manager of mutual funds and one of the largest mutual fund
service providers. During the first half of 1996, discretionary assets under
management increased $8 billion to $104 billion and total assets under
administration increased $23 billion to $305 billion. This growth reflects
success in attracting new institutional and mutual fund servicing relationships
and growth in the value of assets administered. Compass Capital Funds(SM), the
Corporation's proprietary mutual funds family, consists of 28 fund portfolios
with more than $10.8 billion of assets. These funds provide investors with a
full range of equity, bond and money market investment options. In recognition
of their risk-adjusted performance, the institutional class of 7 of 13 ranked
portfolios received a four or five star rating from Morningstar.
Corporate Banking initiatives focus is on developing alternatives to
traditional balance sheet leverage including delivering treasury
management, employee benefit, capital markets, sophisticated risk management
and other products and services sought by corporate customers. Total fee-based
revenues in Corporate Banking increased 6.6% in the first six months of 1996
compared to the prior-year period reflecting these initiatives. Investments in
syndication capabilities contributed to a 7% increase in agented transactions
and a doubling of fee revenue and volumes underwritten.
In the Mortgage Banking line of business, the focus is on consolidating
operations and utilizing technology to enhance the efficiency of the operating
platform. Mortgage Banking also continues to expand its origination
capabilities leveraging the Corporation's branch distribution network and
private banking capabilities and by pursuing strategic third party alliances.
For example, nine regional production processing centers have been consolidated
into four sites and duplicative and overlapping functions at the Corporation's
two mortgage servicing centers have been centralized.
The focus in Real Estate Banking is on expanding fee-based revenue through
distribution of debt to private and institutional investors through
syndication, private placements and securitization activities. Real Estate
Banking is among the largest real estate syndicators in the country and
recently participated in its first commercial mortgage-backed securitization
issuance.
The Corporation believes the successful execution of its business strategies
will create a higher quality, more stable earnings stream resulting in
increased shareholder value. Such success depends on many factors including
customers' acceptance of the Corporation's alternative delivery systems and
products and services, responses of competitors, including their technological
advancements, continued successful integration of the Midlantic acquisition,
and future economic conditions.
PNC BANK CORP. 3
<PAGE> 5
LINE OF BUSINESS RESULTS
For purposes of reporting line of business results, the Corporation has
designated the following five lines of business:
o CONSUMER BANKING provides a wide range of financial products and services to
individuals and small businesses through a network of community banking
offices, alternative delivery systems such as the Direct Bank and ATMs and
regional banking centers.
o CORPORATE BANKING provides financial services to businesses and government
entities within the Corporation's primary markets, as well as from a network
of offices located in major U.S. cities.
o MORTGAGE BANKING activities include acquisition, origination, securitization
and servicing of residential mortgages, as well as retention of selected
loans in the portfolio.
o REAL ESTATE BANKING provides services to small, middle market and large
customers seeking short- and intermediate-term credit for construction,
acquisition and holding of commercial or residential real estate projects.
o ASSET MANAGEMENT, through one unified money management organization,
provides liquidity, fixed-income, equity management and servicing for
institutions and mutual funds and customers of Consumer Banking and
Corporate Banking.
The Corporation evaluates the performance of lines of business through a
management accounting process which uses various methods of balance sheet and
income statement allocations, transfers and assignments. Line of business
results presented herein reflect each line of business as if it operated on a
stand-alone basis. These results are not necessarily comparable to similar
results for other financial services institutions and differ from financial
statements prepared in accordance with generally accepted accounting
principles.
Asset/liability management activities reflect the residual of the assignment of
wholesale assets and liabilities to the lines of business. These activities
also include securities transactions and the impact of financial derivatives
used for interest rate risk management. Capital is assigned to each business
unit based on management's assessment of inherent risks and equity levels at
independent companies that provide similar products and services. Capital
assignments are not equivalent to regulatory capital guidelines and the total
amount assigned may vary from consolidated shareholders' equity.
<TABLE>
<CAPTION>
LINE OF BUSINESS
Return on
Average Assets Revenue (1) Earnings Assigned Capital
Six months ended June 30 --------------------------------------------------------------------------------------------
Dollars in millions 1996 1995 1996 1995 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer Banking $39,326 $36,346 $1,117 $987 $255 $206 23% 21%
Corporate Banking 17,307 16,106 426 399 148 118 14 13
Mortgage Banking 13,462 11,799 193 189 32 25 10 9
Real Estate Banking 3,830 3,820 89 100 43 42 14 14
Asset Management 423 276 116 84 24 17 43 44
---------------------------------------------------------------------
Total lines of business 74,348 68,347 1,941 1,759 502 408 18 16
Asset/liability management activities (3,555) 5,936 (28) (69) (23) (56)
Unallocated provision 41 35
Other unallocated items 1,294 809 (19) (5) (34) (14)
---------------------------------------------------------------------
Total $72,087 $75,092 $1,894 $1,685 $486 $373 17 13
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Revenue is fully-taxable equivalent net interest income and fee-based
income
PNC BANK CORP. 4
<PAGE> 6
corporate financial review
<TABLE>
<CAPTION>
CONSUMER BANKING Community Banking Private Banking Total
Six months ended June 30 --------------------------------------------------------------------------------
Dollars in millions 1996 1995 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $779 $695 $45 $39 $824 $734
Noninterest income 165 146 128 107 293 253
--------------------------------------------------------------------------------
Total revenue 944 841 173 146 1,117 987
Provision 51 29 51 29
Noninterest expense 545 538 120 105 665 643
--------------------------------------------------------------------------------
Pretax earnings 348 274 53 41 401 315
Income taxes 126 94 20 15 146 109
--------------------------------------------------------------------------------
Earnings $222 $180 $33 $26 $255 $206
--------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans $15,001 $12,911 $2,251 $1,817 $17,252 $14,728
Assigned assets 20,805 20,681 20,805 20,681
Other assets 850 513 419 424 1,269 937
--------------------------------------------------------------------------------
Total assets $36,656 $34,105 $2,670 $2,241 $39,326 $36,346
--------------------------------------------------------------------------------
Net deposits $34,494 $32,025 $1,609 $1,411 $36,103 $33,436
Assigned funds 176 106 176 106
Other funds 221 328 623 493 844 821
Assigned equity 1,941 1,752 262 231 2,203 1,983
--------------------------------------------------------------------------------
Total funds $36,656 $34,105 $2,670 $2,241 $39,326 $36,346
--------------------------------------------------------------------------------
PERFORMANCE RATIOS
After-tax profit margin 24% 21% 19% 18% 23% 21%
Efficiency 58 64 69 72 60 65
Return on assigned equity 23 21 26 23 23 21
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Consumer Banking includes: Community Banking which serves small business
customers and all other consumers who use traditional branch and direct banking
services; and Private Banking which provides affluent customers with personal
and charitable trust, brokerage and specialized retail banking financial
services.
Consumer Banking earnings accounted for approximately 51% of line of
business earnings in the first half of 1996 and 1995. Earnings increased 24% in
the period-to-period comparison due to the Chemical acquisition, higher net
interest income and consumer service fees while operating expenses remained
relatively stable.
Average loans in the Consumer Bank increased 17% in the comparison, or 5%
excluding the Chemical acquisition. Net charge-offs were $51 million in the
first half of 1996 compared with $29 million in the prior-year period. The
increase was primarily due to higher credit card charge-offs and acquisitions.
Consumer net charge-offs and delinquencies improved in the second quarter of
1996 compared with the first quarter of 1996 and the fourth quarter of 1995.
Earnings for Community Banking, which includes the Direct Bank's alternative
delivery channels, increased 23% to $222 million as revenues grew 12%. Growth in
net interest income was primarily attributable to an increase in earning assets
from the Chemical acquisition. Excluding the impact of credit card and merchant
services alliances, Community Banking noninterest income increased $34 million
or 27% in the period-to-period comparison. Fee-based revenue growth was
attributable to a broad base of products and services including deposit
accounts, ATM transactions and insurance. Expenses in this segment were
essentially unchanged as the effect of costs associated with the Chemical
acquisition were offset by lower Federal deposit insurance premiums.
Earnings from Private Banking increased 27% in the first six months of 1996 as
new trust business and higher brokerage revenue more than offset expense growth
from sales and marketing activities.
The Corporation continues to undertake initiatives to offer Consumer Banking
products and services nationally by leveraging its alternative delivery
systems. Through the Direct Bank, products and services are offered via the
telebanking center, ATMs and personal computers. Cost savings from the
rationalization of the traditional branch delivery network are being reinvested
in these initiatives.
In January 1996, an agreement was reached with AAA to exclusively offer
financial products and services to the organization's 34 million members. The
agreement provides for an initial term of ten years, with two five-year renewal
PNC BANK CORP. 5
<PAGE> 7
options. A full range of consumer products and services will be offered
including credit card, automobile, student, home equity and residential mortgage
loans, as well as deposit account and money market mutual funds. Beginning in
the second half of 1996, these products and services will be marketed in
conjunction with AAA as AAA member clubs enroll and will be delivered primarily
through the Corporation's direct banking channels.
In connection with AAA initiatives, the Corporation canceled an agreement under
which a third party provided administrative and marketing services for the
Corporation's credit card business. Under the agreement, the third party
received fee income and incurred costs related to providing these services. As
a result of canceling this agreement such amounts will be reflected in the
Corporation's results of operations in subsequent periods. Management does not
expect the financial impact to be material.
<TABLE>
<CAPTION>
CORPORATE BANKING Middle Market Large Corporate Equity Management Total
Six months ended June 30 -----------------------------------------------------------------------------------------------
Dollars in millions 1996 1995 1996 1995 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $225 $235 $51 $45 $(2) $(2) $274 $278
Noninterest income 87 85 26 21 39 15 152 121
-----------------------------------------------------------------------------------------------
Total revenue 312 320 77 66 37 13 426 399
Provision (2) 19 2 1 20
Noninterest expense 156 156 40 31 5 2 201 189
-----------------------------------------------------------------------------------------------
Pretax earnings 158 145 35 34 32 11 225 190
Income taxes 57 57 9 11 11 4 77 72
-----------------------------------------------------------------------------------------------
Earnings $101 $88 $26 $23 $21 $7 $148 $118
-----------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans $12,228 $11,765 $4,029 $3,662 $42 $32 $16,299 $15,459
Other assets 505 396 328 98 175 153 1,008 647
-----------------------------------------------------------------------------------------------
Total assets $12,733 $12,161 $4,357 $3,760 $217 $185 $17,307 $16,106
-----------------------------------------------------------------------------------------------
Net deposits $1,781 $1,756 $416 $326 $2,197 $2,082
Assigned funds 8,781 8,506 3,471 2,994 $130 $115 12,382 11,615
Other funds 589 463 5 23 23 14 617 500
Assigned equity 1,582 1,436 465 417 64 56 2,111 1,909
-----------------------------------------------------------------------------------------------
Total funds $12,733 $12,161 $4,357 $3,760 $217 $185 $17,307 $16,106
-----------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
After-tax profit margin 32% 28% 34% 34% 57% 56% 35% 30%
Efficiency 50 49 51 47 12 15 47 47
Return on assigned equity 13 12 11 11 66 27 14 13
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Corporate Banking includes: Middle Market customers with annual sales of $5
million to $250 million and those in certain specialized industries; Large
Corporate customers having annual sales of more than $250 million; and Equity
Management which includes private equity investments.
Corporate Banking's earnings contributed 29% of total line of business earnings
in the first six months of 1996 and 1995. Corporate Banking earnings increased
$30 million, or 25%, primarily due to higher venture capital gains and a lower
provision allocation. Net interest income was relatively flat in the comparison
as narrower spreads offset earnings from a $840 million increase in average
loans. Excluding venture capital gains, Corporate Banking fee-based revenue
increased 6.6% due to expanded treasury management, corporate finance, and
retirement and investment service activities.
Corporate Banking's traditional spread-based lending business is under intense
competition from banks and nonbanks seeking opportunities to extend credit in a
market with declining demand and narrowing spreads.
Corporate Banking is characterized by higher levels of assigned capital due
to the amount of balance sheet leverage. The Corporation expects revenue in this
line of business to be generated increasingly from fee-based sources to reduce
the amount of assigned capital and improve returns from activities such as
treasury management, capital markets and employee benefit plan services for its
Large Corporate and Middle Market customers. Corporate Banking's capital
markets capabilities continue to be expanded to meet the changing needs of its
client base. The Corporation has also significantly expanded product
capabilities in the merger and acquisitions advisory, private placement,
interest rate risk management and leasing product areas and is currently
evaluating long-term opportunities in expanded corporate underwriting
activities. Investments in the Corporation's syndications capabilities
contributed to a 7% increase in agented transactions and a doubling of fee
revenue and volume underwritten over the same period last year.
