<PAGE> 1
THE PNC FINANCIAL SERVICES GROUP, INC.
Quarterly Report on Form 10-Q
For the quarterly period ended June 30, 2000
Page 1 represents a portion of the second quarter 2000 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 37.
<PAGE> 2
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
------------------------------------- ----------------------------------
2000 1999 1999 2000 1999 1999
Dollars in millions, except per share data Core Reported Core Reported
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL PERFORMANCE
Revenue
Net interest income (taxable-equivalent basis) $555 $612 $612 $1,120 $1,276 $1,276
Noninterest income 796 623 664 1,585 1,206 1,395
Total revenue 1,351 1,235 1,276 2,705 2,482 2,671
Net income 315 299 315 623 592 640
Cash earnings* 344 319 335 681 631 679
Per common share
Basic earnings 1.07 .99 1.04 2.11 1.94 2.10
Diluted earnings 1.06 .98 1.03 2.09 1.92 2.08
Diluted cash earnings* 1.16 1.04 1.10 2.29 2.05 2.21
Cash dividends declared .45 .41 .41 .90 .82 .82
*Excludes amortization of goodwill
------------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on
Average common shareholders' equity 21.91% 21.21% 22.38% 21.81% 20.92% 22.66%
Average assets 1.68 1.60 1.68 1.67 1.57 1.70
Net interest margin 3.41 3.64 3.64 3.43 3.75 3.75
Noninterest income to total revenue 58.92 50.45 52.04 58.60 48.59 52.23
Efficiency** 55.70 54.01 54.60 56.53 53.01 54.01
** Excludes amortization, distributions on capital securities and residential
mortgage banking risk management activities
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
June 30 December 31 June 30
Dollars in millions, except per share data 2000 1999 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PERIOD-END BALANCE SHEET DATA
Assets $75,737 $75,413 $75,558
Earning assets 64,228 64,671 66,889
Loans, net of unearned income 50,942 50,046 52,075
Securities available for sale 7,302 7,611 8,856
Loans held for sale 4,510 5,798 4,507
Deposits 47,426 46,668 47,685
Borrowed funds 18,585 19,347 18,464
Shareholders' equity 6,157 5,946 5,755
Common shareholders' equity 5,844 5,633 5,442
Book value per common share 20.22 19.23 18.40
CAPITAL RATIOS
Leverage 6.72% 6.61% 7.47%
Common shareholders' equity to total assets 7.72 7.47 7.20
ASSET QUALITY RATIOS
Nonperforming assets to total loans, loans held for
sale and foreclosed assets .66% .61% .59%
Allowance for credit losses to total loans 1.33 1.35 1.29
Allowance for credit losses to nonaccrual loans 213.61 225.42 224.33
Quarterly net charge-offs to average loans .27 .23 .18
====================================================================================================================================
</TABLE>
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
1
<PAGE> 3
FINANCIAL REVIEW
This Financial Review should be read in conjunction with The PNC Financial
Services Group, Inc. and subsidiaries' ("Corporation" or "PNC") unaudited
Consolidated Financial Statements included herein and the Financial Review and
audited Consolidated Financial Statements included in the Corporation's 1999
Annual Report.
OVERVIEW
THE PNC FINANCIAL SERVICES GROUP, INC.
The Corporation is one of the largest diversified financial services companies
in the United States operating regional banking, corporate banking, real estate
finance, asset-based lending, asset management, global fund services and
mortgage banking businesses that provide products and services nationally and in
PNC's primary geographic markets in Pennsylvania, New Jersey, Delaware, Ohio and
Kentucky.
Financial services organizations today are challenged to demonstrate that they
can generate sustainable and consistent earnings growth in an increasingly
competitive and volatile environment. PNC has responded to these challenges by
transitioning to a diversified national financial services organization driven
by businesses that are increasingly national in scope and less balance sheet
dependent. Increasing contributions from fee-based businesses including asset
management, processing and private banking have strengthened PNC's revenue and
earnings mix. In addition, the Corporation seeks to enhance consolidated value
by leveraging technology, information, branding, marketing and financial
resources across all businesses.
As part of this transition, the Corporation implemented a number of initiatives
designed to reshape the traditional bank franchise as well as grow
non-traditional, largely fee-based businesses with greater growth potential.
These include the sale of the credit card business, exiting certain
non-strategic wholesale lending businesses and the continued downsizing of the
indirect automobile lending portfolio. PNC also acquired Investor Services Group
("ISG"). The combination of ISG with PFPC, the Corporation's global fund
services subsidiary, created one of the nation's leading full-service processors
for pooled investment products. On May 31, 2000, PFPC completed the acquisition
of Automated Business Development Corp. ("ABD"), the leading provider of blue
sky compliance services to the mutual fund industry.
On July 18, 2000, the Corporation announced that it is exploring the potential
sale of the residential mortgage banking business. The scale requirements for
the residential mortgage banking business continue to increase as the industry's
consolidation accelerates. The capital commitment required for PNC to continue
to gain scale in this business would be significant. A sale of the residential
mortgage banking business, if undertaken, would position PNC to redeploy capital
to further the Corporation's growth objectives.
