<PAGE> 1
PNC BANK
Quarterly Report on Form 10-Q
For the quarterly period ended March 31, 1999
Page 1 represents a portion of the first quarter 1999 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 33.
<PAGE> 2
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three months ended March 31 - dollars in millions, except per share data 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL PERFORMANCE
Revenue
Net interest income (taxable-equivalent basis) $ 664 $ 644
Noninterest income 731 506
Total revenue 1,395 1,150
Net income 325 269
Per common share
Basic earnings 1.06 .88
Diluted earnings 1.05 .87
Book value 18.78 17.20
Cash dividends declared .41 .39
- --------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on
Average common shareholders' equity 22.94% 21.10%
Average assets 1.71 1.51
Net interest margin 3.86 3.96
Noninterest income to total revenue 52.40 44.00
Efficiency * 53.45 57.05
* Excluding amortization, distributions on capital securities and residential mortgage banking hedging
activities
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
March 31 December 31 September 30 June 30 March 31
1999 1998 1998 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (in millions)
Assets $74,868 $77,207 $76,238 $75,873 $72,355
Earning assets 66,710 69,027 68,638 68,353 65,210
Loans, net of unearned income 52,800 57,650 56,752 56,237 54,511
Securities available for sale 9,170 7,074 7,152 7,540 7,511
Deposits 45,799 47,496 46,875 47,096 46,068
Borrowed funds 19,935 20,946 19,972 20,488 18,375
Shareholders' equity 5,931 6,043 5,793 5,633 5,487
Common shareholders' equity 5,617 5,729 5,479 5,318 5,173
CAPITAL RATIOS
Leverage 7.28% 7.22% 7.18% 7.18% 7.36%
Common shareholders' equity to total assets 7.50 7.42 7.19 7.01 7.15
ASSET QUALITY RATIOS
Nonperforming assets to total loans and foreclosed assets .62% .58% .58% .57% .61%
Allowance for credit losses to total loans 1.27 1.31 1.44 1.53 1.67
Allowance for credit losses to nonaccrual loans 230.93 255.25 289.36 315.81 321.13
Net charge-offs to average loans .56 1.24 .62 .64 .67
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PNC BANK CORP.
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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 Financial Review and audited Consolidated
Financial Statements included in the Corporation's 1998 Annual Report.
OVERVIEW
PNC BANK CORP. The Corporation is one of the largest diversified financial
services companies in the United States operating retail banking, asset
management and wholesale businesses that provide products and services
nationally and in PNC Bank's primary geographic markets in Pennsylvania, New
Jersey, Delaware, Ohio and Kentucky.
Financial services providers today are challenged by intense competition,
changing customer demands, increased pricing pressures and the ongoing impact of
deregulation. Traditional loan and deposit activities face particularly
challenging competitive pressures as both banks and nonbanks compete for
customers with access to a broad array of banking, investment and capital
markets products.
PNC Bank has responded to these challenges by transitioning to an organization
managed as separate businesses with highly focused customer segments. This style
of management provides the basis for differentiated businesses capable of
competing in today's environment where banks and other financial service
providers seek the same customers. This business model will also enable the
Corporation to optimize its consolidated value by effectively leveraging
its technology, information, branding and marketing resources.
The Corporation has altered its business mix by investing in specialized
financial services businesses, including asset management, mutual fund
servicing, investment advisory, mortgage banking and corporate services. These
businesses are largely fee-based, less capital intensive and provide growth
opportunities on a national scale. More meaningful contributions from these
businesses, coupled with disciplined management of traditional banking
activities have allowed PNC Bank to significantly improve the composition of its
revenue stream.
Pursuant to this strategy, the Corporation completed the sale of its credit card
business in the first quarter of 1999 and made the decision to exit certain
out-of-footprint large corporate, national healthcare and other non-strategic
institutional lending businesses.
SUMMARY FINANCIAL RESULTS Consolidated net income for the first three months of
1999 was $325 million or $1.05 per diluted share. First quarter 1999 results
included $290 million of pretax gains on the sales of PNC Bank's credit card
business and an equity interest in Electronic Payment Services, Inc. ("EPS").
The current quarter also included $142 million of valuation adjustments
associated with exiting certain institutional lending businesses and $98 million
of costs related to efficiency initiatives. Excluding these items, core earnings
for the quarter were $293 million or $.94 per diluted share, return on average
common shareholders' equity was 20.63% and the return on average assets was
1.54%. Earnings for the first quarter of 1998 were $269 million or $.87 per
diluted share. Excluding the credit card business and assuming the provision for
credit losses was equal to net charge-offs in 1998, diluted earnings per share
for the first quarter of 1999 increased 15% compared with the prior-year
quarter.
Taxable-equivalent net interest income for the first quarter of 1999
increased $20 million compared with the first quarter of 1998 primarily due
to a $3.6 billion increase in average earning assets. The net interest
margin narrowed to 3.86% in the first quarter of 1999 compared with 3.96%
in the prior-year quarter. The decline in the net interest margin was
primarily associated with a change in balance sheet composition. Total
noninterest income, excluding the first quarter 1999 gains and valuation
adjustments, increased $77 million or 15% in the quarter-to-quarter
comparison primarily due to growth in fee-based revenue. Noninterest income
represented 52% of total revenue in the first quarter of 1999 compared with
44% in the prior-year quarter.
The provision for credit losses was equal to net charge-offs at $78 million for
the first quarter of 1999, compared with a provision of $30 million a year ago.
Net charge-offs were .56% of average loans for the first quarter of 1999
compared with .67% for the first quarter of 1998. Excluding credit cards, net
charge-offs were $20 million or .15% of average loans in the first quarter of
1999 compared with $21 million or .17% of average loans in the first quarter of
1998.
Noninterest expense of $823 million for the first quarter of 1999 included $98
million of costs related to efficiency initiatives. Excluding these costs,
noninterest expense increased $17 million or 2% compared with the first quarter
of 1998. Excluding the impact of gains, valuation adjustments and costs
associated with efficiency initiatives, the efficiency ratio improved to 52.0%
for the first quarter of 1999 compared with 57.1% in the prior-year quarter.
Total assets were $74.9 billion at March 31, 1999, compared with $77.2 billion
at December 31, 1998. Shareholders' equity totaled $5.9 billion at March 31,
1999, compared with $6.0 billion at December 31, 1998. The leverage ratio was
7.28% and Tier I and total risk-based capital ratios were 8.22% and 11.88%,
respectively, at March 31, 1999.
The ratio of nonperforming assets to total loans and foreclosed assets was .62%
at March 31, 1999 and .58% at December 31, 1998. The allowance for credit
losses was 231% of nonaccrual loans and 1.27% of total loans at March 31, 1999,
compared with 255% and 1.31%, respectively, at December 31, 1998.
PNC BANK CORP.
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2
<PAGE> 4
Financial Review
REVIEW OF BUSINESSES
PNC Bank operates seven major businesses engaged in retail banking, asset
management and wholesale banking activities: PNC Regional Bank, PNC Advisors,
BlackRock, PFPC Worldwide, PNC Institutional Bank, PNC Secured Finance and PNC
Mortgage.
Business results are based on PNC Bank's management accounting practices. There
is no comprehensive, authoritative body of guidance for management accounting
equivalent to generally accepted accounting principles; therefore, PNC Bank's
results are not necessarily comparable with similar information for any other
financial services institution. Financial results are presented as if each
business operated on a stand-alone basis.
The presentation of business results was changed during the first quarter
of 1999 to reflect the Corporation's operating strategy. PNC Regional Bank
reflects the combination of PNC Regional Community Bank and PNC National
Consumer Bank. Branch-based brokerage activities (previously included in
PNC Advisors), the middle market customer segment (previously included in
PNC Corporate Bank) and regional real estate lending and leasing activities
in PNC Bank's geographic footprint (previously included in PNC Secured
Finance) were also combined with PNC Regional Bank. Additionally,
residential mortgages (that were previously included in PNC Mortgage) were
realigned with PNC Regional Bank. Certain out-of-footprint large corporate,
national healthcare and other non-strategic institutional lending
businesses as well as venture capital activities (previously in PNC
Corporate Bank) are included in Other. The remaining activities that were
previously in PNC Corporate Bank, comprise PNC Institutional Bank.
BlackRock reflects total legal entity results for BlackRock, Inc. Financial
results for 1999 and 1998 are presented consistent with this structure.
The management accounting process uses various balance sheet and income
statement assignments and transfers to measure performance of the businesses.
Methodologies change from time-to-time as management accounting practices are
enhanced and businesses change. Securities or borrowings and related net
interest income are assigned based on the net asset or liability position of
each business. Capital is assigned based on management's assessment of inherent
risks and equity levels at independent companies providing similar products and
services. Support areas not directly aligned with the businesses are allocated
primarily based on the utilization of these services.
Total business financial results differ from consolidated financial results
primarily due to differences between management accounting practices and
generally accepted accounting principles, divested and exited businesses,
venture capital activities, sales of equity interests in subsidiaries,
eliminations and unassigned items, the impact of which is reflected in
Other.
The Corporation is managed as a portfolio of distinct businesses that are
positioned to compete as stand-alone companies while effectively leveraging
PNC Bank's technology information, branding and marketing resources. Total
business earnings were $275 million for the first quarter of 1999, a 19%
increase compared with the prior-year quarter. The contribution from asset
management businesses increased to 21% of total business results while the
regional bank declined to 55% and the contribution from wholesale
businesses remained relatively stable at 24%.
<TABLE>
<CAPTION>
RESULTS OF BUSINESSES
Return on
Earnings Revenue Assigned Capital Average Assets
Three months ended March 31 - -------------------------------------------------------------------------------------------
dollars in millions 1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PNC Regional Bank $150 $135 $558 $543 21% 19% $39,383 $38,800
Asset Management
PNC Advisors 36 25 182 109 26 27 3,249 2,655
BlackRock 12 8 88 70 43 44 400 293
PFPC Worldwide 11 9 54 43 44 43 268 218
- -------------------------------------------------------------------------------------- ---------------------
Total asset management 59 42 324 222 31 33 3,917 3,166
Wholesale
PNC Institutional Bank 28 23 101 87 17 16 9,638 8,334
PNC Secured Finance 27 25 71 50 19 27 8,202 5,294
PNC Mortgage 11 6 101 74 10 10 7,084 3,826
- -------------------------------------------------------------------------------------- ---------------------
Total wholesale 66 54 273 211 16 18 24,924 17,454
- -------------------------------------------------------------------------------------- ---------------------
Total businesses 275 231 1,155 976 21 20 68,224 59,420
Other 18 38 92 174 8,734 12,721
- -------------------------------------------------------------------------------------- ---------------------
293 269 1,247 1,150 21 21 76,958 72,141
Gain on sale of credit card business 125 193
Gain on sale of equity interest in EPS 63 97
Valuation adjustments (92) (142)
Costs related to efficiency initiatives (64)
- -------------------------------------------------------------------------------------- ---------------------
Total consolidated $325 $269 $1,395 $1,150 23 21 $76,958 $72,141
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PNC BANK CORP.
----
3
<PAGE> 5
PNC REGIONAL BANK
Three months ended March 31 - dollars in 1999 1998
millions
- -----------------------------------------------------------------
INCOME STATEMENT
Net interest income $432 $420
Noninterest income 126 123
- -----------------------------------------------------------------
Total revenue 558 543
Provision for credit losses 11 15
Noninterest expense 302 305
- -----------------------------------------------------------------
Pretax earnings 245 223
Income taxes 95 88
- -----------------------------------------------------------------
Earnings $150 $135
- -----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Consumer $9,426 $9,974
Commercial 9,577 8,412
Residential mortgage 9,847 9,699
Other 2,965 2,998
- -----------------------------------------------------------------
Total loans 31,815 31,083
Assigned assets and other assets 7,568 7,717
- -----------------------------------------------------------------
Total assets $39,383 $38,800
- -----------------------------------------------------------------
Deposits
Noninterest-bearing demand $6,633 $6,429
Interest-bearing demand 4,679 4,118
Money market 8,531 7,020
Savings 2,461 2,615
Certificates 13,752 15,347
- -----------------------------------------------------------------
Total net deposits 36,056 35,529
Other liabilities 373 360
Assigned capital 2,954 2,911
- -----------------------------------------------------------------
Total funds $39,383 $38,800
- -----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 21% 19%
Noninterest income to total revenue 23 23
Efficiency 52 54
- -----------------------------------------------------------------
PNC Regional Bank provides credit, deposit, branch-based brokerage and
electronic banking products and services to retail customers as well as credit,
leasing, treasury management and capital markets products and services to
mid-sized and small businesses primarily within PNC Bank's geographic footprint.
PNC Regional Bank utilizes experienced relationship managers and sophisticated
information technology to identify consumer preferences for products and
services and the delivery channel of choice.
Consumers are increasingly demanding the convenience of multiple delivery
channels and choice among high value products and services. As consumer
preferences have changed, PNC Regional Bank has focused on offering desired
products and balancing resources between traditional branches and
technologically advanced delivery channels.
PNC Regional Bank contributed 55% of total business earnings for the first
quarter of 1999 compared with 58% in the first quarter of 1998. Earnings of $150
million for the first quarter of 1999 increased $15 million or 11% in the
period-to-period comparison and performance ratios improved due to strategies
designed to respond to changing customer preferences while improving the
effectiveness and efficiency of the delivery system.
Total revenue increased 3% to $558 million in the first quarter of 1999 compared
with the prior-year quarter primarily due to loan and deposit growth resulting
from leveraging investments made in customer information technology and targeted
marketing initiatives.
Noninterest expense in the first quarter of 1999 declined 1% compared with the
prior-year quarter primarily due to ongoing efficiency initiatives that resulted
in an improvement in the efficiency ratio to 52% for the first quarter of 1999
compared with 54% a year ago.
PNC Regional Bank engages in lending and deposit activities that are
affected by economic and financial market conditions. An economic slowdown could
have an adverse impact on its results of operations.
PNC BANK CORP.
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4
<PAGE> 6
Financial Review
PNC ADVISORS
Three months ended March 31 - dollars in
millions 1999 1998
- ----------------------------------------------------------------
INCOME STATEMENT
Net interest income $34 $29
Noninterest income
Investment management and trust 94 74
Brokerage 38 5
Other 16 1
- ----------------------------------------------------------------
Total noninterest income 148 80
- ----------------------------------------------------------------
Total revenue 182 109
Provision for credit losses 1
Noninterest expense 123 69
- ----------------------------------------------------------------
Pretax earnings 58 40
Income taxes 22 15
- ----------------------------------------------------------------
Earnings $36 $25
- ----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Residential mortgage $1,004 $987
Consumer 952 920
Commercial 621 582
Other 255 32
- ----------------------------------------------------------------
Total loans 2,832 2,521
Other assets 417 134
- ----------------------------------------------------------------
Total assets $3,249 $2,655
- ----------------------------------------------------------------
Deposits $2,431 $2,230
Assigned funds and other liabilities 262 56
Assigned capital 556 369
- ----------------------------------------------------------------
Total funds $3,249 $2,655
- ----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 26% 27%
Noninterest income to total revenue 81 73
Efficiency 66 63
- ----------------------------------------------------------------
PNC Advisors, the nation's fourth-largest manager of trust and high net worth
assets, offers personalized investment management, high-end brokerage, personal
trust, estate planning and traditional banking services to affluent and wealthy
individuals; and investment management, trust and administrative services to
pensions, 401(k) plans and charitable organizations.
