<PAGE> 1
PNC BANK CORP.
Quarterly Report on Form 10-Q
For the quarterly period ended March 31, 1997
Page 1 represents a portion of the first quarter 1997 Financial Review
which is not required by the Form 10-Q report and is not "filed" as part of
the Form 10-Q.
The Quarterly Report on Form 10-Q and cross reference index is on page 28.
<PAGE> 2
Financial
HIGHLIGHTS
<TABLE>
<CAPTION>
As of or for the three months ended March 31 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL PERFORMANCE (dollars in thousands, except per share data)
Revenue
Net interest income (taxable-equivalent basis) $637,283 $616,108
Noninterest income 425,116 321,562
Total revenue 1,062,399 937,670
Net income 266,309 238,320
Per common share
Fully diluted earnings .80 .69
Book value 16.45 16.88
Cash dividends declared .37 .35
SELECTED RATIOS
Performance
Return on
Average common shareholders' equity 19.48% 16.65%
Average assets 1.54 1.34
Net interest margin 3.98 3.73
After-tax profit margin 25.07 25.42
Efficiency ratio 59.88 60.32
Capital
Leverage 7.17 6.90
Risk-based
Tier I 7.66 8.18
Total 10.95 11.70
Common shareholders' equity to assets 7.25 7.94
Asset quality
Net charge-offs to average loans .47 .28
Nonperforming assets to loans and foreclosed assets .82 1.10
Allowance for credit losses to loans 2.13 2.51
Allowance for credit losses to nonperforming loans 346.11 328.88
AVERAGE BALANCES (in millions)
Assets $70,301 $71,733
Earning assets 63,825 65,705
Loans, net of unearned income 51,922 48,625
Securities 10,089 14,818
Deposits 44,133 45,553
Borrowed funds 18,594 18,891
Shareholders' equity 5,758 5,764
Common shareholders' equity 5,442 5,747
PERIOD-END BALANCES (in millions)
Assets 71,166 72,668
Earning assets 64,255 66,041
Loans, net of unearned income 52,575 48,800
Securities 9,593 14,692
Deposits 44,902 45,621
Borrowed funds 18,547 19,452
Shareholders' equity 5,478 5,786
Common shareholders' equity 5,162 5,769
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PNC BANK CORP. 1
<PAGE> 3
Financial
REVIEW
This Financial Review should be read in conjunction with the PNC Bank Corp. and
subsidiaries ("Corporation" or "PNC Bank") unaudited Consolidated Financial
Statements included herein and the Corporate Financial Review and audited
Consolidated Financial Statements included in the Corporation's 1996 Annual
Report.
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
- ---------------------------------------------------------------
<S> <C>
FINANCIAL REVIEW
Overview 2
Line of Business Review 5
Consolidated Income Statement Review 10
Balance Sheet Review 12
Risk Management 15
Financial Derivatives 18
CONSOLIDATED FINANCIAL STATEMENTS 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23
AVERAGE CONSOLIDATED BALANCE SHEET AND
NET INTEREST ANALYSIS 26
QUARTERLY REPORT ON FORM 10-Q 28
CORPORATE INFORMATION 29
- ---------------------------------------------------------------
</TABLE>
OVERVIEW
PNC BANK CORP. The Corporation is one of the largest diversified financial
services companies in the United States and 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 in PNC Bank's primary geographic
locations in Pennsylvania, New Jersey, Delaware, Ohio and Kentucky and
nationally through retail distribution networks and alternative delivery
channels.
PNC Bank also has the exclusive right to offer financial products and services
to the American Automobile Association's ("AAA") 34 million members. Through
AAA Financial Services, the Corporation markets these products and services to
AAA members throughout the United States utilizing alternative distribution
channels.
SUMMARY FINANCIAL RESULTS Net income for the first three months of 1997 was
$266 million or $0.80 per fully diluted share compared with $238 million and
$0.69 per fully diluted share, respectively, a year ago. Returns on average
common shareholders' equity and average assets were 19.48% and 1.54%,
respectively, compared with 16.65% and 1.34% a year ago.
Total revenue for the first quarter of 1997 increased 13.3% compared with the
first quarter of 1996. Taxable-equivalent net interest income increased 3.4% to
$637 million as the net interest margin widened 25 basis points in the
comparison to 3.98%. These increases primarily result from a higher-yielding
earning asset mix and a lower cost of funds. Noninterest income increased 32%
in the quarter-to-quarter comparison to $425 million for the first three months
of 1997. The increase was broad-based, led by strong growth in asset
management, mutual fund servicing, treasury management and capital markets
fees. The quarter also benefited from securitization income, securities gains
and higher venture capital income.
Operating expenses increased $70 million in the first three months of 1997
compared with the same period of 1996. The increase was primarily due to
marketing and servicing costs associated with AAA-related businesses. The
efficiency ratio improved to 59.9% for the first three months of 1997 compared
with 60.3% a year ago.
At March 31, 1997, total assets were $71.2 billion. Compared with the first
quarter of 1996, average earning assets declined $1.9 billion to $63.8 billion.
The decline was primarily due to reductions in the securities portfolio
partially offset by loan growth and the purchase of AAA credit card portfolios.
Average loans increased $3.3 billion to $51.9 billion, representing 81.4% of
average earning assets compared with 74.0% a year ago. Excluding the credit
card portfolio purchases, average loans grew at an annual rate of 3.8%.
PNC BANK CORP. 2
<PAGE> 4
Asset quality and coverage ratios remained strong. The ratio of nonperforming
assets to loans and foreclosed assets was .82% at the end of the first quarter
of 1997 compared with 1.10% a year ago. As a percent of nonperforming loans and
total loans, the allowance for credit losses was 346% and 2.13%, respectively,
at March 31, 1997. Annualized net charge-offs for the first quarter of 1997
were .47% of average loans compared with .28% for the first quarter of 1996.
During the first quarter of 1997, PNC Bank continued to aggressively pursue
capital management initiatives. The Corporation repurchased 12.4 million shares
of common stock and, in April, the board of directors authorized the repurchase
of up to 15 million additional common shares through March 31, 1998.
Management believes the Corporation is well positioned to achieve continued
increases in earnings per share in 1997. Revenue growth is anticipated from
consumer initiatives, primarily AAA-related, and continued expansion of
fee-based businesses. Expenses are expected to increase primarily due to
additional investments associated with the nationwide rollout of products and
services to AAA members. Management expects modest loan loss provisions
throughout 1997 and anticipates earnings per share will continue to benefit
from common share repurchases.
BUSINESS STRATEGIES Financial services providers are challenged by intense
competition, pricing pressures and deregulation. Loan pricing and credit
standards are under competitive pressure as lenders seek to deploy capital and
a broader range of borrowers have access to capital markets. Traditional
deposit activities are subject to pricing pressures and customer migration as
banks and other financial services companies compete for consumer investment
dollars.
PNC Bank's strategies are focused on altering the traditional business mix by
investing in businesses with more attractive growth characteristics.
Traditional businesses, such as branch banking and corporate lending have
moderate revenue growth expectations, higher distribution costs and require
significant amounts of capital to support balance sheet leverage. Conversely,
businesses such as Asset Management, Mutual Fund Servicing, Private Banking,
Treasury Management and Capital Markets, have more attractive growth
characteristics, are less capital intensive and generate revenues that are
primarily fee based.
In CONSUMER BANKING, which contributed 50% of total line of business earnings
in the first quarter of 1997, changes in consumer preferences and technological
advancements are transforming the way consumer products and services are
delivered. Traditional delivery channels, such as retail branches, are being
reduced and replaced with more technologically-advanced, cost-efficient means
such as telebanking, automated teller machines ("ATM") and on-line banking
through personal computers. Investments in alternative delivery channels allow
PNC Bank to reduce costs and expand the geographic scope of the Corporation's
markets.
AAA Financial Services offers financial products and services to AAA's 34
million members nationwide. This initiative represents a unique opportunity to
market consumer products and services to a significant customer base with
attractive demographic characteristics.
CORPORATE BANKING, which accounted for 30% of total line of business earnings
in the first quarter, traditionally relied on balance sheet leverage.
Traditional spread-based lending requires high capital levels and is under
intense competition from banks and nonbanks seeking opportunities to extend
credit in a market with narrowing net interest spreads. In this environment,
PNC Bank aggressively manages capital to generate more appropriate returns
employing various techniques such as measuring risk-adjusted customer
profitability and using off-balance-sheet financing alternatives.
Corporate Banking is also focused on expanding fee-based revenue by developing
products and services as alternatives to spread-based business. These include
syndication, treasury management, interest rate risk management and capital
markets. Corporate Banking also provides a full range of leasing and commercial
finance products as alternatives to traditional financings.
PNC BANK CORP. 3
<PAGE> 5
Financial
REVIEW
The ASSET MANAGEMENT business, with $115 billion in managed assets, is among
the largest in the country. It is the second largest U.S. bank manager of
mutual funds and one of the largest mutual fund service providers. Asset
Management's initiatives focus on expanding product marketing and distribution
channels for investment products and leveraging mutual fund servicing
capabilities. PFPC Inc., the mutual fund servicing business, specializes in
providing institutional customers with custom designed products and custody,
transfer agent, accounting and administrative services.
Compass Capital Funds(SM) ("Compass"), PNC Bank's proprietary mutual fund
family, with approximately $12 billion in assets, provides institutional and
individual investors with a full range of equity, bond and money market
investment options. The funds are offered throughout the Corporation's retail
branch network and marketed nationally through agreements with over 70 brokerage
firms. Barron's/Lipper Analytical Services ranked Compass sixth best for its
overall performance in 1996 among the 63 mutual fund families ranked.
REAL ESTATE BANKING has consistently been a leading provider of credit services
to the real estate industry. This line of business is challenged by competitive
lending pressures and disintermediation as nonbank competitors increasingly
enter the market. In this environment, Real Estate Banking is focused on
enhancing financial performance through business cycles by reducing reliance on
balance sheet leverage, expanding fee-based revenue and enhancing distribution
capabilities. Targeted growth areas include treasury management, loan
syndication, commercial mortgage-backed securitizations and private debt
placements.
MORTGAGE BANKING remains a highly-fragmented, commodity-based business
requiring an efficient infrastructure and increasingly higher volumes. To
remain competitive and produce appropriate returns, the Mortgage Banking line
of business is focused on reducing costs by consolidating back office
operations and utilizing technology to enhance origination and operating
platform efficiencies. Mortgage Banking continues to expand origination
capabilities by leveraging the Corporation's distribution network and private
banking capabilities and by expanding the retail distribution network.
FORWARD-LOOKING STATEMENTS PNC Bank has made, and may continue to make, various
forward-looking statements with respect to earnings per share, AAA Financial
Services, credit quality, corporate objectives and other financial and business
matters. The Corporation cautions that these forward-looking statements are
subject to numerous assumptions, risks and uncertainties, all of which change
over time. Actual results could differ materially from forward-looking
statements.