PNC BANK CORP. 6
<PAGE> 8
corporate financial review
<TABLE>
<CAPTION>
MORTGAGE BANKING
Six months ended June 30
Dollars in millions 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Net interest income $109 $76
Noninterest income 84 113
-------------------------
Total revenue 193 189
Provision 3 2
Noninterest expense 140 147
-------------------------
Pretax earnings 50 40
Income taxes 18 15
-------------------------
Earnings $32 $25
-------------------------
AVERAGE BALANCE SHEET
Loans $11,262 $10,094
Other assets 2,200 1,705
-------------------------
Total assets $13,462 $11,799
-------------------------
Net deposits $2,374 $2,616
Assigned funds 8,519 7,768
Other funds 1,908 868
Assigned equity 661 547
-------------------------
Total funds $13,462 $11,799
-------------------------
PERFORMANCE RATIOS
After-tax profit margin 16% 13%
Efficiency 73 78
Return on assigned equity 10 9
- ---------------------------------------------------------------
</TABLE>
Mortgage Banking contributed 6% of line of business earnings in 1996 and 1995.
Earnings increased 28% to $32 million for the first six months of 1996 compared
with the year-earlier period, primarily due to higher net interest income from
a $1.2 billion increase in portfolio loans. Noninterest income from the
Corporation's mortgage origination and servicing activities declined $29
million primarily as a result of lower sales of servicing rights. Losses on
instruments used to hedge the economic value of mortgage servicing rights
("MSR"). Were offset by lower MSR amortization. Mortgage Banking results
reflect the impact of significant noncash items. Excluding the effect of these
items, cash returns currently exceed the Corporation's required return for this
line of business.
<TABLE>
<CAPTION>
MORTGAGE SERVICING PORTFOLIO
In millions 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
January 1 $37,299 $40,389
Originations 2,984 2,334
Acquisitions 3,737 120
Repayments (3,324) (1,962)
Sales (75) (2,726)
--------------------
June 30 $40,621 $38,155
- ---------------------------------------------------------------
</TABLE>
During the first six months of 1996, the Corporation funded $3.0 billion of
residential mortgages of which 63% represented new financing. The comparable
amounts were $2.3 billion and 90%, respectively, in the first six months of
1995.
At June 30, 1996, the Corporation's mortgage servicing portfolio totaled $40.6
billion, had a weighted-average coupon rate of 7.93% and an estimated fair
value of $486 million. The servicing portfolio included $28.1 billion of loans
serviced for others with a fair value of $411 million. Capitalized MSR totaled
$323 million at June 30, 1996.
The value of MSR is affected, in part, by changes in interest rates. If
interest rates decline and the rate of prepayment increases, the underlying
servicing fee income stream and related MSR fair value would be reduced. In a
period of rising interest rates, a converse relationship would exist. The
Corporation seeks to manage this risk by using financial instruments whose
values move in the opposite direction of MSR value changes.
The mortgage banking business continues to be affected by intense competition
and, as a result of higher interest rates, lower demand for mortgage
originations. In this environment, the Corporation continues to pursue several
strategic objectives including the use of advanced, cost-effective technologies,
leveraging processing, underwriting and servicing capabilities and entering into
alliances with third parties to expand the reach of its distribution network.
PNC BANK CORP. 7
<PAGE> 9
<TABLE>
<CAPTION>
REAL ESTATE BANKING
Six months ended June 30
Dollars in millions 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Net interest income $82 $89
Noninterest income 7 11
---------------------
Total revenue 89 100
Provision 7 5
Noninterest expense 19 27
---------------------
Pretax earnings 63 68
Income taxes 20 26
---------------------
Earnings $43 $42
---------------------
AVERAGE BALANCE SHEET
Loans $3,895 $3,914
Other assets (65) (94)
---------------------
Total assets $3,830 $3,820
---------------------
Net deposits $134 $141
Assigned funds 3,098 3,086
Other funds (6) (11)
Assigned equity 604 604
---------------------
Total funds $3,830 $3,820
---------------------
PERFORMANCE RATIOS
After-tax profit margin 48% 42%
Efficiency 22 27
Return on assigned equity 14 14
- ---------------------------------------------------------------
</TABLE>
Real Estate Banking contributed 9% of line of business earnings in the first
six months of 1996 compared with 10% in the first six months of 1995.
Merger-related efficiencies as well as the decline in workout expenses due
to lower levels of nonperforming assets more than offset lower revenues.
Revenues in 1995 include a nonrecurring gain on Midlantic's sale of assets
held for accelerated disposition.
Real Estate Banking has been driven by balance sheet leverage and required
significant levels of assigned capital. A significant initiative in this line of
business is to alter the business mix to reduce assigned capital and improve
returns. Such initiatives include expanding fee-based revenue through
distribution of debt to institutional investors through loan syndications,
private placements and securitization. It is one of the five largest real estate
syndicators in the U.S. having a leading role in over $800 million of
syndication volume in the first half of 1996. In addition, Real Estate Banking
participated in its first commercial mortgage-backed securitization issuance in
June 1996.
<TABLE>
<CAPTION>
ASSET MANAGEMENT
Six months ended June 30
Dollars in millions 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Net interest income $(3) $(2)
Noninterest income 119 86
-----------------
Total revenue 116 84
Noninterest expense 77 56
-----------------
Pretax earnings 39 28
Income taxes 15 11
-----------------
Earnings $24 $17
-----------------
AVERAGE BALANCE SHEET
Loans $86 $51
Other assets 337 225
-----------------
Total assets $423 $276
-----------------
Net deposits $163 $101
Assigned funds 110 64
Other funds 31 32
Assigned equity 119 79
-----------------
Total funds $423 $276
-----------------
PERFORMANCE RATIOS
After-tax profit margin 21% 20%
Efficiency 66 67
Return on assigned equity 43 44
- ---------------------------------------------------------------
</TABLE>
Asset Management contributed 5% of line of business earnings in the first six
months of 1996 compared with 4% a year ago. Noninterest income increased 38%
due to growth in mutual fund and personal trust services, an increase in the
value of administered assets and the acquisition of BlackRock. Noninterest
expense increased primarily due to BlackRock and an increase in compensation.
PNC BANK CORP. 8
<PAGE> 10
corporate financial review
Assets under administration increased $62 billion to $305 billion compared
with a year ago. Discretionary assets under management totaled $104 billion at
June 30, 1996 compared with $89 billion a year ago. At June 30, 1996, the
composition of discretionary assets under administration was 46% fixed income,
28% money market, 25% equity and 1% other assets.
ASSETS UNDER ADMINISTRATION
<TABLE>
<CAPTION>
June 30 Non-
In billions Discretionary Discretionary Total
- -----------------------------------------------------------------------
<S> <C> <C> <C>
1996
Mutual funds $43 $143 $186
Personal and charitable 31 17 48
Institutional 30 41 71
------------------------------------
Total $104 $201 $305
- -----------------------------------------------------------------------
1995
Mutual funds $42 $102 $144
Personal and charitable 28 13 41
Institutional 19 39 58
------------------------------------
Total $89 $154 $243
- -----------------------------------------------------------------------
</TABLE>
New business resulted, in part, from the strong performance of investment
products relative to respective benchmarks. During the first half of 1996,
BlackRock's marketing of its institutional management capabilities resulted in
the addition of over $7 billion in new business. In addition,
CastleInternational, the Corporation's newly created international equity
manager in Edinburgh, Scotland now manages over $1 billion of assets.
The mutual fund servicing business unit continues to attract new business in
a consolidating market, benefiting from its long-standing association with
innovative and growing fund families. Revenues in the mutual fund servicing
unit increased 28% in the comparison.
Revenue and earnings from asset management and mutual fund servicing are
included in Asset Management. Revenue and earnings from marketing asset
management products, trust and employee benefit services to Corporate Banking
and Consumer Banking customers are included in those lines of business.
The following table reconciles total asset management revenue and earnings
with consolidated asset management and trust amounts.
<TABLE>
<CAPTION>
Revenue
-----------------------------
Six months ended June 30 Fees and
In millions Commissions Other Total Earnings
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Asset Management $118 $(2) $116 $24
Consumer Banking 97 4 101 24
Corporate Banking 30 6 36 4
-------------------------------------
Total $245 $8 $253 $52
- ------------------------------------------------------------------------
1995
Asset Management $82 $2 $84 $17
Consumer Banking 89 5 94 18
Corporate Banking 28 4 32 6
-------------------------------------
Total $199 $11 $210 $41
- ------------------------------------------------------------------------
</TABLE>
These sources of revenue are primarily affected by the volume of new
business and the value of assets managed or serviced, investment performance
and financial market conditions. Revenue may be positively affected by strong
investment performance or improving financial markets. Conversely, declining
performance or financial markets may adversely affect revenue.
CONSOLIDATED INCOME STATEMENT REVIEW
<TABLE>
<CAPTION>
INCOME STATEMENT HIGHLIGHTS
Change
Six months ended June 30 ---------------------
Dollars in millions 1996 1995 Amount Percent
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income
(taxable-equivalent
basis) $1,236 $1,086 $150 13.8%
Provision for credit
losses 3 (3) (100.0)
Noninterest income 658 599 59 9.8
Noninterest expense 1,130 1,096 34 3.1
Income taxes 259 188 71 37.8
Net income 486 373 113 30.3
- -------------------------------------------------------------------
</TABLE>
Consolidated net income increased 30.3% to $486.4 million for the first six
months of 1996 reflecting strong revenue growth and expense control. Total
revenue increased 12.4% or $209.5 million to $1.9 billion for the first six
months of 1996 due to a wider net interest margin and growth in fee-based
businesses.
Taxable-equivalent net interest income increased $150.2 million or 13.8% and,
as a percent of total revenue, was 65.3% and 64.5% in the first six months
of 1996 and 1995, respectively. The net interest margin widened 60 basis
points to 3.72% in the first six months of 1996 compared with 3.12% in the
prior-year period.
PNC BANK CORP. 9
<PAGE> 11
<TABLE>
<CAPTION>
NET INTEREST INCOME ANALYSIS
Taxable-equivalent basis Average Balances Interest Income/Expense Average Yields/Rates
Six months ended June 30 -------------------------------------------------------------------------------------------
Dollars in millions 1996 1995 Change 1996 1995 Change 1996 1995 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Short-term investments $1,128 $1,187 $(59) $33 $38 $(5) 5.84% 6.42% (58) bp
Loans held for sale 1,205 493 712 41 19 22 6.88 7.86 (98)
Securities 14,779 23,558 (8,779) 473 743 (270) 6.40 6.32 8
Loans, net of unearned income 48,908 44,240 4,668 1,977 1,857 120 8.06 8.40 (34)
Other interest-earning assets 10 12 (2) 1 1 8.04 7.34 70
---------------------------- --------------------------
Total interest income/interest-
earning assets 66,030 69,490 (3,460) 2,525 2,658 (133) 7.64 7.65 (1)
Noninterest-earning assets 6,057 5,602 455
------------------------------
Total assets $72,087 $75,092 $(3,005)
------------------------------
Interest-bearing liabilities
Interest-bearing deposits $35,627 $35,182 $445 721 736 (15) 4.07 4.21 (14)
Borrowed funds 7,819 14,018 (6,199) 221 437 (216) 5.63 6.22 (59)
Notes and debentures 11,487 9,848 1,639 338 307 31 5.86 6.24 (38)
----------------------------- ---------------------------
Total interest expense/interest-
bearing liabilities 54,933 59,048 (4,115) 1,280 1,480 (200) 4.67 5.03 (36)
--------------------------- ----------------------------
Noninterest-bearing liabilities
and shareholders' equity 17,154 16,044 1,110
------------------------------
Total liabilities and
shareholders' equity $72,087 $75,092 $(3,005)
------------------------------
Interest rate spread 1,245 1,178 67 2.97 2.62 35
Impact of noninterest-bearing
sources .78 .76 2
----------------------------
Net interest margin before
financial derivatives 3.75 3.38 37
Effect of financial derivatives on
Interest income (8) (78) 70 (.03) (.22) 19
Interest expense 1 14 (13) .04 (4)
-------------------------- ----------------------------
Total effect of financial
derivatives (9) (92) 83 (.03) (.26) 23
--------------------------- ----------------------------
Net interest income $1,236 $1,086 $150 3.72% 3.12% 60 bp
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The net interest income and margin increases reflect the benefits of the
Chemical acquisition and the balance sheet repositioning. These
changes, combined with loan growth, benefited the margin as higher-yielding
loans replaced lower-yielding securities and rates paid on interest-bearing
liabilities declined.
Total interest income declined $132.8 million primarily due to the decline in
average securities. Higher earnings from growth in consumer and commercial
loans partially offset the impact of the lower securities portfolio. The cost of
interest-bearing liabilities declined $200.0 million due to a reduction in
higher-cost wholesale funds and an increase in the proportion of retail
deposits to total sources of funds. The cost of financial derivatives also
declined in the comparison.
The yield on earning assets was relatively flat in the comparison as the
benefits of the change in composition of earning assets offset the adverse
effect of declining yields on loans. The average rate paid on liabilities
declined 36 basis points largely due to the reduction in wholesale funds and an
increase in the proportion of retail deposits supporting earning assets.
Net interest income and margin depend on a number of factors including the
volume and composition of earning assets and related yields along with the cost
of funding such assets. In the first half of 1996 loans comprised 74.1% of the
Corporation's earning assets. Accordingly, loan growth and the related yields
earned have a significant impact on net interest income. During the first six
months of 1996, loan growth and yields earned were tempered by competitive
pricing pressures, the Corporation's underwriting standards, return on capital
expectations and declining demand. The Corporation expects these conditions to
continue. The cost of funding is affected by the composition of and rate paid on
sources of funding. Average deposits comprise 63.1% of the Corporation's total
sources of funding and the remainder is comprised of wholesale funding obtained
at prevailing market rates. The ability to attract and retain deposits will
continue to be affected by competition and customer preferences for higher
yielding products, such as mutual funds.