SUMMARY FINANCIAL RESULTS
Consolidated net income for the first six months of 2000 was $623 million or
$2.09 per diluted share, a 9% increase compared with core earnings per diluted
share for the prior-year period. Return on average common shareholders' equity
was 21.81% and return on average assets was 1.67% for the first six months of
2000 compared with core returns of 20.92% and 1.57%, respectively, a year ago.
Cash earnings per diluted share, which exclude goodwill amortization, were $2.29
for the first six months of 2000, a 12% increase compared with core cash
earnings per diluted share a year ago.
Reported earnings for the first six months of 1999 were $640 million or $2.08
per diluted share. Core earnings per diluted share were $1.92 and core cash
earnings per diluted share were $2.05 in the first six months of 1999. Core
earnings for the first six months of 1999 excluded $331 million of gains on the
sales of the credit card business and equity interests in Electronic Payment
Services, Inc. ("EPS") and Concord EFS, Inc. ("Concord") stock that were
partially offset by $142 million of valuation adjustments associated with
exiting certain non-strategic wholesale lending businesses, a $30 million
contribution to the PNC Foundation and $98 million of costs related to
efficiency initiatives.
Taxable-equivalent net interest income was $1.120 billion for the first six
months of 2000, a $156 million decrease compared with the first six months of
1999. The net interest margin was 3.43% for the first six months of 2000
compared with 3.75% for the first six months of 1999. The decreases were
primarily due to funding costs related to the ISG acquisition, the downsizing of
certain credit-related businesses in 1999 and the effect of a higher interest
rate environment.
The provision for credit losses was $66 million in the first six months of 2000
and net charge-offs were $65 million.
Noninterest income of $1.585 billion for the first six months of 2000 increased
$379 million or 31% compared with the first six months of 1999, excluding
non-core items last year. The increase was primarily driven by strong growth in
certain fee-based businesses, the impact of the ISG acquisition and higher
equity management revenue.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
2
<PAGE> 4
FINANCIAL REVIEW
Noninterest expense was $1.674 billion and the efficiency ratio was 56.5% in the
first six months of 2000 compared with $1.462 billion and 53.0%, respectively,
in the first six months of 1999, excluding non-core items. The increases were
primarily related to the ISG acquisition and higher expenses commensurate with
fee-based revenue growth.
Total assets were $75.7 billion at June 30, 2000 compared with $75.4 billion at
December 31, 1999. Average earning assets were $64.9 billion for the first six
months of 2000 compared with $67.9 billion for the first six months of 1999. The
decrease was primarily due to the impact of downsizing certain credit-related
businesses and a smaller securities portfolio.
Shareholders' equity totaled $6.2 billion, the leverage ratio was 6.7% and Tier
I and total risk-based capital ratios were 7.4% and 11.3%, respectively, at June
30, 2000.
Overall asset quality remained relatively stable during the first six months of
2000. The ratio of nonperforming assets to total loans, loans held for sale and
foreclosed assets was .66% at June 30, 2000 compared with .61% at December 31,
1999. Nonperforming assets were $364 million at June 30, 2000 compared with $338
million at December 31, 1999. The allowance for credit losses was $675 million
and represented 1.33% of period-end loans and 214% of nonaccrual loans at June
30, 2000. The comparable ratios were 1.35% and 225%, respectively, at December
31, 1999. Net charge-offs were $65 million or .26% of average loans for the
first six months of 2000 compared with $102 million or .38%, respectively, for
the first six months of 1999. The decreases were primarily due to the sale of
the credit card business in the first quarter of 1999.
FORWARD-LOOKING STATEMENTS
This report and other documents filed by the Corporation with the Securities and
Exchange Commission ("SEC") may include forward-looking statements within the
meaning of the Private Securities Litigation Reform Act. Forward-looking
statements give the Corporation's expectations or predictions of future
financial or business performance or conditions. Forward-looking statements are
typically identified by words or phrases such as "believe," "expect,"
"anticipate," "intend," "estimate," "position," "potential," "continue," and
variations of such words and similar expressions, or future or conditional verbs
such as "will," "would," "should," "could," "may" or similar expressions.
The Corporation cautions that these forward-looking statements are subject to
numerous assumptions, risks and uncertainties, all of which change over time.
Actual results could differ materially from those anticipated in these
forward-looking statements and future results could differ from historical
performance.
The following factors, among others, could cause actual results to differ
materially from forward-looking statements or historical performance: changes in
asset quality and credit risk; the inability to sustain revenue and earnings
growth; changes in interest rates and financial and capital markets; inflation;
changes in values of assets under management and assets serviced; relative
investment performance of assets under management; customer acceptance of PNC
products and services; customer borrowing, repayment, investment and deposit
practices; customer disintermediation; valuation of debt and equity investments;
the introduction, withdrawal, success and timing of business initiatives and
strategies; competitive conditions; the inability to realize cost savings or
revenues, implement integration plans and other consequences associated with
mergers, acquisitions and divestitures; economic conditions; and the impact,
extent and timing of technological changes, capital management activities and
actions of the Federal Reserve Board and legislative and regulatory actions and
reforms.