In addition to factors previously disclosed by the Corporation and factors
identified elsewhere in this Financial Review, the following factors, among
others, could cause actual results to differ materially from such
forward-looking statements: continued pricing pressures on loan and deposit
products; success and timing of AAA and other business strategies; extent and
timing of capital management actions; competition; changes in economic
conditions; the extent and timing of actions of the Federal Reserve Board;
continued customer disintermediation; customers' acceptance of PNC Bank's
products and services; and the extent and timing of legislative and regulatory
actions and reforms.
PNC BANK CORP. 4
<PAGE> 6
LINE OF BUSINESS REVIEW
<TABLE>
<CAPTION>
Return on
Average Assets Revenue Earnings Assigned Capital
Three months ended March 31 - ----------------------------------------------------------------------------------------
dollars in millions 1997 1996 1997 1996 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer Banking $38,686 $39,586 $652 $562 $136 $130 24% 23%
Corporate Banking 17,334 17,122 207 183 81 62 15 12
Real Estate Banking 4,072 4,188 43 39 20 16 14 11
Mortgage Banking 14,219 13,305 93 91 17 15 11 10
Asset Management 653 581 95 81 18 14 36 32
--------------------------------------------------------------------
Total line of business 74,964 74,782 1,090 956 272 237 19 17
Asset/liability management activities (8,015) (6,266) (12) (10) (15) (10)
Unallocated
Provision for credit losses 24 15
Other 3,352 3,217 (16) (8) (15) (4)
--------------------------------------------------------------------
Total consolidated $70,301 $71,733 $1,062 $938 $266 $238 19% 17%
================================================================================================================================
</TABLE>
The Corporation operates five lines of business: Consumer Banking, Corporate
Banking, Real Estate Banking, Mortgage Banking and Asset Management. Financial
results for these lines of business are derived from the Corporation's
management accounting system.
The management accounting process uses various methods of balance sheet and
income statement allocations and transfers to evaluate the performance of
various business units. Unlike financial accounting, there is no comprehensive,
authoritative body of guidance for management accounting equivalent to generally
accepted accounting principles. Line of business information is based on
management accounting practices which conform to and support PNC Bank's
management structure and is not necessarily comparable with similar information
for any other financial services institution. Allocations and transfers may
change from time to time as the management accounting system is enhanced and
business or product lines change.
The financial results presented herein reflect each line of business as if it
operated on a stand-alone basis. Securities or borrowings, and related interest
rate spread, have been assigned to each line of business based on the net asset
or liability position. Consumer Banking was a net generator of funds and,
accordingly, was assigned securities, while the other lines of business
received an assignment of borrowings as net asset generators.
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 will vary from consolidated
shareholders' equity.
Total line of business financial results differ from consolidated financial
results primarily due to asset/liability management activities, unallocated
provision for credit losses and certain other unallocated items.
Asset/liability management activities reflect the residual of the assignment of
wholesale assets and liabilities to the lines of business. This category also
includes securities transactions and the impact of financial derivatives used
for interest rate risk management. The line of business provisions for credit
losses are a charge or credit to earnings to reflect current loss experience.
The difference between these provisions and the consolidated provision is
unallocated.
PNC BANK CORP. 5
<PAGE> 7
Financial
REVIEW
<TABLE>
<CAPTION>
CONSUMER BANKING
Community Banking Private Banking Total
Three months ended March 31 - -------------------------------------------------------------------------------
dollars in millions 1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $414 $388 $27 $21 $441 $409
Noninterest income 142 90 69 63 211 153
-------------------------------------------------------------------------------
Total revenue 556 478 96 84 652 562
Provision for credit losses 57 23 2 59 23
Noninterest expense 314 270 60 59 374 329
-------------------------------------------------------------------------------
Pretax earnings 185 185 34 25 219 210
Income taxes 70 70 13 10 83 80
-------------------------------------------------------------------------------
Earnings $115 $115 $21 $15 $136 $130
-------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans $17,065 $15,014 $2,397 $2,185 $19,462 $17,199
Assigned assets and other 19,161 22,331 63 56 19,224 22,387
-------------------------------------------------------------------------------
Total assets $36,226 $37,345 $2,460 $2,241 $38,686 $39,586
-------------------------------------------------------------------------------
Net deposits $33,915 $35,108 $1,610 $1,445 $35,525 $36,553
Assigned funds and other 266 226 578 540 844 766
Assigned capital 2,045 2,011 272 256 2,317 2,267
-------------------------------------------------------------------------------
Total funds $36,226 $37,345 $2,460 $2,241 $38,686 $39,586
-------------------------------------------------------------------------------
PERFORMANCE RATIOS
After-tax profit margin 21% 24% 22% 18% 21% 23%
Efficiency 56 56 63 71 57 59
Return on assigned capital 23 23 32 24 24 23
===================================================================================================================================
</TABLE>
The Consumer Banking line of business 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 financial
services.
Consumer Banking earnings accounted for 50% of total line of business earnings
in the first quarter of 1997 compared with 55% in the year-earlier period.
Earnings for the first quarter of 1997 increased $6 million or 5% due to
improved results in Private Banking. An increase in loans, higher brokerage
revenue and new trust business contributed to the increase in Private Banking
earnings to $21 million for the quarter.
Community Banking's earnings were flat in the comparison as increased
marketing, servicing and other costs associated with investments in AAA-related
initiatives offset the benefit of higher consumer service fees and
securitization income.
Throughout 1997, the Corporation expects to continue aggressively marketing
products and services to AAA members, primarily credit card related. Due to
these upfront costs and incentives offered to new customers, management expects
costs associated with these initiatives will exceed related revenues in 1997 by
approximately $30 million to $40 million.
PNC BANK CORP. 6
<PAGE> 8
<TABLE>
<CAPTION>
CORPORATE BANKING Commercial Banking Large Corporate Equity Management Total
Three months ended March 31 - ---------------------------------------------------------------------------------------------
dollars in millions 1997 1996 1997 1996 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $108 $106 $27 $27 $(1) $(1) $134 $132
Noninterest income 45 27 13 12 15 12 73 51
----------------------------------------------------------------------------------------------
Total revenue 153 133 40 39 14 11 207 183
Provision for credit losses (14) (2) 3 2 (11)
Noninterest expense 64 63 22 20 2 1 88 84
----------------------------------------------------------------------------------------------
Pretax earnings 103 72 15 17 12 10 130 99
Income taxes 39 27 6 6 4 4 49 37
----------------------------------------------------------------------------------------------
Earnings $64 $45 $9 $11 $8 $6 $81 $62
----------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans $12,276 $11,607 $4,047 $4,784 $64 $34 $16,387 $16,425
Other assets 676 416 58 108 213 173 947 697
----------------------------------------------------------------------------------------------
Total assets $12,952 $12,023 $4,105 $4,892 $277 $207 $17,334 $17,122
----------------------------------------------------------------------------------------------
Net deposits $1,548 $1,589 $590 $436 $2,138 $2,025
Assigned funds and other 9,816 8,989 3,029 3,926 $194 $146 13,039 13,061
Assigned capital 1,588 1,445 486 530 83 61 2,157 2,036
----------------------------------------------------------------------------------------------
Total funds $12,952 $12,023 $4,105 $4,892 $277 $207 $17,334 $17,122
----------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
After-tax profit margin 42% 34% 24% 27% 55% 58% 39% 34%
Efficiency 42 47 55 53 11 7 42 46
Return on assigned capital 16 12 8 8 40 41 15 12
===============================================================================================================================
</TABLE>
The Corporate Banking line of business includes: Commercial Banking which
serves commercial and middle market customers with annual sales of $5 million
to $250 million and customers in certain specialized industries regardless of
size; Large Corporate which serves customers with annual sales of more than
$250 million; and Equity Management which makes venture capital investments.
The results for the first quarter of 1997 reflect the transfer of certain
specialized industry loans and deposits from Large Corporate to Commercial
Banking. Information for 1996 has not been restated for this transfer.
Corporate Banking contributed 30% of total line of business earnings in the
first quarter of 1997 compared with 26% in the same period of 1996. Earnings
increased $19 million or 31% primarily due to higher revenue from treasury
management, capital markets and corporate finance activities. Earnings also
benefited from a credit to the allocated provision for credit losses as problem
loans declined.
Commercial Banking earnings increased 42% in the comparison primarily due to
growth in treasury management fees and a higher credit to the allocated
provision for credit losses. Large Corporate earnings declined partially due to
the transfer of certain specialized industry loans and deposits and an increase
in operating expenses associated with treasury management and capital markets
initiatives.
Management expects revenue in this line of business to be generated
increasingly from fee-based sources such as treasury management, capital
markets and corporate finance. Corporate Banking's capital markets capabilities
continue to be expanded to meet the changing needs of customers. The
Corporation has also expanded product capabilities in the merger and
acquisition advisory, private placement, interest rate risk management and
leasing product areas.
PNC BANK CORP. 7
<PAGE> 9
Financial
REVIEW
<TABLE>
<CAPTION>
REAL ESTATE BANKING
Three months ended March 31 - dollars in millions 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Net interest income $38 $36
Noninterest income 5 3
-------------------
Total revenue 43 39
Provision for credit losses (1) 1
Noninterest expense 12 12
-------------------
Pretax earnings 32 26
Income taxes 12 10
-------------------
Earnings $20 $16
-------------------
AVERAGE BALANCE SHEET
Loans $3,962 $3,899
Other assets 110 289
-------------------
Total assets $4,072 $4,188
-------------------
Net deposits $179 $133
Assigned funds and other 3,301 3,469
Assigned capital 592 586
-------------------
Total funds $4,072 $4,188
-------------------
PERFORMANCE RATIOS
After-tax profit margin 46% 41%
Efficiency 28 32
Return on assigned capital 14 11
=========================================================================
</TABLE>
Real Estate Banking serves national, regional and local real estate developers,
owners, property managers and mortgage bankers by providing credit and
non-credit services, commercial mortgage securitization, private debt
placements and treasury management services.
Real Estate Banking contributed 7% of total line of business earnings in the
first three months of 1997 and 1996. Earnings increased $4 million or 25% in
the comparison due to a 10% increase in revenue, driven by higher commercial
mortgage securitization and debt placement fees, and a lower provision for
credit losses.
Real Estate Banking has traditionally been driven by balance sheet leverage and
required significant levels of assigned capital. A key initiative in this line
of business is to alter the business mix to reduce leverage and improve returns
by expanding fee-based services such as treasury management, interest rate risk
management and debt placement activities.
<TABLE>
<CAPTION>
MORTGAGE BANKING
Three months ended March 31 - dollars in millions 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Net interest income $58 $51
Noninterest income 35 40
-------------------
Total revenue 93 91
Provision for credit losses 1 1
Noninterest expense 64 66
-------------------
Pretax earnings 28 24
Income taxes 11 9
-------------------
Earnings $17 $15
-------------------
AVERAGE BALANCE SHEET
Loans $12,012 $11,186
Other assets 2,207 2,119
-------------------
Total assets $14,219 $13,305
-------------------
Net deposits $2,032 $2,423
Assigned funds and other 11,554 10,305
Assigned capital 633 577
-------------------
Total funds $14,219 $13,305
-------------------
PERFORMANCE RATIOS
After-tax profit margin 19% 17%
Efficiency 68 72
Return on assigned capital 11 10
========================================================================
</TABLE>
Mortgage Banking activities include acquisition, origination, securitization
and servicing of residential mortgages, as well as retention of selected loans
in the portfolio.