PNC BANK CORP. 10
<PAGE> 12
corporate financial review
<TABLE>
<CAPTION>
NONINTEREST INCOME Change
Six months ended June 30 -------------------
Dollars in millions 1996 1995 Amount Percent
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset management and trust
Asset management
services $50 $33 $17 51.5%
Mutual fund services 89 71 18 25.4
Trust 106 95 11 11.6
------------------------
Total asset management
and trust 245 199 46 23.1
Service fees
Deposit 138 117 21 17.9
Brokerage 29 20 9 45.0
Consumer 28 24 4 16.7
Corporate finance 29 25 4 16.0
Credit card and
merchant services 9 26 (17) (65.4)
Insurance 14 12 2 16.7
Other 17 17
------------------------
Total service fees 264 241 23 9.5
Mortgage banking
Servicing 60 61 (1) (1.6)
Marketing 11 13 (2) (15.4)
Sale of servicing 1 22 (21) (95.5)
------------------------
Total mortgage banking 72 96 (24) (25.0)
Net securities gains 7 9 (2) (22.2)
Other 70 54 16 29.6
------------------------
Total $658 $599 $59 9.8
- ---------------------------------------------------------------
</TABLE>
Noninterest income totaled $658.1 million in the first six months of 1996 and
increased 9.8% compared with the prior-year period. The growth in noninterest
income reflects the Corporation's continuing emphasis on expanding fee-based
businesses. Noninterest income accounted for 34.7% of total revenue in the
first six months of 1996 and 35.5% a year ago.
The decline in credit card and merchant services reflects the impact of
alliances with third parties to provide certain administrative, marketing, data
processing and customer support services for these businesses. Generally, the
third parties receive fee-based revenues and incur operating costs associated
with offering such services. Excluding the impact of these alliances
noninterest income increased 13.3%.
<TABLE>
<CAPTION>
NONINTEREST EXPENSE Change
Six months ended June 30 ------------------
Dollars in millions 1996 1995 Amount Percent
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Compensation $463 $423 $40 9.5%
Employee benefits 100 106 (6) (5.7)
---------------------------
Total staff expense 563 529 34 6.4
Net occupancy 100 92 8 8.7
Equipment 86 80 6 7.5
Intangible asset and
MSR amortization 52 47 5 10.6
Taxes other than income 28 26 2 7.7
Federal deposit insurance 6 48 (42) (87.5)
Other 295 274 21 7.7
---------------------------
Total $1,130 $1,096 $34 3.1
- -----------------------------------------------------------------
</TABLE>
Noninterest expense increased modestly to $1.1 billion for the first six months
of 1996. The increase was substantially due to acquisitions partially
offset by lower Federal deposit insurance premiums. Excluding acquisitions,
noninterest expense declined 2.4% in the comparison. The efficiency ratio
improved to 59.7% in the first six months of 1996 compared with 65.1% in the
year-earlier period reflecting effective cost control and higher revenue.
Compensation expenses increased primarily due to acquisitions and incentive
compensation in fee-based businesses including asset management and brokerage.
Excluding the addition of 300 FTEs in telebanking and asset management, average
FTEs for the first six months of 1996 declined 700 to 25,170 due to the
integration of Chemical and Midlantic.
Conversion of Midlantic's products and systems are expected to be substantially
completed by the end of the third quarter of 1996. Although the extent and
timing of cost savings from the integration of Midlantic are dependent on
several factors, many of which are outside of management's control, the
Corporation continues to believe it will exceed its original estimate of cost
savings from the consolidation or elimination of overlapping facilities and
operations.
AVERAGE BALANCE SHEET REVIEW
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET HIGHLIGHTS Change
Six months ended June 30 ------------------
Dollars in millions 1996 1995 Amount Percent
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets $72,087 $75,092 $(3,005) (4.00)%
Earning assets 66,030 69,490 (3,460) (4.98)
Loans, net of
unearned income 48,908 44,240 4,668 10.55
Securities 14,779 23,558 (8,779) (37.27)
Deposits 45,465 44,018 1,447 3.29
Borrowed funds 7,819 14,018 (6,199) (44.22)
Notes and debentures 11,487 9,848 1,639 16.64
Shareholders' equity 5,766 5,719 47 .82
- ------------------------------------------------------------------
</TABLE>
PNC BANK CORP. 11
<PAGE> 13
Average assets and earning assets totaled $72.1 billion and $66.0 billion,
respectively, for the six months ended June 30, 1996 compared with $75.1
billion and $69.5 billion, respectively, in the year-earlier period. The
decline was due to the balance sheet repositioning partially offset by loan
growth.
<TABLE>
<CAPTION>
AVERAGE LOANS
Six months ended June 30
Dollars in millions 1996 1995 Change
- ---------------------------------------------------------------
<S> <C> <C> <C>
Consumer $13,307 $11,562 15.09%
Residential mortgage 11,751 10,347 13.57
Commercial 16,998 15,380 10.52
Commercial real estate 4,858 5,024 (3.30)
Other 1,994 1,927 3.48
--------------------
Total, net of unearned
income $48,908 $44,240 10.55
- ---------------------------------------------------------------
</TABLE>
Loans increased $4.7 billion, or 10.6%, to $48.9 billion for the six months
ended June 30, 1996. Excluding acquisitions, loans increased 5.6% in the
comparison. Loans were 74.1% of earning assets in the first six months of 1996
compared with 63.7% a year ago. Securities declined $8.8 billion, or 37.3%,
compared with the year-earlier period. Securities represented 22.4% of earning
assets compared with 33.9% for the first six months of 1995.
Deposits increased $1.4 billion, or 3.3%, to $45.5 billion in the first six
months of 1996 compared with a year ago. The Chemical acquisition, which was
completed in October 1995, added $2.7 billion of retail core deposits. The
ratio of deposits to sources of funds increased to 63.1% compared with 58.6% a
year ago. During the first six months of 1996, the ratio of wholesale funding
to sources of funds decreased to 28.5%, compared with 35.1% a year ago.
BALANCE SHEET REVIEW
<TABLE>
<CAPTION>
BALANCE SHEET HIGHLIGHTS Change
June 30 December 31 --------------------
Dollars in millions 1996 1995 Amount Percent
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets $71,961 $73,404 $(1,443) (1.97)%
Loans, net of
unearned income 49,223 48,653 570 1.17
Securities 14,107 15,839 (1,732) (10.94)
Deposits 44,852 46,899 (2,047) (4.36)
Borrowed funds 7,082 8,665 (1,583) (18.27)
Notes and debentures 12,243 10,398 1,845 17.74
Shareholders' equity 5,832 5,768 64 1.11
- ----------------------------------------------------------------------
</TABLE>
Total assets were $72.0 billion at June 30, 1996 compared with $73.4 billion at
year-end 1995. The decline was primarily due to a reduced securities portfolio.
<TABLE>
<CAPTION>
LOANS
June 30 December 31
In millions 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Consumer
Home equity $4,543 $4,541
Automobile 3,938 4,236
Student 1,633 1,512
Credit card 987 1,004
Other 2,077 2,246
-----------------------
Total consumer 13,178 13,539
Residential mortgage 12,139 11,689
Commercial
Manufacturing 3,474 3,363
Retail/Wholesale 3,043 3,148
Service providers 2,393 2,402
Communications 1,092 1,083
Financial services 954 1,082
Real estate related 1,385 1,291
Health care 967 1,028
Other 3,988 3,415
-----------------------
Total commercial 17,296 16,812
Commercial real estate
Commercial mortgage 2,644 2,775
Medium-term financings 1,164 1,250
Construction and development 1,029 889
-----------------------
Total commercial real estate 4,837 4,914
Lease financing and other 2,131 2,102
Unearned income (358) (403)
-----------------------
Total, net of unearned income $49,223 $48,653
- -----------------------------------------------------------------
</TABLE>
Loans outstanding increased $570 million from year-end 1995 to $49.2 billion at
June 30, 1996. The composition of the loan portfolio remained relatively
consistent in the comparison and continues to be geographically diversified
among numerous industries and types of business. Unfunded commitments, net of
participations and syndications, increased $4.0 billion, or 11.8%, since
year-end 1995. In addition, the Corporation had letters of credit outstanding
totaling $4.5 billion at June 30, 1996 and December 31, 1995, primarily
consisting of standby letters of credit.
<TABLE>
<CAPTION>
NET UNFUNDED COMMITMENTS
TO EXTEND CREDIT
June 30 December 31
In millions 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Consumer $8,603 $7,335
Residential mortgage 827 554
Commercial 26,806 24,282
Commercial real estate 713 751
Other 871 892
------------------------
Total $37,820 $33,814
- ------------------------------------------------------------------
</TABLE>
PNC BANK CORP. 12
<PAGE> 14
corporate financial review
<TABLE>
<CAPTION>
SECURITIES
June 30, 1996 December 31, 1995
--------------------------------------------
Amortized Fair Amortized Fair
In millions Cost Value Cost Value
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities
U.S. Treasury $3,037 $3,052 $3,211 $3,280
U.S. Government
agencies and
corporations
Mortgage-related 6,784 6,573 7,510 7,453
Other 1,431 1,417 1,030 1,034
Asset-backed
private placement 620 620 1,597 1,604
State and municipal 231 240 343 367
Other debt
Mortgage-related 904 891 1,121 1,113
Other 932 930 525 525
Corporate stocks and other 380 380 455 457
Associated derivatives 4 6
--------------------------------------------
Total $14,319 $14,107 $15,792 $15,839
- ----------------------------------------------------------------------
</TABLE>
The securities portfolio declined $1.7 billion from year-end 1995 to $14.1
billion at June 30, 1996. The expected weighted average life of the securities
portfolio was 3 years and 1 month at June 30, 1996 compared with 2 years and 8
months at year-end 1995.
At June 30, 1996 and December 31, 1995, $5.5 billion and $6.1 billion,
respectively, notional value of interest rate swaps and caps were associated
with securities available for sale. Securities classified as available for sale
may be sold as part of the overall asset/liability management process. Realized
gains and losses resulting from such sales would be reflected in the results of
operations and would include the fair value of associated financial
derivatives.
The securities portfolio included collateralized mortgage obligations and
mortgage-backed securities with a fair value of $5.5 billion and $2.0 billion,
respectively at June 30, 1996. The characteristics of these securities include
principal guarantees, primarily by U.S. Government agencies, and marketability.
Expected lives of such securities can vary as interest rates change. In a
declining interest rate environment, prepayments on the underlying mortgage
securities may accelerate and, therefore, shorten the expected lives.
Conversely, expected lives would lengthen in a rising interest rate environment.
The Corporation monitors the impact of this risk through the use of an income
simulation model as part of the asset/liability management process.
Other U.S. Government agencies and Corporation's securities and asset-backed
private placements primarily represent triple A-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, and on a quarterly basis
thereafter, the maturity may be extended to a contractual maturity date or the
security may be called at the option of the issuer.
Other mortgage-related debt securities consist primarily of private label
collateralized mortgage obligations.
<TABLE>
<CAPTION>
FUNDING SOURCES
June 30 December 31
In millions 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Deposits
Demand, savings and money market $26,156 $27,145
Time 18,164 18,661
Foreign 532 1,093
------------------------
Total deposits 44,852 46,899
Borrowed funds
Federal funds purchased 1,362 3,817
Repurchase agreements 2,188 2,851
Commercial paper 462 753
Treasury, tax and loan 2,550 567
Other 520 677
------------------------
Total borrowed funds 7,082 8,665
Notes and debentures
Bank notes 8,697 6,256
Federal Home Loan Bank 1,897 2,393
Other 1,649 1,749
------------------------
Total notes and debentures 12,243 10,398
------------------------
Total $64,177 $65,962
- ------------------------------------------------------------------
</TABLE>
Total deposits decreased 4.4% to $44.9 billion at June 30, 1996 compared with
$46.9 billion at year-end 1995. Demand, savings and money market deposits
declined $989 million as consumers sought more attractive yields and due to a
seasonal decline in corporate accounts.
Total borrowed funds and notes and debentures was relatively flat in the
comparison and the change in composition of these categories reflects actions
to utilize the most cost-effective alternatives. The composition of these
sources will vary depending on management's evaluation of the most
cost-effective funding alternatives.
CAPITAL The access to and cost of funding, new business initiatives including
acquisitions, 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.
The Corporation had a 24 million common share repurchase plan authorized by the
board of directors in January 1995. The Corporation discontinued all purchases
under that plan with the initiation of the Midlantic merger in July 1995 and
during the second quarter of 1996, formally rescinded that plan.
PNC BANK CORP. 13
<PAGE> 15
During the second quarter, approximately 1.6 million common shares were acquired
as part of a systematic program for employee benefit and dividend reinvestment
plans.
Management is currently evaluating the Corporation's capital position. Factors
being considered include capital adequacy, level of future earnings, balance
sheet growth, alternative capital reinvestment opportunities, and composition of
capital. Future share repurchases and other capital actions, if any, are
dependent on the results of that analysis and board authorization.