PNC Advisors strives to be the financial "advisor of choice" in the growing
affluent market, providing a full range of high quality, customized and
predominantly fee-based investment products and services. Consistent with this
objective, in the fourth quarter of 1998, the Corporation acquired
Hilliard-Lyons, Inc. ("Hilliard Lyons") a retail brokerage and investment
management firm focused on delivering brokerage services and investment
management expertise to affluent clients. PNC Advisors anticipates expanding the
Hilliard Lyons brand and organization throughout PNC Bank's footprint, which
includes five of the nation's ten wealthiest metropolitan areas.
PNC Advisors contributed 13% of total business earnings for the first quarter of
1999 compared with 11% in the prior-year period. Earnings of $36 million for the
first quarter of 1999 increased $11 million or 44% compared with the first
quarter of 1998 driven by revenue growth and efficiencies generated through the
consolidation of operations.
Revenue increased $73 million or 67% for the first quarter of 1999 compared
with the prior-year period. The increase was due to higher brokerage
revenue primarily from Hilliard Lyons as well as higher assets under
management resulting from market appreciation and new business. The
period-to-period increase in noninterest expense and the efficiency ratio
was attributable to Hilliard Lyons.
ASSETS UNDER MANAGEMENT*
March 31 - in billions 1999 1998
- ----------------------------------------------------------------
Personal investment management and trust $52 $48
Institutional trust 9 7
Hilliard Lyons 5
- ----------------------------------------------------------------
Total $66 $55
- ----------------------------------------------------------------
* Assets under management do not include brokerage assets administered.
Assets under management increased 20% compared with the prior-year quarter to
$66 billion at March 31, 1999, due to market appreciation, new business and the
acquisition of Hilliard Lyons. Brokerage assets administered by PNC Advisors
increased $26 billion in the quarter-to-quarter comparison to $35 billion at
March 31, 1999.
PNC Advisors' revenue is primarily affected by the volume of new business, the
value of assets managed, 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 results of operations.
PNC BANK CORP.
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5
<PAGE> 7
BLACKROCK
Three months ended March 31 - dollars in
millions 1999 1998
- ----------------------------------------------------------------
INCOME STATEMENT
Advisory and administrative fees $84 $51
Other income 4 19
- ----------------------------------------------------------------
Total revenue 88 70
Operating expense 62 49
Goodwill amortization 2 2
- ----------------------------------------------------------------
Operating income 24 19
Interest expense 4 4
- ----------------------------------------------------------------
Pretax earnings 20 15
Income taxes 8 7
- ----------------------------------------------------------------
Earnings $12 $8
- ----------------------------------------------------------------
PERIOD-END BALANCE SHEET
Goodwill $201 $211
Other assets 199 82
- ----------------------------------------------------------------
Total assets $400 $293
- ----------------------------------------------------------------
Borrowings $179 $174
Other liabilities 103 49
Shareholders' equity 118 70
- ----------------------------------------------------------------
Total funds $400 $293
- ----------------------------------------------------------------
PERFORMANCE RATIOS
Return on average equity 43% 44%
Operating margin 27 27
Efficiency 70 70
- ----------------------------------------------------------------
BlackRock offers fixed income, domestic and international equity and
liquidity investment products. BlackRock manages assets for over 50% of the
Fortune 100 companies and is focused on expanding marketing and delivery
channels for a wide range of institutional and retail customers.
BlackRock contributed 4% of total business earnings for the first quarter of
1999 compared with 3% a year ago. Earnings of $12 million for the first quarter
of 1999 increased 50% compared with the prior-year quarter primarily driven by
revenue growth related to significant new business and market appreciation.
Advisory and administration fees for the first quarter of 1999 increased $33
million or 65% compared with the prior-year quarter due to a 24% increase in
assets under management and the conversion of $8.2 billion in PNC Common Trust
funds into the BlackRock Funds. The $15 million decrease in other income
reflects lower performance fees associated with a closed-end fund that is
currently in liquidation. The increase in operating expense in the
quarter-to-quarter comparison supported revenue growth.
At March 31, 1999, BlackRock managed $140 billion of assets for individual
and institutional investors, of which 90% were invested in fixed income and
liquidity funds that historically have been less volatile than equity
funds. BlackRock was awarded $17 billion of new investment mandates during
the first quarter of 1999.
ASSETS UNDER MANAGEMENT
March 31 - in billions 1999 1998
- ----------------------------------------------------------------
Fixed income $78 $57
Liquidity 48 42
Equity and other 14 14
- ----------------------------------------------------------------
Total assets under management $140 $113
- ----------------------------------------------------------------
Proprietary mutual funds
BlackRock Funds $25 $24
Provident Institutional Funds 23 20
- ----------------------------------------------------------------
Total proprietary mutual funds $48 $44
- ----------------------------------------------------------------
BlackRock's proprietary mutual fund family, with approximately $48 billion in
assets, provides individual investors with a full range of equity, bond and
money market investment products. In May 1998, PNC converted $8.2 billion of
Common Trust funds into the BlackRock Funds. For comparative purposes, BlackRock
Fund assets under management at March 31, 1998 have been restated to include
PNC's Common Trust fund assets.
During the first quarter of 1999, BlackRock announced plans to form a joint
venture with Nomura Asset Management Co., Ltd., the largest asset manager in
Japan. The joint venture, Nomura BlackRock Asset Management Co., Ltd., will
serve Japanese institutional and investment trust investors and is an important
strategic step in expanding BlackRock's international presence.
On May 13, 1999, BlackRock, Inc. filed a registration statement for an initial
public offering of its common stock. PNC Bank will retain a majority ownership
position in the publicly traded firm. Management anticipates that this offering
will help BlackRock to continue to pursue its goal to be one of the largest and
best investment managers in the nation.
BlackRock's revenue is primarily affected by the volume of new business, the
value of assets managed, 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 results of operations.
PNC BANK CORP.
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6
<PAGE> 8
Financial Review
PFPC WORLDWIDE
Three months ended March 31 - dollars in
millions 1999 1998
- ----------------------------------------------------------------
INCOME STATEMENT
Revenue $54 $43
Operating expense 36 29
- ----------------------------------------------------------------
Pretax earnings 18 14
Income taxes 7 5
- ----------------------------------------------------------------
Earnings $11 $9
- ----------------------------------------------------------------
AVERAGE BALANCE SHEET
Total assets $268 $218
- ----------------------------------------------------------------
Deposits $149 $114
Other liabilities 18 20
Assigned capital 101 84
- ----------------------------------------------------------------
Total funds $268 $218
- ----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 44% 43%
Efficiency 65 67
- ----------------------------------------------------------------
PFPC Worldwide ("PFPC"), the Corporation's global fund servicing operation,
provides a wide range of accounting, administration, transfer agency,
custody, securities lending and integrated banking transaction services to
mutual funds, pension and money fund managers, partnerships, brokerage
firms, insurance companies and banks, both domestically and globally. PFPC
is the second-largest full service accounting agent and the third-largest
full service transfer agent of mutual funds in the United States. Continued
growth of its Dublin, Ireland operation has expanded PFPC's global
presence. PFPC will continue to leverage its technology platform, allowing
customized services for individual clients and to promote its full service
capabilities to both the domestic and global marketplace.
PFPC contributed 4% of total business earnings in the first quarter of 1999 and
1998. Earnings of $11 million in the first quarter of 1999 increased $2 million
or 22% compared with the prior-year quarter. Revenue of $54 million in the first
quarter of 1999 increased $11 million or 26% compared with the prior-year
quarter driven by new business, existing client growth and favorable market
conditions. Operating expense increased in the quarter-to-quarter comparison to
support revenue and infrastructure growth associated with business expansion.
ASSETS SERVICED
March 31 - in billions 1999 1998
- ----------------------------------------------------------------
Custody $338 $265
Accounting/administration 266 218
- ----------------------------------------------------------------
PFPC's revenue is primarily affected by the number and value of customer
accounts serviced and financial market conditions. Revenue may be positively
affected by increasing customer account values or improving financial markets.
Conversely, declining customer account values or deteriorating financial markets
may have an adverse effect on results of operations.
PNC INSTITUTIONAL BANK
Three months ended March 31 - dollars in
millions 1999 1998
- -----------------------------------------------------------------
INCOME STATEMENT
Credit-related revenue $45 $39
Noncredit revenue
Treasury management 39 34
Capital markets 16 11
Other 1 3
- -----------------------------------------------------------------
Total noncredit revenue 56 48
- -----------------------------------------------------------------
Total revenue 101 87
Provision for credit losses 4
Noninterest expense 54 52
- -----------------------------------------------------------------
Pretax earnings 43 35
Income taxes 15 12
- -----------------------------------------------------------------
Earnings $28 $23
- -----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Specialized industries $4,293 $3,348
Large corporate 3,336 3,045
Other 425 308
- -----------------------------------------------------------------
Total loans 8,054 6,701
Other assets 1,584 1,633
- -----------------------------------------------------------------
Total assets $9,638 $8,334
- -----------------------------------------------------------------
Net deposits $2,648 $2,596
Assigned funds and other liabilities 6,315 5,155
Assigned capital 675 583
- -----------------------------------------------------------------
Total funds $9,638 $8,334
- -----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 17% 16%
Noncredit revenue to total revenue 55 55
Efficiency 52 59
- -----------------------------------------------------------------
PNC Institutional Bank provides credit, treasury management and capital markets
products and services to corporations, institutions and government entities.
PNC BANK CORP.
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7
<PAGE> 9
The strategic focus for PNC Institutional Bank is on growing revenue from
higher margin fee-based products and services, devoting capital and
resources on higher-return businesses and relationships, and to exit those
businesses and relationships with lower returns. Consistent with this
strategy, during the first quarter of 1999 PNC Institutional Bank made the
decision to exit certain out-of-footprint large corporate, national
healthcare and other non-strategic institutional lending businesses. The
operating results for these exited activities are excluded from business
results.
PNC Institutional Bank contributed 10% of total business earnings in the first
quarter of both 1999 and 1998. Earnings of $28 million in 1999 increased $5
million or 22% compared with the prior-year quarter due to growth in revenue.
Total revenue of $101 million for the first quarter of 1999 increased $14
million or 16% compared with the first quarter of 1998. Credit-related revenue
primarily represents net interest income from loans and increased 15% in the
quarter-to-quarter comparison. This growth was driven by higher loan
outstandings to relationships that also utilize noncredit services. Noncredit
revenue, which includes noninterest income and the benefit of compensating
balances in lieu of fees, increased $8 million or 17% compared with the
prior-year quarter driven by growth in treasury management and capital markets.
PNC Institutional Bank engages in credit, treasury management and capital
markets activities, all of which are impacted by economic and financial market
conditions. Accordingly, a decline in the capital markets or an economic
slowdown could adversely impact asset quality and results of operations.
PNC SECURED FINANCE
Three months ended March 31 - dollars in
millions 1999 1998
- ----------------------------------------------------------------
INCOME STATEMENT
Net interest income $50 $41
Noninterest income
Net commercial mortgage banking 9
Corporate finance 5 3
Other 7 6
- ----------------------------------------------------------------
Total noninterest income 21 9
- ----------------------------------------------------------------
Total revenue 71 50
Provision for credit losses (2) (3)
Noninterest expense 35 18
- ----------------------------------------------------------------
Pretax earnings 38 35
Income taxes 11 10
- ----------------------------------------------------------------
Earnings $27 $25
- ----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Commercial - real estate related $3,001 $1,666
Commercial real estate 1,036 1,290
Business credit 1,565 1,046
Leasing 1,073 801
Midland 607 154
Affordable housing 139 187
- ----------------------------------------------------------------
Total loans 7,421 5,144
Commercial mortgages held for sale 84
Other assets 697 150
- ----------------------------------------------------------------
Total assets $8,202 $5,294
- ----------------------------------------------------------------
Deposits $1,153 $1,024
Assigned funds and other liabilities 6,475 3,899
Assigned capital 574 371
- ----------------------------------------------------------------
Total funds $8,202 $5,294
- ----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 19% 27%
Noninterest income to total revenue 30 18
Efficiency 40 36
- ----------------------------------------------------------------
PNC Secured Finance is engaged in commercial real estate finance, including loan
origination, securitization and servicing; asset-based financing, including
lending, syndication and treasury management services; and equipment lease
financing to a wide range of customers nationally.
During the second quarter of 1998, PNC Secured Finance acquired Midland Loan
Services, L.P. ("Midland") one of the nation's largest servicers of commercial
mortgages. This acquisition, along with several other investments made by PNC
Secured Finance in 1998, reflects its continuing strategy to increase
noninterest income and expand nationally.
PNC BANK CORP.
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8
<PAGE> 10
Financial Review
PNC Secured Finance contributed 10% of total business earnings in the first
quarter of 1999 compared with 11% in the prior-year period. Earnings of $27
million in the first quarter of 1999 increased 8% compared with the first
quarter of 1998 primarily due to growth in business credit, leasing and
traditional real estate activities. This growth was partially offset by the
continued integration of Midland, which is expected to provide contributions
through commercial mortgage-backed securitizations and growth in commercial loan
servicing in future periods.
Net interest income increased $9 million or 22% to $50 million for the first
quarter of 1999 compared with the prior-year period due to growth in short-term
loan outstandings to existing customers.
Noninterest income as a percentage of total revenue increased to 30% for the
first quarter of 1999 compared with 18% in the first quarter of 1998, mainly due
to $9 million of commercial mortgage servicing revenue from Midland, reflecting
the strategy to invest in fee-based businesses.
COMMERCIAL MORTGAGE SERVICING PORTFOLIO
In billions 1999
- ----------------------------------------------------------------
January 1 $39
Acquisitions/additions 4
Repayments/transfers (3)
- ----------------------------------------------------------------
March 31 $40
- ----------------------------------------------------------------
At March 31, 1999, the commercial mortgage servicing portfolio totaled $40
billion, substantially all of which is serviced for others.
PNC Secured Finance engages in credit, asset servicing and securitization
activities, all of which are impacted by economic and financial market
conditions. Accordingly, a decline in the commercial mortgage-backed securities
market or an economic slowdown could adversely impact asset quality and results
of operations.