Factors relating to credit, interest rate, liquidity and market risk are
discussed elsewhere in this report. Factors relating to the regulation and
supervision of the Corporation are also discussed in the Corporation's 1999
Annual Report on Form 10-K filed with the SEC. Forward-looking statements speak
only as of the date they are made and the Corporation assumes no duty to update
forward-looking statements.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
3
<PAGE> 5
REVIEW OF BUSINESSES
PNC operates eight major businesses engaged in regional banking, corporate
banking, real estate finance, asset-based lending, asset management, global fund
services and mortgage banking activities: Regional Banking, Corporate Banking,
PNC Real Estate Finance, PNC Business Credit, PNC Advisors, BlackRock, PFPC and
PNC Mortgage.
Business results are presented based on PNC's management accounting practices
and the Corporation's current management structure. There is no comprehensive,
authoritative body of guidance for management accounting equivalent to generally
accepted accounting principles; therefore, PNC's business results are not
necessarily comparable with similar information for any other financial services
institution. Financial results are presented to the extent practicable as if
each business operated on a stand-alone basis.
The presentation of business results was changed during the first quarter of
2000 to reflect the Corporation's current operating strategy and recent
organizational changes. Middle market and equipment leasing activities
(previously included in Regional Banking) are reported in Corporate Banking. In
addition, PNC Real Estate Finance and PNC Business Credit are reported
separately within PNC Secured Finance. Regional real estate lending activities
(previously included in Regional Banking) are reported in PNC Real Estate
Finance. Business financial results for the first six months of 2000 and 1999
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. The allowance for credit losses is allocated to the businesses based
on risk inherent in the loan portfolios. Support areas not directly aligned with
the businesses are allocated primarily based on the utilization of 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, equity
management activities, minority interests, residual asset and liability
management activities, eliminations and unassigned items, the impact of which is
reflected in Other.
RESULTS OF BUSINESSES
<TABLE>
<CAPTION>
Return on
Earnings Revenue* Assigned Capital Average Assets
Six months ended June 30 - -----------------------------------------------------------------------------------------
dollars in millions 2000 1999 2000 1999 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PNC Bank
Regional Banking $281 $259 $991 $976 22% 21% $38,182 $37,673
Corporate Banking 120 105 420 354 20 18 16,110 15,634
---------------------------------------------------------------------------------- ----------------------
Total PNC Bank 401 364 1,411 1,330 21 20 54,292 53,307
PNC Secured Finance
PNC Real Estate Finance 33 37 103 108 17 19 5,604 5,632
PNC Business Credit 26 16 57 37 36 29 2,173 1,658
---------------------------------------------------------------------------------- ----------------------
Total PNC Secured Finance 59 53 160 145 23 21 7,777 7,290
Asset Management
PNC Advisors 86 75 398 365 31 27 3,577 3,304
BlackRock 40 26 221 180 27 44 434 403
PFPC 16 22 338 111 16 42 1,587 263
---------------------------------------------------------------------------------- ----------------------
Total Asset Management 142 123 957 656 27 32 5,598 3,970
PNC Mortgage 22 24 158 217 10 11 6,615 7,050
---------------------------------------------------------------------------------- ----------------------
Total businesses 624 564 2,686 2,348 22 21 74,282 71,617
Other (1) 28 19 134 833 4,386
---------------------------------------------------------------------------------- ----------------------
Total consolidated - core 623 592 2,705 2,482 22 21 75,115 76,003
Gain on sale of credit card business 125 193
Gain on sale of equity interest in EPS 63 97
Gain on sale of Concord stock net of
PNC Foundation contribution 16 41
Wholesale lending repositioning (92) (142)
Costs related to efficiency initiatives (64)
---------------------------------------------------------------------------------- ----------------------
Total consolidated - reported $623 $640 $2,705 $2,671 22 23 $75,115 $76,003
=================================================================================================================================
</TABLE>
* Taxable-equivalent basis
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
4
<PAGE> 6
FINANCIAL REVIEW
REGIONAL BANKING
Six months ended June 30 -
dollars in millions 2000 1999
-----------------------------------------------------------------
INCOME STATEMENT
Net interest income $703 $709
Noninterest income 288 267
-----------------------------------------------------------------
Total revenue 991 976
Provision for credit losses 22 33
Noninterest expense 534 533
-----------------------------------------------------------------
Pretax earnings 435 410
Income taxes 154 151
-----------------------------------------------------------------
Earnings $281 $259
-----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Consumer
Home equity $5,311 $5,105
Indirect 1,352 2,166
Education 95 1,289
Other consumer 776 684
-----------------------------------------------------------------
Total consumer 7,534 9,244
Commercial 3,711 3,784
Residential mortgage 11,599 11,272
Other 1,351 1,213
-----------------------------------------------------------------
Total loans 24,195 25,513
Securities available for sale 5,470 5,424
Loans held for sale 1,358 4
Assigned assets and other assets 7,159 6,732
-----------------------------------------------------------------
Total assets $38,182 $37,673
-----------------------------------------------------------------
Deposits
Noninterest-bearing demand $4,591 $5,194
Interest-bearing demand 5,377 4,687
Money market 9,776 8,696
Savings 2,063 2,433
Certificates 13,524 13,435
-----------------------------------------------------------------
Total net deposits 35,331 34,445
Other liabilities 274 686
Assigned capital 2,577 2,542
-----------------------------------------------------------------
Total funds $38,182 $37,673
-----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 22% 21%
Noninterest income to total revenue 29 27
Efficiency 52 53
=================================================================
Regional Banking provides credit, deposit, branch-based brokerage and electronic
banking products and services to retail customers as well as credit, treasury
management and capital markets products and services to small businesses
primarily within PNC's geographic region.