<TABLE>
<CAPTION>
RISK-BASED CAPITAL
June 30 December 31
Dollars in millions 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Capital components
Shareholders' equity $5,832 $5,768
Goodwill and other intangibles (989) (980)
Net unrealized securities
(gains) losses 141 (26)
------------------------
Tier I risk-based capital 4,984 4,762
Subordinated debt 1,346 1,370
Eligible allowance for
credit losses 743 750
------------------------
Total risk-based capital $7,073 $6,882
------------------------
Assets
Risk-weighted assets and
off-balance-sheet instruments $58,990 $59,539
Average tangible assets 71,571 74,756
------------------------
Capital ratios
Tier I risk-based 8.45% 8.00%
Total risk-based 11.99 11.56
Leverage 6.96 6.37
- ----------------------------------------------------------------
</TABLE>
The minimum regulatory capital ratios are 4.00% for Tier I, 8.00% for total
risk-based and 3.00% for leverage. However, regulators may require higher
capital levels when a bank's particular circumstances warrant. To be classified
as well capitalized, regulators require capital ratios of at least 6.00% for
Tier I, 10.0% for total risk-based and 5.00% for leverage. At June 30, 1996,
the Corporation and each of its bank affiliates were classified as well
capitalized.
RISK MANAGEMENT
The Corporation's ordinary course of business involves varying degrees of risk
taking, the most significant of which are credit, liquidity and interest rate
risk. To manage these risks, the Corporation has risk management processes
designed to provide for risk identification, measurement, monitoring and
control.
CREDIT RISK MANAGEMENT Credit risk represents the possibility that a customer
or counterparty may not perform in accordance with contractual terms. Credit
risk is inherent in the financial services business and results from extending
credit to customers, purchasing securities and entering into certain
off-balance-sheet financial derivative transactions. The Corporation seeks to
manage credit risk through diversification, utilizing exposure limits to any
single industry or customer, requiring collateral and selling participations to
third parties.
NONPERFORMING ASSETS Nonperforming assets declined $27 million to $509 million
at June 30, 1996 compared with $536 million at year-end. The following tables
set forth nonperforming assets by category at June 30, 1996 and December 31,
1995 and the changes in nonperforming assets during the first six months of
1996 and 1995.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
June 30 December 31
Dollars in millions 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans
Commercial $169 $118
Commercial real estate
Commercial mortgage 127 108
Real estate project 30 45
Consumer 6 10
Residential mortgage 46 54
---------------------
Total nonaccrual loans 378 335
Restructured loans 3 23
---------------------
Total nonperforming loans 381 358
Foreclosed assets
Commercial real estate 85 105
Residential mortgage 21 24
Other 22 49
---------------------
Total foreclosed assets 128 178
---------------------
Total nonperforming assets $509 $536
---------------------
Nonperforming loans to loans .77% .74%
Nonperforming assets to loans and
foreclosed assets 1.03 1.10
Nonperforming assets to assets .71 .73
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN NONPERFORMING ASSETS
In millions 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
January 1 $536 $757
Transferred from accrual 240 203
Acquisitions 14
Returned to performing (30) (46)
Principal reductions (118) (162)
Sales (83) (41)
Charge-offs and valuation adjustments (36) (52)
-------------------
June 30 $509 $673
- ---------------------------------------------------------------
</TABLE>
At June 30, 1996, $78 million of nonperforming loans were current as to
principal and interest compared with $89 million at December 31, 1995.
PNC BANK CORP. 14
<PAGE> 16
corporate financial review
<TABLE>
<CAPTION>
ACCRUING LOANS CONTRACTUALLY
PAST DUE 90 DAYS OR MORE
Amount Percent of Loans
------------------------------------------------
June 30 December 31 June 30 December 31
Dollars in millions 1996 1995 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer
Guaranteed
student loans $29 $44 1.78% 2.90%
Other 49 51 .44 .44
--------------------
Total consumer 78 95 .61 .72
Residential mortgage 59 63 .49 .54
Commercial 27 22 .16 .13
Commercial real estate 27 45 .55 .92
--------------------
Total $191 $225 .39 .46
- -----------------------------------------------------------------------
</TABLE>
ALLOWANCE FOR CREDIT LOSSES In determining the adequacy of the allowance for
credit losses, the Corporation allocates reserves to specific problem loans
based on discounted cash flow analyses or collateral valuations for impaired
loans and to pools of watchlist and non-watchlist loans for various credit risk
factors.
<TABLE>
<CAPTION>
ALLOWANCE FOR CREDIT LOSSES
In millions 1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
January 1 $1,259 $1,352
Charge-offs (113) (115)
Recoveries 43 53
---------------------
Net charge-offs (70) (62)
Provision for credit losses 3
Acquisitions 7
---------------------
June 30 $1,189 $1,300
- ----------------------------------------------------------------
</TABLE>
The allowance as a percent of period-end loans and nonperforming loans was
2.42% and 312%, respectively, at June 30, 1996. The comparable year-end 1995
amounts were 2.59% and 352%, respectively.
PROVISION FOR CREDIT LOSSES Favorable economic conditions, combined with
management's ongoing attention to asset quality, resulted in a stable level of
nonperforming assets and net charge-offs. Based on the loan portfolio's current
risk profile, management does not expect to record a provision for credit
losses during the remainder of 1996. Should the risk profile of the loan
portfolio or the economy deteriorate, asset quality may be adversely impacted
and a provision for credit losses may be required.
<TABLE>
<CAPTION>
CHARGE-OFFS AND RECOVERIES
Percent
Net of
Six months ended June 30 Charge- Charge- Average
Dollars in millions offs Recoveries offs Loans
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Consumer
Credit card $27 $3 $24 4.91%
Other 50 18 32 .52
--------------------------------
Total consumer 77 21 56 .85
Residential mortgage 4 1 3 .05
Commercial 27 15 12 .14
Commercial real estate 5 6 (1) (.04)
--------------------------------
Total $113 $43 $70 .29
- ------------------------------------------------------------------------
1995
Consumer
Credit card $16 $3 $13 3.21%
Other 34 19 15 .28
--------------------------------
Total consumer 50 22 28 .49
Residential mortgage 6 1 5 .10
Commercial 44 27 17 .22
Commercial real estate 15 3 12 .48
--------------------------------
Total $115 $53 $62 .28
- ------------------------------------------------------------------------
</TABLE>
Consumer net charge-offs increased $28 million in the comparison primarily due
to acquisitions and an increase in credit card charge-offs.
LIQUIDITY Liquidity represents an institution's ability to generate cash or
otherwise obtain funds at reasonable rates to satisfy commitments to borrowers
and demands of depositors and debtholders, and invest in other strategic
initiatives. Liquidity risk represents the likelihood the Corporation would be
unable to generate cash or otherwise obtain funds at reasonable rates to
satisfy commitments to borrowers, as well as the obligations to depositors and
debtholders. Liquidity is managed through the coordination of the relative
maturities of assets, liabilities and off-balance-sheet positions and is
enhanced by the ability to raise funds in capital markets through direct
borrowing or securitization of assets such as automobile and credit card loans.
The ability to raise funds in the capital markets depends on market conditions,
capital considerations, credit ratings and investor demand, among other factors.
During the first six months of 1996, cash and due from banks decreased $447
million to $3.2 billion compared with an increase of $34 million during the
year-earlier period. Net cash provided by operating activities decreased $193
million in the comparison, primarily due to increases in loans held for sale
associated with the Corporation's mortgage banking activities and trading
account securities. Cash provided by investing activities decreased to $2.1
billion compared with $2.2 billion provided a year ago. Net cash used by
financing activities totaled $2.6 billion in the first six months of 1996
compared with $2.5 billion used a year earlier.
PNC BANK CORP. 15
<PAGE> 17
Liquid assets consist of cash and due from banks, short-term investments, loans
held for sale and securities available for sale. At June 30, 1996, such assets
totaled $19.2 billion, of which $8.5 billion was pledged as collateral.
Liquidity is also provided by residential mortgages which may be used as
collateral for funds obtained through the Federal Home Loan Bank ("FHLB")
system. At June 30, 1996, approximately $6.1 billion of residential mortgages
were available as collateral for borrowings from the FHLB.
The principal source of the parent company's revenues and cash flow is
dividends from its subsidiary banks. PNC Bancorp, Inc. is a wholly-owned
subsidiary of the parent company and is the holding company for all bank
subsidiaries. There are legal limitations on the ability of the bank
subsidiaries to pay dividends and make other distributions to PNC Bancorp, Inc.
and in turn the parent company. Without regulatory approval, the amount
available for payment of dividends to PNC Bancorp, Inc. by all bank
subsidiaries was $408 million at June 30, 1996. Dividends may also be impacted
by capital needs, regulatory requirements and policies, and other factors.
Liquidity for the parent company and its affiliates is also generated through
the issuance of securities in public or private markets and lines of credit.
Under effective shelf registration statements at June 30, 1996, the Corporation
had available $140 million of debt, $300 million of preferred stock and $350
million of securities that may be issued as either debt or preferred stock. In
addition, the Corporation had a $500 million unused committed line of credit.
Funds obtained from any of these sources can be used for both bank and nonbank
activities.
Management believes the Corporation has sufficient liquidity to meet its
current obligations to customers, debtholders and others. The impact of
replacing maturing liabilities is reflected in the income simulation model used
in the Corporation's overall asset/liability management process.
INTEREST RATE RISK Interest rate risk arises primarily through the
Corporation's normal business activities of extending loans and taking
deposits. Many factors, including economic and financial conditions, general
movements in market interest rates, and consumer preferences, affect the spread
between interest earned on assets and interest paid on liabilities. Financial
derivatives, primarily interest rate swaps, caps and floors, are used to alter
the interest rate characteristics of assets and liabilities. For example,
receive-fixed interest rate swaps effectively convert variable-rate assets to
fixed-rate assets.
In managing interest rate risk, the Corporation seeks to minimize the reliance
on a particular interest rate scenario as a source of earnings. Accordingly,
wholesale activities including securities, funding, financial derivatives and
capital markets activities are used in managing core business exposures within
specified guidelines. Interest rate risk is centrally managed by asset and
liability (A&L) management.
An income simulation model is the primary tool used to assess the direction and
magnitude of changes in net interest income resulting from changes in interest
rates. Key assumptions employed in the model include prepayment speeds on
mortgage-related assets, cash flows and maturities of financial instruments,
changes in market conditions, loan volumes and pricing, deposit sensitivity,
customer preferences, and management's financial and capital plans. These
assumptions are inherently uncertain and, as a result, the model cannot
precisely estimate net interest income or precisely predict the impact of
higher or lower interest rates on net interest income.
The Corporation's guidelines provide that net interest income should not
decrease by more than 3% if interest rates gradually increase or decrease from
current rates by 100 basis points over a twelve month period. At June 30, 1996,
based on the results of the simulation model, the Corporation was within these
guidelines. Actual results will differ from simulated results due to timing,
magnitude and frequency of interest rate changes and changes in market
conditions and management strategies, among other factors.
The Corporation also employs interest sensitivity (gap) analyses to assess
interest rate risk. A gap analysis represents a point-in-time net position of
assets, liabilities and off-balance-sheet instruments subject to repricing in
specified time periods. Gap analysis alone does not accurately measure the
magnitude of changes in net interest income since changes in interest rates
over time do not impact all categories of assets, liabilities and
off-balance-sheet instruments equally or simultaneously. The Corporation's
limit for the cumulative one-year gap position is 10%. A cumulative
asset-sensitive gap position indicates assets are expected to reprice more
quickly than liabilities. Alternatively, a cumulative liability-sensitive gap
position indicates liabilities are expected to reprice more quickly than
assets. At June 30, 1996, the cumulative liability sensitivity of the one-year
gap position was 3.8%.
FORWARD-LOOKING STATEMENTS
The Corporation has made, and may continue to make, various forward-looking
statements with respect to earnings per share, costs savings related to the
Midlantic acquisition, credit quality and other financial and business matters
for 1996 and, in certain instances, subsequent periods. The Corporation
cautions that these forward-looking statements
PNC BANK CORP. 16
<PAGE> 18
corporate financial review
are subject to numerous assumptions, risks and uncertainties, and that
statements for periods subsequent to 1996 are subject to greater uncertainty
because of the increased likelihood of changes in underlying factors and
assumptions. Actual results could differ materially from forward-looking
statements.
In addition to those factors previously disclosed by the Corporation and those
factors identified elsewhere herein, the following factors could cause actual
results to differ materially from such forward-looking statements: continued
pricing pressures on loan and deposit products; actions of competitors;
changes in economic conditions; the extent and timing of actions of the
Federal Reserve Board; continued customer disintermediation; customers'
acceptance of the Corporation's products and services; and the extent and
timing of legislative and regulatory actions and reforms.
The Corporation's forward-looking statements speak only as of the date on which
such statements are made. By making any forward-looking statements, the
Corporation assumes no duty to update them to reflect new, changing or
unanticipated events or circumstances.
FINANCIAL DERIVATIVES
The Corporation uses a variety of off-balance-sheet financial derivatives as
part of its overall interest rate risk management process to manage the interest
rate risk inherent in the Corporation's line of business activity. Financial
derivatives involve, to varying degrees, interest rate and credit risk in excess
of the amount recognized in the balance sheet, but less than the notional amount
of the contract. For interest rate swaps, caps and floors, only periodic cash
payments and, with respect to caps and floors, premiums, are exchanged.