Mortgage Banking contributed 6% of total line of business earnings in the first
three months of 1997 and 1996. A reduction in expenses more than offset the
decline in fee income associated with lower origination volumes. During the
first three months of 1997, the Corporation funded $1.1 billion of residential
mortgages with 68% representing new financings. The comparable amounts were $1.4
billion and 54%, respectively, in the first three months of 1996. The decline in
noninterest expenses reflects the benefits of technology-related efficiencies in
the loan origination and servicing functions and lower amortization of mortgage
servicing rights ("MSR"). Mortgage Banking results reflect the impact of
significant noncash expense items such as MSR amortization. Excluding the effect
of these items, cash returns currently exceed the Corporation's required return
for this line of business.
PNC BANK CORP. 8
<PAGE> 10
<TABLE>
<CAPTION>
MORTGAGE SERVICING PORTFOLIO
In millions 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
January 1 $39,543 $37,299
Originations 1,090 1,378
Purchases 1,312 3,516
Repayments (1,212) (1,638)
Sales (39) (25)
--------------------
March 31 $40,694 $40,530
===============================================================
</TABLE>
At March 31, 1997, PNC Bank's mortgage servicing portfolio totaled $40.7
billion, had a weighted-average coupon of 7.91% and an estimated fair value of
$517 million. The servicing portfolio included $30.4 billion of loans serviced
for others. Capitalized MSR totaled $344 million at March 31, 1997.
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 fees and related MSR value would also decline. 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.
<TABLE>
<CAPTION>
ASSET MANAGEMENT Investment Management Mutual Fund Servicing Total
Three months ended March 31 - ----------------------------------------------------------------------
dollars in millions 1997 1996 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Advisory, processing and other fee income $60 $52 $33 $28 $93 $80
Net interest income 1 1 1 2 1
-------------------------------------------------------------------
Total revenue 61 52 34 29 95 81
Operating expenses 44 40 22 19 66 59
-------------------------------------------------------------------
Pretax earnings 17 12 12 10 29 22
Income taxes 6 4 5 4 11 8
-------------------------------------------------------------------
Earnings $11 $8 $7 $6 $18 $14
-------------------------------------------------------------------
PERFORMANCE RATIOS
After-tax profit margin 17% 14% 22% 22% 19% 17%
Efficiency 72 77 65 65 69 73
Return on assigned capital 31 27 45 42 36 32
=========================================================================================================================
</TABLE>
The Asset Management line of business includes: Investment Management and Mutual
Fund Servicing. Investment Management provides liquidity, fixed income, and
equity advisory services to institutional, family wealth and retail clients.
Mutual Fund Servicing provides accounting, administration, transfer and custody
services to financial institutions and integrated banking services to the
brokerage community.
Asset Management contributed 7% of total line of business earnings in the first
three months of 1997 compared with 6% in the year-earlier period. Earnings
increased $4 million or 29% in the comparison. Fee income increased 16% due to
an increase in assets under administration driven by new business and market
appreciation. Noninterest expense increased primarily due to incremental costs
associated with servicing new business.
Assets under administration increased $42 billion in the quarter-to-quarter
comparison to $346 billion at March 31, 1997. Managed assets totaled $115
billion at March 31, 1997 compared with $103 billion a year ago. At March 31,
1997, the composition of managed assets was 46% fixed income, 29% liquidity
management and 25% equity.
PNC BANK CORP. 9
<PAGE> 11
Financial
REVIEW
PFPC Inc., the Corporation's mutual fund servicing operation, specializes in
providing institutional customers with custom designed products and custody,
transfer agent, accounting and administrative services. Information with
respect to assets and accounts serviced follows.
<TABLE>
<CAPTION>
March 31 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Assets (billions)
Custody $203 $179
Accounting/administration 138 116
Accounts (millions)
Shareholder 4.5 4.0
Checking and credit/debit card 1.7 1.5
===============================================================
</TABLE>
Revenue from investment management and mutual fund servicing is included in
Asset Management. Revenue from marketing asset management products and services
to consumers is included in the Consumer Banking line of business. The
following table sets forth revenue and earnings included in each line of
business.
ASSET MANAGEMENT REVENUE AND EARNINGS
<TABLE>
<CAPTION>
Three months ended March 31 - in millions Revenue Earnings
- ----------------------------------------------------------------
<S> <C> <C>
1997
Asset Management $95 $18
Consumer Banking 54 13
-------------------
Total $149 $31
- ----------------------------------------------------------------
1996
Asset Management $81 $14
Consumer Banking 50 10
-------------------
Total $131 $24
================================================================
</TABLE>
Asset Management revenue is primarily affected by the volume of new business,
the value of assets managed and serviced, investment performance and financial
market conditions. Revenue may be positively affected by strong investment
performance or improving financial markets. Conversely, declining performance
or deteriorating financial markets may have an adverse effect on revenue.
CONSOLIDATED INCOME STATEMENT REVIEW
Highlights of the consolidated results of operations for the first quarter of
1997 and 1996 were as follows:
INCOME STATEMENT HIGHLIGHTS
<TABLE>
<CAPTION>
Three months ended March 31 - in millions 1997 1996 Change
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $637 $616 $21
(taxable-equivalent basis)
Provision for credit losses 10 10
Noninterest income before
net securities gains 409 319 90
Net securities gains 16 3 13
Noninterest expense 636 566 70
Income taxes 143 125 18
Net income 266 238 28
==========================================================================
</TABLE>
Taxable-equivalent net interest income increased $21 million or 3.4% for the
first three months of 1997 and the net interest margin widened 25 basis points
to 3.98% compared with 3.73% in the prior-year period. Net interest income
increased due to a $2.1 billion increase in average credit card loans and
lower funding costs attributable to a decline in interest rates. These
benefits were partially offset by a reduction in the securities portfolio. The
net interest margin improvement reflects a higher-yielding earning asset mix
combined with lower rates paid.
PNC BANK CORP. 10
<PAGE> 12
<TABLE>
<CAPTION>
NET INTEREST INCOME ANALYSIS
Taxable-equivalent basis Average Balances Interest Income/Expense Average Yields/Rates
Three months ended March 31 - dollars ------------------------------------------------------------------------------------
in millions 1997 1996 Change 1997 1996 Change 1997 1996 Change
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Securities $10,089 $14,818 $(4,729) $158 $240 $(82) 6.27% 6.48% (21) bp
Loans, net of unearned income 51,922 48,625 3,297 1,061 987 74 8.20 8.10 10
Other interest-earning assets 1,814 2,262 (448) 30 37 (7) 6.68 6.58 10
--------------------------------------------------------
Total interest-earning assets/
interest income 63,825 65,705 (1,880) 1,249 1,264 (15) 7.86 7.69 17
Noninterest-earning assets 6,476 6,028 448
-----------------------------
Total assets $70,301 $71,733 $(1,432)
=============================
Interest-bearing liabilities
Deposits $34,533 $35,872 $(1,339) 346 371 (25) 4.06 4.16 (10)
Borrowed funds 18,594 18,891 (297) 266 277 (11) 5.76 5.88 (12)
--------------------------------------------------------
Total interest-bearing
liabilities/interest expense 53,127 54,763 (1,636) 612 648 (36) 4.66 4.75 (9)
-------------------------------------------------------
Noninterest-bearing liabilities,
capital securities and
shareholders' equity 17,174 16,970 204
-----------------------------
Total liabilities and
shareholders' equity $70,301 $71,733 $(1,432)
=============================
Interest rate spread 3.20 2.94 26
Impact of noninterest-bearing sources .78 .79 (1)
-----------------------------
Net interest income $637 $616 $21 3.98% 3.73% 25 bp
==============================================================================================================================
</TABLE>
Net interest income and margin depend on a number of factors including the
volume and composition of earning assets and related yields as well as
associated funding costs. In the first three months of 1997, loans comprised
81.4% of average earning assets. Accordingly, loan growth and the related
yields earned have a significant impact on net interest income. During the
first quarter of 1997, overall loan growth was modest and pricing pressure
within the Corporation's traditional banking activities continued. Funding cost
is affected by the composition of and rates paid on various funding sources.
Average deposits comprised 62.8% of PNC Bank's total sources of funding with
the remainder 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.
PROVISION FOR CREDIT LOSSES The provision for credit losses was $10 million in
the first quarter of 1997 compared with no provision a year ago. Asset quality
remained strong. However, PNC Bank's loan portfolio is comprised of an
increasingly larger proportion of consumer loans, primarily credit cards, which
have inherently higher charge-offs. Accordingly, the Corporation anticipates it
will continue to record provisions for credit losses throughout 1997.
PNC BANK CORP. 11
<PAGE> 13
Financial
REVIEW
<TABLE>
<CAPTION>
NONINTEREST INCOME Change
Three months ended March 31 - --------------------
dollars in millions 1997 1996 Amount Percent
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset management
Asset management and
trust $107 $93 $14 15.1%
Mutual fund servicing 33 28 5 17.9
-----------------------
Total asset
management 140 121 19 15.7
Service fees
Deposit 81 65 16 24.6
Credit card and
merchant services 19 9 10 111.1
Corporate finance and
capital markets 17 13 4 30.8
Consumer services 17 13 4 30.8
Brokerage 13 14 (1) (7.1)
Insurance 9 7 2 28.6
Other 11 9 2 22.2
-----------------------
Total service fees 167 130 37 28.5
Mortgage banking
Servicing 28 29 (1) (3.4)
Marketing 3 7 (4) (57.1)
Sale of servicing 1 1 NM
-----------------------
Total mortgage banking 32 36 (4) (11.1)
Other 70 32 38 118.8
-----------------------
Total noninterest income
before net securities 409 319 90 28.2
gains
Net securities gains 16 3 13 NM
-----------------------
Total $425 $322 $103 32.0%
======================================================================
</TABLE>
NM - not meaningful
Noninterest income before net securities transactions totaled $409 million
in the first three months of 1997, an increase of 28.2% compared with the prior
year.
The increases in asset management and service fees reflect continuing emphasis
on expanding fee-based revenue. Asset management benefited from new business
and market appreciation. Service fees exhibited strong growth in nearly all
categories. Deposit fees increased $16 million due to a revised fee structure
and higher treasury management revenue. The $10 million increase in credit card
and merchant services fees reflects increases in the credit card portfolio and
the July 1996 termination of a third party alliance.
Mortgage banking revenue declined primarily due to lower origination volumes as
mortgage originations declined from $1.4 billion in the first quarter of 1996
to $1.1 billion in the first quarter of 1997.
Other noninterest income increased in the comparison primarily due to $23
million of asset securitization income.