Regional Banking's strategic focus is on driving sustainable revenue growth
while aggressively managing the revenue/expense relationship. Regional Banking
utilizes knowledge-based marketing capabilities to analyze customer demographic
information, transaction patterns and delivery preferences to develop customized
banking packages focused on improving customer satisfaction and profitability.
Regional Banking has also invested heavily in building a sales culture and
infrastructure while improving efficiency. Capital investments have been
redistributed strategically with a greater proportion going towards the
development of alternative delivery capabilities consistent with customer
preferences.
Regional Banking contributed 45% of total business earnings for the first six
months of 2000 compared with 46% for the first six months of 1999. Earnings
increased 8% to $281 million for the first six months of 2000 and performance
ratios improved.
Total revenue was $991 million for the first six months of 2000 compared with
$976 million for the same period last year. The increase was primarily due to a
$21 million or 8% increase in noninterest income that was driven by higher
consumer service and brokerage fees, partially offset by the downsizing of the
indirect automobile lending portfolio and the comparative impact of branch sales
in 1999.
Consumer loans declined primarily due to the continued downsizing of the
indirect automobile lending portfolio and the decision to sell education loans
in repayment, which are included in loans held for sale. Interest-bearing demand
and money market deposits increased $1.8 billion or 13% primarily due to the
impact of strategic marketing initiatives, which reflects PNC's focus on
deepening customer relationships.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
5
<PAGE> 7
CORPORATE BANKING
Six months ended June 30 -
dollars in millions 2000 1999
--------------------------------------------------------------------
INCOME STATEMENT
Credit-related revenue $199 $180
Noncredit revenue 221 174
--------------------------------------------------------------------
Total revenue 420 354
Provision for credit losses 38 14
Noninterest expense 196 176
--------------------------------------------------------------------
Pretax earnings 186 164
Income taxes 66 59
--------------------------------------------------------------------
Earnings $120 $105
--------------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Middle market $5,559 $5,560
Specialized industries 3,767 3,909
Large corporate 2,815 2,550
Leasing 1,734 1,280
Other 250 442
--------------------------------------------------------------------
Total loans 14,125 13,741
Other assets 1,985 1,893
--------------------------------------------------------------------
Total assets $16,110 $15,634
--------------------------------------------------------------------
Net deposits $4,539 $4,375
Assigned funds and other liabilities 10,363 10,086
Assigned capital 1,208 1,173
--------------------------------------------------------------------
Total funds $16,110 $15,634
--------------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 20% 18%
Noncredit revenue to total revenue 53 49
Efficiency 46 49
====================================================================
Corporate Banking provides specialized credit, equipment leasing, treasury
management and capital markets products and services to large and mid-sized
corporations, institutions and government entities primarily within PNC's
geographic region.
The strategic focus for Corporate Banking is to emphasize higher-margin
noncredit products and services, especially treasury management and capital
markets, as well as disciplined balance sheet growth.
Corporate Banking made the decision to exit certain non-strategic wholesale
lending businesses during 1999. These activities are excluded from business
results in both periods presented.
Corporate Banking contributed 19% of total business earnings for the first six
months of 2000 and 1999. Earnings increased $15 million or 14% to $120 million
for the first six months of 2000 and performance ratios improved.
Total revenue of $420 million for the first six months of 2000 increased $66
million or 19% compared with the same period last year. Noncredit revenue
includes noninterest income and the benefit of compensating balances received in
lieu of fees. Noncredit revenue increased $47 million or 27% compared with the
first six months of 1999 primarily driven by increases in treasury management
and capital markets fees, as well as revenue associated with equity investments.
Noncredit revenue comprised 53% of total revenue for the first six months of
2000 reflecting the emphasis on sales of fee-based products.
The provision for credit losses was $38 million for the first six months of
2000, a $24 million increase compared with the prior-year period due to a higher
level of net charge-offs. The period-to-period increase was impacted by a low
level of net charge-offs in 1999.
The increase in noninterest expense in the period-to-period comparison was
associated with growth in noncredit products and services.
Treasury management and capital markets products offered through Corporate
Banking are sold by several businesses across the Corporation and related
profitability is included in the results of those businesses. Consolidated
revenue from treasury management was $169 million for the first six months of
2000, a 16% increase compared with the first six months of 1999. Consolidated
revenue from capital markets was $68 million for the first six months of 2000, a
32% increase compared with the first six months of 1999.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
6
<PAGE> 8
FINANCIAL REVIEW
PNC REAL ESTATE FINANCE
Six months ended June 30 -
dollars in millions 2000 1999
----------------------------------------------------------------
INCOME STATEMENT
Net interest income $59 $60
Noninterest income
Net commercial mortgage banking 30 32
Other 14 16
----------------------------------------------------------------
Total noninterest income 44 48
----------------------------------------------------------------
Total revenue 103 108
Provision for credit losses
Noninterest expense 67 60
----------------------------------------------------------------
Pretax earnings 36 48
Income taxes 3 11
----------------------------------------------------------------
Earnings $33 $37
----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Commercial - real estate related $2,041 $2,266
Commercial real estate 2,428 2,536
----------------------------------------------------------------
Total loans 4,469 4,802
Commercial mortgages held for sale 151 105
Other assets 984 725
----------------------------------------------------------------
Total assets $5,604 $5,632
----------------------------------------------------------------
Deposits $244 $240
Assigned funds and other liabilities 4,977 4,997
Assigned capital 383 395
----------------------------------------------------------------
Total funds $5,604 $5,632
----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 17% 19%
Noninterest income to total revenue 43 44
Efficiency 51 44
================================================================
PNC Real Estate Finance provides credit products, capital markets financing,
treasury management, commercial mortgage loan servicing and other products and
services to developers, owners and investors in commercial real estate.