Therefore, cash requirements and exposure to credit risk are significantly less
than the notional value.
Interest rate swaps are agreements to exchange fixed and floating interest rate
payments calculated on a notional principal amount. The floating rate is based
on a money market index, primarily short-term LIBOR indices. Interest rate caps
and floors are agreements where, for a fee, the counterparty agrees to pay the
Corporation the amount, if any, by which a specified market interest rate
exceeds or is less than a defined rate applied to a notional amount. Forward
contracts provide for the delivery of financial instruments at a specified
future date and at a specified price or yield.
During the first six months of 1996, the Corporation added $4.3 billion and
$2.5 billion notional value of receive-fixed interest rate swaps and interest
rate floors, respectively. These contracts are predominantly associated with
variable rate loans and are designed to reduce exposure to declining interest
rates.
In addition, the Corporation terminated $2.1 billion notional value of
receive-fixed index amortizing interest rate swaps and $1.1 billion notional
value of pay-fixed interest rate swaps as part of its overall interest rate risk
management process. The terminations resulted in a $5.3 million loss and $9.2
million gain respectively, which were deferred and are being amortized as an
adjustment to net interest income over remaining periods of 7 months and 12
months, respectively. The following table sets forth the changes in
off-balance-sheet financial derivatives during the first six months of 1996.
<TABLE>
<CAPTION>
FINANCIAL DERIVATIVES ACTIVITY
January 1 June 30
In millions 1996 Additions Maturities Terminations 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rate risk management
Interest rate swaps
Receive fixed $2,785 $4,302 $(766) $6,321
Receive-fixed index amortizing 3,211 (720) $(2,117) 374
Pay fixed 2,629 278 (694) (1,148) 1,065
Basis swaps 765 30 (765) 30
Interest rate caps 5,510 30 (10) 5,530
Interest rate floors 2,500 2,500
--------------------------------------------------------------------
Total interest rate risk management 14,900 7,140 (2,955) (3,265) 15,820
Mortgage banking activities
Forward contracts - commitments to purchase loans 431 2,108 (2,194) 345
Forward contracts - commitments to sell loans 751 3,114 (3,218) 647
Interest rate floors - MSR 500 1,100 (800) 800
Receive-fixed interest rate swaps - MSR 125 (125)
--------------------------------------------------------------------
Total mortgage banking activities 1,807 6,322 (5,412) (925) 1,792
--------------------------------------------------------------------
Total $16,707 $13,462 $(8,367) $(4,190) $17,612
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
PNC BANK CORP. 17
<PAGE> 19
The following table sets forth the maturity distribution and weighted average
interest rates of financial derivatives used for interest rate risk management.
The expected maturity distribution is based on contractual terms, except with
respect to receive-fixed index amortizing swaps, which are based on implied
forward rates. Implied forward rates are derived from the fair value of the
underlying financial instrument. Weighted average interest rates represent
implied forward rates and contractual rates in effect at June 30, 1996 based on
the average outstanding notional amount.
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION AND WEIGHTED AVERAGE
INTEREST RATES OF FINANCIAL DERIVATIVES
Weighted Average Rates
------------------------------------------------
Expected Based on
Notional Value Implied Forward At June 30, 1996
-----------------------------------------------------------------------
Average
Dollars in millions Maturing Outstanding Paid Received Paid Received
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps (1)
Receive fixed
1996 $1,100 $5,871 5.76% 5.56% 5.50% 5.56%
1997 415 5,138 6.31 5.52 5.50 5.52
1998 4,606 772 6.66 5.93 5.51 5.93
1999 and beyond 200 167 7.34 6.79 5.51 6.79
---------
Total $6,321
-----------------------------------------------------------------------
Receive-fixed index amortizing
1996 $301 $158 5.69% 5.15% 5.52% 5.15%
1997 23 56 6.28 4.99 5.53 4.99
1998 50 36 6.70 4.94 5.54 4.94
---------
Total $374
----------------------------------------------------------------------
Pay fixed
1996 $560 $603 7.01% 5.71% 7.01% 5.49%
1997 90 470 7.15 6.30 7.15 5.52
1998 80 377 7.21 6.73 7.21 5.53
1999 and beyond 335 253 7.17 7.06 7.17 5.53
---------
Total $1,065
----------------------------------------------------------------------
Basis swaps
1996 $30 5.69% 5.78% 5.45% 5.46%
1997 30 6.20 6.32 5.45 5.46
1998 $30 13 6.56 6.67 5.45 5.46
---------
Total $30
----------------------------------------------------------------------
Interest rate caps (2)
1996 $5,530 NM NM NM NM
1997 $5,500 4,537 NM NM NM NM
1998 30 NM NM NM NM
1999 and beyond 30 1 NM NM NM NM
---------
Total $5,530
----------------------------------------------------------------------
Interest rate floors (3)
1996 $2,500 NM NM NM NM
1997 2,500 NM NM NM NM
1998 $1,000 1,648 NM NM NM NM
1999 and beyond 1,500 559 NM NM NM NM
---------
Total $2,500
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The floating rate portion of interest rate contracts is based on
money-market indices. As a percent of notional value, 83% were based
on 3-month LIBOR, 9% on 1-month LIBOR and the remainder on other
short-term indices.
(2) Interest rate caps with notional values of $5.5 billion and $30
million require the counterparty to pay the Corporation the excess,
if any, of 3-month LIBOR over 6.50% and 1-month LIBOR over 6.75% ,
respectively. At June 30, 1996, 3-month LIBOR was 5.58% and the
1-month LIBOR was 5.50%.
(3) Interest rate floors with notional values of $1 billion and $1.5
billion require the counterparty to pay the Corporation the excess,
if any, of 4.80% and 5.00%, respectively, over 3-month LIBOR. At June
30, 1996, 3-month LIBOR was 5.58%.
NM - not meaningful
PNC BANK CORP. 18
<PAGE> 20
corporate financial review
The following table sets forth by designated assets and liabilities, the
notional value, weighted average interest rates exchanged, and the estimated
fair value of financial derivatives used for interest rate risk management and
mortgage banking activities. Weighted average interest rates on the variable
portion of the contracts are based on implied forward rates.
<TABLE>
<CAPTION>
FINANCIAL DERIVATIVES
June 30, 1996 Weighted Average Rates
Notional ---------------------- Estimated
Dollars in millions Value Paid Received Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate risk management
Asset rate conversion
Interest rate swaps (1)
Receive fixed designated to
Loans $5,020 6.13% 5.42% $(10)
Short-term investments 200 6.30 7.23 7
Receive-fixed index amortizing designated to loans 301 5.63 5.19 (2)
Pay fixed designated to loans 540 7.30 6.36 (19)
Interest rate caps designated to (2)
Securities 5,500 NM NM 8
Loans 30 NM NM
Interest rate floors designated to loans (3) 2,500 NM NM 3
--------- ------
Total asset rate conversion 14,091 (13)
Liability rate conversion
Interest rate swaps (1)
Receive fixed designated to
Borrowed funds and notes and debentures 626 5.57 5.73 22
Interest-bearing deposits 475 6.39 6.22 (3)
Receive-fixed index amortizing designated to interest-bearing
deposits 73 6.16 5.10 (1)
Pay fixed designated to borrowed funds and notes and debentures 525 5.46 5.40 (3)
Basis swaps designated to notes and debentures 30 6.16 6.27
--------- ------
Total liability rate conversion 1,729 15
--------- ------
Total interest rate risk management 15,820 2
Mortgage banking activities
Forward contracts - commitments to purchase loans 345 NM NM
Forward contracts - commitments to sell loans 647 NM NM 2
Interest rate floors - MSR 800 NM NM 5
--------- ------
Total mortgage banking activities 1,792 7
--------- ------
Total financial derivatives $17,612 $9
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The floating rate portion of interest rate contracts is based on
money-market indices. As a percent of notional value, 83% were based
on 3-month LIBOR, 9% on 1-month LIBOR and the remainder on other
short-term indices.
(2) Interest rate caps with notional values of $5.5 billion and $30
million require the counterparty to pay the Corporation the excess, if
any, of 3-month LIBOR over 6.50% and 1-month LIBOR over 6.75% ,
respectively. At June 30, 1996, 3-month LIBOR was 5.58% and the
1-month LIBOR was 5.50%.
(3) Interest rate floors with notional values of $1 billion and $1.5
billion require the counterparty to pay the Corporation the excess, if
any, of 4.80% and 5.00%, respectively, over 3-month LIBOR. At June 30,
1996, 3-month LIBOR was 5.58%.
NM - not meaningful
PNC BANK CORP. 19
<PAGE> 21
SECOND QUARTER 1996 VS. SECOND QUARTER 1995
Net income for the second quarter of 1996 totaled $248.1 million or $.72 per
fully diluted share, compared with $194.0 million or $.56 per fully diluted
share a year ago. Return on average assets and average common shareholders'
equity improved to 1.38% and 17.33%, respectively, in the second quarter of
1996.
Taxable-equivalent net interest income for the second quarter of 1996 increased
$85.2 million to $619.9 million and net interest margin widened to 3.72%
compared with $534.7 million and 3.06%, respectively, in the year-earlier
period. The increase in net interest income was due to loan growth, the
Chemical acquisition and the balance sheet repositioning. The improvement in
net interest margin is primarily due to a higher proportion of loans to earning
assets and an increase in lower-cost consumer deposits relative to total
sources of funds.
Noninterest income increased $23.3 million, or 7.4%, to $336.6 million for the
second quarter of 1996 compared with the year-earlier period. Excluding the
impact of alliances in credit card and merchant services, noninterest income
before securities gains increased 13.1%. Asset management and trust revenue
increased $15.4 million or 14.1%, to $124.5 million due to growth in mutual
fund and personal trust services and an increase in the value of assets under
administration. Discretionary assets totaled $104.5 billion at June 30, 1996
compared with $89.3 billion a year ago.
Service fees increased 12.2% to $133.6 million in the second quarter of 1996.
Deposit fees increased $14.1 million primarily due to growth in treasury
management revenue and acquisitions. Brokerage and corporate finance fees
increased 48.8% and 23.7%, respectively. Credit card and merchant services
declined $11.0 million in the quarter-to-quarter comparison as a result of
alliances with third parties for these businesses. Excluding this impact
service fees increased 23.7%.
Mortgage banking revenue declined in the comparison primarily due to lower
servicing sales and the impact of an increasingly competitive market for
mortgage originations. Other noninterest income increased $12.6 million to
$38.8 million, primarily due to higher venture capital income.
Noninterest expense increased 4.0% compared with the second quarter of 1995,
due to acquisitions, investments in alternative delivery capabilities and
incentive compensation related to higher levels of fee-based revenue. The
increases were partially offset by lower Federal deposit insurance premiums.
Excluding acquisitions, noninterest expense declined slightly in the
comparison. The efficiency ratio improved to 59.0% for the second quarter of
1996 compared with 64.0% a year ago.
Average earning assets declined $3.1 billion to $66.4 billion compared to the
second quarter of 1995 due to initiatives to downsize the securities portfolio
and reduce associated wholesale funding. Average securities declined $8.4
billion to $14.7 billion which represents 22.2% of average earning assets
compared with 33.3% a year ago. Average loans increased $4.4 billion to $49.2
billion, representing 74.1% of average earning assets compared with 64.4% a
year ago. Excluding acquisitions, average loans increased 5.0% in the
comparison. Consumer loan growth was tempered by competitive pricing pressures
and the Corporation's assessment of national asset quality trends in consumer
lending.
Average deposits increased $1.0 billion to $45.4 billion for the second quarter
of 1996. Higher levels of retail deposits from acquisitions were partially
offset by lower wholesale liabilities. Excluding acquisitions and wholesale
deposits, average deposits increased 1.3% in the comparison. Average deposits
represented 62.6% of total sources of funds in the second quarter of 1996
compared with 58.9% a year ago.