<TABLE>
<CAPTION>
NONINTEREST EXPENSE Change
Three months ended March 31 - --------------------
dollars in millions 1997 1996 Amount Percent
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Staff expense
Compensation $245 $228 $17 7.5%
Employee benefits 58 51 7 13.7
-------------------------
Total staff expense 303 279 24 8.6
Net occupancy 47 51 (4) (7.8)
Equipment 42 43 (1) (2.3)
Goodwill amortization 13 12 1 8.3
Other amortization 17 11 6 54.5
Taxes other than income 15 15
Distributions on
mandatorily redeemable
capital securities of
subsidiary trust 7 7 NM
Other 192 155 37 23.9
-------------------------
Total $636 $566 $70 12.4%
======================================================================
</TABLE>
NM - not meaningful
Noninterest expense increased $70 million to $636 million in the first quarter
of 1997 primarily due to $45 million of marketing, servicing and other costs
associated with AAA-related businesses. The remaining increase was due to higher
incentive compensation commensurate with revenue growth, a special employee
appreciation award and the cost of capital securities issued in the fourth
quarter of 1996. Average full-time equivalent employees were 24,545 for the
first three months of 1997, a decline of 625 in the comparison primarily
reflecting the integration of Midlantic. The efficiency ratio was 59.9% for the
first quarter of 1997.
BALANCE SHEET REVIEW
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET HIGHLIGHTS Change
Three months ended March 31 - --------------------
dollars in millions 1997 1996 Amount Percent
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets $70,301 $71,733 $(1,432) (2.0)%
Earning assets 63,825 65,705 (1,880) (2.9)
Loans, net of
unearned income 51,922 48,625 3,297 6.8
Securities 10,089 14,818 (4,729) (31.9)
Deposits 44,133 45,553 (1,420) (3.1)
Borrowed funds 18,594 18,891 (297) (1.6)
Shareholders' equity 5,758 5,764 (6) (.1)
=========================================================================
</TABLE>
Average assets and earning assets were $70.3 billion and $63.8 billion,
respectively, for the three months ended March 31, 1997 compared with $71.7
billion and $65.7 billion, respectively, in the year-earlier period. The
declines reflect continued reduction of the securities portfolio partially
offset by loan growth. Securities to earning assets declined to 15.8% from
22.6% in the prior year.
PNC BANK CORP. 12
<PAGE> 14
<TABLE>
<CAPTION>
AVERAGE LOANS
Three months ended March 31 -
dollars in millions 1997 1996 Change
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Consumer
Credit card $3,043 $986 $2,057
Other consumer 11,827 12,384 (557)
-------------------------------
Total consumer 14,870 13,370 1,500
Residential mortgage 12,781 11,619 1,162
Commercial 17,916 16,806 1,110
Commercial real estate 4,591 4,885 (294)
Other 1,764 1,945 (181)
-------------------------------
Total, net of unearned income $51,922 $48,625 $3,297
=====================================================================
</TABLE>
Average loans increased $3.3 billion or 6.8% to $51.9 billion for the three
months ended March 31, 1997 and represented 81.4% of earning assets compared
with 74.0% in the year-earlier period. Average credit card loans increased $2.1
billion reflecting the purchase of AAA-affinity portfolios and expanded
marketing. Other consumer loans declined $557 million or 4.5% primarily due to
reduced indirect lending exposure. Excluding purchased credit card portfolios,
loans grew at an annual rate of 3.8%.
Average deposits declined $1.4 billion to $44.1 billion in the first three
months of 1997 compared with a year ago. The decline primarily reflects the
migration of consumer deposits as customers sought higher-yielding investment
alternatives. The ratio of deposits to total sources of funds was 62.8% for the
first quarter of 1997 compared with 63.5% a year ago. Wholesale funding
represented 27.9% of total sources of funds compared with 28.4% a year ago.
<TABLE>
<CAPTION>
PERIOD-END BALANCE SHEET HIGHLIGHTS
March 31 December 31
Dollars in millions 1997 1996 Change
- ------------------------------------------------------------------
<S> <C> <C> <C>
Assets $71,166 $73,260 $(2,094)
Loans, net of unearned income 52,575 51,798 777
Securities 9,593 11,917 (2,324)
Deposits 44,902 45,676 (774)
Borrowed funds 18,547 19,604 (1,057)
Shareholders' equity 5,478 5,869 (391)
==================================================================
</TABLE>
The decline in total assets and securities reflects the continued reduction in
the securities portfolio and related wholesale funding. Shareholders' equity
declined $391 million primarily reflecting the impact of share repurchases.
LOANS Loans outstanding increased $777 million from year-end 1996 to $52.6
billion at March 31, 1997. Loan portfolio composition remained relatively
consistent in the comparison and continues to be geographically diversified
among numerous industries and types of businesses. The credit card portfolio
increased 20% primarily reflecting marketing initiatives in the Corporation's
geographic footprint and to AAA customers. The decline in student loans
primarily reflects the securitization of $537 million of those loans.
LOANS
<TABLE>
<CAPTION>
March 31 December 31
In millions 1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Consumer
Home equity $4,601 $4,569
Automobile 3,566 3,731
Credit card 3,345 2,776
Student 1,303 1,725
Other 1,886 2,067
----------------------
Total consumer 14,701 14,868
Residential mortgage 13,056 12,703
Commercial
Manufacturing 3,903 3,718
Retail/Wholesale 3,397 3,243
Service providers 2,441 2,359
Real estate related 1,529 1,452
Communications 1,210 1,239
Financial services 598 708
Health care 1,251 1,207
Other 4,188 4,136
----------------------
Total commercial 18,517 18,062
Commercial real estate
Mortgage 2,397 2,467
Medium-term financing 1,288 1,312
Construction and development 849 845
----------------------
Total commercial real estate 4,534 4,624
Lease financing and other 2,154 1,926
Unearned income (387) (385)
----------------------
Total, net of unearned income $52,575 $51,798
================================================================
</TABLE>
Commitments to extend credit represent arrangements to lend funds provided
there is no violation of specified contractual conditions. Commitments are
reported net of participations, assignments and syndications, primarily to
financial institutions, totaling $4.5 billion and $4.4 billion at March 31,
1997 and December 31, 1996, respectively.
Net outstanding letters of credit totaled $4.7 billion and $4.5 billion at
March 31, 1997 and December 31, 1996, respectively, and consist primarily of
standby letters of credit which commit the Corporation to make payments on
behalf of customers when certain specified future events occur.
<TABLE>
<CAPTION>
NET UNFUNDED COMMITMENTS
March 31 December 31
In millions 1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Consumer $23,203 $22,045
Residential mortgage 784 511
Commercial 28,272 27,087
Commercial real estate 847 764
Other 775 849
----------------------
Total $53,881 $51,256
================================================================
</TABLE>
PNC BANK CORP. 13
<PAGE> 15
Financial
REVIEW
SECURITIES
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
---------------------------------------
Amortized Fair Amortized Fair
In millions Cost Value Cost Value
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities
U.S. Treasury and
government agencies $1,518 $1,497 $3,238 $3,237
Mortgage backed 5,975 5,778 6,301 6,176
Asset backed 1,594 1,589 1,609 1,615
State and municipal 206 213 218 227
Other debt 31 30 100 105
Corporate stocks and other 480 486 554 557
-----------------------------------
Total $9,804 $9,593 $12,020 $11,917
===============================================================
</TABLE>
The securities portfolio declined $2.3 billion from year-end 1996 to $9.6
billion at March 31, 1997. The expected weighted-average life of the securities
portfolio was 3 years and 2 months at March 31, 1997 compared with 2 years and
11 months at year-end 1996.
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
gains or losses on associated financial derivatives. During the first quarter
of 1997, $3.7 billion of securities were sold at a $16 million net gain.
At March 31, 1997 and December 31, 1996, $5.2 billion and $5.5 billion,
respectively, notional value of financial derivatives were designated to
securities available for sale. The net fair values of such financial
derivatives, which are reflected in the Securities table, were less than $1
million in both periods.
FUNDING SOURCES
<TABLE>
<CAPTION>
March 31 December 31
In millions 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Deposits
Demand, savings and money market $26,187 $27,027
Time 17,591 17,803
Foreign 1,124 846
---------------------
Total deposits 44,902 45,676
Borrowed funds
Bank notes and senior debt 8,813 8,093
Federal funds purchased 2,937 3,933
Repurchase agreements 531 645
Other borrowed funds 4,915 5,576
Subordinated debt 1,351 1,357
---------------------
Total borrowed funds 18,547 19,604
---------------------
Total $63,449 $65,280
===============================================================
</TABLE>
Deposits decreased 1.7% to $44.9 billion at March 31, 1997 compared with $45.7
billion at year-end 1996. Borrowed funds declined $1.1 billion in the
comparison reflecting reduced use of wholesale funding related to the downsized
securities portfolio. The change in composition of borrowed funds reflects
actions to utilize the most cost-effective alternatives.
CAPITAL Tier I and total risk-based capital components and ratios were as
follows:
<TABLE>
<CAPTION>
March 31 December 31
Dollars in millions 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Capital components
Shareholders' equity
Common $5,162 $5,553
Preferred 316 316
Trust preferred securities 350 350
Goodwill and other (988) (1,003)
Net unrealized securities losses 137 67
----------------------
Tier I risk-based capital 4,977 5,283
Subordinated debt 1,319 1,343
Eligible allowance for credit losses 815 801
----------------------
Total risk-based capital $7,111 $7,427
======================
Assets
Risk-weighted assets and
off-balance-sheet instruments $64,946 $63,761
Average tangible assets 69,397 68,597
======================
Capital ratios
Tier I risk-based 7.66% 8.29%
Total risk-based 10.95 11.65
Leverage 7.17 7.70
===============================================================
</TABLE>
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 minimum regulatory capital ratios are 4% for Tier I, 8%
for total risk-based and 3% 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% for Tier I, 10% for total risk-based and 5% for leverage. At March 31, 1997,
the Corporation and each bank subsidiary were classified as well capitalized.
The capital position is managed through balance sheet size and composition,
issuance of debt and equity instruments, treasury stock activities, dividend
policies and retention of earnings.
During the first quarter of 1997, PNC Bank repurchased 12.4 million shares of
common stock. Subsequent to quarter end, the Corporation's board of directors
authorized the repurchase of up to 15 million additional shares of common stock
through March 31, 1998. The repurchases may be made in open-market or
privately-negotiated transactions.
PNC BANK CORP. 14
<PAGE> 16
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, PNC Bank has risk management processes designed to
provide for risk identification, measurement, monitoring and control.
CREDIT RISK Credit risk represents the possibility 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, limiting exposure to any single industry or customer
and, requiring collateral or selling participations to third parties.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
March 31 December 31
Dollars in millions 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans
Commercial $135 $156
Commercial real estate
Mortgage 113 109
Project 24 25
Consumer 5 6
Residential mortgage 45 51
--------------------
Total nonaccrual loans 322 347
Restructured loans 1 2
--------------------
Total nonperforming loans 323 349
Foreclosed assets
Commercial real estate 66 71
Residential mortgage 24 22
Other 16 17
--------------------
Total foreclosed assets 106 110
--------------------
Total nonperforming assets $429 $459
--------------------
Nonperforming loans to loans .61% .67%
Nonperforming assets to loans and
foreclosed assets .82 .88
Nonperforming assets to assets .60 .63
================================================================
</TABLE>
Nonperforming assets declined $30 million since year-end 1996 primarily due to
a $21 million decline in commercial nonaccrual loans. At March 31, 1997, $72
million of nonperforming loans were current as to principal and interest
compared with $80 million at December 31, 1996.