Over the past several years, through customer segmentation and strategic
acquisitions, PNC Real Estate Finance has redeployed capital historically
assigned to lending activities in PNC's primary geographic markets to fee-based
businesses focused on loan servicing and securitization on a national basis.
PNC Real Estate Finance made the decision to exit the cyclical mortgage
warehouse lending business and certain non-strategic commercial real estate
portfolios at the end of 1999. These activities are excluded from business
results in both periods presented.
PNC Real Estate Finance contributed 5% of total business earnings for the first
six months of 2000 compared with 6% for the same period last year. Earnings were
$33 million for the first six months of 2000 compared with $37 million for the
first six months of 1999.
Total revenue was $103 million for the first six months of 2000 compared with
$108 million in the prior-year period. Increases in treasury management and
commercial mortgage servicing fees were more than offset by lower commercial
mortgage-backed securitization gains and the comparative impact of gains from
workout activities in 1999.
Noninterest expense was $67 million for the first six months of 2000 compared
with $60 million in the same period last year. The increase was primarily due to
passive losses on low income housing equity investments, the comparative impact
of legal expense recoveries from loan workout activities in 1999 and investments
in technology to support the loan servicing platform. The increase in passive
losses on low income housing investments was more than offset by related tax
credits.
COMMERCIAL MORTGAGE SERVICING PORTFOLIO
In billions 2000 1999
----------------------------------------------------------------
January 1 $45 $39
Acquisitions/additions 6 8
Repayments/transfers (3) (6)
----------------------------------------------------------------
June 30 $48 $41
================================================================
At June 30, 2000, the commercial mortgage servicing portfolio was $48 billion, a
17% increase compared with June 30, 1999.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
7
<PAGE> 9
PNC BUSINESS CREDIT
Six months ended June 30 -
dollars in millions 2000 1999
----------------------------------------------------------------
INCOME STATEMENT
Net interest income $49 $33
Noninterest income 8 4
----------------------------------------------------------------
Total revenue 57 37
Provision for credit losses 2 1
Noninterest expense 14 12
----------------------------------------------------------------
Pretax earnings 41 24
Income taxes 15 8
----------------------------------------------------------------
Earnings $26 $16
----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans $2,100 $1,625
Other assets 73 33
----------------------------------------------------------------
Total assets $2,173 $1,658
----------------------------------------------------------------
Deposits $56 $44
Assigned funds and other liabilities 1,973 1,503
Assigned capital 144 111
----------------------------------------------------------------
Total funds $2,173 $1,658
----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 36% 29%
Efficiency 23 30
================================================================
PNC Business Credit provides asset-based lending, capital markets and treasury
management products and services to middle market customers on a national basis.
PNC Business Credit's strategic focus is to build scale through the disciplined
expansion of existing offices as well as the addition of new marketing
locations.
PNC Business Credit contributed 4% of total business earnings for the first six
months of 2000 compared with 3% for the first six months of 1999. Earnings
increased $10 million or 63% in the period-to-period comparison to $26 million
for the first six months of 2000.
Revenue was $57 million for the first six months of 2000, a $20 million or 54%
increase compared with the first six months of 1999 primarily due to the impact
of higher loan outstandings associated with business expansion.
Noninterest expense was $14 million and the efficiency ratio improved to 23% for
the first six months of 2000 compared with $12 million and 30%, respectively, in
the same period last year. The return on assigned capital improved to 36% for
the first six months of 2000 due to strong revenue growth and improved
efficiency.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
8
<PAGE> 10
FINANCIAL REVIEW
PNC ADVISORS
Six months ended June 30 -
dollars in millions 2000 1999
----------------------------------------------------------------
INCOME STATEMENT
Net interest income $68 $67
Noninterest income
Investment management and trust 205 192
Brokerage 90 73
Other 35 33
----------------------------------------------------------------
Total noninterest income 330 298
----------------------------------------------------------------
Total revenue 398 365
Provision for credit losses 3
Noninterest expense 258 243
----------------------------------------------------------------
Pretax earnings 137 122
Income taxes 51 47
----------------------------------------------------------------
Earnings $86 $75
----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Residential mortgage $978 $1,002
Consumer 957 948
Commercial 643 611
Other 548 318
----------------------------------------------------------------
Total loans 3,126 2,879
Other assets 451 425
----------------------------------------------------------------
Total assets $3,577 $3,304
----------------------------------------------------------------
Deposits $2,086 $2,365
Assigned funds and other liabilities 941 386
Assigned capital 550 553
----------------------------------------------------------------
Total funds $3,577 $3,304
----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 31% 27%
Noninterest income to total revenue 83 82
Efficiency 64 66
================================================================
PNC Advisors offers customized 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 pension funds, 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. PNC Advisors continues
to expand Hilliard Lyons, PNC's high-end brokerage company that serves the
affluent, throughout the Corporation's geographic region, which includes some of
the nation's wealthiest metropolitan areas.