PNC BANK CORP. 20
<PAGE> 22
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
-------------------------------------------------------
In thousands, except per share data 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans $971,829 $927,370 $1,952,665 $1,814,791
Securities 232,251 337,595 469,693 682,999
Other 39,062 29,678 76,122 58,130
------------------------------------------------------
Total interest income 1,243,142 1,294,643 2,498,480 2,555,920
INTEREST EXPENSE
Deposits 351,891 390,754 722,874 748,475
Borrowed funds 107,702 226,279 220,159 437,246
Notes and debentures 172,769 154,788 337,810 308,097
-------------------------------------------------------
Total interest expense 632,362 771,821 1,280,843 1,493,818
-------------------------------------------------------
Net interest income 610,780 522,822 1,217,637 1,062,102
Provision for credit losses 1,500 3,000
-------------------------------------------------------
Net interest income less provision for credit losses 610,780 521,322 1,217,637 1,059,102
NONINTEREST INCOME
Asset management and trust 124,515 109,151 245,392 199,519
Service fees 133,598 119,091 263,867 240,563
Mortgage banking 35,758 50,858 71,740 95,581
Net securities gains 3,904 7,966 6,847 9,220
Other 38,810 26,184 70,301 53,924
-------------------------------------------------------
Total noninterest income 336,585 313,250 658,147 598,807
NONINTEREST EXPENSE
Staff expense 284,281 265,415 562,938 528,816
Net occupancy and equipment 92,182 84,537 185,465 171,271
Intangible asset and MSR amortization 28,062 23,855 51,726 47,190
Federal deposit insurance 3,435 24,217 6,625 48,537
Other 156,362 144,639 323,214 300,200
-------------------------------------------------------
Total noninterest expense 564,322 542,663 1,129,968 1,096,014
-------------------------------------------------------
Income before income taxes 383,043 291,909 745,816 561,895
Applicable income taxes 134,993 97,956 259,446 188,395
-------------------------------------------------------
Net income $248,050 $193,953 $486,370 $373,500
-------------------------------------------------------
EARNINGS PER COMMON SHARE
Primary $.72 $.57 $1.42 $1.09
Fully diluted .72 .56 1.41 1.08
CASH DIVIDENDS DECLARED PER COMMON SHARE .35 .35 .70 .70
AVERAGE COMMON SHARES OUTSTANDING
Primary 343,022 337,458 342,949 339,608
Fully diluted 347,343 342,479 347,306 345,057
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP. 21
<PAGE> 23
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30 December 31
Dollars in millions, except par values 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $3,232 $3,679
Short-term investments 841 1,611
Loans held for sale 1,053 659
Securities available for sale 14,107 15,839
Loans, net of unearned income of $358 and $403 49,223 48,653
Allowance for credit losses (1,189) (1,259)
----------------------
Net loans 48,034 47,394
Goodwill and other intangibles 1,004 997
Mortgage servicing rights 323 268
Other 3,367 2,957
----------------------
Total assets $71,961 $73,404
======================
LIABILITIES
Deposits
Noninterest-bearing $10,245 $10,707
Interest-bearing 34,607 36,192
----------------------
Total deposits 44,852 46,899
Borrowed funds
Federal funds purchased 1,362 3,817
Repurchase agreements 2,188 2,851
Commercial paper 462 753
Other 3,070 1,244
----------------------
Total borrowed funds 7,082 8,665
Notes and debentures 12,243 10,398
Other 1,952 1,674
----------------------
Total liabilities 66,129 67,636
SHAREHOLDERS' EQUITY
Preferred stock - $1 par value
Authorized: 17,492,925 and 17,529,342 shares
Issued and outstanding: 812,367 and 848,784 shares
Aggregate liquidation value: $17 and $17 1 1
Common stock - $5 par value
Authorized: 450,000,000 shares
Issued: 342,265,027 and 340,863,348 shares 1,711 1,704
Capital surplus 571 545
Retained earnings 3,817 3,571
Deferred benefit expense (77 (79)
Net unrealized securities gains (losses) (141 26
Common stock held in treasury at cost: 1,630,612 shares (50
----------------------
Total shareholders' equity 5,832 5,768
----------------------
Total liabilities and shareholders' equity $71,961 $73,404
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP. 22
<PAGE> 24
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30
In millions 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $486 $374
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses 3
Depreciation, amortization and accretion 134 113
Deferred income taxes 64 75
Net securities gains (7) (9)
Net gain on sales of assets (45) (32)
Valuation adjustments (9) (1)
Net change in
Loans held for sale (388) (286)
Other (164) 27
---------------------
Net cash provided by operating activities 71 264
INVESTING ACTIVITIES
Net change in loans (428) (1,192)
Repayment
Securities available for sale 1,814 573
Investment securities 884
Sales
Securities available for sale 3,242 960
Loans 170 153
Foreclosed assets 86 46
Purchases
Securities available for sale (3,584) (1,179)
Investment securities (133)
Loans (479) (247)
Bulk sales of loans and OREO 6
Net cash received in acquisitions 460 59
Other 806 2,292
---------------------
Net cash provided by investing activities 2,087 2,222
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits (471) (456)
Interest-bearing deposits (2,061) 295
Federal funds purchased (2,455) (1)
Sale/issuance
Repurchase agreements 38,696 43,041
Commercial paper 1,073 2,683
Other borrowed funds 43,686 54,876
Notes and debentures 7,157 4,833
Common stock 33 29
Redemption/maturity
Repurchase agreements (39,360) (40,765)
Commercial paper (1,364) (3,333)
Other borrowed funds (41,943) (55,435)
Notes and debentures (5,306) (7,761)
Preferred stock (50)
Acquisition of treasury stock (50) (215)
Cash dividends paid to shareholders (240) (193)
---------------------
Net cash used by financing activities (2,605) (2,452)
---------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (447) 34
Cash and due from banks at beginning of year 3,679 3,412
---------------------
Cash and due from banks at end of period $3,232 $3,446
- ----------------------------------------------------------------------------------------------------------------------------
CASH ITEMS
Interest paid $1,382 $1,538
Income taxes paid 90 33
NONCASH ITEMS
Transfers from loans to foreclosed assets 37 43
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP. 23
<PAGE> 25
notes to consolidated financial statements
ACCOUNTING POLICIES
BUSINESS PNC Bank Corp. provides a broad range of banking and financial
services through its subsidiaries to retail consumers, small businesses and
corporate customers. PNC Bank Corp. is subject to intense competition from
other financial services companies with respect to these services and customers
and is also subject to the regulations of certain federal and state agencies
and undergoes periodic examinations by certain regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION The unaudited consolidated interim
financial statements have been prepared in accordance with generally accepted
accounting principles and include the accounts of PNC Bank Corp. and its
subsidiaries ("Corporation"), substantially all of which are wholly owned. In
the opinion of management, the financial statements reflect all adjustments,
which are of a normal recurring nature, necessary for a fair statement of the
results for the interim periods presented. The merger between PNC Bank Corp.
and Midlantic Corporation ("Midlantic") was completed December 31, 1995 and
accounted for as a pooling of interests. Accordingly, all financial information
has been restated as if the companies were combined for all periods presented.
In preparing the unaudited consolidated interim financial statements,
management is required to make estimates and assumptions that affect the
amounts reported in the financial statements. Actual results will differ from
such estimates and such differences may be material to the financial
statements.
The notes included herein should be read in conjunction with the audited
consolidated financial statements included in the Corporation's 1995 Annual
Report.
ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is maintained at a
level believed by management to be sufficient to absorb estimated potential
credit losses. Management's determination of the adequacy of the allowance is
based on periodic evaluations of the credit portfolio and other relevant
factors. This evaluation is inherently subjective as it requires material
estimates, including the amounts and timing of expected future cash flows on
impaired loans, which may be susceptible to significant change. The allowance
for credit losses on impaired loans is one component of the methodology for
determining the allowance for credit losses.
The remaining components of the allowance for credit losses provide for
estimated losses on consumer loans and residential mortgages, and general
amounts for historical loss experience, uncertainties in estimating losses and
inherent risks in the various credit portfolios.
EARNINGS PER COMMON SHARE Primary earnings per common share is calculated by
dividing net income adjusted for preferred stock dividends declared by the sum
of the weighted average number of shares of common stock outstanding and the
number of shares of common stock which would be issued assuming the exercise of
stock options during each period. Fully diluted earnings per common share is
based on net income adjusted for interest expense, net of tax, on outstanding
convertible debentures and dividends declared on nonconvertible preferred
stock. The weighted average number of shares of common stock outstanding is
increased by the assumed conversion of outstanding convertible preferred stock
and convertible debentures from the beginning of the year or date of issuance,
if later, and the number of shares of common stock which would be issued
assuming the exercise of stock options. Such adjustments to net income and the
weighted average number of shares of common stock outstanding are made only
when such adjustments dilute earnings per common share.
PNC BANK CORP. 24
<PAGE> 26
CHANGE IN ACCOUNTING PRINCIPLES In the first quarter of 1996, the Corporation
adopted Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." This Standard requires that long-lived assets and certain
identifiable intangible assets, such as goodwill, be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Impairment is measured based on the present
value of expected future cash flows from the asset and its eventual
disposition. The adoption of SFAS No. 121 did not have a material effect on
the Corporation's financial position or results of operations.
In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" was issued, effective for
transactions entered into after December 31, 1996. SFAS No. 125 establishes
rules distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. Management is in the process of
evaluating the impact this standard will have on the Corporation's financial
position and results of operations.
CASH FLOWS
For the statement of cash flows, the Corporation defines cash and cash
equivalents as cash and due from banks. The table below sets forth information
pertaining to acquisitions and divestitures which affect cash flows.
<TABLE>
<CAPTION>
Six months ended June 30
In millions 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Assets acquired $538 $912
Liabilities assumed 501 751
Cash paid 37 120
Cash and due from banks received 497 179
- ---------------------------------------------------------------
</TABLE>
MERGERS AND ACQUISITIONS
On December 31, 1995, Midlantic merged with the Corporation. Each share of
Midlantic common stock outstanding on such date was converted into 2.05 shares
of the Corporation's common stock. The Corporation issued approximately 112
million shares of common stock in connection with the merger. The transaction
was accounted for as a pooling of interests and, accordingly, all financial
data prior to the merger has been restated as if the entities were combined for
all such periods.
On October 6, 1995, the Corporation acquired Chemical New Jersey Holdings,
Inc., and its wholly-owned subsidiary Chemical Bank New Jersey, N.A. with total
assets of $3.2 billion and retail core deposits of $2.7 billion. The
Corporation paid $492 million in cash and the transaction was accounted for
under the purchase method.
In February 1995, the Corporation acquired BlackRock Financial Management L.P.,
a fixed-income investment management firm with approximately $25 billion in
assets under management at closing. The Corporation paid $71 million in cash
and issued $169 million of unsecured notes.
PNC BANK CORP. 25
<PAGE> 27
notes to consolidated financial statements
SECURITIES
The following table sets forth the amortized cost and fair value of the
Corporation's securities portfolio, all of which are available for sale, and
the fair value of financial derivatives designated to such instruments.
At June 30, 1996 and December 31, 1995, $5.5 billion and $6.1 billion,
respectively, notional value of interest rate swaps and caps were associated
with securities available for sale.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE June 30, 1996 December 31, 1995
------------------------------------------------------------------------------------------
Unrealized Unrealized
Amortized -------------------- Fair Amortized -------------------- Fair
In millions Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities
U.S. Treasury $3,037 $33 $18 $3,052 $3,211 $69 $3,280
U.S. Government agencies and
corporations
Mortgage-related 6,784 7 218 6,573 7,510 18 $75 7,453
Other 1,431 1 15 1,417 1,030 5 1 1,034
Asset-backed private placement 620 620 1,597 7 1,604
State and municipal 231 10 1 240 343 25 1 367
Other debt
Mortgage-related 904 2 15 891 1,121 2 10 1,113
Other 932 4 6 930 525 3 3 525
Corporate stocks and other 380 2 2 380 455 4 2 457
Associated derivatives 4 4 6 6
------------------------------------------------------------------------------------------
Total securities available for sale $14,319 $63 $275 $14,107 $15,792 $139 $92 $15,839
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets were as follows:
<TABLE>
<CAPTION>
June 30 December 31
In millions 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $378 $335
Restructured loans 3 23
---------------------
Total nonperforming loans 381 358
Foreclosed assets 128 178
---------------------
Total nonperforming assets $509 $536
- ---------------------------------------------------------------
</TABLE>
ALLOWANCE FOR CREDIT LOSSES
The following table presents changes in the allowance for credit losses:
<TABLE>
<CAPTION>
In millions 1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
January 1 $1,259 $1,352
Charge-offs (113) (115)
Recoveries 43 53
---------------------
Net charge-offs (70) (62)
Provision for credit losses 3
Acquisitions 7
---------------------
June 30 $1,189 $1,300
- ----------------------------------------------------------------
</TABLE>
FINANCIAL DERIVATIVES
The following table sets forth notional and fair values of financial
derivatives.
<TABLE>
<CAPTION>
Positive Negative
Notional Fair Notional Fair
In millions Value Value Value Value
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
JUNE 30, 1996
Interest rate swaps $2,004 $39 $5,786 $(48)
Interest rate caps 5,530 8
Interest rate 2,500 3
floors
Mortgage banking
activities 1,447 7 345
-------------------------------------------
Total $11,481 $57 $6,131 $(48)
- ----------------------------------------------------------------
DECEMBER 31, 1995
Interest rate swaps $4,249 $77 $5,141 $(48)
Interest rate caps 5,510 6
Mortgage banking
activities 769 16 1,038 (4)
-------------------------------------------
Total $10,528 $99 $6,179 $(52)
- ----------------------------------------------------------------
</TABLE>
PNC BANK CORP. 26
<PAGE> 28
SPECIAL CHARGES
In connection with the Midlantic merger, the Corporation recorded special
charges totaling $260 million. These charges represented estimated costs of
integrating and consolidating branch networks, back office and administrative
facilities, professional services and the cost to terminate an interest rate
cap position. The following table sets forth changes in accrued special
charges:
<TABLE>
<CAPTION>
1996 Balance at Balance at
In millions January 1 Incurred June 30
- -----------------------------------------------------------------
<S> <C> <C> <C>
Staff related $42 $13 $29
Net occupancy 72 20 52
Equipment 17 6 11
Professional services 31 21 10
Other 18 11 7
Interest rate cap termination 80 80
--------------------------------
Total $260 $151 $109
- -----------------------------------------------------------------
</TABLE>
LITIGATION
A purported class action was filed in 1992 against PNC National Bank ("PNCNB"),
regarding certain credit card fees charged to Pennsylvania cardholders. On June
3, 1996, the United States Supreme Court decided a similar case involving
another credit card issuer in favor of the issuer. Based on this decision, the
plaintiff in the lawsuit against PNCNB moved to dismiss her appeal from the
district court's dismissal of the lawsuit, and on June 17, 1996, the Third
Circuit Court of Appeals dismissed the appeal, making final the dismissal of
the lawsuit.