PNC MORTGAGE
Three months ended March 31 - dollars in
millions 1999 1998
- ----------------------------------------------------------------
INCOME STATEMENT
Net mortgage banking revenue
Residential mortgage servicing $74 $41
Origination and securitization 58 33
Sales of servicing and other 1 7
MSR amortization (12) (33)
Hedging activities (45) 7
- ----------------------------------------------------------------
Net mortgage banking revenue 76 55
Net interest income 25 19
- ----------------------------------------------------------------
Total revenue 101 74
Operating expense 83 64
- ----------------------------------------------------------------
Pretax earnings 18 10
Income taxes 7 4
- ----------------------------------------------------------------
Earnings $11 $6
- ----------------------------------------------------------------
AVERAGE BALANCE SHEET
Residential mortgages held for sale $2,948 $2,321
Securities available for sale 2,669 651
Mortgage servicing rights and other assets 1,467 854
- ----------------------------------------------------------------
Total assets $7,084 $3,826
- ----------------------------------------------------------------
Escrow deposits $1,220 $786
Assigned funds and other liabilities 5,404 2,791
Assigned capital 460 249
- ----------------------------------------------------------------
Total funds $7,084 $3,826
- ----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 10% 10%
Net mortgage banking revenue to total revenue 75 74
Efficiency 53 64
- ----------------------------------------------------------------
PNC Mortgage originates, purchases and services residential mortgages and
related products, and securitizes and sells residential mortgages as
private-label mortgage-backed securities and performs master servicing of those
securities for investors through PNC Mortgage Securities Corp. At March 31,
1999, PNC Mortgage was the nation's eleventh-largest servicer and the twelfth
largest originator of residential mortgages.
PNC Mortgage contributed 4% of total business earnings in the first quarter of
1999 compared with 3% in the first quarter of 1998. Earnings of $11 million in
the first quarter of 1999 increased $5 million or 83% compared with the
prior-year quarter primarily due to higher business volumes.
PNC BANK CORP.
----
9
<PAGE> 11
Net mortgage banking revenue and operating expense increased in the
quarter-to-quarter comparison as a result of the larger servicing
portfolio and higher loan origination volume. The efficiency ratio improved
significantly as PNC Mortgage continued to leverage its technology
platform and servicing capabilities.
During 1999, PNC Mortgage funded $6 billion of residential mortgages, with 40%
representing retail originations. The comparable amounts were $3 billion and
46%, respectively, in the first quarter of 1998. Production volume in the first
quarter of 1999 included $2 billion of originations and $4 billion of
contractual flow purchases. The corresponding amounts for the first quarter of
1998 were $1 billion and $2 billion, respectively. The quarter-to-quarter
increase reflected the initiative to expand retail and correspondent origination
capabilities.
RESIDENTIAL MORTGAGE SERVICING PORTFOLIO
In billions 1999 1998
- ----------------------------------------------------------------
January 1 $62 $41
Production volume 6 3
Acquisitions 2 3
Repayments (4) (4)
Sales (1)
- ----------------------------------------------------------------
March 31 $66 $42
- ----------------------------------------------------------------
At March 31, 1999, the residential mortgage servicing portfolio totaled $66
billion, including $58 billion of loans serviced for others, with a
weighted-average coupon of 7.57%. In addition, the master servicing portfolio
grew 98% in the quarter-to-quarter comparison to $30 billion at March 31, 1999.
Capitalized MSR totaled $972 million at March 31, 1999 and had an estimated fair
value of $1.062 billion.
Securities available for sale increased $2 billion in the first quarter of 1999
compared with the prior-year quarter and are part of PNC Mortgage's hedging
strategies.
PNC Mortgage securitized $6 billion of loans in the first quarter of 1999
compared with $4 billion in the prior-year quarter. The increase in
securitization activity resulted in an increase in residential mortgage loans
held for sale.
MSR value and amortization are affected by changes in interest rates. If
interest rates decline and the rate of prepayment increases, the underlying
servicing fees and related MSR value also would decline. In a period of rising
interest rates, a converse relationship would exist. The Corporation seeks to
manage this risk by using financial instruments as hedges designed to move in
the opposite direction of MSR value changes.
FORWARD-LOOKING STATEMENTS
PNC Bank has made, and may continue to make, various written and oral
forward-looking statements with respect to financial performance 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, and the Corporation assumes no
duty to update forward-looking statements. Actual results could differ
materially from those anticipated in these forward-looking statements.
In addition to factors previously disclosed by the Corporation and those
identified elsewhere in this Financial Review, the following factors, among
others, could cause actual results to differ materially from forward-looking
statements: the inability of the Corporation or others to remediate year 2000
concerns in a timely fashion; continued pricing pressures on loan and deposit
products; increased credit risk; the introduction, withdrawal, success and
timing of business initiatives and strategies, several of which are in early
stages and therefore susceptible to greater uncertainty than more mature
businesses; competition; the ability to realize cost savings or revenues and
implement integration plans associated with acquisitions and divestitures;
changes in global and domestic economic conditions generally and in local
markets in which the Corporation conducts business; changes in interest rates
and financial and capital markets; inflation; customer borrowing, repayment,
investment and deposit practices; continued customer disintermediation;
customers' acceptance of PNC Bank's products and services; and the impact,
extent and timing of technological changes, capital management activities,
actions of the Federal Reserve Board and legislative and regulatory actions and
reforms.
PNC BANK CORP.
----
10
<PAGE> 12
Financial Review
CONSOLIDATED INCOME STATEMENT REVIEW
NET INTEREST INCOME ANALYSIS
<TABLE>
<CAPTION>
Taxable-equivalent basis Average Balances Interest Income/Expense Average Yields/Rates
------------------------------ --------------------------- --------------------------
Three months ended March 31 - dollars 1999 1998 Change 1999 1998 Change 1999 1998 Change
in millions
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans held for sale $3,383 $2,363 $1,020 $56 $42 $14 6.68% 7.16% (48)bp
Securities available for sale 7,755 7,784 (29) 107 117 (10) 5.55 6.01 (46)
Loans, net of unearned income
Consumer (excluding credit card) 10,955 11,186 (231) 222 236 (14) 8.21 8.56 (35)
Credit card 2,724 3,748 (1,024) 100 133 (33) 14.91 14.38 53
Residential mortgage 12,184 12,784 (600) 216 233 (17) 7.09 7.31 (22)
Commercial 24,574 20,665 3,909 462 407 55 7.52 7.87 (35)
Commercial real estate 3,398 3,624 (226) 65 79 (14) 7.70 8.68 (98)
Other 2,860 2,076 784 52 36 16 7.24 6.99 25
- ------------------------------------------------------------------------ ---------------------------
Total loans, net of unearned income 56,695 54,083 2,612 1,117 1,124 (7) 7.91 8.36 (45)
Other 1,005 959 46 16 15 1 6.19 6.48 (29)
- ------------------------------------------------------------------------ ---------------------------
Total interest-earning assets/
interest income 68,838 65,189 3,649 1,296 1,298 (2) 7.56 8.00 (44)
Noninterest-earning assets 8,120 6,952 1,168
- ------------------------------------------------------------------------
Total assets $76,958 $72,141 $4,817
- ------------------------------------------------------------------------
Interest-bearing liabilities
Deposits
Demand and money market $16,825 $14,153 $2,672 113 103 10 2.73 2.97 (24)
Savings 2,535 2,646 (111) 10 13 (3) 1.63 1.99 (36)
Other time 17,262 17,346 (84) 219 234 (15) 5.12 5.46 (34)
Deposits in foreign offices 759 800 (41) 9 11 (2) 4.78 5.68 (90)
- ------------------------------------------------------------------------ ---------------------------
Total interest-bearing deposits 37,381 34,945 2,436 351 361 (10) 3.80 4.19 (39)
Borrowed funds 21,584 19,989 1,595 281 293 (12) 5.21 5.85 (64)
- ------------------------------------------------------------------------ ---------------------------
Total interest-bearing
liabilities/ interest expense 58,965 54,934 4,031 632 654 (22) 4.31 4.79 (48)
--------------------------- ---------------------------
Noninterest-bearing liabilities,
capital securities and shareholders'
equity 17,993 17,207 786
- ------------------------------------------------------------------------
Total liabilities, capital
securities and shareholders'
equity $76,958 $72,141 $4,817
- ------------------------------------------------------------------------
Interest rate spread 3.25 3.21 4
Impact of noninterest-bearing sources .61 .75 (14)
---------------------------
Net interest income/margin $664 $644 $20 3.86% 3.96% (10)bp
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NET INTEREST INCOME Changes in net interest income and margin result from the
interaction between the volume and composition of earning assets, related yields
and associated funding costs. Accordingly, portfolio size, composition and
related yields earned and funding costs can have a significant impact on net
interest income and margin.
Taxable-equivalent net interest income increased $20 million to $664 million in
the first quarter of 1999 compared with $644 million in the first quarter of
1998. The net interest margin was 3.86% in the first quarter of 1999 compared
with 3.96% in the first quarter of 1998.
The increase in net interest income in the first quarter of 1999 was due to a
$3.6 billion increase in average earning assets, which more than offset a
narrower net interest margin resulting from a change in balance sheet
composition. Average loans grew 4.8% to $56.7 billion in the first quarter of
1999, a $2.6 billion increase from the prior-year period. Growth in commercial
loans more than offset lower credit card and residential mortgage loans. Loans
represented 82% of average earning assets in the first quarter of 1999 compared
to 83% for the prior-year period. Average loans held for sale increased $1.0
billion in the quarter-to-quarter comparison, reflecting higher residential
mortgage originations.
Average securities available for sale of $7.8 billion were consistent with the
prior year and represented 11% of average earning assets in the first quarter of
1999 compared with 12% a year ago.
Funding cost is affected by the composition of funding sources as well as
related rates paid thereon. Average deposits comprised 60% and 62% of total
sources of funds in the first quarter of 1999 and 1998, respectively, with the
remainder primarily comprised of wholesale funding obtained at prevailing market
rates. Management expects net interest income and margin to decrease in the
second quarter of 1999 due to the sale of the credit card business.
PNC BANK CORP.
----
11
<PAGE> 13
PROVISION FOR CREDIT LOSSES The provision for credit losses was $78 million in
the first quarter of 1999 compared with $30 million in the prior-year quarter
and was equal to net charge-offs. Management anticipates that the Corporation
will cover net charge-offs for full-year 1999.
DETAILS OF NONINTEREST INCOME
Three months ended March 31 -
dollars in millions 1999 1998 Change
- -----------------------------------------------------------------
Asset management $161 $141 $20
Mutual fund servicing 51 41 10
Service charges on deposits 50 48 2
Consumer services
Credit card 27 26 1
Brokerage 46 15 31
Insurance 19 10 9
Other 38 31 7
- -----------------------------------------------------------------
Total 130 82 48
Corporate services
Capital markets 19 9 10
Net commercial mortgage banking 10 10
Other (89) 42 (131)
- -----------------------------------------------------------------
Total (60) 51 (111)
Net residential mortgage banking
Mortgage servicing 60 29 31
Origination and securitization 58 42 16
Sales of servicing and other 7 (7)
MSR amortization (12) (33) 21
Hedging activities (46) 7 (53)
- -----------------------------------------------------------------
Total 60 52 8
Net securities gains 13 (13)
Other 339 78 261
- -----------------------------------------------------------------
Total $731 $506 $225
- -----------------------------------------------------------------
NONINTEREST INCOME Noninterest income was $731 million in the first quarter of
1999 and included $290 million of gains on the sales of the Corporation's credit
card business and an equity interest in EPS. Noninterest income also included
$142 million of valuation adjustments primarily related to the decision to exit
out-of-footprint large corporate, national healthcare and other non-strategic
institutional lending businesses. Excluding the gains and valuation adjustments,
noninterest income was $583 million in the first quarter of 1999, a $77 million
or 15% increase compared with the prior-year quarter driven by higher fee
income. Consumer services, mutual fund servicing, net residential mortgage
banking and asset management revenues each grew 14% or more compared with the
first quarter of 1998.
Asset management fees grew 14%, primarily reflecting significant new business
and market appreciation. Assets under management increased to approximately $182
billion at March 31, 1999 compared with $149 billion at March 31, 1998. Mutual
fund servicing fees grew 24% compared with the first quarter of 1998 due to an
increase in assets serviced. At March 31, 1999, PFPC Worldwide provided custody
and accounting/administration services for $338 billion and $266 billion of
mutual fund assets, respectively. The comparable amounts were $265 billion and
$218 billion, respectively, a year ago.
Consumer services revenue increased $48 million or 59% compared with the first
quarter of 1998 primarily due to an increase in brokerage accounts associated
with the Hilliard Lyons acquisition. Corporate services revenue decreased $111
million, reflecting the valuation adjustments. Excluding the valuation
adjustments, corporate services revenue increased 47% compared with the
prior-year quarter primarily due to the acquisition of Midland.
Net residential mortgage banking revenue grew $8 million or 15% compared with
the prior-year quarter primarily due to higher servicing income reflecting
growth in the servicing portfolio. Residential mortgage production volume,
including both retail and correspondent activity, totaled $6 billion compared
with $3 billion in the prior-year period. At March 31, 1999, approximately $66
billion of residential mortgages were serviced, including $58 billion serviced
for others.
Other noninterest income increased $261 million in the quarter-to-quarter
comparison primarily due to the gains on the sales of the credit card business
and an equity interest in EPS.
DETAILS OF NONINTEREST EXPENSE
Three months ended March 31-
dollars in millions 1999 1998 Change
- -----------------------------------------------------------------
Staff expense
Compensation $351 $291 $60
Employee benefits 61 63 (2)
- -----------------------------------------------------------------
Total 412 354 58
Net occupancy and equipment
Net occupancy 87 49 38
Equipment 88 47 41
- -----------------------------------------------------------------
Total 175 96 79
Amortization
Goodwill 19 13 6
Other 9 11 (2)
- -----------------------------------------------------------------
Total 28 24 4
Marketing 15 37 (22)
Distributions on capital securities 16 13 3
Other 177 184 (7)
- -----------------------------------------------------------------
Total $823 $708 $115
- -----------------------------------------------------------------
NONINTEREST EXPENSE Noninterest expense of $823 million for the first
quarter of 1999 included $98 million of costs related to efficiency
initiatives classified as follows: compensation - $22 million, net
occupancy - $35 million, equipment - $38 million and other - $3 million.
Excluding these costs, noninterest expense increased $17 million or 2%
compared with the first quarter of 1998. Excluding the impact of gains,
valuation adjustments and costs associated with efficiency initiatives, the
efficiency ratio improved to 52.0% for the first quarter of 1999 compared
with 57.1% in the prior-year quarter. Average full-time equivalent
employees totaled approximately 26,800 in the first quarter of 1999
compared with 25,000 in the prior-year quarter, an increase of 7% mainly
due to acquisitions.