PNC Advisors contributed 14% of total business earnings for the first six months
of 2000 compared with 13% for the first six months of 1999. Earnings of $86
million for the first six months of 2000 increased $11 million or 15% compared
with the same period last year.
Revenue increased $33 million or 9% in the period-to period comparison. The
increase was primarily driven by higher brokerage revenue resulting from the
expansion of PNC Advisors' brokerage distribution network and significant
activity in the equity markets. Noninterest expense increased in the
period-to-period comparison commensurate with revenue growth.
ASSETS UNDER MANAGEMENT*
June 30 - in billions 2000 1999
----------------------------------------------------------------
Personal investment management and trust $50 $51
Institutional trust 18 17
----------------------------------------------------------------
Total $68 $68
================================================================
* Assets under management do not include brokerage assets administered.
At June 30, 2000 and 1999, PNC Advisors managed $68 billion of assets. Brokerage
assets administered by PNC Advisors increased $3 billion in the period-to-period
comparison to $28 billion at June 30, 2000, reflecting increased asset gathering
at Hilliard Lyons.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
9
<PAGE> 11
BLACKROCK
Six months ended June 30 -
dollars in millions 2000 1999
----------------------------------------------------------------
INCOME STATEMENT
Investment advisory and administrative fees $209 $169
Other income 12 11
----------------------------------------------------------------
Total revenue 221 180
Operating expense 111 88
Fund administration
and servicing costs - affiliates 38 36
Goodwill amortization 5 5
----------------------------------------------------------------
Total expense 154 129
Operating income 67 51
Nonoperating income (expense) 2 (6)
----------------------------------------------------------------
Pretax earnings 69 45
Income taxes 29 19
----------------------------------------------------------------
Earnings $40 $26
----------------------------------------------------------------
PERIOD-END BALANCE SHEET
Intangible assets $197 $199
Other assets 237 204
----------------------------------------------------------------
Total assets $434 $403
----------------------------------------------------------------
Borrowings $153
Other liabilities $113 118
Shareholders' equity 321 132
----------------------------------------------------------------
Total funds $434 $403
----------------------------------------------------------------
PERFORMANCE RATIOS
Return on equity 27% 44%
Operating margin* 36 35
Diluted earnings per share $.62 $.47
================================================================
* Excludes the impact of affiliate fund administration and servicing costs.
BlackRock manages assets for institutions and individuals through a variety of
fixed income, liquidity, equity and alternative investment products, including
BlackRock's flagship fund families.
BlackRock contributed 6% of total business earnings for the first six months of
2000 compared with 5% for the first six months of 1999. Earnings of $40 million
for the first six months of 2000 increased 54% compared with the same period
last year. Total revenue for the first six months of 2000 increased $41 million
or 23% compared with the first six months of 1999 primarily due to strong growth
in investment advisory and administrative fees resulting from new asset
management mandates, which represented $31 billion of the $35 billion or 25%
increase in assets under management. The increase in operating expense in the
period-to-period comparison supported revenue growth.
At June 30, 2000, BlackRock managed $177 billion of assets for individual and
institutional investors.
ASSETS UNDER MANAGEMENT
June 30 - in billions 2000 1999
----------------------------------------------------------------
Separate Accounts
Fixed income* $85 $68
Liquidity 18 13
Equity 8 2
----------------------------------------------------------------
Total Separate Accounts 111 83
Mutual Funds
Fixed income 14 14
Liquidity 36 32
Equity 16 13
----------------------------------------------------------------
Total Mutual Funds 66 59
----------------------------------------------------------------
Total assets under management $177 $142
----------------------------------------------------------------
Proprietary mutual funds
BlackRock Funds $28 $25
Provident Institutional Funds 26 22
----------------------------------------------------------------
Total proprietary mutual funds $54 $47
================================================================
* Includes alternative investment products.
BlackRock, Inc. is a publicly traded company that is 70% owned by PNC.
BlackRock's Class A common stock is listed on the New York Stock Exchange under
the symbol BLK. Additional information about BlackRock is available in its
filings with the SEC and may be obtained electronically at the SEC's home page
at www.sec.gov.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
10
<PAGE> 12
FINANCIAL REVIEW
PFPC
Six months ended June 30 -
dollars in millions 2000 1999
----------------------------------------------------------------
INCOME STATEMENT
Revenue $338 $111
Operating expense 256 75
----------------------------------------------------------------
Operating income 82 36
Debt financing 40
Amortization 16 1
----------------------------------------------------------------
Pretax earnings 26 35
Income taxes 10 13
----------------------------------------------------------------
Earnings $16 $22
----------------------------------------------------------------
AVERAGE BALANCE SHEET
Total assets $1,587 $263
----------------------------------------------------------------
Deposits $127 $140
Assigned funds and other liabilities 1,253 18
Assigned capital 207 105
----------------------------------------------------------------
Total funds $1,587 $263
----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 16% 42%
Operating margin 24 32
================================================================
PFPC, the Corporation's global fund services subsidiary, provides a wide range
of processing services to the investment management community. PFPC provides
customized services to clients in the United States and to the global funds
marketplace through its Dublin, Ireland operation.