OTHER FINANCIAL INFORMATION
In connection with the Midlantic merger, notes and debentures of Midlantic with
a remaining aggregate principal amount of $364 million have been jointly and
severally assumed by the parent company and its wholly-owned subsidiary, PNC
Bancorp, Inc. Summarized financial information for PNC Bancorp, Inc. and
subsidiaries is as follows:
<TABLE>
<CAPTION>
PNC BANCORP. INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30 December 31
In millions 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $3,237 $3,678
Securities 13,950 15,683
Loans, net of unearned income 49,237 48,583
Allowance for credit losses (1,189) (1,259)
------------------------
Net loans 48,048 47,324
Other assets 5,592 6,053
------------------------
Total assets $70,827 $72,738
------------------------
LIABILITIES
Deposits $44,999 $47,024
Borrowed funds 6,718 8,093
Notes and debentures 11,585 9,726
Other liabilities 1,154 1,167
------------------------
Total liabilities 64,456 66,010
SHAREHOLDER'S EQUITY 6,371 6,728
------------------------
Total liabilities and shareholder's
equity $70,827 $72,738
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PNC BANCORP. INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Six months ended June 30
In millions 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Interest income $2,481 $2,538
Interest expense 1,242 1,460
--------------------
Net interest income 1,239 1,078
Provision for credit losses 9
--------------------
Net interest income less provision
for credit losses 1,239 1,069
Noninterest income 590 556
Noninterest expense 1,085 1,062
--------------------
Income before income taxes 744 563
Applicable income taxes 263 189
--------------------
Net income $481 $374
- ---------------------------------------------------------------
</TABLE>
The amount of dividends that may be paid by bank subsidiaries to PNC Bancorp,
Inc., a first-tier holding company, and in turn to the parent company, are
subject to certain legal limitations. Without regulatory approval, the amount
available for payment of dividends by all subsidiary banks to PNC Bancorp, Inc.
was $408 million at June 30, 1996. Dividends may also be impacted by capital
needs, regulatory requirements and policies, and other factors.
PNC BANK CORP. 27
<PAGE> 29
statistical information
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
Six months ended June 30
---------------------------------------------------------------------------
1996 1995
---------------------------------------------------------------------------
Taxable-equivalent basis Average Average Average Average
Average balance in millions, interest in thousands Balances Interest Yields/Rates Balances Interest Yields/Rates
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Short-term investments $1,128 $34,407 6.13% $1,187 $38,390 6.52%
Loans held for sale 1,205 41,453 6.88 493 19,376 7.86
Securities
U.S. Treasury 2,539 84,130 6.66 4,361 111,475 5.15
U.S. Government agencies and corporations 8,474 258,158 6.09 14,573 416,789 5.72
State and municipal 307 15,399 10.03 369 18,752 10.16
Other debt 3,110 106,129 6.79 3,942 133,515 6.76
Corporate stocks and other 349 10,854 6.25 313 10,617 6.85
----------------------- -----------------------
Total securities 14,779 474,670 6.42 23,558 691,148 5.87
Loans, net of unearned income
Consumer 13,307 582,696 8.81 11,562 518,444 9.04
Residential mortgage 11,751 437,513 7.45 10,347 382,840 7.40
Commercial 16,998 662,706 7.71 15,380 631,379 8.17
Commercial real estate 4,858 216,991 8.89 5,024 232,617 9.24
Other 1,994 66,036 6.64 1,927 65,070 6.79
----------------------- -----------------------
Total loans, net of unearned income 48,908 1,965,942 8.02 44,240 1,830,350 8.28
Other interest-earning assets 10 405 8.04 12 431 7.34
----------------------- -----------------------
Total interest-earning assets/interest income 66,030 2,516,877 7.61 69,490 2,579,695 7.43
Noninterest-earning assets
Allowance for credit losses (1,234) (1,334)
Cash and due from banks 3,146 3,044
Other assets 4,145 3,892
----------- -----------
Total assets $72,087 $75,092
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand and money market $12,630 165,341 2.63 $12,162 176,701 2.93
Savings 3,580 36,921 2.07 3,835 46,590 2.45
Other time 18,523 496,088 5.38 17,173 463,547 5.44
Deposits in foreign offices 894 24,524 5.42 2,012 61,637 6.09
----------------------- -------------------------
Total interest-bearing deposits 35,627 722,874 4.08 35,182 748,475 4.28
Borrowed funds
Federal funds purchased 3,216 85,974 5.38 2,431 73,630 6.11
Repurchase agreements 2,901 77,424 5.28 7,418 226,236 6.07
Commercial paper 490 13,394 5.50 848 25,063 5.96
Other 1,212 43,367 7.15 3,321 112,317 6.77
----------------------- --------------------------
Total borrowed funds 7,819 220,159 5.62 14,018 437,246 6.23
Notes and debentures 11,487 337,810 5.86 9,848 308,097 6.27
----------------------- --------------------------
Total interest-bearing liabilities/interest
expense 54,933 1,280,843 4.67 59,048 1,493,818 5.07
Noninterest-bearing liabilities and shareholders'
equity
Demand and other noninterest-bearing deposits 9,838 8,836
Accrued expenses and other liabilities 1,550 1,489
Shareholders' equity 5,766 5,719
----------- ------------
Total liabilities and shareholders' equity $72,087 $75,092
----------- --------------------------- -------
Interest rate spread 2.94 2.36
Impact of noninterest-bearing liabilities .78 .76
---------------------------- --------------------------
Net interest income/margin on earning assets $1,236,034 3.72% $1,085,877 3.12%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Nonaccrual loans are included in loans, net of unearned income. The impact of
financial derivatives used in interest rate risk management is included in the
interest income/expense and average yields/rates of the related assets and
liabilities.
PNC BANK CORP. 28
<PAGE> 30
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------------------------------------------------------------------
Second Quarter First Quarter Second Quarter
------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balances Interest Yields/Rates Balances Interest Yields/Rates Balances Interest Yields/Rates
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,155 $17,196 5.99% $1,102 $17,211 6.29% $1,042 $19,147 7.37%
1,260 21,725 6.90 1,150 19,728 6.86 539 10,367 7.70
2,821 46,571 6.64 2,258 37,559 6.69 4,412 57,478 5.23
8,385 126,314 6.03 8,564 131,844 6.16 14,177 202,753 5.72
285 7,261 10.21 330 8,138 9.88 370 9,436 10.21
2,906 48,960 6.71 3,311 57,169 6.87 3,868 66,694 6.86
343 5,512 6.46 355 5,342 6.04 310 5,345 6.92
------------------------- ------------------------- --------------------------
14,740 234,618 6.37 14,818 240,052 6.48 23,137 341,706 5.91
13,243 289,072 8.78 13,370 293,624 8.83 11,603 265,604 9.18
11,883 219,395 7.40 11,619 218,118 7.51 10,629 195,079 7.34
17,190 331,768 7.64 16,806 330,938 7.79 15,620 323,284 8.19
4,831 104,582 8.62 4,885 112,409 9.16 5,016 118,732 9.42
2,044 33,711 6.48 1,945 32,325 6.66 1,897 32,413 6.85
------------------------- ------------------------- --------------------------
49,191 978,528 7.94 48,625 987,414 8.10 44,765 935,112 8.33
10 221 8.69 10 184 7.37 12 230 7.59
------------------------- ------------------------- -------------------------
66,356 1,252,288 7.53 65,705 1,264,589 7.69 69,495 1,306,562 7.45
(1,216) (1,253) (1,317)
3,196 3,095 3,191
4,104 4,186 3,974
------------ ------------ ------------
$72,440 $71,733 $75,343
------------ ------------ ------------
$12,635 80,422 2.56 $12,625 84,919 2.71 $11,819 87,729 2.98
3,582 17,796 2.00 3,579 19,125 2.15 3,759 23,126 2.47
18,407 243,554 5.32 18,638 252,534 5.45 17,522 243,905 5.58
759 10,119 5.27 1,030 14,405 5.53 2,307 35,994 6.17
------------------------- ------------------------- --------------------------
35,383 351,891 4.00 35,872 370,983 4.16 35,407 390,754 4.42
2,892 37,586 5.23 3,540 48,388 5.50 2,684 41,631 6.22
3,063 40,465 5.23 2,739 36,959 5.34 7,477 116,282 6.15
431 5,686 5.31 549 7,708 5.65 621 9,423 6.08
1,430 23,965 6.71 995 19,402 7.79 3,358 58,943 6.98
------------------------- ------------------------- --------------------------
7,816 107,702 5.50 7,823 112,457 5.74 14,140 226,279 6.36
11,904 172,769 5.78 11,068 165,041 5.94 9,586 154,788 6.44
------------------------- ------------------------- --------------------------
55,103 632,362 4.59 54,763 648,481 4.75 59,133 771,821 5.16
9,996 9,681 8,958
1,574 1,525 1,525
5,767 5,764 5,727
------------ ------------ ------------
$72,440 $71,733 $75,343
------------ --------------------------- ------------ ------------ ------------
2.94 2.94 2.29
.78 .79 .77
------------------------- ------------------------- ---------------------------
$619,926 3.72% $616,108 3.73% $534,741 3.06%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
PNC BANK CORP. 29
<PAGE> 31
quarterly report on form 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended June 30, 1996.
Commission File Number 1-9718
PNC BANK CORP.
Incorporated in the Commonwealth of Pennsylvania
IRS Employer Identification No. 25-1435979
Address: One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Telephone: (412) 762-1553
As of July 31, 1996, PNC Bank Corp. had 340,201,381 shares of common stock ($5
par value) outstanding.
PNC Bank Corp. (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
The following sections of the Corporate Financial Review set forth in the
cross-reference index are incorporated in the Quarterly Report on Form 10-Q.
<TABLE>
Cross-Reference Page(s)
----------------------------------------------------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Consolidated Statement of Income for the
three months and six months ended June
30, 1996 and 1995 21
Consolidated Balance Sheet as of June
30, 1996 and December 31, 1995 22
Consolidated Statement of Cash Flows for
the six months ended June 30, 1996 and
1995 23
Notes to Consolidated Financial
Statements 24-27
Average Consolidated Balance Sheet and
Net Interest Analysis 28-29
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 2-20
- ---------------------------------------------------------------
</TABLE>
PART II OTHER INFORMATION
Item 1 Legal Proceedings
The Corporation's Annual Report on Form 10-K for the year ended December 31,
1995 ("1995 Form 10-K") includes a description of a purported class action
filed against PNC National Bank ("PNCNB"), regarding certain credit card fees
charged to Pennsylvania cardholders. On June 3, 1996, the United States Supreme
Court decided a similar case involving another credit card issuer in favor of
the issuer. Based on this decision, the plaintiff in the lawsuit against PNCNB
moved to dismiss her appeal from the district court's dismissal of the lawsuit,
and on June 17, 1996, the Third Circuit Court of Appeals dismissed the appeal,
making final the dismissal of the lawsuit.
The 1995 Form 10-K also includes a description of a purported class action
lawsuit filed against the Corporation and two of its executive officers
alleging violations of federal securities laws and common law relating to
certain disclosures. On August 7, 1996, the United States District Court for
the Western District of Pennsylvania adopted the magistrate judge's
recommendation and denied defendants' motion to dismiss as to all claims except
the negligent misrepresentation claim, which was dismissed. On the same date,
the district court certified the case as a class action consisting of persons
who purchased the Corporation's common stock from April 18, 1994 through
November 15, 1994.
PNC BANK CORP. 30
<PAGE> 32
Item 4 Submission of Matters for a Vote of Security Holders
An annual meeting of shareholders of the Corporation was held on April 23,
1996, for the purpose of (a) electing 21 directors, (b) approving the PNC Bank
Corp. 1996 Executive Incentive Award Plan, and (c) acting upon a shareholder
proposal concerning non-employee director retirement benefits.