PNC BANK CORP.
----
12
<PAGE> 14
Financial Review
CONSOLIDATED BALANCE SHEET REVIEW
LOANS Loans outstanding decreased $4.9 billion from year-end 1998 to $52.8
billion at March 31, 1999. Credit card loans decreased as a result of the
sale of the credit card business. The decrease in commercial loans was the
result of the decision to exit out-of-footprint large corporate, national
healthcare and other non-strategic institutional lending businesses. Total
exposure and outstandings for these businesses were $6.5 billion and $2.0
billion, respectively, at March 31, 1999.
DETAILS OF LOANS
March 31 December 31
In millions 1999 1998
- ----------------------------------------------------------------
Consumer (excluding credit card)
Home equity $5,785 $5,731
Automobile 2,217 2,444
Education 1,384 1,196
Other 1,507 1,609
- ----------------------------------------------------------------
Total consumer 10,893 10,980
Credit card 2,958
Residential mortgage 12,579 12,265
Commercial
Manufacturing 4,844 5,336
Retail/wholesale 4,569 4,452
Service providers 3,261 3,263
Real estate related 2,987 3,093
Communications 1,429 1,529
Health care 766 1,136
Financial services 2,405 2,928
Other 2,821 3,445
- ----------------------------------------------------------------
Total commercial 23,082 25,182
Commercial real estate
Mortgage 1,432 1,398
Real estate project 1,985 2,051
- ----------------------------------------------------------------
Total commercial real estate 3,417 3,449
Lease financing and other 3,360 3,370
Unearned income (531) (554)
- ----------------------------------------------------------------
Total, net of unearned income $52,800 $57,650
- ----------------------------------------------------------------
Loan portfolio composition continued to be geographically diversified among
numerous industries and types of businesses.
NET UNFUNDED COMMITMENTS
March 31 December 31
In millions 1999 1998
- -----------------------------------------------------------------
Consumer (excluding credit card) $3,683 $3,695
Credit card 14,794
Residential mortgage 3,345 2,756
Commercial 29,372 32,923
Commercial real estate 941 1,078
Other 637 652
- -----------------------------------------------------------------
Total $37,978 $55,898
- -----------------------------------------------------------------
Commitments to extend credit represent arrangements to lend funds provided there
is no violation of specified contractual conditions. The decrease in commitments
to extend credit was the result of the sale of the credit card business and the
decision to exit certain institutional lending businesses. Commercial
commitments are reported net of participations, assignments and syndications,
primarily to financial institutions, totaling $5.3 billion and $5.9 billion at
March 31, 1999 and December 31, 1998, respectively.
Net outstanding letters of credit totaled $4.6 billion and $4.7 billion at March
31, 1999 and December 31, 1998, respectively, and consisted primarily of standby
letters of credit that commit the Corporation to make payments on behalf of
customers when certain specified future events occur.
SECURITIES AVAILABLE FOR SALE The securities portfolio increased $2.1 billion
from December 31, 1998 to $9.2 billion at March 31, 1999 primarily due to an
increase in mortgage-backed securities and securities used to economically hedge
MSR. The expected weighted-average life of the securities portfolio increased to
5 years and 5 months at March 31, 1999 compared with 5 years and 3 months at
year-end 1998.
DETAILS OF SECURITIES AVAILABLE FOR SALE
March 31, 1999 December 31, 1998
----------------- --------------------
Amortized Fair Amortized Fair
In millions Cost Value Cost Value
- ----------------------------------------------------------------
Debt securities
U.S. Treasury and
government agencies $3,306 $3,193 $2,781 $2,754
Mortgage-backed 4,120 4,109 2,942 2,936
Asset-backed 825 824 709 708
State and municipal 137 141 122 128
Other debt 37 35 33 31
Corporate stocks and other 869 868 542 517
- ----------------------------------------------------------------
Total $9,294 $9,170 $7,129 $7,074
- ----------------------------------------------------------------
Securities available for sale may be sold as part of the overall asset and
liability management process. Realized gains and losses are reflected in results
of operations. Unrealized gains and losses are reflected in other comprehensive
income.
The notional value of financial derivatives designated to securities
available for sale was $131 million at March 31, 1999. The fair value of
such derivatives was $2 million at March 31, 1999. There were no
derivatives designated to securities available for sale at December 31,
1998.
PNC BANK CORP.
----
13
<PAGE> 15
FUNDING SOURCES Total funding sources were $65.7 billion at March 31, 1999, a
decrease of $2.7 billion compared with December 31, 1998, resulting primarily
from the sale of the credit card business. The decrease in the first quarter of
1999 was primarily in time deposits and other borrowed funds. This change in
funding composition resulted in a strengthening of liquidity as 50% of wholesale
liabilities had a maturity beyond one year at March 31, 1999, compared with 48%
at December 31, 1998.
DETAILS OF FUNDING SOURCES
March 31 December 31
In millions 1999 1998
- ----------------------------------------------------------------
Deposits
Demand, savings and money market $28,925 $29,359
Time 16,499 17,774
Foreign 375 363
- ----------------------------------------------------------------
Total deposits 45,799 47,496
Borrowed funds
Federal funds purchased 245 390
Repurchase agreements 2,316 1,669
Bank notes and senior debt 9,899 10,384
Other borrowed funds 5,445 6,722
Subordinated debt 2,030 1,781
- ----------------------------------------------------------------
Total borrowed funds 19,935 20,946
- ----------------------------------------------------------------
Total $65,734 $68,442
- ----------------------------------------------------------------
CAPITAL The access to and cost of funding new business initiatives including
acquisitions, ability to pay dividends, deposit insurance costs, and the level
and nature of regulatory oversight depend, in large part, on a financial
institution's capital strength. At March 31, 1999, the Corporation and each bank
subsidiary were considered well capitalized based on regulatory capital ratio
requirements.
RISK-BASED CAPITAL
March 31 December 31
Dollars in millions 1999 1998
- ----------------------------------------------------------------
Capital components
Shareholders' equity
Common $5,617 $5,729
Preferred 314 314
Trust preferred capital securities 848 848
Goodwill and other (1,348) (1,381)
Net unrealized securities losses 82 36
- ----------------------------------------------------------------
Tier I risk-based capital 5,513 5,546
Subordinated debt 1,780 1,641
Eligible allowance for credit losses 672 753
- ----------------------------------------------------------------
Total risk-based capital $7,965 $7,940
- ----------------------------------------------------------------
Assets
Risk-weighted assets and
off-balance-sheet instruments $67,056 $71,146
Average tangible assets 75,770 76,135
- ----------------------------------------------------------------
Capital ratios
Tier I risk-based 8.22% 7.80%
Total risk-based 11.88 11.16
Leverage 7.28 7.28
- ----------------------------------------------------------------
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.
In February 1999, the Corporation issued $250 million of 6 1/8% subordinated
notes due 2009 that qualify as Tier II risk-based capital.
During the first quarter of 1999, PNC Bank repurchased 5.3 million shares of
common stock. On February 18, 1999, the Board of Directors authorized the
Corporation to purchase up to 15 million shares of common stock through February
29, 2000. Approximately 11.7 million shares remain under this authorization.
RISK MANAGEMENT
In the normal course of business, the Corporation assumes various types of risk;
the most significant of which are credit, liquidity, and interest rate and
market 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 that a borrower or counter
party 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 off-balance-sheet financial
derivative transactions. The Corporation seeks to manage credit risk through,
among other things, diversification, limiting exposure to any single industry or
customer, requiring collateral or selling participations to third parties and
purchasing credit-related derivatives.
NONPERFORMING ASSETS
March 31 December 31
Dollars in millions 1999 1998
- ----------------------------------------------------------------
Nonaccrual loans
Commercial $184 $188
Residential mortgage 58 51
Commercial real estate
Mortgage 17 22
Real estate project 28 28
Consumer 4 6
- ----------------------------------------------------------------
Total nonaccrual loans 291 295
Foreclosed and other assets
Residential mortgage 15 17
Commercial real estate 13 15
Other 9 5
- ----------------------------------------------------------------
Total foreclosed and other assets 37 37
- ----------------------------------------------------------------
Total nonperforming assets $328 $332
- ----------------------------------------------------------------
Nonperforming loans to total loans .55% .51%
Nonperforming assets to total loans and
foreclosed assets .62 .58
Nonperforming assets to total assets .44 .43
- ----------------------------------------------------------------
PNC BANK CORP.
----
14
<PAGE> 16
Financial Review
Nonperforming assets include nonaccrual loans and foreclosed and other assets
and totaled $328 million at March 31, 1999, compared with $332 million at
December 31, 1998.
CHANGE IN NONPERFORMING ASSETS
In millions 1999 1998
- ----------------------------------------------------------------
January 1 $332 $333
Transferred from accrual 74 78
Returned to performing (1) (1)
Principal reductions (53) (50)
Sales (10) (16)
Charge-offs and other (14) (9)
- ----------------------------------------------------------------
March 31 $328 $335
- ----------------------------------------------------------------
The amount of nonperforming loans that were current as to principal and interest
was $35 million at March 31, 1999 and $28 million at December 31, 1998. There
were no troubled debt restructured loans outstanding as of either period end
presented.
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
Amount Percent of Loans
-------------------------------------------
March 31 December 31 March 31 December 31
Dollars in millions 1999 1998 1999 1998
- ----------------------------------------------------------------
Consumer (excluding credit
card)
Guaranteed education $21 $23 1.52% 1.92%
Other 28 38 .30 .39
- ----------------------------------------
Total consumer 49 61 .45 .56
Credit card 63 2.13
Residential mortgage 47 55 .37 .45
Commercial 48 56 .21 .22
Commercial real estate 16 32 .47 .93
Other 1 1 .04 .04
- ----------------------------------------
Total $161 $268 .30 .46
- ----------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES In determining the adequacy of the allowance for
credit losses, the Corporation makes allocations to specific problem commercial,
commercial real estate and other 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 business segment and risk rating and are based on historical
loss trends and management's judgment concerning those trends and other relevant
factors. These factors may include, among others; actual versus estimated
losses, current regional and national economic conditions, business segment and
portfolio concentrations, industry competition and consolidation, and the impact
of government regulations. Consumer and residential mortgage loan allocations
are made at a total portfolio level based on historical loss experience adjusted
for portfolio activity and current economic conditions.
While PNC Bank's commercial and consumer pool reserve methodologies strive
to reflect all risk factors, there continues to be a certain element of
risk associated with, but not limited to, potential estimation or
judgmental errors. Unallocated reserves provide coverage for such risks.
While allocations are made to specific loans and pools of loans, the total
reserve is available for all credit losses.
Senior management's Reserve Adequacy Committee provides oversight for the
allowance evaluation process including quarterly evaluations, and methodology
and estimation changes. The results of the evaluations are reported to the
Credit Committee of the Board of Directors.
The increase in the provision for credit losses in the first quarter of
1999 and the evaluation of the allowance for credit losses as of March 31,
1999 reflect changes in loan portfolio composition, changes in asset
quality, the impact of selling the credit card business and the decision to
exit certain institutional lending businesses. The unallocated portion of
the allowance for credit losses represented 37% of the total allowance and
.47% of total loans at March 31, 1999, compared with 22% and .29%,
respectively, at December 31, 1998.
ROLLFORWARD OF ALLOWANCE FOR CREDIT LOSSES
In millions 1999 1998
- ----------------------------------------------------------------
January 1 $753 $972
Charge-offs (97) (107)
Recoveries 19 17
- ----------------------------------------------------------------
Net charge-offs (78) (90)
Provision for credit losses 78 30
Sale of credit card business (81)
- ----------------------------------------------------------------
March 31 $672 $912
- ----------------------------------------------------------------
The allowance as a percent of nonperforming loans and total loans was 231% and
1.27%, respectively, at March 31, 1999. The comparable year-end 1998 amounts
were 255% and 1.31%, respectively.
PNC BANK CORP.
----
15
<PAGE> 17
CHARGE-OFFS AND RECOVERIES
Three months ended Percent of
March 31 - Net Average
dollars in millions Charge-offs Recoveries Charge-offs Loans
- -----------------------------------------------------------------------
1999
Consumer (excluding
credit card) $18 $7 $11 .41%
Credit card 60 2 58 8.64
Residential mortgage 4 1 3 .10
Commercial 12 7 5 .08
Commercial real estate 1 1
Other 2 1 1 .14
- -------------------------------------------------------------
Total $97 $19 $78 .56
- ---------------------------------------------------------------------
1998
Consumer (excluding
credit card) $24 $10 $14 .51%
Credit card 72 3 69 7.47
Residential mortgage 2 2 .06
Commercial 6 3 3 .06
Commercial real estate 2 1 1 .11
Other 1 1 .20
- -------------------------------------------------------------
Total $107 $17 $90 .67
- ----------------------------------------------------------------------
The actual level of net charge-offs and the provision for credit losses in
future periods can be affected by many business and economic factors and may
differ from current or historical experience.
LIQUIDITY RISK Liquidity represents an institution's ability to obtain funds at
reasonable rates to satisfy commitments to borrowers, demands of depositors and
debt holders and to invest in strategic initiatives. Liquidity risk is centrally
managed by Asset and Liability Management.
Key factors affecting the Corporation's liquidity include the availability and
distribution of funding by type and maturity, asset quality, current and future
earnings expectations, market factors, and management and business outlooks and
strategies.
Liquidity risk management includes consideration of the Corporation's ability to
raise funds in the capital markets through asset securitizations or sales. The
ability to raise funds in the capital markets depends on credit ratings, market
conditions, capital considerations, investor demand and other factors.
Liquid assets consist of short-term investments, loans held for sale and
securities available for sale. At March 31, 1999, such assets totaled $14
billion, with $6.3 billion pledged as collateral for borrowing, trust and other
commitments. Liquidity is also provided by residential mortgages that may be
used as collateral for funds obtained through the Federal Home Loan Bank
("FHLB") system. At March 31, 1999, approximately $4.7 billion of residential
mortgages were available as collateral for borrowings from the FHLB.
Liquidity for the parent company and subsidiaries is also generated through the
issuance of securities in public or private markets and lines of credit and
through asset securitizations and sales. At March 31, 1999, the Corporation had
unused capacity under effective shelf registration statements of approximately
$1.1 billion of debt and equity securities and $400 million of trust preferred
capital securities. During the first three months of 1999, the Corporation
issued $250 million of subordinated debt. In addition, the Corporation has an
unused line of credit of $500 million.
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 $549 million at March 31, 1999. Dividends may
also be impacted by capital needs, regulatory requirements, corporate policies,
contractual restrictions and other factors.