<TABLE>
<CAPTION>
CHANGE IN NONPERFORMING ASSETS
In millions 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
January 1 $459 $536
Transferred from accrual 70 111
Returned to performing (14) (10)
Principal reductions (56) (59)
Sales (16) (22)
Charge-offs and valuation adjustments (14) (16)
---------------------
March 31 $429 $540
===============================================================
</TABLE>
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
<TABLE>
<CAPTION>
Amount Percent of Loans
------------------ ---------------------
March 31 December 31 March 31 December 31
Dollars in millions 1997 1996 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer
Guaranteed
student $54 $51 4.13% 2.95%
Credit cards 48 43 1.43 1.56
Other 37 46 .38 .45
-----------------
Total consumer 139 140 .97 .96
Residential mortgage 62 58 .48 .46
Commercial 32 34 .17 .19
Commercial real estate 18 12 .39 .26
-----------------
Total $251 $244 .48 .47
=======================================================================
</TABLE>
ALLOWANCE FOR CREDIT LOSSES In determining the adequacy of the allowance for
credit losses, the Corporation makes allocations to specific problem loans
based on discounted cash flow analyses or collateral valuations for impaired
loans and to pools of watchlist and nonwatchlist loans for various credit risk
factors. Allocations to loan pools are developed by risk rating and industry
classifications and based on management's judgment concerning historical loss
trends and other relevant factors. These factors may include, among others,
local, regional and national economic conditions, portfolio concentrations,
industry competition and consolidation, and the impact of government
regulation. Consumer and residential mortgage loan allocations are based on
historical loss experience adjusted for portfolio activity and current economic
conditions.
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
In millions 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
January 1 $1,166 $1,259
Charge-offs (89) (55)
Recoveries 29 21
---------------------
Net charge-offs (60) (34)
Provision for credit losses 10
Acquisitions 3
---------------------
March 31 $1,119 $1,225
===============================================================
</TABLE>
The allowance as a percent of nonperforming loans and period-end loans was 346%
and 2.13%, respectively, at March 31, 1997. The comparable year-end 1996
amounts were 334% and 2.25%, respectively.
PNC BANK CORP. 15
<PAGE> 17
Financial
REVIEW
<TABLE>
<CAPTION>
CHARGE-OFFS AND RECOVERIES Net Percent of
Three months ended Charge- Charge- Average
March 31 - dollars in millions offs Recoveries offs Loans
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Consumer
Credit card $46 $7 $39 5.20%
Other 30 9 21 .72
-------------------------------
Total consumer 76 16 60 1.64
Residential mortgage 2 1 1 .03
Commercial 10 9 1 .02
Commercial real estate 1 3 (2) (.18)
-------------------------------
Total $89 $29 $60 .47
- ------------------------------------------------------------------------------
1996
Consumer
Credit card $13 $1 $12 4.90%
Other 26 8 18 .58
-------------------------------
Total consumer 39 9 30 .90
Residential mortgage 2 1 1 .03
Commercial 10 9 1 .02
Commercial real estate 4 2 2 .16
-------------------------------
Total $55 $21 $34 .28
==============================================================================
</TABLE>
Consumer net charge-offs increased $30 million in the comparison primarily due
to charge-offs associated with purchased credit card portfolios.
LIQUIDITY Liquidity represents an institution's ability to generate cash or
otherwise obtain funds at reasonable rates to satisfy commitments to borrowers,
demands of depositors and debtholders, and invest in strategic initiatives.
Liquidity risk represents the likelihood the Corporation would be unable to
generate cash or otherwise obtain funds at reasonable rates to satisfy such
obligations. Liquidity risk 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 mortgage, automobile and credit
card loans. The ability to raise funds in the capital markets depends, among
other factors, on market conditions, capital considerations, credit ratings and
investor demand.
Liquid assets consist of cash and due from banks, short-term investments, loans
held for sale and securities available for sale. At March 31, 1997, such assets
totaled $14.8 billion, with $5.6 billion pledged as collateral for borrowing,
trust and other commitments. 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 March 31, 1997, approximately $5.0
billion of residential mortgages were available as collateral for borrowings
from the FHLB.
During the first three months of 1997, cash and due from banks decreased $920
million to $3.1 billion compared with a decrease of $428 million during the
year-earlier period. Net cash provided by operating activities increased $305
million in the comparison. Cash provided by investing activities increased to
$1.4 billion primarily due to sales of securities. Net cash used by financing
activities totaled $2.4 billion in the first three months of 1997 compared with
$1.5 billion used a year earlier.
The principal source of parent company revenue and cash flow is dividends from
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 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 dividend payments to PNC Bancorp,
Inc. by all bank subsidiaries was $146 million at March 31, 1997. Dividends may
also be impacted by capital needs, regulatory requirements, corporate policies,
contractual restrictions and other factors.
Liquidity for the parent company and subsidiaries is also generated through the
issuance of securities in public or private markets and lines of credit. At
March 31, 1997 unused capacity under effective shelf registration statements
consisted of $140 million of debt and $350 million 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.
PNC BANK CORP. 16
<PAGE> 18
Management believes the Corporation has sufficient liquidity to meet current
obligations to borrowers, depositors, debtholders and others. The impact of
replacing maturing liabilities is reflected in the income simulation model
results 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 and purchased interest rate caps and
floors, are used to alter the interest rate characteristics of assets and
liabilities. For example, receive-fixed interest rate swaps effectively convert
variable-rate assets to fixed-rate assets.
In managing interest rate risk, the Corporation seeks to minimize the reliance
on a particular interest rate scenario as a source of earnings. Accordingly,
wholesale activities including securities, funding, financial derivatives and
capital markets activities are used in managing core business exposures within
specified guidelines. Interest rate risk is centrally managed by asset and
liability ("A&L") management. Senior management and Board of Directors'
committees oversee A&L management and periodically review interest rate risk
exposures.
A number of measures are used to monitor and manage interest rate risk,
including income simulation and interest sensitivity (gap) analyses. In
addition, the Corporation supplements these models with longer-term measures of
interest rate sensitivity including duration of equity and equity at risk. Such
models are designed to estimate the impact on the value of equity resulting
from changes in interest rates and supplement the simulation model and gap
analyses.
An income simulation model is the primary tool used to assess the direction and
magnitude of changes in net interest income resulting from changes in interest
rates. Key assumptions employed in the model include prepayment speeds on
mortgage-related assets, cash flows and maturities of financial instruments,
changes in market conditions, loan volumes and pricing, deposit sensitivity,
customer preferences, and management's financial and capital plans. These
assumptions are inherently uncertain and, as a result, the model cannot
precisely estimate net interest income or precisely predict the impact of
higher or lower interest rates on net interest income. 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'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. Based on the
results of the simulation model, the Corporation was within these guidelines at
March 31, 1997.
Additional interest rate scenarios are modeled to address a wider range of rate
movement, yield curve, term structure and basis risk exposures. Depending on
market conditions and other inherent risks, these scenarios may be modeled more
or less frequently. Such analyses are used as supplemental measurements only
and limits have not been established.
A gap analysis represents a point-in-time net position of assets, liabilities
and off-balance-sheet financial derivatives used for interest rate risk
management subject to repricing in specified time periods. Gap analysis does
not accurately measure the magnitude of changes in net interest income since
changes in interest rates over time do not impact all categories of assets,
liabilities and off-balance-sheet instruments equally or simultaneously. A
cumulative asset-sensitive gap position indicates assets are expected to
reprice more quickly than liabilities. Alternatively, a cumulative
liability-sensitive gap position indicates liabilities are expected to reprice
more quickly than assets. The Corporation's limit for the cumulative one-year
gap position is 10%. At March 31, 1997, the cumulative liability sensitivity of
the one-year gap position was 3.0%.
PNC BANK CORP. 17
<PAGE> 19
Financial
REVIEW
FINANCIAL DERIVATIVES
A variety of off-balance-sheet financial derivatives are used as part of the
overall interest rate risk management process to manage interest rate risk
inherent in the Corporation's line of business activities. Interest rate swaps
and purchased interest rate caps and floors are the primary instruments used
for these purposes. 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. Purchased 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, respectively. Forward contracts provide for the
delivery of financial instruments at a specified future date and at a specified
price or yield. Such contracts are used to manage risk positions associated
with certain mortgage banking activities.
Financial derivatives involve, to varying degrees, interest rate and credit
risk in excess of the amount recognized in the balance sheet, but less than the
notional amount of the contract. For interest rate swaps, caps and floors, only
periodic cash payments and, with respect to caps and floors, premiums, are
exchanged. Therefore, cash requirements and exposure to credit risk are
significantly less than the notional value.
The following table sets forth changes in off-balance-sheet financial
derivatives used for interest rate risk management and mortgage banking
activities during the first three months of 1997. Weighted-average maturity is
based on contractual terms.
<TABLE>
<CAPTION>
FINANCIAL DERIVATIVES ACTIVITY Weighted-
Average
1997 - dollars in millions January 1 Additions Maturities Terminations March 31 Maturity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate risk management
Interest rate swaps
Receive fixed $6,947 $980 $(15) $7,912 1 yr. 4 mo.
Receive-fixed index amortizing 56 (20) 36 1 yr. 7 mo.
Pay fixed 602 (17) 585 2 yr. 9 mo.
Basis swaps 335 130 465 1 yr. 7 mo.
Interest rate caps 5,813 175 (326) 5,662 10 mo.
Interest rate floors 2,500 39 2,539 1 yr. 9 mo.
---------------------------------------------------------------
Total interest rate risk management 16,253 1,324 (378) 17,199
Mortgage banking activities
Forward contracts
Commitments to purchase loans 395 1,279 (1,017) 657 2 mo.
Commitments to sell loans 894 1,079 (1,146) 827 2 mo.
Interest rate floors - MSR 1,050 350 $(250) 1,150 4 yr. 9 mo.
---------------------------------------------------------------
Total mortgage banking activities 2,339 2,708 (2,163) (250) 2,634
---------------------------------------------------------------
Total $18,592 $4,032 $(2,541) $(250) $19,833
===========================================================================================================================
</TABLE>
During the first quarter of 1997, the financial derivatives used in interest
rate risk management increased net interest income by $3 million compared with a
decrease of $7 million in the year-earlier period. At March 31, 1997, $14
million of net deferred losses on terminated derivative contracts are being
amortized over a weighted-average remaining period of 13 months.
PNC BANK CORP. 18
<PAGE> 20
The following table sets forth by designated assets and liabilities the
notional value and the estimated fair value of financial derivatives
used for interest rate risk management and mortgage banking activities.
Weighted-average interest rates presented are those expected to be in effect
based on the implied forward yield curve.