On December 1, 1999, PFPC acquired ISG, one of the nation's leading providers of
back-office services to mutual funds and retirement plans. The acquisition added
key related businesses, including retirement plan servicing, to PFPC's expanding
operations. The integration of ISG into PFPC continues as scheduled. On May 31,
2000, PFPC completed the acquisition of ABD, the leading provider of blue sky
compliance services to the mutual fund industry. The acquisition was valued at
$20 million and accounted for as a purchase.
PFPC contributed 3% of total business earnings for the first six months of 2000
compared with 4% for the first six months of 1999. Earnings decreased $6 million
in the period-to-period comparison primarily due to the impact of the ISG
acquisition. Excluding the impact of ISG, earnings increased 23% in the
period-to-period comparison.
Revenue for the first six months of 2000 increased $227 million compared with
the first six months of 1999. The acquisition of ISG accounted for $200 million
of the increase in revenue. The remaining increase was driven by existing client
growth, new business and market appreciation. Operating expense increased in the
period-to-period comparison and performance ratios were impacted as a result of
the ISG acquisition and infrastructure costs associated with business expansion.
SERVICING STATISTICS
June 30 2000 1999
----------------------------------------------------------------
Accounting/administration
assets ($ in billions) $449 $244
Custody assets ($ in billions) $416 $349
Shareholder accounts (in millions) 41 3
================================================================
The increases in accounting/administration assets serviced and shareholder
accounts were primarily due to the ISG acquisition.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
11
<PAGE> 13
PNC MORTGAGE
Six months ended June 30 -
dollars in millions 2000 1999
----------------------------------------------------------------
INCOME STATEMENT
Net mortgage banking revenue
Residential mortgage servicing $202 $160
Origination and securitization 34 115
MSR amortization, net of servicing hedge (88) (114)
----------------------------------------------------------------
Net mortgage banking revenue 148 161
Net interest income 10 56
----------------------------------------------------------------
Total revenue 158 217
Operating expense 121 176
----------------------------------------------------------------
Pretax earnings 37 41
Income taxes 15 17
----------------------------------------------------------------
Earnings $22 $24
----------------------------------------------------------------
AVERAGE BALANCE SHEET
Residential mortgages held for sale $2,129 $2,721
Securities available for sale 1,941 2,806
Mortgage servicing rights and other assets 2,545 1,523
----------------------------------------------------------------
Total assets $6,615 $7,050
----------------------------------------------------------------
Escrow deposits $1,040 $1,238
Assigned funds and other liabilities 5,145 5,354
Assigned capital 430 458
----------------------------------------------------------------
Total funds $6,615 $7,050
----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 10% 11%
Net mortgage banking revenue to total revenue 94 74
Efficiency 49 53
================================================================
PNC Mortgage originates, purchases and services residential mortgages and
related products. PNC Mortgage also acquires and securitizes residential
mortgages as private-label, mortgage-backed securities and performs the master
servicing of those securities for investors.
PNC Mortgage's strategic focus is on expanding sales of a broader array of
financial products while leveraging its technology platform and servicing
capabilities to manage the revenue/expense relationship for traditional mortgage
products.
PNC Mortgage contributed 4% of total business earnings for the first six months
of 2000 and 1999. Earnings decreased in the comparison due to lower origination
and related securitization volume resulting from lower refinancing activity. The
decrease in origination and securitization income was partially offset by higher
residential mortgage servicing revenue due to the impact of a larger servicing
portfolio.
Operating expense decreased $55 million or 31% in the period-to-period
comparison due to operating expense reduction initiatives associated with lower
origination volume.
During the first six months of 2000, residential mortgage production totaled $9
billion of which 26% consisted of retail originations. The remainder was
acquired through correspondent and contractual flow agreements. The comparable
amounts were $12 billion and 38%, respectively, for the first six months of
1999.
RESIDENTIAL MORTGAGE SERVICING PORTFOLIO
In billions 2000 1999
----------------------------------------------------------------
January 1 $75 $62
Production volume 9 12
Bulk acquisitions 6 6
Repayments (5) (9)
----------------------------------------------------------------
June 30 $85 $71
================================================================
At June 30, 2000, the residential mortgage servicing portfolio totaled $85
billion. Loans included in this portfolio that were serviced for others totaled
$77 billion and had a weighted-average coupon of 7.62%. Capitalized residential
mortgage servicing rights ("MSR") totaled $1.8 billion at June 30, 2000, and had
an estimated fair value of $2.1 billion. The master servicing portfolio grew 11%
in the period-to-period comparison to $36 billion at June 30, 2000.