Management believes the Corporation has sufficient liquidity to meet current
obligations to borrowers, depositors, debt holders and others. The impact of
replacing maturing liabilities is reflected in the income simulation model in
the overall asset and liability management process.
INTEREST RATE RISK Interest rate risk arises primarily through the Corporation's
core business activities of extending loans and accepting deposits. Many
factors, including economic and financial conditions, movements in market
interest rates and consumer preferences, affect the spread between interest
earned on assets and interest paid on liabilities. In managing interest rate
risk, the Corporation seeks to minimize its reliance on a particular interest
rate scenario as a source of earnings, while maximizing net interest income and
net interest margin. To achieve these objectives, the Corporation uses
securities purchases and sales, long-term and short-term funding, financial
derivatives and other capital markets instruments.
Interest rate risk is centrally managed by Asset and Liability Management. The
Corporation actively measures and monitors components of interest rate risk
including term structure or repricing risk, yield curve or nonparallel rate
shift risk, basis risk and options risk. Senior management's Corporate Asset and
Liability Committee provides strategic direction to Asset and Liability
Management and, in doing so, reviews capital markets activities and interest
rate risk exposures. The Finance Committee of the Board of Directors is
responsible for overseeing the Corporation's interest rate risk management
process.
The Corporation measures and manages both the short-term and long-term effects
of changing interest rates. A net interest income simulation model is used to
measure the sensitivity of net interest income to changing interest rates over
the next
PNC BANK CORP.
----
16
<PAGE> 18
Financial Review
twenty-four month period; and an economic value of equity model is used to
measure the sensitivity of the value of existing on-balance-sheet and
off-balance-sheet positions to changing interest rates.
The income simulation model is the primary tool used to measure the direction
and magnitude of changes in net interest income resulting from changes in
interest rates. Forecasting net interest income and its sensitivity to changes
in interest rates requires that the Corporation make assumptions about the
volume and characteristics of new business and the behavior of existing
positions. These business assumptions are based on the Corporation's experience,
business plans and published industry experience. Key assumptions employed in
the model include prepayment speeds on mortgage-related assets and consumer
loans, loan volumes and pricing, deposit volumes and pricing, the expected life
and repricing characteristics of nonmaturity loans and deposits, and
management's financial and capital plans.
Because these assumptions are inherently uncertain, the model cannot precisely
estimate net interest income or precisely predict the effect of higher or lower
interest rates on net interest income. Actual results will differ from simulated
results due to the timing, magnitude and frequency of interest rate changes, the
difference between actual experience and the assumed volume and characteristics
of new business and behavior of existing positions, and changes in market
conditions and management strategies, among other factors.
The Corporation's interest rate risk management policies 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. During the first three months of 1999, the Corporation's interest rate
risk exposures were within policy limits. At March 31, 1999, if interest rates
were to gradually increase by 100 basis points over the next twelve months, the
model indicates that net interest income would decrease by 0.7%. If interest
rates were to gradually decrease by 100 basis points over the next twelve
months, the model indicates that net interest income would increase by 0.6%.
The Corporation models additional interest rate scenarios covering a wider range
of rate movements to identify yield curve, term structure and basis risk
exposures. These scenarios are developed based on historical rate relationships
or management's expectations regarding the future direction and level of
interest rates. Depending on market conditions and other factors, these
scenarios may be modeled more or less frequently. Such analyses are used in
conjunction with the net interest income simulation model and economic value of
equity model to identify inherent risk and develop appropriate strategies.
The Corporation measures the sensitivity of the value of its on-balance-sheet
and off-balance-sheet positions to movements in interest rates using an economic
value of equity sensitivity model. The model computes the value of all current
on-balance-sheet and off-balance-sheet positions under a range of instantaneous
interest rate changes. The resulting change in the value of equity is the
measure of overall long-term interest rate risk inherent in the Corporation's
existing on-balance-sheet and off-balance-sheet positions. The Corporation uses
the economic value of equity model to complement the net interest income
simulation modeling process.
The Corporation's risk management policies provide that the change in economic
value of equity should not decline by more than 1.5% of the book value of assets
for a 200 basis point instantaneous increase or decrease in interest rates.
Based on the results of the economic value of equity model at March 31, 1999, if
interest rates were to instantaneously increase by 200 basis points, the
economic value of existing on-balance-sheet and off-balance-sheet positions
would decline by 0.42% of assets. If interest rates were to instantaneously
decrease by 200 basis points, the economic value of existing on-balance-sheet
and off-balance-sheet positions would increase by 0.09% of assets.
MARKET RISK Most of PNC Bank's trading activities are designed to provide
capital markets services for customers of PNC Institutional Bank, PNC Secured
Finance, and PNC Advisors. The performance of PNC Bank's trading operations is
predominantly based on providing services to customers and not on positioning
the Corporation's portfolio for gains from market movements.
Market risk associated with trading, capital markets and foreign exchange
activities is managed using a value-at-risk approach that combines interest rate
risk, foreign exchange rate risk, spread risk and volatility risk. Exposure is
measured as the potential loss due to a two standard deviation, one-day move.
The combined period-end value-at-risk of all trading operations was less than
$600 thousand at March 31, 1999.
PNC BANK CORP.
----
17
<PAGE> 19
FINANCIAL DERIVATIVES
A variety of off-balance-sheet financial derivatives are used as part of the
overall risk management process to manage interest rate, market and credit risk
inherent in the Corporation's business activities. Interest rate swaps and
purchased interest rate caps and floors are the primary instruments used for
interest rate risk management. 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
primarily used to manage risk positions associated with certain mortgage banking
activities.
Credit-related derivatives provide, for a fee, an assumption of a portion of the
credit risk associated with the underlying financial instruments. Such contracts
are primarily used to manage credit risk and regulatory capital associated with
commercial lending activities.
Financial derivatives involve, to varying degrees, interest rate, market and
credit risk in excess of the amount on 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.
During the first three months of 1999, financial derivatives used in interest
rate risk management increased net interest income by $16 million compared with
a $2 million increase in the prior-year period.
The following table sets forth changes in the notional value of
off-balance-sheet financial derivatives used for risk management during the
first three months of 1999.
<TABLE>
<CAPTION>
FINANCIAL DERIVATIVES ACTIVITY Weighted-
Average
1999 - 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 $7,163 $750 $(600) $7,313 2 yr. 9 mo.
Pay fixed 13 4 (4) 13 11 mo.
Basis swaps 2,274 (47) 2,227 3 yr. 4 mo.
Interest rate caps 722 (82) 640 4 yr. 3 mo.
Interest rate floors 1,939 2,750 (41) 4,648 2 yr. 3 mo.
- -----------------------------------------------------------------------------------------------------------------
Total interest rate risk management 12,111 3,504 (774) 14,841
Mortgage banking activities
Residential
Forward contracts
Commitments to purchase loans 1,286 8,263 (7,305) 2,244 2 mo.
Commitments to sell loans 3,248 10,777 (9,928) 4,097 2 mo.
Options 207 383 (260) 330 2 mo.
Interest rate floors - MSR 4,875 800 (425) $(700) 4,550 4 yr. 5 mo.
- -----------------------------------------------------------------------------------------------------------------
Total residential 9,616 20,223 (17,918) (700) 11,221
Commercial 657 291 (194) 754 7 yr. 4 mo.
- -----------------------------------------------------------------------------------------------------------------
Total mortgage banking activities 10,273 20,514 (17,918) (894) 11,975
Credit-related activities
Credit default swaps 4,255 4,255 2 yr. 5 mo.
- -----------------------------------------------------------------------------------------------------------------
Total $26,639 $24,018 $(18,692) $(894) $31,071
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PNC BANK CORP.
----
18
<PAGE> 20
Financial Review
The following table sets forth by designated assets and liabilities the notional
value and the estimated fair value of financial derivatives used for risk
management. Weighted-average interest rates presented are those expected to be
in effect based on the implied forward yield curve at March 31, 1999.
<TABLE>
<CAPTION>
FINANCIAL DERIVATIVES
Weighted-Average Interest
Rates
Notional Estimated ---------------------------
March 31, 1999 - dollars in millions Value Fair Value Paid Received
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate risk management
Asset rate conversion
Interest rate swaps (1)
Receive fixed designated to loans $5,550 $35 5.39% 5.49%
Pay fixed designated to loans 3 6.23 5.08
Basis swaps designated to other earning assets 283 3 5.30 5.63
Interest rate caps designated to loans (2) 640 7 NM NM
Interest rate floors designated to loans (3) 4,648 2 NM NM
- ---------------------------------------------------------------------------------------------------
Total asset rate conversion 11,124 47
Liability rate conversion
Interest rate swaps (1)
Receive fixed designated to:
Interest-bearing deposits 150 7 5.69 6.65
Borrowed funds 1,613 28 5.53 5.83
Pay fixed designated to borrowed funds 10 2 6.85 5.80
Basis swaps designated to borrowed funds 1,944 8 5.41 5.44
- ---------------------------------------------------------------------------------------------------
Total liability rate conversion 3,717 45
- ---------------------------------------------------------------------------------------------------
Total interest rate risk management 14,841 92
Mortgage banking activities
Residential
Forward contracts
Commitments to purchase loans 2,244 14 NM NM
Commitments to sell loans 4,097 (6) NM NM
Options 330 6 NM NM
Interest rate floors - MSR (3) 4,550 17 NM NM
- ---------------------------------------------------------------------------------------------------
Total residential 11,221 31
Commercial
Pay fixed interest rate swaps designated to:
Securities 131 2 6.56 5.10
Loans 623 15 5.45 5.91
- ---------------------------------------------------------------------------------------------------
Total mortgage banking activities 11,975 48
Credit-related activities
Credit default swaps 4,255 (7) NM NM
- ---------------------------------------------------------------------------------------------------
Total financial derivatives $31,071 $133
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The floating rate portion of interest rate contracts is based on
money-market indices. As a percent of notional value, 34% were based on
1-month LIBOR, 63% on 3-month LIBOR and the remainder on other short-term
indices.
(2) Interest rate caps with notional values of $210 million, $192 million and
$233 million require the counterparty to pay the excess, if any, of 3-month
LIBOR over a weighted-average strike of 6.20%, 1-month LIBOR over a
weighted-average strike of 5.83% and Prime over a weighted-average strike of
8.76%, respectively. At March 31, 1999, 3-month LIBOR was 5.00%, 1-month
LIBOR was 4.94% and Prime was 7.75%.
(3) Interest rate floors with notional values of $4.3 billion, $1.4 billion and
$3.2 billion require the counterparty to pay the Corporation the excess, if
any, of the weighted-average strike of 4.75% over 3-month LIBOR, the
weighted-average strike of 4.73% over 10-year CMT and the weighted-average
strike of 4.99% over 10-year CMS, respectively. At March 31, 1999, 3-month
LIBOR was 5.00%, 10-year CMT was 5.25% and 10-year CMS was 6.05%.
NM - Not meaningful
OTHER DERIVATIVES To accommodate customer needs, PNC Bank enters into
customer-related financial derivatives transactions primarily consisting of
interest rate swaps, caps, floors and foreign exchange contracts. Risk exposure
from customer positions is managed through transactions with other dealers.
Additionally, the Corporation enters into other derivative transactions for
risk management purposes. These positions are recorded at estimated fair value
and changes in value are included in results of operations.
OTHER DERIVATIVES
Positive Negative
March 31, 1999 - in Notional Fair Fair Net Asset
millions Value Value Value (Liability)
- ----------------------------------------------------------------------
Customer-related
Interest rate
Swaps $11,202 $45 $(65) $(20)
Caps/floors
Sold 2,476 (16) (16)
Purchased 2,289 16 16
Foreign exchange 2,133 34 (29) 5
Other 1,364 4 (5) (1)
- ----------------------------------------------------------------------
Total customer-related 19,464 99 (115) (16)
Other 2,221 2 (3) (1)
- ----------------------------------------------------------------------
Total other
derivatives $21,685 $101 $(118) $(17)
- ----------------------------------------------------------------------
PNC BANK CORP.
----
19
<PAGE> 21
YEAR 2000 READINESS
The Corporation has been working since 1995 to prepare its computer systems and
applications to meet the year 2000 challenge. This process involves reviewing,
modifying and replacing existing hardware, software and embedded chip technology
systems, as necessary. The Corporation is also assessing the year 2000
preparedness of third parties such as vendors, customers, governmental entities
and others.
As of March 31, 1999, approximately 98% of the Corporation's MIS-supported
mainframe, mid-range and PC client-server systems had been tested and returned
to production as year 2000 ready. Approximately 98% of the Corporation's non-PC
related hardware and systems software had also been tested and determined to be
year 2000 ready.
At March 31, 1999, the Corporation had completed its organization-wide
assessment of year 2000 issues relating to its identified mission critical
embedded chip systems and continues to review and monitor these issues as
necessary. No significant problems have been identified to date with respect to
these systems.
The Corporation has substantially completed its assessment of the year 2000
preparedness of its identified mission critical service providers. The
Corporation has not to date identified any material problems associated with its
mission critical service providers. However, the Corporation can make no
guarantee as to the year 2000 readiness of any such service provider or other
third party.
The year 2000 issue may have an adverse impact on the operations and financial
condition of the Corporation's borrowers. PNC Bank periodically compiles and
updates year 2000 profiles for certain of its largest lending relationships for
the purpose of assessing their overall risks. Determination of these risks is
based on an assessment of the borrowers' vulnerability to year 2000 issues,
resources and capacity, adequacy of year 2000 readiness plans, remediation costs
and state of remediation. This information is compiled and analyzed periodically
to determine the possible year 2000 impact on the loan portfolio and allowance
for credit losses. Based on the Corporation's current assessment of the
information it has received to date, management believes the year 2000 issue
will not have a material adverse impact on the quality of the loan portfolio.
The Corporation will continue to review and assess the year 2000 preparedness of
its borrowers during 1999.
PNC Bank is conducting fully integrated testing to determine whether its mission
critical application systems will perform in coordination with one another. The
Corporation is also conducting testing with certain mission critical vendors
that provide systems-related services.
The estimated total cost to become year 2000 ready, which is being expensed as
incurred, is approximately $30 million. Through March 31, 1999, the Corporation
had expensed approximately $22 million related to the year 2000 effort. Expenses
incurred for year 2000 readiness efforts are not expected to exceed 2% of
technology-related expenses in 1999. No significant outlays have been made to
replace existing systems solely for year 2000 reasons. The costs and the
timetable in which the Corporation plans to complete its year 2000 readiness
activities are based on management's best estimates, which were derived using
numerous assumptions of future events including the continued availability of
certain resources, third party preparedness and other factors. The Corporation
can make no guarantee that these estimates will be achieved, and actual results
could differ from such plans.