<TABLE>
<CAPTION>
FINANCIAL DERIVATIVES Forward Yield Curve
Notional Estimated ---------------------
March 31, 1997 - dollars in millions Value Fair Value Paid Received
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate risk management
Asset rate conversion
Interest rate swaps (1)
Receive fixed designated to loans $6,295 $(2) 6.42% 5.93%
Pay fixed designated to loans 535 (3) 7.07 6.78
Interest rate caps designated to (2)
Securities 5,200 NM NM
Loans 462 6 NM NM
Interest rate floors designated to loans (3) 2,539 1 NM NM
--------------------
Total asset rate conversion 15,031 2
Liability rate conversion
Interest rate swaps (1)
Receive fixed designated to interest-bearing
liabilities 1,653 9 6.20 6.05
Pay fixed designated to borrowed funds 50 (1) 5.63 6.08
Basis swaps designated to borrowed funds 465 3 6.29 6.24
--------------------
Total liability rate conversion 2,168 11
--------------------
Total interest rate risk management 17,199 13
Mortgage banking activities
Forward contracts
Commitments to purchase loans 657 (1) NM NM
Commitments to sell loans 827 5 NM NM
Interest rate floors - MSR (3) 1,150 6 NM NM
--------------------
Total mortgage banking activities 2,634 10
--------------------
Total financial derivatives $19,833 $23
=======================================================================================================
</TABLE>
(1) The floating rate portion of interest rate contracts is based on
money-market indices. As a percent of notional value, 46% were based on
3-month LIBOR, 50% on 1-month LIBOR and the remainder on other short-term
indices.
(2) Interest rate caps with notional values of $5.6 billion and $68 million
require the counterparty to pay the Corporation the excess, if any, of
3-month LIBOR over a weighted-average strike of 6.49% and 1-month LIBOR
over 6.31%, respectively. At March 31, 1997, 3-month LIBOR was 5.77% and
1-month LIBOR was 5.69%.
(3) Interest rate floors with notional values of $2.5 billion and $1.2 billion
require the counterparty to pay the Corporation the excess, if any,
weighted-average strike of 4.92% over 3-month LIBOR and weighted-average
strike of 5.96% over 10-year CMT. At March 31, 1997, 3-month LIBOR was
5.77% and 10-year CMT was 6.92%.
NM - not meaningful
CUSTOMER-RELATED DERIVATIVES PNC Bank also enters into financial derivative
transactions to facilitate customer needs primarily consisting of interest rate
swaps, caps, floors and foreign exchange contracts. The Corporation manages the
risk exposure from customer positions through transactions with other dealers.
These positions with third parties are recorded at their estimated fair values
and adjustments to such amounts are included in the results of operations. The
following schedule sets forth information relating to positions associated with
customer derivatives.
<TABLE>
<CAPTION>
Positive Negative
Notional Net Asset Fair Fair
March 31, 1997 - in millions Value (Liability) Value Value
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate
Swaps $2,946 $2 $17 $(15)
Caps/floors
Sold 1,137 (6) (6)
Purchased 1,085 5 5
Foreign exchange 1,134 13 (13)
Other 354
--------------------------------------
Total $6,656 $1 $35 $(34)
=======================================================================
</TABLE>
PNC BANK CORP. 19
<PAGE> 21
Consolidated
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three months ended March 31 - in thousands, except per share data 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans and fees on loans $1,055,908 $980,836
Securities 156,205 237,442
Other 30,043 37,060
----------------------
Total interest income 1,242,156 1,255,338
INTEREST EXPENSE
Deposits 346,155 370,983
Borrowed funds 266,076 277,498
----------------------
Total interest expense 612,231 648,481
----------------------
Net interest income 629,925 606,857
Provision for credit losses 10,000
----------------------
Net interest income less provision for credit losses 619,925 606,857
NONINTEREST INCOME
Asset management 139,572 120,877
Service fees 167,421 130,269
Mortgage banking 32,045 35,982
Net securities gains 16,426 2,943
Other 69,652 31,491
----------------------
Total noninterest income 425,116 321,562
NONINTEREST EXPENSE
Staff expense 302,701 278,657
Net occupancy and equipment 89,284 93,283
Amortization 29,831 23,664
Other 207,432 170,042
Distributions on mandatorily redeemable
capital securities of subsidiary trust 6,956
----------------------
Total noninterest expense 636,204 565,646
----------------------
Income before income taxes 408,837 362,773
Applicable income taxes 142,528 124,453
----------------------
Net income $266,309 $238,320
----------------------
EARNINGS PER COMMON SHARE
Primary $.81 $.69
Fully diluted .80 .69
CASH DIVIDENDS DECLARED PER COMMON SHARE .37 .35
AVERAGE COMMON SHARES OUTSTANDING
Primary 323,972 342,872
Fully diluted 327,917 347,367
=============================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP. 20
<PAGE> 22
Consolidated
BALANCE SHEET
<TABLE>
<CAPTION>
March 31 December 31
Dollars in millions, except share data 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $3,096 $4,016
Short-term investments 702 774
Loans held for sale 1,375 941
Securities available for sale 9,593 11,917
Loans, net of unearned income of $387 and $385 52,575 51,798
Allowance for credit losses (1,119) (1,166)
----------------------
Net loans 51,456 50,632
Other 4,944 4,980
----------------------
Total assets $71,166 $73,260
----------------------
LIABILITIES
Deposits
Noninterest-bearing $9,971 $10,937
Interest-bearing 34,931 34,739
----------------------
Total deposits 44,902 45,676
Borrowed funds
Bank notes and senior debt 8,813 8,093
Federal funds purchased 2,937 3,933
Repurchase agreements 531 645
Other borrowed funds 4,915 5,576
Subordinated debt 1,351 1,357
----------------------
Total borrowed funds 18,547 19,604
Other 1,889 1,761
----------------------
Total liabilities 65,338 67,041
Mandatorily redeemable capital securities of subsidiary trust 350 350
SHAREHOLDERS' EQUITY
Preferred stock 7 7
Common stock - $5 par value
Authorized: 450,000,000 shares
Issued: 347,037,481 and 345,154,238 shares 1,735 1,726
Capital surplus 984 939
Retained earnings 4,218 4,075
Deferred benefit expense (60) (60)
Net unrealized securities losses (137) (67)
Common stock held in treasury at cost: 33,162,947 and 21,036,195 shares (1,269) (751)
----------------------
Total shareholders' equity 5,478 5,869
----------------------
Total liabilities and shareholders' equity $71,166 $73,260
==========================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP. 21
<PAGE> 23
Consolidated
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31 - in millions 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $266 $238
Adjustments to reconcile net income to net cash provided (used) by operating activities
Provision for credit losses 10
Depreciation, amortization and accretion 73 61
Deferred income taxes 52 37
Net securities gains (16) (3)
Net gain on sales of assets (48) (14)
Valuation adjustments (3) (1)
Changes in
Loans held for sale (434) (316)
Other 173 (234)
---------------------
Net cash provided (used) by operating activities 73 (232)
INVESTING ACTIVITIES
Net change in loans (1,450) (334)
Repayment of securities available for sale 650 1,081
Sales
Securities available for sale 3,691 1,496
Loans 692 7
Foreclosed assets 21 24
Purchases
Securities available for sale (2,112) (1,601)
Loans (105) (286)
Net cash received in acquisitions 460
Other 28 438
---------------------
Net cash provided by investing activities 1,415 1,285
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits (966) (817)
Interest-bearing deposits 197 (952)
Federal funds purchased (996) (255)
Sale/issuance
Repurchase agreements 17,541 17,601
Bank notes and senior debt 2,480 2,607
Other borrowed funds 24,823 20,878
Common stock 52 20
Repayment/maturity
Repurchase agreements (17,655) (17,699)
Bank notes and senior debt (1,760) (982)
Other borrowed funds (25,483) (21,757)
Acquisition of treasury stock (516) (5)
Cash dividends paid (125) (120)
---------------------
Net cash used by financing activities (2,408) (1,481)
---------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (920) (428)
Cash and due from banks at beginning of year 4,016 3,679
---------------------
Cash and due from banks at end of period $3,096 $3,251
==================================================================================================================
CASH ITEMS
Interest paid $629 $690
Income taxes paid (refunded) 2 (81)
NONCASH ITEMS
Transfers from loans to foreclosed assets 17 12
==================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP. 22
<PAGE> 24
Notes to
CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS PNC Bank Corp. is one of the largest financial services organizations
in the United States with banking subsidiaries in Pennsylvania, New Jersey,
Delaware, Ohio, Kentucky, Indiana, Massachusetts and Florida. The Corporation's
major businesses include consumer banking, corporate banking, mortgage banking,
real estate banking and asset management. PNC Bank Corp. is subject to intense
competition from other financial services companies with respect to these
businesses and is subject to the regulations of certain federal and state
agencies and undergoes periodic examinations by certain regulatory authorities.
ACCOUNTING POLICIES
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" or "PNC Bank"), 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. Certain prior
period amounts have been reclassified to conform to reporting classifications
utilized for the current reporting period. These reclassifications did not
impact the Corporation's financial condition or results of operations.
In preparing the 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 PNC Bank's 1996 Annual Report.
ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is a reserve for
estimated credit losses established through provisions charged against income.
Loans deemed to be uncollectible are charged against the allowance account.
The allowance is maintained at a level believed by management to be sufficient
to absorb estimated potential credit losses. Management's determination of the
adequacy of the allowance is based on periodic evaluations of the credit
portfolio and other relevant factors. This evaluation is inherently subjective
as it requires material estimates including, among others, the amounts and
timing of expected future cash flows on impaired loans, estimated losses on
consumer loans and residential mortgages, and general amounts for historical
loss experience, economic conditions, uncertainties in estimating losses and
inherent risks in the various credit portfolios, all of which may be
susceptible to significant change.
FINANCIAL DERIVATIVES The Corporation uses off-balance-sheet financial
derivatives as part of the overall asset/liability management process and in
mortgage banking activities. Substantially all such instruments are used to
manage risk related to changes in interest rates. Financial derivatives
primarily consist of interest rate swaps, purchased interest rate caps and
floors, and forward contracts.
PNC Bank also enters into financial derivative transactions to facilitate
customer needs primarily consisting of interest rate swaps, caps, floors and
foreign exchange contracts. The Corporation manages the risk exposure from
customer positions through transactions with other dealers. These positions with
third parties are recorded at their estimated fair values and adjustments to
such amounts are included in the results of operations.
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. 23
<PAGE> 25
Notes to
CONSOLIDATED FINANCIAL STATEMENTS
RECENT ACCOUNTING PRONOUNCEMENT In February 1997, SFAS No. 128, "Earnings per
Share," was issued, effective for periods ending after December 15, 1997, with
retroactive restatement required for all periods presented. SFAS No. 128
specifies revised computation, presentation and disclosure requirements for
earnings per share. Under the provisions of SFAS No. 128, primary and fully
diluted earnings per share will be replaced with basic and diluted amounts. This
standard would not have impacted reported earnings per share amounts for the
first quarter of 1997 and management does not expect it to have a material
impact on the Corporation's historical earnings per share amounts.