All 21 nominees were elected and the votes cast for and against/withheld were as
follows:
<TABLE>
<CAPTION>
Aggregate Votes
--------------------------------
Nominee For Against/Withheld
- -----------------------------------------------------------------
<S> <C> <C>
Paul W. Chellgren 292,911,832 4,529,714
Robert N. Clay 292,733,354 4,708,189
George A. Davidson, Jr. 292,924,307 4,517,238
David F. Girard-diCarlo 288,254,187 9,187,357
Dianna L. Green 292,624,643 4,816,902
Carl G. Grefenstette 292,812,808 4,628,737
Arthur J. Kania 289,241,520 8,200,024
Bruce C. Lindsay 292,808,895 4,632,651
W. Craig McClelland 292,834,382 4,607,161
Thomas Marshall 292,809,117 4,632,425
Donald I. Moritz 292,686,163 4,755,379
Thomas H. O'Brien 292,596,218 4,845,325
Jackson H. Randolph 292,880,145 4,561,399
James E. Rohr 292,808,779 4,632,766
Roderic H. Ross 292,850,889 4,590,655
Vincent A. Sarni 292,639,182 4,802,363
Garry J. Scheuring 292,873,291 4,568,253
Richard P. Simmons 292,848,649 4,592,895
Thomas J. Usher 292,864,520 4,577,024
Milton A. Washington 292,852,944 4,588,598
Helge H. Wehmeier 292,868,096 4,573,448
- ---------------------------------------------------------------
</TABLE>
The PNC Bank Corp. 1996 Executive Incentive Award Plan was approved, and
the votes cast for, against or abstained and the number of broker non-votes
were as follows:
- ---------------------------------------------------------------
Aggregate votes for: 260,838,365
Aggregate votes against: 32,190,067
Number of abstentions: 4,375,307
Number of broker non-votes: 37,807
- --------------------------------------------------------------
The shareholder proposal was not approved, and the votes cast for, against or
abstained and the number of broker non-votes were as follows:
- --------------------------------------------------------------
Aggregate votes for: 76,021,364
Aggregate votes against: 169,139,322
Number of abstentions: 7,374,685
Number of broker non-votes: 44,906,175
- --------------------------------------------------------------
With respect to the above matters, holders of the Corporation's common stock
and preferred stock voted together as a single class. The following table sets
forth as of the March 4, 1996 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
Voting Rights Shares Entitled Aggregate
Title of Class Per Share to Vote Voting Power
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock 1 341,586,811 341,586,811
$1.80 Cumulative
Convertible
Preferred Stock
- Series A 8 17,818 142,544
$1.80 Cumulative
Convertible
Preferred Stock
- Series B 8 4,728 37,824
$1.60 Cumulative
Convertible
Preferred Stock
- Series C 4/2.4 343,273 572,121*
$1.80 Cumulative
Convertible
Preferred Stock
- Series D 4/2.4 466,271 777,118*
-------------
Total possible votes 343,116,418*
- -----------------------------------------------------------------------------------------
</TABLE>
* Represents greatest number of votes possible. Actual aggregate voting power
was less since each holder of such 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.
PNC BANK CORP. 31
<PAGE> 33
quarterly report on Form 10-Q
Item 6 Exhibits and Reports on Form 8-K
The following exhibit index lists Exhibits to the Quarterly Report on Form
10-Q:
11 Calculation of primary and fully diluted earnings per
common share for the three months and six months
ended June 30, 1996 and 1995.
12.1 Computation of Earnings to Fixed Charges for the six months ended
June 30, 1996 and for each of the five years in the period ended
December 31, 1995.
12.2 Computation of Earnings to Combined Fixed Charges and Preferred
Stock Dividends for the six months ended June 30, 1996, and for each
of the five years in the period ended December 31, 1995.
27 Financial Data Schedule.
Copies of these Exhibits will be furnished without charge upon written request
to Glenn Davies, Vice President, Financial Reporting, at corporate
headquarters. Requests may also be directed to (412) 762-1553 or to
[email protected] on the Internet.
Since March 31, 1996, the Corporation filed the following current reports on
Form 8-K:
Form 8-K dated as of April 17, 1996, reporting the Corporation's consolidated
financial results for the three months ended March 31, 1996, filed pursuant to
Item 5.
Form 8-K dated as of July 15, 1996, reporting the Corporation's consolidated
financial results for the three months and six months ended June 30, 1996,
filed pursuant to Item 5.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on August 14, 1996, on its
behalf by the undersigned thereunto duly authorized.
PNC Bank Corp.
Robert L. Haunschild
Senior Vice President and Chief Financial Officer
PNC BANK CORP. 32
<PAGE> 34
corporate information
CORPORATE HEADQUARTERS
PNC Bank Corp.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
INQUIRIES
Inquiries or comments concerning PNC Bank Corp. are welcome.
Individual shareholders should contact:
Shareholder Relations at 800-843-2206
or the PNC Bank Hotline at 800-982-7652.
Analysts and institutional investors should contact:
William H. Callihan, Vice President,
Investor Relations, at 412-762-8257.
News media representatives and others seeking general
information should contact:
Jonathan Williams, Vice President,
Media Relations, at 412-762-4550.
FINANCIAL INFORMATION
Copies of the Corporation's filings with the Securities and Exchange Commission,
including Exhibits to the Quarterly Report on Form 10-Q, may be obtained without
charge upon written request to Glenn Davies, Vice President, Financial
Reporting, at corporate headquarters. Requests may also be directed to (412)
762-1553 or to [email protected] on the Internet.
STOCK LISTING
PNC Bank Corp. common stock is traded on the New York Stock Exchange under the
symbol PNC.
COMMON STOCK PRICES/DIVIDENDS DECLARED
The table below sets forth by quarter the high, low and quarter-end closing
sale prices for PNC Bank Corp. common stock and the cash dividends declared
per common share.
<TABLE>
<CAPTION>
Cash
Dividends
1996 Quarter High Low Close Declared
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
First $32.625 $28.375 $30.750 $.35
Second 31.500 28.375 29.750 .35
-------
Total $.70
- --------------------------------------------------------------
1995 Quarter
- --------------------------------------------------------------
First $25.750 $21.125 $24.375 $.35
Second 28.125 24.250 26.375 .35
Third 28.625 23.625 27.875 .35
Fourth 32.375 26.125 32.250 .35
-------
Total $1.40
- --------------------------------------------------------------
</TABLE>
REGISTRAR AND TRANSFER AGENT
Chemical Bank
85 Challenger Road
Overpeck Center
Ridgefield Park, NJ 07660
800-982-7652
TO EXCHANGE MIDLANTIC STOCK CERTIFICATES
Midlantic Bank, N.A.
Metro Park Plaza
P.O. Box 600
Edison, NJ 08818
Attn: Corporate Securities Services
908-205-4517
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The PNC Bank Corp. dividend reinvestment and stock purchase plan enables
holders of common and preferred stock to purchase additional shares of common
stock conveniently and without paying brokerage commissions or service charges.
A prospectus and enrollment card may be obtained by writing to Shareholder
Relations at corporate headquarters.
PNC BANK CORP. 33
<PAGE> 35
EXHIBIT INDEX
11 Calculation of primary and fully diluted earnings per
common share for the three months and six months
ended June 30, 1996 and 1995.
12.1 Computation of Earnings to Fixed Charges for the six months ended
June 30, 1996 and for each of the five years in the period ended
December 31, 1995.
12.2 Computation of Earnings to Combined Fixed Charges and Preferred
Stock Dividends for the six months ended June 30, 1996, and for each
of the five years in the period ended December 31, 1995.
27 Financial Data Schedule.
<PAGE> 1
PNC BANK CORP. AND SUBSIDIARIES EXHIBIT 11
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
--------------------------------------------------
In thousands, except per share data 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALCULATION OF PRIMARY EARNINGS PER COMMON SHARE
Net income $248,050 $193,953 $486,370 $373,500
Less: Preferred dividends declared 350 1,288 708 2,587
--------------------------------------------------
Net income applicable to primary earnings per common share $247,700 $192,665 $485,662 $370,913
--------------------------------------------------
Weighted average shares of common stock outstanding 341,618 334,194 341,510 336,711
Weighted average common shares to be issued using average market price and
assuming:
Exercise of stock options 1,404 3,264 1,439 2,897
--------------------------------------------------
Primary weighted average common shares outstanding 343,022 337,458 342,949 339,608
--------------------------------------------------
PRIMARY EARNINGS PER COMMON SHARE $.72 $.57 $1.42 $1.09
--------------------------------------------------
CALCULATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
Net income $248,050 $193,953 $486,370 $373,500
Add: Interest expense on convertible debentures (net of tax) 865 988 1,723 1,978
Less: Dividends declared on non-convertible preferred stock 907 1,813
--------------------------------------------------
Net income applicable to fully diluted earnings per common share $248,915 $194,034 $488,093 $373,665
--------------------------------------------------
Weighted average shares of common stock outstanding 341,618 334,194 341,510 336,711
Weighted average common shares to be issued using average market
price or period-end market price, whichever is higher and
assuming:
Conversion of preferred stock Series A & B 174 199 177 204
Conversion of preferred stock Series C 566 614 570 632
Conversion of preferred stock Series D 760 826 768 829
Conversion of debentures 2,821 3,181 2,842 3,184
Exercise of stock options 1,404 3,465 1,439 3,497
--------------------------------------------------
Fully diluted weighted average common shares outstanding 347,343 342,479 347,306 345,057
--------------------------------------------------
FULLY DILUTED EARNINGS PER COMMON SHARE $.72 $.56 $1.41 $1.08
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
PNC BANK CORP. AND SUBSIDIARIES EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
<TABLE>
<CAPTION>
Year ended December 31
Six Months ended --------------------------------------------------------------
Dollars in thousands June 30, 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative effect
of changes in accounting principles $745,816 $627,012 $1,209,916 $1,140,487 $787,994 $(38,578)
Fixed charges excluding interest on deposits 573,583 1,487,279 1,104,573 704,228 582,854 613,590
----------------------------------------------------------------------------
Subtotal 1,319,399 2,114,291 2,314,489 1,844,715 1,370,848 575,012
Interest on deposits 722,874 1,551,816 1,159,242 1,005,658 1,546,576 2,739,565
----------------------------------------------------------------------------
Total $2,042,273 $3,666,107 $3,473,731 $2,850,373 $2,917,424 $3,314,577
----------------------------------------------------------------------------
FIXED CHARGES
Interest on notes and debentures $337,402 $620,415 $556,432 $316,031 $201,977 $137,323
Interest on borrowed funds 220,159 834,654 514,133 360,288 353,633 449,107
Amortization of notes and debentures 408 927 1,761 1,418 1,505 1,119
Interest component of rentals 15,614 31,283 32,247 26,491 25,739 26,041
----------------------------------------------------------------------------
Subtotal 573,583 1,487,279 1,104,573 704,228 582,854 613,590
Interest on deposits 722,874 1,551,816 1,159,242 1,005,658 1,546,576 2,739,565
----------------------------------------------------------------------------
Total $1,296,457 $3,039,095 $2,263,815 $1,709,886 $2,129,430 $3,353,155
============================================================================
RATIO OF EARNINGS TO FIXED CHARGES
Excluding interest on deposits 2.30x 1.42x 2.10x 2.62x 2.35x .94x
Including interest on deposits 1.58 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 STOCK DIVIDENDS
<TABLE>
<CAPTION>
Year ended December 31
Six months ended ----------------------------------------------------------------
Dollars in thousands June 30, 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative effect
of changes in accounting principles $745,816 $627,012 $1,209,916 $1,140,487 $787,994 $(38,578)
Fixed charges and preferred stock dividends
excluding interest on deposits 574,672 1,492,391 1,112,564 712,339 592,902 624,000
------------------------------------------------------------------------------
Subtotal 1,320,488 2,119,403 2,322,480 1,852,826 1,380,896 585,422
Interest on deposits 722,874 1,551,816 1,159,242 1,005,658 1,546,576 2,739,565
------------------------------------------------------------------------------
Total $2,043,362 $3,671,219 $3,481,722 $2,858,484 $2,927,472 $3,324,987
------------------------------------------------------------------------------
FIXED CHARGES
Interest on notes and debentures $337,402 $620,415 $556,432 $316,031 $201,977 $137,323
Interest on borrowed funds 220,159 834,654 514,133 360,288 353,633 449,107
Amortization of notes and debentures 408 927 1,761 1,418 1,505 1,119
Interest component of rentals 15,614 31,283 32,247 26,491 25,739 26,041
Preferred stock dividend requirements 1,089 5,112 7,991 8,111 10,048 10,410
------------------------------------------------------------------------------
Subtotal 574,672 1,492,391 1,112,564 712,339 592,902 624,000
Interest on deposits 722,874 1,551,816 1,159,242 1,005,658 1,546,576 2,739,565
------------------------------------------------------------------------------
Total $1,297,546 $3,044,207 $2,271,806 $1,717,997 $2,139,478 $3,363,565
------------------------------------------------------------------------------
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
Excluding interest on deposits 2.30x 1.42x 2.09x 2.60x 2.33x .94x
Including interest on deposits 1.57 1.21 1.53 1.66 1.37 .99
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial information incorporated by reference to the 1996 Second
Quarter Corporate Financial Review and is qualified in its entirety by reference
to such financial information.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,232
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,107
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 49,223
<ALLOWANCE> (1,189)
<TOTAL-ASSETS> 71,961
<DEPOSITS> 44,852
<SHORT-TERM> 7,082
<LIABILITIES-OTHER> 1,952
<LONG-TERM> 12,243
0
1
<COMMON> 1,711
<OTHER-SE> 4,120
<TOTAL-LIABILITIES-AND-EQUITY> 71,961
<INTEREST-LOAN> 1,953
<INTEREST-INVEST> 470
<INTEREST-OTHER> 76
<INTEREST-TOTAL> 2,498
<INTEREST-DEPOSIT> 723
<INTEREST-EXPENSE> 1,281
<INTEREST-INCOME-NET> 1,218
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 1,130
<INCOME-PRETAX> 746
<INCOME-PRE-EXTRAORDINARY> 746
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 486
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.41
<YIELD-ACTUAL> 3.72
<LOANS-NON> 378
<LOANS-PAST> 191
<LOANS-TROUBLED> 3
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,259
<CHARGE-OFFS> (113)
<RECOVERIES> 43
<ALLOWANCE-CLOSE> 1,189
<ALLOWANCE-DOMESTIC> 1,189
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