Contingency plans for year 2000 issues have been and will continue to be
developed and the Corporation will continue to review all contingency plans
during 1999 and modify them when necessary or appropriate. Certain critical
service provider and systems contingency plans will be tested during 1999. The
Corporation's business continuity plans continue to be reviewed and strengthened
to address year 2000 implications.
PNC Bank's year 2000 remediation efforts and contingency plans are also subject
to oversight and regulation by certain federal bank regulatory authorities.
It is not possible to predict with certainty all of the adverse effects that
could result from a failure of the Corporation or of third parties to become
fully year 2000 ready or whether such effects could have a material adverse
impact on the Corporation. However, if the Corporation were to fail to correct
internal year 2000 problems, if one or more third parties are unable due to year
2000 issues to provide services required by the Corporation, or if the
Corporation's contingency plans fail to mitigate any such problems, a disruption
of operations could occur, resulting in increased operating costs, loss of
revenues and other material adverse effects. Such disruptions could include a
temporary inability to process transactions and delays in providing services.
The Corporation could also be subject to liquidity risk in the event of deposit
withdrawals due to year 2000 concerns, or if its lenders cannot provide funds
due to year 2000 issues. In addition, to the extent that customers' financial
positions are weakened due to year 2000 issues, credit quality could be
adversely affected.
PNC BANK CORP.
----
20
<PAGE> 22
Consolidated Statement of Income
<TABLE>
<CAPTION>
Three months ended March 31- in millions, except per share data 1999 1998
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans and fees on loans $1,112 $1,119
Securities available for sale 106 115
Other 72 57
---------------------------------------------------------------------------------------------------------------------------
Total interest income 1,290 1,291
---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 351 361
Borrowed funds 281 293
---------------------------------------------------------------------------------------------------------------------------
Total interest expense 632 654
---------------------------------------------------------------------------------------------------------------------------
Net interest income 658 637
Provision for credit losses 78 30
---------------------------------------------------------------------------------------------------------------------------
Net interest income less provision for credit losses 580 607
---------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Asset management 161 141
Mutual fund servicing 51 41
Service charges on deposits 50 48
Consumer services 130 82
Corporate services (60) 51
Net residential mortgage banking 60 52
Net securities gains 13
Other 339 78
---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 731 506
---------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Staff expense 412 354
Net occupancy and equipment 175 96
Amortization 28 24
Marketing 15 37
Distributions on capital securities 16 13
Other 177 184
---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 823 708
---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 488 405
Income taxes 163 136
---------------------------------------------------------------------------------------------------------------------------
Net income $325 $269
---------------------------------------------------------------------------------------------------------------------------
Net income applicable to common shareholders $320 $265
EARNINGS PER COMMON SHARE
Basic $1.06 $.88
Diluted 1.05 .87
CASH DIVIDENDS DECLARED PER COMMON SHARE .41 .39
AVERAGE COMMON SHARES OUTSTANDING
Basic 302.3 300.6
Diluted 305.5 306.1
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP.
----
21
<PAGE> 23
Consolidate Balance Sheet
<TABLE>
<CAPTION>
March 31 December 31
In millions, except par value 1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $2,322 $2,534
Short-term investments 984 1,014
Loans held for sale 3,599 3,226
Securities available for sale 9,170 7,074
Loans, net of unearned income of $531 and $554 52,800 57,650
Allowance for credit losses (672) (753)
-------------------------------------------------------------------------------------------------------------------
Net loans 52,128 56,897
Goodwill and other amortizable assets 2,457 2,548
Other 4,208 3,914
-------------------------------------------------------------------------------------------------------------------
Total assets $74,868 $77,207
-------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Noninterest-bearing $9,070 $9,943
Interest-bearing 36,729 37,553
-------------------------------------------------------------------------------------------------------------------
Total deposits 45,799 47,496
Borrowed funds
Federal funds purchased 245 390
Repurchase agreements 2,316 1,669
Bank notes and senior debt 9,899 10,384
Other borrowed funds 5,445 6,722
Subordinated debt 2,030 1,781
-------------------------------------------------------------------------------------------------------------------
Total borrowed funds 19,935 20,946
Other 2,355 1,874
-------------------------------------------------------------------------------------------------------------------
Total liabilities 68,089 70,316
-------------------------------------------------------------------------------------------------------------------
Mandatorily redeemable capital securities of subsidiary trusts 848 848
SHAREHOLDERS' EQUITY
Preferred stock 7 7
Common stock - $5 par value
Authorized 450.0 shares
Issued 352.8 and 352.8 shares 1,764 1,764
Capital surplus 1,251 1,250
Retained earnings 5,458 5,262
Deferred benefit expense (36) (36)
Accumulated other comprehensive loss (89) (43)
Common stock held in treasury at cost: 53.7 and 49.1 shares (2,424) (2,161)
-------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,931 6,043
-------------------------------------------------------------------------------------------------------------------
Total liabilities, capital securities and shareholders' equity $74,868 $77,207
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP.
----
22
<PAGE> 24
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Three months ended March 31- in millions 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $325 $269
Adjustments to reconcile net income to net cash provided (used) by operating
activities
Provision for credit losses 78 30
Depreciation, amortization and accretion 130 94
Deferred income taxes 43 10
Net securities losses (gains) 17 (23)
Net gain on sales of businesses and assets (304) (55)
Valuation adjustments 142
Change in
Loans held for sale 521 (75)
Other (151) (333)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 801 (83)
- --------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in loans 218 (1,305)
Repayment of securities available for sale 403 412
Sales
Securities available for sale 1,659 3,832
Loans 38 979
Foreclosed assets 10 17
Purchases
Securities available for sale (3,504) (3,225)
Loans (51)
Net cash received for acquisitions/divestitures 3,261 29
Other 17 635
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 2,102 1,323
- --------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits (873) (41)
Interest-bearing deposits (824) (1,536)
Federal funds purchased (145) (2,859)
Sale/issuance
Repurchase agreements 33,667 28,553
Bank notes and senior debt 820 1,949
Other borrowed funds 8,036 25,664
Subordinated debt 254
Common stock 16 43
Repayment/maturity
Repurchase agreements (33,020) (27,440)
Bank notes and senior debt (1,305) (2,272)
Other borrowed funds (9,310) (24,799)
Subordinated debt (5) (6)
Acquisition of treasury stock (297) (96)
Cash dividends paid (129) (122)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash (used) by financing activities (3,115) (2,962)
- --------------------------------------------------------------------------------------------------------------------------------
(DECREASE) IN CASH AND DUE FROM BANKS (212) (1,722)
Cash and due from banks at beginning of year 2,534 4,303
- --------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $2,322 $2,581
- --------------------------------------------------------------------------------------------------------------------------------
CASH PAID FOR
Interest $667 $659
Income taxes 8 5
NONCASH ITEMS
Transfer from loans to loans held for sale 1,018
Transfers from loans to other assets 11 13
Conversion of debt to equity 16
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP.
----
23
<PAGE> 25
Notes to Consolidated Financial Statements
BUSINESS PNC Bank Corp. ("Corporation" or "PNC Bank") is one of the largest
diversified financial services organizations in the United States operating
retail banking, asset management and wholesale businesses that provide financial
products and services nationally and in PNC Bank's primary geographic markets in
Pennsylvania, New Jersey, Delaware, Ohio and Kentucky. PNC Bank 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 those authorities.
ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION The unaudited consolidated interim
financial statements include the accounts of PNC Bank and its subsidiaries, most
of which are wholly owned. Such statements have been prepared in accordance with
generally accepted accounting principles. All significant intercompany accounts
and transactions have been eliminated.
In the opinion of management, the financial statements reflect all adjustments,
which are of a normal recurring nature, necessary for a fair statement of
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 classifications did not impact the Corporation's
financial condition or results of operations.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the amounts reported. Actual results
will differ from such estimates and the differences may be material to the
consolidated financial statements.
The notes included herein should be read in conjunction with the audited
consolidated financial statements included in PNC Bank's 1998 Annual Report.
MORTGAGE-BACKED SECURITIES RETAINED DURING THE SECURITIZATION PROCESS Effective
January 1, 1999, the Corporation adopted Statement of Financial Accounting
Standards ("SFAS") No. 134, "Accounting for Mortgage-Backed Securities Retained
After the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise" (an amendment of SFAS No. 65). SFAS 134 requires the Corporation to
classify all mortgage-backed securities or other interests in the form of a
security retained after a securitization of mortgage loans held for sale based
on its ability and intent to sell or hold those investments. Any retained
mortgage-backed securities that the Corporation commits to sell before or during
the securitization process must be classified as trading securities. Restatement
of prior year financial statements was not required. The adoption of SFAS 134
did not have a material impact on the Corporation's financial position or
results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is required to be adopted in years beginning after June 15, 1999,
although early adoption is permitted. The Corporation expects to adopt the new
statement effective January 1, 2000. This statement requires the Corporation to
recognize all financial derivatives on the balance sheet at fair value.
Derivatives that do not qualify as hedges must be adjusted to fair value through
results of operations. If the derivative is a hedge as defined by the statement,
changes in the fair value of derivatives will be either offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through results of operations or recognized in other comprehensive income until
the hedged item is recognized in results of operations based on the nature of
the hedge. The ineffective portion of a derivative's change in fair value will
be immediately recognized in earnings. Management has not yet determined what
effect this statement will have on the financial position and results of
operations of the Corporation.
CASH FLOWS During the first three months of 1999, divestiture activity which
affected cash flows consisted of $3.1 billion of divested assets and cash
receipts of $3.3 billion in cash and due from banks.
PNC BANK CORP.
----
24
<PAGE> 26
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
----------------------------------------------------------------------------------------------
Unrealized Unrealized
Amortized -------------------- Fair Amortized ------------------------- Fair
In millions Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities
U.S. Treasury and government agencies $3,306 $3 $(116) $3,193 $2,781 $10 $(37) $2,754
Mortgage-backed 4,120 8 (19) 4,109 2,942 5 (11) 2,936
Asset-backed 825 1 (2) 824 709 1 (2) 708
State and municipal 137 5 (1) 141 122 6 128
Other debt 37 (2) 35 33 (2) 31
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt securities 8,425 17 (140) 8,302 6,587 22 (52) 6,557
Corporate stocks and other 869 34 (35) 868 542 10 (35) 517
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $9,294 $51 $(175) $9,170 $7,129 $32 $(87) $7,074
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the first quarter of 1999, net securities losses totaled $17 million and
were included in net residential mortgage banking hedging activities.
During the first quarter of 1998, net securities gains totaled $23 million, of
which $10 million were included in net residential mortgage banking hedging
activities.
ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses were as follows:
In millions 1999 1998
- -------------------------------------------------------------
Allowance at January 1 $753 $972
Charge-offs
Consumer (excluding credit card) (18) (24)
Credit card (60) (72)
Residential mortgage (4) (2)
Commercial (12) (6)
Commercial real estate (1) (2)
Other (2) (1)
-----------------
Total charge-offs (97) (107)
Recoveries
Consumer (excluding credit card) 7 10
Credit card 2 3
Residential mortgage 1
Commercial 7 3
Commercial real estate 1 1
Other 1
-----------------
Total recoveries 19 17
-----------------
Net charge-offs
Consumer (excluding credit card) (11) (14)
Credit card (58) (69)
Residential mortgage (3) (2)
Commercial (5) (3)
Commercial real estate (1)
Other (1) (1)
-----------------
Total net charge-offs (78) (90)
Provision for credit losses 78 30
Sale of Credit Card Business (81)
-----------------
Allowance at March 31 $672 $912
- -------------------------------------------------------------
NONPERFORMING ASSETS
Nonperforming assets were as follows:
March 31 December 31
In millions 1999 1998
- -------------------------------------------------------------------
Nonaccrual loans $291 $295
Foreclosed and other assets 37 37
------------------------
Total nonperforming assets $328 $332
- -------------------------------------------------------------------
PNC BANK CORP.
----
25
<PAGE> 27
FINANCIAL DERIVATIVES
FAIR VALUE OF FINANCIAL DERIVATIVES The notional and fair values of financial
derivatives used for risk management and mortgage banking activities were as
follows:
Positive Negative
Notional Fair Notional Fair
In millions Value Value Value Value
- ----------------------------------------------------------------
MARCH 31, 1999
Interest rate
Swaps $7,786 $90 $1,767 $(7)
Caps 640 7
Floors 4,250 7 398 (5)
- ----------------------------------------------------------------
Total interest rate
risk management 12,676 104 2,165 (12)
Mortgage banking
activities 6,381 55 5,594 (7)
Credit default swaps 4,255 (7)
- ----------------------------------------------------------------
Total $19,057 $159 $12,014 $(26)
- ----------------------------------------------------------------
DECEMBER 31, 1998
Interest rate
Swaps $6,915 $177 $2,535 $(10)
Caps 722 6
Floors 1,500 439 (9)
- ----------------------------------------------------------------
Total interest rate
risk management 9,137 183 2,974 (19)
Mortgage banking
activities 9,367 74 906 (10)
Credit default swaps 4,255 (2)
- ----------------------------------------------------------------
Total $18,504 $257 $8,135 $(31)
- ----------------------------------------------------------------
OTHER DERIVATIVES The following schedule sets forth information relating to
positions associated with customer-related and other derivatives.
Positive Negative
Notional Fair Fair Net Asset
In millions Value Value Value (Liability)
- ----------------------------------------------------------------------
MARCH 31, 1999
Customer-related
Interest rate
Swaps $11,202 $45 $(65) $(20)
Caps/floors
Sold 2,476 (16) (16)
Purchased 2,289 16 16
Foreign exchange 2,133 34 (29) 5
Other 1,364 4 (5) (1)
- ----------------------------------------------------------------------
Total customer-
related 19,464 99 (115) (16)
Other 2,221 2 (3) (1)
- ----------------------------------------------------------------------
Total $21,685 $101 $(118) $(17)
- ----------------------------------------------------------------------
Positive Negative
Notional Fair Fair Net Asset
In millions Value Value Value (Liability)
- ------------------------------------------------------------------------
DECEMBER 31, 1998
Customer-related
Interest rate
Swaps $11,040 $69 $(89) $(20)
Caps/floors
Sold 2,844 (19) (19)
Purchased 2,589 20 20
Foreign exchange 2,108 33 (27) 6
Other 457 7 (8) (1)
- ------------------------------------------------------------------------
Total customer-
related 19,038 129 (143) (14)
Other 709 1 1
- ------------------------------------------------------------------------
Total $19,747 $130 $(143) $(13)
- ------------------------------------------------------------------------
PNC BANK CORP.
----
26
<PAGE> 28
Notes to Consolidated Financial Statements
SEGMENT REPORTING
PNC Bank operates seven major businesses engaged in retail banking, asset
management and wholesale banking activities: PNC Regional Bank, PNC Advisors,
BlackRock, PFPC Worldwide, PNC Institutional Bank, PNC Secured Finance and PNC
Mortgage.