CASH FLOWS
For the statement of cash flows, PNC Bank defines cash and cash equivalents as
cash and due from banks. During the first quarter of 1996, acquisition activity
which affected cash flows consisted of $538 million in assets, $501 million in
liabilities, cash payments totaling $37 million and receipt of $497 million in
cash and due from banks. The Corporation did not have any acquisition activity
in the first quarter of 1997.
SECURITIES
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-----------------------------------------------------------------------------------------
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>
Securities available for sale
Debt securities
U.S. Treasury, government agencies
and corporations $1,518 $4 $25 $1,497 $3,238 $20 $21 $3,237
Mortgage backed 5,975 11 208 5,778 6,301 13 138 6,176
Asset backed 1,594 2 7 1,589 1,609 7 1 1,615
State and municipal 206 7 213 218 9 227
Other debt 31 1 30 100 7 2 105
----------------------------------------------------------------------------------------
Total debt securities 9,324 24 241 9,107 11,466 56 162 11,360
Corporate stocks and other 480 6 486 554 3 557
----------------------------------------------------------------------------------------
Total securities available for sale $9,804 $30 $241 $9,593 $12,020 $59 $162 $11,917
================================================================================================================================
</TABLE>
The preceding table sets forth the amortized cost and fair value of the
Corporation's securities portfolio, all of which is available for sale. At
March 31, 1997 and December 31, 1996, $5.2 billion and $5.5 billion,
respectively, notional value of financial derivatives were associated with
securities available for sale.
The carrying value of securities pledged to secure public and trust deposits,
repurchase agreements and for other purposes at March 31, 1997 was $5.6
billion.
LOANS
At March 31, 1997, $2.4 billion of loans were pledged to secure borrowings and
for other purposes.
NONPERFORMING ASSETS
Nonperforming assets were as follows:
<TABLE>
<CAPTION>
March 31 December 31
In millions 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $322 $347
Restructured loans 1 2
-------------------
Total nonperforming loans 323 349
Foreclosed assets 106 110
-------------------
Total nonperforming assets $429 $459
===============================================================
</TABLE>
PNC BANK CORP. 24
<PAGE> 26
ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
January 1 $1,166 $1,259
Charge-offs (89) (55)
Recoveries 29 21
--------------------
Net charge-offs (60) (34)
Provision for credit losses 10
Acquisitions 3
--------------------
March 31 $1,119 $1,225
===============================================================
</TABLE>
FINANCIAL DERIVATIVES
The notional and fair values of financial derivatives used for interest rate
risk management and for mortgage banking activities were as follows:
<TABLE>
<CAPTION>
Positive Negative
Notional Fair Notional Fair
In millions Value Value Value Value
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, 1997
Interest rate swaps $4,738 $45 $4,260 $(39)
Interest rate caps 5,662 6
Interest rate floors 2,500 1 39
Mortgage banking
activities 1,977 11 657 (1)
------------------------------------------
Total $14,877 $63 $4,956 $(40)
===============================================================
DECEMBER 31, 1996
Interest rate swaps $7,290 $112 $650 $(15)
Interest rate caps 5,813 2
Interest rate floors 2,500 3
Mortgage banking
activities 1,853 10 486 (1)
------------------------------------------
Total $17,456 $127 $1,136 $(16)
===============================================================
</TABLE>
The notional and fair values of customer-related derivatives were as follows:
<TABLE>
<CAPTION>
Positive Negative
March 31, 1997 - Notional Net Asset Fair Fair
in millions Value (Liability) Value Value
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate
Swaps $2,946 $2 $17 $(15)
Caps/floors 2,222 (1) 5 (6)
Foreign exchange 1,134 13 (13)
Other 354
----------------------------------------
Total $6,656 $1 $35 $(34)
=================================================================
</TABLE>
OTHER FINANCIAL INFORMATION
In connection with the Midlantic merger, subordinated notes and senior debt of
Midlantic with a remaining aggregate principal amount of $356 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:
PNC BANCORP, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31 December 31
In millions 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $3,100 $4,022
Securities 9,207 11,210
Loans, net of unearned income 52,559 51,736
Allowance for credit losses (1,119) (1,166)
------------------------
Net loans 51,440 50,570
Other assets 6,207 5,988
------------------------
Total assets $69,954 $71,790
------------------------
LIABILITIES
Deposits $45,079 $46,290
Borrowed funds 17,476 18,077
Other liabilities 1,073 1,014
------------------------
Total liabilities 63,628 65,381
Mandatorily redeemable capital
securities of subsidiary trust 350 350
SHAREHOLDER'S EQUITY 5,976 6,059
------------------------
Total liabilities and
shareholder's equity $69,954 $71,790
===============================================================
</TABLE>
PNC BANCORP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three months ended March 31 - in millions 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Interest income $1,233 $1,248
Interest expense 592 625
---------------------
Net interest income 641 623
Provision for credit losses 10
---------------------
Net interest income less provision
for credit losses 631 623
Noninterest income 392 296
Noninterest expense 614 549
---------------------
Income before income taxes 409 370
Applicable income taxes 145 129
---------------------
Net income $264 $241
===============================================================
</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 $146 million at March 31, 1997. Dividends may also be impacted by capital
needs, regulatory requirements, corporate policies, contractual restrictions
and other factors.
PNC BANK CORP. 25
<PAGE> 27
Statistical
INFORMATION
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
First Quarter 1997 Fourth Quarter 1996
Average balance in millions, -------------------------------------------------------------------------------
interest in thousands Average Average Average Average
Taxable-equivalent basis Balances Interest Yields/Rates Balances Interest Yields/Rates
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Loans held for sale $1,019 $17,970 7.05% $1,011 $18,750 7.42%
Securities
U.S. Treasury, government agencies
and corporations 6,982 105,363 6.05 8,585 131,471 6.12
Other debt 2,530 41,841 6.62 2,419 40,660 6.71
Other 577 10,666 7.45 565 10,882 7.68
-------------------------- -------------------------
Total securities 10,089 157,870 6.27 11,569 183,013 6.32
Loans, net of unearned income
Consumer
Credit card 3,043 100,593 13.22 1,683 60,086 14.28
Other consumer 11,827 245,169 8.41 12,084 257,481 8.48
-------------------------- -------------------------
Total consumer 14,870 345,762 9.39 13,767 317,567 9.19
Residential mortgage 12,781 238,072 7.45 12,361 229,300 7.42
Commercial 17,916 349,666 7.81 17,584 343,609 7.65
Commercial real estate 4,591 98,671 8.60 4,630 100,485 8.59
Other 1,764 29,364 6.67 1,631 27,021 6.62
-------------------------- -------------------------
Total loans, net of unearned income 51,922 1,061,535 8.20 49,973 1,017,982 8.07
Other interest-earning assets 795 12,139 6.20 769 11,783 6.09
-------------------------- -------------------------
Total interest-earning
assets/interest income 63,825 1,249,514 7.86 63,322 1,231,528 7.71
Noninterest-earning assets
Allowance for credit losses (1,148) (1,141)
Cash and due from banks 2,935 3,145
Other assets 4,689 4,210
------------ ------------
Total assets $70,301 $69,536
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand and money market $12,962 87,409 2.74 $12,716 85,324 2.67
Savings 3,063 14,804 1.96 3,214 15,803 1.96
Other time 17,721 233,547 5.34 17,998 241,714 5.35
Deposits in foreign offices 787 10,395 5.28 901 12,144 5.27
-------------------------- -------------------------
Total interest-bearing deposits 34,533 346,155 4.06 34,829 354,985 4.05
--------------------------
Borrowed funds
Bank notes and senior debt 8,566 117,172 5.47 8,020 110,996 5.54
Federal funds purchased 3,068 40,908 5.38 2,614 35,978 5.48
Repurchase agreements 735 9,756 5.31 786 10,917 5.44
Other borrowed funds 4,874 71,272 5.86 4,334 65,926 6.05
Subordinated debt 1,351 26,968 7.98 1,356 27,089 7.99
-------------------------- -------------------------
Total borrowed funds 18,594 266,076 5.76 17,110 250,906 5.79
-------------------------- -------------------------
Total interest-bearing
liabilities/interest expense 53,127 612,231 4.66 51,939 605,891 4.62
-------------------------- -------------------------
Noninterest-bearing liabilities,
capital securities and
shareholders' equity
Demand and other
noninterest-bearing deposits 9,600 10,003
Accrued expenses and
other liabilities 1,466 1,501
Mandatorily redeemable
capital securities of
subsidiary trust 350 76
Shareholders' equity 5,758 6,017
------------ ------------
Total liabilities and
shareholders' equity $70,301 $69,536
-------------------------------------------------------------------------------
Interest rate spread 3.20 3.09
Impact of noninterest-bearing
liabilities .78 .83
-------------------------- --------------------------
Net interest income/margin $637,283 3.98% $625,637 3.92%
===========================================================================================================================
</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. Average balances are based on amortized historical cost (excluding
SFAS No. 115 adjustments to fair value).
PNC BANK CORP. 26
<PAGE> 28
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Third Quarter 1996 Second Quarter 1996 First Quarter 1996
- --------------------------------------------------------------------------------------------------------------------------
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>
$918 $17,442 7.60% $1,260 $21,725 6.90% $1,150 $19,728 6.86%
10,302 161,077 6.24 11,206 172,885 6.18 10,822 169,403 6.27
2,249 37,681 6.67 2,906 48,960 6.71 3,311 57,169 6.87
546 10,768 7.87 628 12,773 8.15 685 13,480 7.89
- -------------------------- -------------------------- ---------------------------
13,097 209,526 6.39 14,740 234,618 6.37 14,818 240,052 6.48
1,007 35,408 14.06 979 33,845 13.83 986 33,049 13.41
12,047 255,048 8.42 12,264 255,227 8.37 12,384 260,575 8.46
- -------------------------- -------------------------- ---------------------------
13,054 290,456 8.85 13,243 289,072 8.78 13,370 293,624 8.83
12,325 231,271 7.51 11,883 219,395 7.40 11,619 218,118 7.51
17,049 332,167 7.62 17,190 331,768 7.64 16,806 330,938 7.79
4,712 105,338 8.85 4,831 104,582 8.62 4,885 112,409 9.16
1,573 26,003 6.60 2,044 33,711 6.48 1,945 32,325 6.66
- -------------------------- -------------------------- ---------------------------
48,713 985,235 8.01 49,191 978,528 7.94 48,625 987,414 8.10
817 12,435 6.06 1,165 17,417 6.01 1,112 17,395 6.29
- -------------------------- -------------------------- ---------------------------
63,545 1,224,638 7.64 66,356 1,252,288 7.53 65,705 1,264,589 7.69
(1,179) (1,216) (1,253)
3,216 3,196 3,095
3,964 4,104 4,186
- ------------- ------------ ------------
$69,546 $72,440 $71,733
- ------------- ------------ ------------
$12,520 81,321 2.58 $12,635 80,422 2.56 $12,625 $84,919 2.71
3,407 16,931 1.98 3,582 17,796 2.00 3,579 19,125 2.15
18,172 243,340 5.33 18,407 243,554 5.32 18,638 252,534 5.45
695 9,320 5.25 759 10,119 5.27 1,030 14,405 5.53
- -------------------------- -------------------------- ---------------------------
34,794 350,912 4.01 35,383 351,891 4.00 35,872 370,983 4.16
8,829 123,006 5.57 8,298 114,483 5.52 7,198 105,269 5.85
2,239 30,325 5.39 3,550 46,423 5.26 4,242 58,006 5.50
1,551 21,461 5.41 3,063 40,465 5.23 2,739 36,959 5.34
3,582 54,895 6.10 3,451 51,980 6.06 3,352 50,153 6.02
1,357 27,101 7.99 1,358 27,120 7.99 1,360 27,111 7.99
- -------------------------- -------------------------- ---------------------------
17,558 256,788 5.83 19,720 280,471 5.69 18,891 277,498 5.88
- -------------------------- -------------------------- ---------------------------
52,352 607,700 4.60 55,103 632,362 4.59 54,763 648,481 4.75
- -------------------------- -------------------------- ---------------------------
9,922 9,996 9,681
1,506 1,574 1,525
5,766 5,767 5,764
- ------------- ------------ ------------
$69,546 $72,440 $71,733
- --------------------------------------------------------------------------------------------------------------------------
3.04 2.94 2.94
.81 .78 .79
--------------------------- -------------------------- ---------------------------
$616,938 3.85% $619,926 3.72% $616,108 3.73%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
PNC BANK CORP. 27
<PAGE> 29
Quarterly Report on
FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 1997.