Business results presented are based on PNC Bank's management accounting
practices and the Corporation's current management structure.
The presentation of business results was changed during the first quarter of
1999 as part of the Corporation's operating strategy. PNC Regional Bank reflects
the combination of PNC Regional Community Bank and PNC National Consumer Bank.
Branch-based brokerage activities (previously included in PNC Advisors), the
middle market customer segment (previously part of PNC Corporate Bank) and
regional real estate lending and leasing activities in PNC Bank's geographic
footprint (previously included in PNC Secured Finance) were also combined with
PNC Regional Bank. Additionally, residential mortgages (previously included in
PNC Mortgage) were realigned with PNC Regional Bank. Certain out-of-footprint
large corporate, national healthcare and other non-strategic institutional
lending businesses as well as venture capital activities (previously in PNC
Corporate Bank) are included in Other. The remaining activities, which were
previously in PNC Corporate Bank, comprise PNC Institutional Bank. BlackRock
reflects total legal entity results for BlackRock, Inc. Financial results for
1999, 1998 and 1997 are presented consistent with this structure.
The management accounting process uses various balance sheet and income
statement assignments and transfers to measure performance of the businesses.
Methodologies change from time-to-time as management accounting practices are
enhanced and businesses change. Securities or borrowings and related net
interest income are assigned based on the net asset or liability position of
each business. Capital is assigned based on management's assessment of inherent
risks and equity levels at independent companies providing similar products and
services. Support areas not directly aligned with the businesses are allocated
primarily based on the utilization of these services.
Total business financial results differ from consolidated financial results
primarily due to differences between management accounting practices and
generally accepted accounting principles, divested and exited businesses,
venture capital activities, sales of equity interests in subsidiaries,
eliminations and unassigned items; the impact of which is reflected in Other.
Additionally, the first quarter of 1999 includes the impact of the sales of the
credit card business and an equity interest in EPS; valuation adjustments
associated with exiting certain institutional lending businesses; and costs
related to efficiency initiatives.
BUSINESS SEGMENT PRODUCTS AND SERVICES
PNC Regional Bank provides credit, deposit, branch-based brokerage and
electronic banking products and services to retail customers as well as
credit, leasing, treasury management and capital markets products and services
to mid-sized and small businesses primarily within PNC Bank's geographic
footprint.
PNC Advisors offers personalized investment management, high-end brokerage
services, personal trust, estate planning and traditional banking services to
affluent and wealthy individuals; and investment management, trust and
administrative services to pensions, 401(k) plans and charitable organizations.
BlackRock offers fixed income, domestic and international equity and liquidity
investment products, and utilizes technology-based risk management capabilities
to provide investment advisory and asset management capabilities for a wide
range of institutional and retail customers.
PFPC Worldwide provides a wide range of accounting, administration, transfer
agency, custody, securities lending and integrated banking transaction services
to mutual funds, pension and money fund managers, partnerships, brokerage firms,
insurance companies and banks, both domestically and globally.
PNC Institutional Bank provides credit, treasury management and capital markets
products and services to corporations, institutions and government agencies.
PNC Secured Finance is engaged in commercial real estate finance, including loan
origination, securitization, and servicing; asset-based financing, including
lending syndications and treasury management services; and equipment lease
financing to a wide range of customers nationally.
PNC Mortgage originates, purchases and services residential mortgages and
related products, and securitizes and sells residential mortgages as
private-label mortgage-backed securities and performs master servicing of those
securities for investors.
PNC BANK CORP.
----
27
<PAGE> 29
RESULTS OF BUSINESSES
<TABLE>
<CAPTION>
PNC PNC PNC
Three months ended March 31 Regional PNC PFPC Institution Secured PNC Total
in millions Bank Advisors BlackRock Worldwide Bank Finance Mortgage Other Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999
INCOME STATEMENT
Net interest income* $432 $34 $(4) $3 $58 $50 $25 $66 $664
Noninterest income 126 148 88 51 43 21 76 178 731
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue 558 182 84 54 101 71 101 244 1,395
Provision for credit losses 11 1 4 (2) 64 78
Noninterest expense 302 123 64 36 54 35 83 126 823
- -----------------------------------------------------------------------------------------------------------------------------------
Pretax earnings 245 58 20 18 43 38 18 54 494
Income taxes 95 22 8 7 15 11 7 4 169
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings $150 $36 $12 $11 $28 $27 $11 $50 $325
- -----------------------------------------------------------------------------------------------------------------------------------
Inter-segment revenue $8 $19 $(9) $2 $9 $(29)
- -----------------------------------------------------------------------------------------------------------------------------------
Average assets $39,383 $3,249 $400 $268 $9,638 $8,202 $7,084 $8,734 $76,958
- -----------------------------------------------------------------------------------------------------------------------------------
1998
INCOME STATEMENT
Net interest income* $420 $29 $(4) $2 $53 $41 $19 $84 $644
Noninterest income 123 80 70 41 34 9 55 94 506
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue 543 109 66 43 87 50 74 178 1,150
Provision for credit losses 15 (3) 18 30
Noninterest expense 305 69 51 29 52 18 64 120 708
- -----------------------------------------------------------------------------------------------------------------------------------
Pretax earnings 223 40 15 14 35 35 10 40 412
Income taxes 88 15 7 5 12 10 4 2 143
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings $135 $25 $8 $9 $23 $25 $6 $38 $269
- -----------------------------------------------------------------------------------------------------------------------------------
Inter-segment revenue $4 $1 $(6) $2 $9 $(10)
- -----------------------------------------------------------------------------------------------------------------------------------
Average assets $38,800 $2,655 $293 $218 $8,334 $5,294 $3,826 $12,721 $72,141
- -----------------------------------------------------------------------------------------------------------------------------------
1997
INCOME STATEMENT
Net interest income* $421 $26 $(4) $2 $48 $33 $9 $102 $637
Noninterest income 145 72 46 33 32 18 36 44 426
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue 566 98 42 35 80 51 45 146 1,063
Provision for credit losses 12 1 1 8 (12) 10
Noninterest expense 309 65 34 23 55 10 50 91 637
- -----------------------------------------------------------------------------------------------------------------------------------
Pretax earnings 245 32 8 12 24 33 (5) 67 416
Income taxes 103 12 3 5 8 12 (2) 9 150
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings $142 $20 $5 $7 $16 $21 $(3) $58 $266
- -----------------------------------------------------------------------------------------------------------------------------------
Inter-segment revenue $1 $1 $(2) $1 $8 $(9)
- -----------------------------------------------------------------------------------------------------------------------------------
Average assets $39,106 $2,478 $260 $191 $8,174 $4,206 $2,070 $13,816 $70,301
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Taxable-equivalent basis
PNC BANK CORP.
----
28
<PAGE> 30
Notes to Consolidated Financial Statements
EARNINGS PER SHARE
The following table sets forth basic and diluted earnings per share
calculations.
<TABLE>
<CAPTION>
Three months ended March 31 - in thousands, except per share data 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALCULATION OF BASIC EARNINGS PER COMMON SHARE
Net income $325,240 $269,260
Less: Preferred dividends declared 4,827 4,849
- -----------------------------------------------------------------------------------------------------------------------------
Net income applicable to basic earnings per common share $320,413 $264,411
- -----------------------------------------------------------------------------------------------------------------------------
Basic weighted-average common shares outstanding 302,303 300,567
- -----------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $1.06 $.88
- -----------------------------------------------------------------------------------------------------------------------------
CALCULATION OF DILUTED EARNINGS PER COMMON SHARE
Net income $325,240 $269,260
Add: Interest expense on convertible debentures (net of tax) 4 526
Less: Dividends declared on nonconvertible preferred stock 4,538 4,537
- -----------------------------------------------------------------------------------------------------------------------------
Net income applicable to diluted earnings per common share $320,706 $265,249
- -----------------------------------------------------------------------------------------------------------------------------
Basic weighted-average common shares outstanding 302,303 300,567
Weighted-average common shares to be issued using average market price and assuming:
Conversion of preferred stock Series A and B 138 156
Conversion of preferred stock Series C and D 1,099 1,175
Conversion of debentures 25 1,721
Exercise of stock options 1,558 2,214
Incentive share awards 373 315
- -----------------------------------------------------------------------------------------------------------------------------
Diluted weighted-average common shares outstanding 305,496 306,148
- -----------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $1.05 $.87
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
PNC BANK CORP.
----
29
<PAGE> 31
LITIGATION
The Corporation and persons to whom the Corporation may have indemnification
obligations, in the normal course of business, are subject to various pending
and threatened lawsuits in which claims for monetary damages are asserted.
Management, after consultation with legal counsel, does not at the present time
anticipate the ultimate aggregate liability, if any, arising out of such
lawsuits will have a material adverse effect on the Corporation's financial
position. At the present time, management is not in a position to determine
whether any such pending or threatened litigation will have a material adverse
effect on the Corporation's results of operations in any future reporting
period.
COMPREHENSIVE INCOME
Total comprehensive income amounted to $279 million and $261 million during the
first quarter of 1999 and 1998, respectively.
OTHER FINANCIAL INFORMATION
In connection with the 1995 Midlantic merger, the parent company and its
wholly-owned subsidiary, PNC Bancorp, Inc, jointly and severally assumed
borrowed funds of Midlantic in the aggregate principal amount of $300 million at
March 31, 1999.
Summarized financial information for PNC Bancorp, Inc. and subsidiaries is as
follows:
PNC BANCORP, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31 December 31
In millions 1999 1998
- ----------------------------------------------------------------
ASSETS
Cash and due from banks $2,317 $2,527
Securities available for sale 8,594 6,868
Loans, net of unearned income 52,603 57,282
Allowance for credit losses (672) (753)
- ----------------------------------------------------------------
Net loans 51,931 56,529
Other assets 9,536 9,261
- ----------------------------------------------------------------
Total assets $72,378 $75,185
- ----------------------------------------------------------------
LIABILITIES
Deposits $45,902 $47,578
Borrowed funds 18,246 19,402
Other liabilities 1,338 1,130
- ----------------------------------------------------------------
Total liabilities 65,486 68,110
Mandatorily redeemable capital
securities of subsidiary trust 350 350
SHAREHOLDERS' EQUITY 6,542 6,725
- ----------------------------------------------------------------
Total liabilities, capital securities
and shareholders' equity $72,378 $75,185
- ----------------------------------------------------------------
PNC BANCORP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three months ended March 31 - in
millions 1999 1998
- ----------------------------------------------------------------
Interest income $1,273 $1,279
Interest expense 602 629
- ----------------------------------------------------------------
Net interest income 671 650
Provision for credit losses 78 30
- ----------------------------------------------------------------
Net interest income less provision
for credit losses 593 620
Noninterest income 505 478
Noninterest expense 693 688
- ----------------------------------------------------------------
Income before income taxes 405 410
Income taxes 146 142
- ----------------------------------------------------------------
Net income $259 $268
SUBSEQUENT EVENT
On May 13, 1999, the Corporation announced that BlackRock, Inc. filed a
registration statement with the Securities and Exchange Commission relating to
an initial public offering of its common stock.
A registration statement relating to BlackRock, Inc. common stock has been filed
with the Securities and Exchange Commission but has not yet become effective.
BlackRock, Inc. common stock may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective.
PNC BANK CORP.
----
30
<PAGE> 32
Statistical Information
CONSOLIDATED AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
-------------------------------------- -----------------------------------
First Quarter 1999 Fourth Quarter 1998
-------------------------------------- -----------------------------------
Dollars in millions 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 $3,383 $56 6.68% $4,295 $71 6.64%
Securities available for sale
U.S. Treasury and government agencies and
corporations 4,248 54 5.10 4,110 52 5.06
Other debt 2,848 43 6.11 2,631 40 6.12
Other 659 10 5.98 582 10 6.77
- --------------------------------------------------------------------------------- -------------------------
Total securities available for sale 7,755 107 5.55 7,323 102 5.58
Loans, net of unearned income
Consumer (excluding credit card) 10,955 222 8.21 11,075 234 8.38
Credit card 2,724 100 14.91 3,570 131 14.58
Residential mortgage 12,184 216 7.09 12,193 218 7.16
Commercial 24,574 462 7.52 24,593 474 7.55
Commercial real estate 3,398 65 7.70 3,442 69 7.81
Other 2,860 52 7.24 2,493 45 7.12
- --------------------------------------------------------------------------------- -------------------------
Total loans, net of unearned income 56,695 1,117 7.91 57,366 1,171 8.06
Other 1,005 16 6.19 881 16 6.97
- --------------------------------------------------------------------------------- -------------------------
Total interest-earning assets/interest income 68,838 1,296 7.56 69,865 1,360 7.70
Noninterest-earning assets
Allowance for credit losses (744) (792)
Cash and due from banks 2,066 2,088
Other assets 6,798 6,216
- ---------------------------------------------------------------------- --------------
Total assets $76,958 $77,377
- ---------------------------------------------------------------------- --------------
LIABILITIES, CAPITAL SECURITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand and money market $16,825 113 2.73 $15,974 117 2.90
Savings 2,535 10 1.63 2,552 12 1.84
Other time 17,262 219 5.12 17,830 238 5.31
Deposits in foreign offices 759 9 4.78 692 9 4.86
- --------------------------------------------------------------------------------- -------------------------
Total interest-bearing deposits 37,381 351 3.80 37,048 376 4.03
Borrowed funds
Bank notes and senior debt 9,814 125 5.10 10,153 139 5.35
Federal funds purchased 1,663 20 4.81 2,117 27 4.97
Repurchase agreements 1,841 16 3.57 1,498 15 4.04
Other borrowed funds 6,380 84 5.24 7,113 101 5.54
Subordinated debt 1,886 36 7.58 1,842 37 8.03
- --------------------------------------------------------------------------------- -------------------------
Total borrowed funds 21,584 281 5.21 22,723 319 5.51
- --------------------------------------------------------------------------------- -------------------------
Total interest-bearing liabilities/interest expense 58,965 632 4.31 59,771 695 4.59
Noninterest-bearing liabilities and shareholders' equity
Demand and other noninterest-bearing deposits 9,035 9,202
Accrued expenses and other liabilities 2,135 1,756
Mandatorily redeemable capital securities
of subsidiary trusts 848 848
Shareholders' equity 5,975 5,800
- ---------------------------------------------------------------------- --------------
Total liabilities, capital securities and
shareholders' equity $76,958 $77,377
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.25 3.11
Impact of noninterest-bearing sources .61 .66
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin $664 3.86% $665 3.77%
- ------------------------------------------------------------------------------------------------------------------------------------
</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 of securities available for sale are based on
amortized historical cost (excluding SFAS No. 115 adjustments to fair value).
PNC BANK CORP.