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 April 30, 1997, PNC Bank Corp. had 314,026,018 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 Financial Review set forth in the cross-reference
index are incorporated in the Quarterly Report on Form 10-Q.
<TABLE>
<CAPTION>
Cross-Reference Page(s)
-----------------------------------------------------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Consolidated Statement of Income for the
three months ended March 31, 1997 and 1996 20
Consolidated Balance Sheet as of March
31, 1997 and December 31, 1996 21
Consolidated Statement of Cash Flows for
the three months ended March 31, 1997
and 1996 22
Notes to Consolidated Financial
Statements 23-25
Average Consolidated Balance Sheet and
Net Interest Analysis 26-27
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 2-19
- ---------------------------------------------------------------
</TABLE>
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
The following exhibit index lists Exhibits to this Quarterly
Report on Form 10-Q:
10 PNC Bank Corp. 1997 Long-Term Incentive Award Plan
incorporated by reference to Exhibit 4.3 to
Post-Effective Amendment No. 1 to Registration
Statement on Form S-8 (No. 33-54960) *
11 Calculation of Primary and Fully Diluted Earnings Per
Common Share
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
27 Financial Data Schedule
- --------------------------------------------------------
* Denotes management contract or compensatory plan.
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 December 31, 1996, the Corporation filed the following current reports on
Form 8-K:
Form 8-K dated as of January 15, 1997, reporting the Corporation's consolidated
financial results for the three months and year ended December 31, 1996, filed
pursuant to Item 5.
Form 8-K dated as of April 15, 1997, reporting the Corporation's consolidated
financial results for the three months ended March 31, 1997, filed pursuant to
Item 5.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on May 15, 1997, 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. 28
<PAGE> 30
Corporate
INFORMATION
CORPORATE HEADQUARTERS
PNC Bank Corp.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
WORLD WIDE WEB SITE
www.pncbank.com
STOCK LISTING
PNC Bank Corp. common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol PNC.
FINANCIAL INFORMATION
Copies of the Corporation's filings with the Securities and Exchange
Commission, including Exhibits thereto, may be obtained without charge by
writing 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.
INQUIRIES
Individual shareholders should contact: Shareholder Relations at 800-843-2206.
Analysts and institutional investors should contact: William H. Callihan, Vice
President, Investor Relations, at 412-762-8257 or [email protected] on the
Internet.
News media representatives and others seeking general information should
contact: Jonathan Williams, Vice President, Media Relations, at 412-762-4550 or
[email protected] on the Internet.
COMMON STOCK PRICES/DIVIDENDS DECLARED
The table below sets forth by quarter the range of 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
1997 Quarter High Low Close Declared
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
First $45.000 $36.5000 $40.000 $.37
==============================================================
Cash
Dividends
1996 Quarter High Low Close Declared
- --------------------------------------------------------------
First $32.625 $28.375 $30.750 $.35
Second 31.500 28.375 29.750 .35
Third 33.875 27.500 33.375 .35
Fourth 39.750 33.125 37.625 .37
-------
Total $1.42
==============================================================
</TABLE>
REGISTRAR AND TRANSFER AGENT
The Chase Manhattan Bank
P.O. Box 590
Ridgefield Park, New Jersey 07660
800-982-7652
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. 29
<PAGE> 1
PNC BANK CORP. AND SUBSIDIARIES EXHIBIT 11
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three months ended March 31 - in thousands, except per share data 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALCULATION OF PRIMARY EARNINGS PER COMMON SHARE
Net income $266,309 $238,320
Less: Preferred dividends declared 4,875 358
-------------------------
Net income applicable to primary earnings per common share $261,434 $237,962
-------------------------
Weighted average shares of common stock outstanding 322,054 341,402
Weighted average common shares to be issued using average market price and assuming:
Exercise of stock options 1,918 1,470
-------------------------
Primary weighted average common shares outstanding 323,972 342,872
=========================
PRIMARY EARNINGS PER COMMON SHARE $.81 $.69
=========================
CALCULATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
Net income $266,309 $238,320
Add: Interest expense on convertible debentures (net of tax) 769 859
Less: Dividends declared on non-convertible preferred stock 4,537
-------------------------
Net income applicable to fully diluted earnings per common share $262,541 $239,179
-------------------------
Weighted average shares of common stock outstanding 322,054 341,402
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 167 180
Conversion of preferred stock Series C 542 574
Conversion of preferred stock Series D 731 777
Conversion of debentures 2,505 2,863
Exercise of stock options 1,918 1,571
-------------------------
Fully diluted weighted average common shares outstanding 327,917 347,367
=========================
FULLY DILUTED EARNINGS PER COMMON SHARE $.80 $.69
=====================================================================================================================
</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
Three months ended --------------------------------------------------------------
Dollars in thousands March 31, 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative
effect of changes
in accounting principles $408,837 $1,527,551 $627,012 $1,209,916 $1,140,487 $787,994
Fixed charges excluding
interest on deposits 280,182 1,096,893 1,487,279 1,104,573 704,228 582,854
------------------------------------------------------------------------------
Subtotal 689,019 2,624,444 2,114,291 2,314,489 1,844,715 1,370,848
Interest on deposits 346,155 1,428,771 1,551,816 1,159,242 1,005,658 1,546,576
------------------------------------------------------------------------------
Total $1,035,174 $4,053,215 $3,666,107 $3,473,731 $2,850,373 $2,917,424
------------------------------------------------------------------------------
FIXED CHARGES
Interest on borrowed funds $265,874 $1,064,847 $1,455,069 $1,070,565 $676,319 $555,610
Interest component of rentals 7,150 29,839 31,283 32,247 26,491 25,739
Amortization of borrowed funds 202 816 927 1,761 1,418 1,505
Distributions on mandatorily
redeemable capital securities of
subsidiary trust 6,956 1,391
------------------------------------------------------------------------------
Subtotal 280,182 1,096,893 1,487,279 1,104,573 704,228 582,854
Interest on deposits 346,155 1,428,771 1,551,816 1,159,242 1,005,658 1,546,576
------------------------------------------------------------------------------
Total $626,337 $2,525,664 $3,039,095 $2,263,815 $1,709,886 $2,129,430
------------------------------------------------------------------------------
RATIO OF EARNINGS TO FIXED CHARGES
Excluding interest on deposits 2.46x 2.39x 1.42x 2.10x 2.62x 2.35x
Including interest on deposits 1.65 1.60 1.21 1.53 1.67 1.37
========================================================================================================================
</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
Three months ended ---------------------------------------------------------------
Dollars in thousands March 31, 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative
effect of changes
in accounting principles $408,837 $1,527,551 $627,012 $1,209,916 $1,140,487 $787,994
Fixed charges and preferred stock
dividends excluding
interest on deposits 287,681 1,105,324 1,492,391 1,112,564 712,339 592,902
------------------------------------------------------------------------------
Subtotal 696,518 2,632,875 2,119,403 2,322,480 1,852,826 1,380,896
Interest on deposits 346,155 1,428,771 1,551,816 1,159,242 1,005,658 1,546,576
------------------------------------------------------------------------------
Total $1,042,673 $4,061,646 $3,671,219 $3,481,722 $2,858,484 $2,927,472
==============================================================================
FIXED CHARGES
Interest on borrowed funds $265,874 $1,064,847 $1,455,069 $1,070,565 $676,319 $555,610
Interest component of rentals 7,150 29,839 31,283 32,247 26,491 25,739
Amortization of borrowed funds 202 816 927 1,761 1,418 1,505
Distributions on mandatorily
redeemable capital securities
of subsidiary trust 6,956 1,391
Preferred stock dividends 7,499 8,431 5,112 7,991 8,111 10,048
------------------------------------------------------------------------------
Subtotal 287,681 1,105,324 1,492,391 1,112,564 712,339 592,902
Interest on deposits 346,155 1,428,771 1,551,816 1,159,242 1,005,658 1,546,576
------------------------------------------------------------------------------
Total $633,836 $2,534,095 $3,044,207 $2,271,806 $1,717,997 $2,139,478
==============================================================================
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS
Excluding interest on deposits 2.42x 2.38x 1.42x 2.09x 2.60x 2.33x
Including interest on deposits 1.65 1.60 1.21 1.53 1.66 1.37
========================================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM THE
CONSOLIDATED FINANCIAL INFORMATION INCORPORATED BY REFERENCE TO THE 1997 FIRST
QUARTER FINANCIAL REVIEW AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,096
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,593
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 52,575
<ALLOWANCE> (1,119)
<TOTAL-ASSETS> 71,166
<DEPOSITS> 44,902
<SHORT-TERM> 3,468
<LIABILITIES-OTHER> 1,889
<LONG-TERM> 15,079
0
7
<COMMON> 1,735
<OTHER-SE> 3,736
<TOTAL-LIABILITIES-AND-EQUITY> 71,166
<INTEREST-LOAN> 1,056
<INTEREST-INVEST> 156
<INTEREST-OTHER> 30
<INTEREST-TOTAL> 1,242
<INTEREST-DEPOSIT> 346
<INTEREST-EXPENSE> 612
<INTEREST-INCOME-NET> 630
<LOAN-LOSSES> 10
<SECURITIES-GAINS> 16
<EXPENSE-OTHER> 636
<INCOME-PRETAX> 409
<INCOME-PRE-EXTRAORDINARY> 409
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 266
<EPS-PRIMARY> .81
<EPS-DILUTED> .80
<YIELD-ACTUAL> 3.98
<LOANS-NON> 322
<LOANS-PAST> 251
<LOANS-TROUBLED> 1
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,166
<CHARGE-OFFS> (89)
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 1,119
<ALLOWANCE-DOMESTIC> 1,119
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