----
31
<PAGE> 33
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Third Quarter 1998 Second Quarter 1998 First Quarter 1998
- ------------------------------------------------------------------------------------------------------------------------------------
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>
$3,850 $67 7.00% $2,948 $52 7.02% $2,363 $42 7.16%
4,714 66 5.58 5,252 74 5.62 5,580 81 5.78
1,842 29 6.35 1,531 25 6.46 1,639 27 6.59
517 9 6.43 540 8 6.44 565 9 6.57
- ------------------------------ ---------------------------- -----------------------------
7,073 104 5.85 7,323 107 5.86 7,784 117 6.01
11,038 235 8.47 10,995 235 8.56 11,186 236 8.56
4,029 142 13.94 4,048 133 13.17 3,748 133 14.38
12,455 225 7.21 12,560 228 7.26 12,784 233 7.31
23,359 468 7.84 22,425 445 7.85 20,665 407 7.87
2,850 63 8.65 3,206 66 8.22 3,624 79 8.68
2,207 39 7.06 2,114 37 7.01 2,076 36 6.99
- ------------------------------ ---------------------------- -----------------------------
55,938 1,172 8.28 55,348 1,144 8.23 54,083 1,124 8.36
1,097 18 6.41 1,069 17 6.18 959 15 6.48
- ------------------------------ ---------------------------- -----------------------------
67,958 1,361 7.92 66,688 1,320 7.89 65,189 1,298 8.00
(830) (885) (947)
2,022 2,020 2,787
6,140 5,809 5,112
- --------------- ------------- --------------
$75,290 $73,632 $72,141
- --------------- ------------- --------------
$14,787 113 3.04 $14,344 106 2.95 $14,153 103 2.97
2,610 13 1.97 2,675 13 1.98 2,646 13 1.99
16,896 230 5.41 16,749 227 5.43 17,346 234 5.46
1,060 15 5.54 1,188 17 5.53 800 11 5.68
- ------------------------------ ---------------------------- -----------------------------
35,353 371 4.17 34,956 363 4.15 34,945 361 4.19
11,845 172 5.67 10,643 153 5.68 9,972 142 5.69
2,496 36 5.60 3,089 43 5.51 2,404 33 5.55
1,587 19 4.79 1,762 21 4.75 1,523 19 4.89
4,871 75 6.01 4,524 68 5.97 4,408 66 5.99
1,843 35 7.63 1,826 35 7.64 1,682 33 7.77
- ------------------------------ ---------------------------- -----------------------------
22,642 337 5.83 21,844 320 5.81 19,989 293 5.85
- ------------------------------ ---------------------------- -----------------------------
57,995 708 4.82 56,800 683 4.79 54,934 654 4.79
9,169 9,213 9,685
1,632 1,445 1,474
848 698 650
5,646 5,476 5,398
- --------------- ------------- --------------
$75,290 $73,632 $72,141
- ------------------------------------------------------------------------------------------------------------------------------------
3.10 3.10 3.21
.71 .71 .75
- ------------------------------------------------------------------------------------------------------------------------------------
$653 3.81% $637 3.81% $644 3.96%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PNC BANK CORP.
----
32
<PAGE> 34
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, 1999.
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, 1999, PNC Bank Corp. had 298,983,094 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.
Cross-Reference Page(s)
-----------------------------------------------------
PART I FINANCIAL INFORMATION
Item 1 Consolidated Statement of Income for the
three months ended March 31, 1999 and
1998 21
Consolidated Balance Sheet as of March
31, 1999 and December 31, 1998 22
Consolidated Statement of Cash Flows for
the three months ended March 31, 1999
and 1998 23
Notes to Consolidated Financial
Statements 24 - 30
Consolidated Average Balance Sheet and
Net Interest Analysis 31 - 32
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 2 - 20
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 16 - 17
-----------------------------------------------------
PART II OTHER INFORMATION
Item 4 Submission of Matters for a Vote of Security Holders
An annual meeting of shareholders of the Corporation was held on April 27, 1999,
for the purpose of electing 17 directors.
All 17 nominees were elected and the votes cast for and against/withheld were as
follows:
Aggregate Votes
----------------------------------
Nominee For Against/Withheld
- -------------------------------------------------------------------
Paul W. Chellgren 261,470,021 3,397,378
Robert N. Clay 261,462,452 3,404,947
George A. Davidson, Jr. 261,476,034 3,391,365
David F. Girard-diCarlo 259,686,868 5,180,531
Walter E. Gregg, Jr. 261,391,606 3,475,793
William R. Johnson 261,335,115 3,532,284
Bruce C. Lindsay 261,411,673 3,455,726
W. Craig McClelland 261,385,149 3,482,250
Thomas H. O'Brien 261,187,128 3,680,271
Jane G. Pepper 261,120,848 3,746,551
Jackson H. Randolph 261,446,867 3,420,532
James E. Rohr 261,384,220 3,483,179
Roderic H. Ross 261,395,057 3,472,342
Richard P. Simmons 261,413,830 3,453,569
Thomas J. Usher 261,444,075 3,423,324
Milton A. Washington 261,389,964 3,477,435
Helge H. Wehmeier 261,439,901 3,427,498
- -------------------------------------------------------------------
PNC BANK CORP.
----
33
<PAGE> 35
With respect to the above matter, holders of the Corporation's common and
preferred stock voted together as a single class. The following table sets forth
as of the February 26, 1999 record date the number of shares of each class of
stock that were issued and outstanding and entitled to vote, the voting power
per share and the aggregate voting power of each class:
Number of
Voting Shares
Rights Entitled Aggregate
Title of Class Per Share to Vote Voting Power
- ----------------------------------------------------------------
Common Stock 1 302,103,797 302,103,797
$1.80 Cumulative
Convertible
Preferred Stock -
Series A 8 12,862 102,896
$1.80 Cumulative
Convertible
Preferred Stock -
Series B 8 4,384 35,072
$1.60 Cumulative
Convertible
Preferred Stock -
Series C 4/2.4 270,546 450,910*
$1.80 Cumulative
Convertible
Preferred Stock -
Series D 4/2.4 385,730 642,883*
--------------
Total possible votes 303,335,558*
- ----------------------------------------------------------------
* Represents greatest number of votes possible. Actual aggregate voting power
was less since each holder of such preferred stock is entitled to a number of
votes equal to the number of full shares of common stock into which such
holder's preferred stock is convertible.
Holders of the Corporation's 6,000,000 issued and outstanding shares of
Fixed/Adjustable Rate Noncumulative Preferred Stock-Series F were not entitled
to vote with respect to the matters presented at the meeting.
Item 6 Exhibits and Reports on Form 8-K
The following exhibit index lists Exhibits to this Quarterly Report on Form
10-Q:
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
27 Financial Data Schedule
- ------------------------------------------------------------------
Copies of these Exhibits may be accessed electronically at the Securities and
Exchange Commission's home page at www.sec.gov. Exhibits will also be furnished
without charge by writing to Lynn F. Evans, Director, Financial Reporting, at
corporate headquarters. Requests may also be directed to (412) 762-1553 or via
e-mail to [email protected].
Since December 31, 1998, the Corporation filed the following Current Reports on
Form 8-K:
Form 8-K dated as of December 23, 1998, reporting developments regarding the
Corporation's credit card business, filed pursuant to Item 5.
Form 8-K dated as of January 19, 1999, reporting the Corporation's consolidated
financial results for the three months and year ended December 31, 1998, filed
pursuant to Item 5.
Form 8-K dated as of February 16, 1999, reporting the public offering of
$250,000,000 of 6 1/8% subordinated notes due 2009, filed pursuant to Item 5.
Form 8-K dated as of March 29, 1999, reporting developments regarding the
Corporation's credit card business, filed pursuant to Item 5.
Form 8-K dated as of April 22, 1999, reporting the Corporation's consolidated
financial results for the three months ended March 31, 1999 and information on
the Corporation's businesses for the three months ended March 31, 1999 and 1998,
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 17, 1999, 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.
----
34
<PAGE> 36
Corporate Information
CORPORATE HEADQUARTERS
PNC Bank Corp.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
STOCK LISTING
PNC Bank Corp. common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol PNC.
INTERNET INFORMATION
Information on PNC Bank Corp.'s financial results and its products and services
is available on the Internet at www.pncbank.com.
FINANCIAL INFORMATION
The Annual Report on Form 10-K is filed with the Securities and Exchange
Commission ("SEC"). Copies of this document and other filings, including
Exhibits thereto, may be obtained electronically at the SEC's home page at
www.sec.gov. Copies also may be obtained by writing to Lynn F. Evans, Director
of Financial Reporting, at corporate headquarters, or by calling (412) 762-1553
or via e-mail at [email protected].
INQUIRIES
For financial services call 1-800-4-BANKER. Individual shareholders should
contact Shareholder Relations at (800) 843-2206 or the PNC Bank Hotline at (800)
982-7652.
Analysts and institutional investors should contact William H. Callihan, Vice
President, Investor Relations, at (412) 762-8257 or via e-mail at
[email protected].
News media representatives and others seeking general information should contact
Brian E. Goerke, Director of Public Relations, at (412) 762-4304 or via e-mail
at [email protected].
COMMON STOCK PRICES/DIVIDENDS DECLARED
The table below sets forth by quarter the range of high and low sale and
quarter-end closing prices for PNC Bank Corp. common stock and the cash
dividends declared per common share.
Cash
Dividends
1999 QUARTER High Low Close Declared
- ---------------------------------------------------------------------
First $59.750 $47.000 $55.563 $.41
- ---------------------------------------------------------------------
Cash
Dividends
1998 QUARTER High Low Close Declared
- ---------------------------------------------------------------------
First $61.625 $49.500 $59.938 $.39
Second 66.750 53.813 53.875 .39
Third 60.000 41.625 45.000 .39
Fourth 54.625 38.750 54.000 .41
- ---------------------------------------------------------------------
Total $1.58
- ---------------------------------------------------------------------
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.
REGISTRAR AND TRANSFER AGENT
The Chase Manhattan Bank
P.O. Box 590
Ridgefield Park, New Jersey 07660
800-982-7652
PNC BANK CORP.
----
35
<PAGE> 1
PNC BANK CORP. EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Year ended December 31
months ended -------------------------------------------------------------------
Dollars in millions March 31, 1999 1998 1997 1996 1995 1994
- ---------------------------------------------- -------------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative effect
of changes in accounting principles $488 $1,710 $1,618 $1,527 $627 $1,209
Fixed charges excluding interest on deposits 309 1,366 1,171 1,098 1,487 1,104
------------- -------------------------------------------------------------------
Subtotal 797 3,076 2,789 2,625 2,114 2,313
Interest on deposits 351 1,471 1,457 1,428 1,552 1,160
------------- ------------ ----------- ------------ ------------ ------------
Total $1,148 $4,547 $4,246 $4,053 $3,666 $3,473
------------- ------------ ----------- ------------ ------------ ------------
FIXED CHARGES
Interest on borrowed funds $281 $1,267 $1,098 $1,065 $1,454 $1,071
Interest component of rentals 12 37 29 31 32 32
Amortization of notes and debentures 2 1 1 1 1
Distributions on Mandatorily Redeemable
Capital Securities of Subsidiary Trusts 16 60 43 1
------------- ------------ ----------- ------------ ------------ ------------
Subtotal 309 1,366 1,171 1,098 1,487 1,104
Interest on deposits 351 1,471 1,457 1,428 1,552 1,160
------------- ------------ ----------- ------------ ------------ ------------
Total $660 $2,837 $2,628 $2,526 $3,039 $2,264
------------- ------------ ----------- ------------ ------------ ------------
RATIO OF EARNINGS TO FIXED CHARGES
Excluding interest on deposits 2.58 x 2.25 x 2.38 x 2.39 x 1.42 x 2.10 x
Including interest on deposits 1.74 1.60 1.62 1.60 1.21 1.53
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
PNC BANK CORP. EXHIBIT 12.2
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Three Year ended December 31
months ended -------------------------------------------------------------------
Dollars in millions March 31, 1999 1998 1997 1996 1995 1994
- ---------------------------------------------- -------------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative effect
of changes in accounting principles $488 $1,710 $1,618 $1,527 $627 $1,209
Fixed charges and preferred stock dividends
excluding interest on deposits 316 1,395 1,201 1,106 1,492 1,112
------------- ------------ ----------- ------------ ------------ ------------
Subtotal 804 3,105 2,819 2,633 2,119 2,321
Interest on deposits 351 1,471 1,457 1,428 1,552 1,160
------------- ------------ ----------- ------------ ------------ ------------
Total $1,155 $4,576 $4,276 $4,061 $3,671 $3,481
------------- ------------ ----------- ------------ ------------ ------------
FIXED CHARGES
Interest on borrowed funds $281 $1,267 $1,098 $1,065 $1,454 $1,071
Interest component of rentals 12 37 29 31 32 32
Amortization of notes and debentures 2 1 1 1 1
Distributions on Mandatorily Redeemable
Capital Securities of Subsidiary Trusts 16 60 43 1
Preferred stock dividend requirements 7 29 30 8 5 8
------------- ------------ ----------- ------------ ------------ ------------
Subtotal 316 1,395 1,201 1,106 1,492 1,112
Interest on deposits 351 1,471 1,457 1,428 1,552 1,160
------------- ------------ ----------- ------------ ------------ ------------
Total $667 $2,866 $2,658 $2,534 $3,044 $2,272
------------- ------------ ----------- ------------ ------------ ------------
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
Excluding interest on deposits 2.54 x 2.23 x 2.35 x 2.38 x 1.42 x 2.09 x
Including interest on deposits 1.73 1.60 1.61 1.60 1.21 1.53
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL INFORMATION INCORPORATED BY REFERENCE TO THE 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,322
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,170
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 52,800
<ALLOWANCE> (672)
<TOTAL-ASSETS> 74,868
<DEPOSITS> 45,799
<SHORT-TERM> 10,665
<LIABILITIES-OTHER> 2,355
<LONG-TERM> 9,270
0
7
<COMMON> 1,764
<OTHER-SE> 4,160
<TOTAL-LIABILITIES-AND-EQUITY> 74,868
<INTEREST-LOAN> 1,112
<INTEREST-INVEST> 106
<INTEREST-OTHER> 72
<INTEREST-TOTAL> 1,290
<INTEREST-DEPOSIT> 351
<INTEREST-EXPENSE> 632
<INTEREST-INCOME-NET> 658
<LOAN-LOSSES> 78
<SECURITIES-GAINS> (17)
<EXPENSE-OTHER> 823
<INCOME-PRETAX> 488
<INCOME-PRE-EXTRAORDINARY> 325
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 3.86
<LOANS-NON> 291
<LOANS-PAST> 161
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 753
<CHARGE-OFFS> (97)
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 672
<ALLOWANCE-DOMESTIC> 672
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