The value of MSR and related amortization are affected by changes in interest
rates. If interest rates decline and the rate of prepayments increases, the
underlying servicing fees and related MSR value also would decline. In a period
of rising interest rates, a converse relationship would be expected. PNC
Mortgage seeks to manage this risk by using financial instruments as hedges
designed to move in the opposite direction of expected MSR value changes.
Changes in interest rates also can affect the level of mortgage originations
that generally are expected to decline as interest rates increase, and increase
as interest rates decline.
THE PNC FINANCIAL SERVICES GROUP, INC.
------
12
<PAGE> 14
FINANCIAL REVIEW
CONSOLIDATED INCOME STATEMENT REVIEW
NET INTEREST INCOME ANALYSIS
<TABLE>
<CAPTION>
Taxable-equivalent basis Average Balances Interest Income/Expense Average Yields/Rates
Six months ended June 30 - ------------------------------ -------------------------- -----------------------------
dollars in millions 2000 1999 Change 2000 1999 Change 2000 1999 Change
----------------------------------------------------------------------- -------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans held for sale $5,077 $3,555 $1,522 $204 $123 $81 8.02% 6.88% 114bp
Securities available for sale 8,009 8,601 (592) 242 238 4 6.05 5.56 49
Loans, net of unearned income
Consumer 9,248 10,841 (1,593) 390 440 (50) 8.46 8.19 27
Credit card 1,355 (1,355) 100 (100) 14.90 NM
Residential mortgage 13,001 12,341 660 461 433 28 7.09 7.02 7
Commercial 21,918 23,705 (1,787) 911 900 11 8.22 7.55 67
Commercial real estate 2,690 3,397 (707) 118 132 (14) 8.67 7.71 96
Lease financing 3,004 2,461 543 109 87 22 7.26 7.08 18
Other 682 476 206 28 17 11 8.28 7.27 101
----------------------------------------------------------------------- --------------------------
Total loans, net of unearned income 50,543 54,576 (4,033) 2,017 2,109 (92) 7.94 7.73 21
Other 1,245 1,121 124 49 35 14 7.99 6.29 170
----------------------------------------------------------------------- --------------------------
Total interest-earning assets/
interest income 64,874 67,853 (2,979) 2,512 2,505 7 7.71 7.38 33
Noninterest-earning assets 10,241 8,150 2,091
------------------------------------------------------------------------
Total assets $75,115 $76,003 $(888)
========================================================================
Interest-bearing liabilities
Deposits
Demand and money market $18,893 $17,258 $1,635 297 231 66 3.17 2.69 48
Savings 2,123 2,503 (380) 18 20 (2) 1.69 1.62 7
Retail certificates of deposit 14,497 14,381 116 386 356 30 5.35 4.99 36
Other time 639 2,219 (1,580) 20 60 (40) 6.40 5.40 100
Deposits in foreign offices 1,486 721 765 45 17 28 5.94 4.80 114
----------------------------------------------------------------------- --------------------------
Total interest-bearing deposits 37,638 37,082 556 766 684 82 4.09 3.72 37
Borrowed funds 19,742 21,061 (1,319) 626 545 81 6.28 5.15 113
----------------------------------------------------------------------- --------------------------
Total interest-bearing
liabilities/interest expense 57,380 58,143 (763) 1,392 1,229 163 4.84 4.23 61
-------------------------- -----------------------------
Noninterest-bearing liabilities,
capital securities and shareholders'
equity 17,735 17,860 (125)
------------------------------------------------------------------------
Total liabilities, capital
securities and shareholders'
equity $75,115 $76,003 $(888)
========================================================================
Interest rate spread 2.87 3.15 (28)
Impact of noninterest-bearing sources .56 .60 (4)
-----------------------------
Net interest income/margin $1,120 $1,276 $(156) 3.43% 3.75% (32)bp
====================================================================================================================================
</TABLE>
NM - not meaningful
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 was $1.120 billion for the first six
months of 2000, a $156 million decrease compared with the first six months of
1999. The net interest margin was 3.43% for the first six months of 2000
compared with 3.75% for the first six months of 1999. The decreases were
primarily due to funding costs related to the ISG acquisition, the downsizing of
certain credit-related businesses in 1999 and the effect of a higher interest
rate environment. The Corporation expects net interest income and margin to
continue to decline throughout the remainder of 2000.
As a result of the credit card sale and the exit and downsizing of certain
credit-related businesses in 1999, loans represented 78% of average earning
assets for the first six months of 2000 compared with 80% for the prior-year
period. Average loans held for sale increased $1.5 billion in the
period-to-period comparison, reflecting the decision to exit certain
non-strategic wholesale lending businesses during 1999. Securities available for
sale represented 9% of average earning assets for the first six months of 2000
and 1999, excluding securities used to hedge residential mortgage servicing
rights.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
13
<PAGE> 15
Funding cost is affected by the volume and composition of funding sources as
well as related rates paid thereon. Average deposits comprised 61% and 60% of
total sources of funds for the first six months of 2000 and 1999, respectively,
with the remainder primarily comprised of wholesale funding obtained at
prevailing market rates. The average loan to deposit ratio declined to 110% for
the first six months of 2000 compared with 119% for the first six months of
1999.
Average demand and money market deposits increased $1.6 billion or 9% to $18.9
billion for the first six months of 2000, primarily reflecting the impact of
strategic marketing initiatives to grow more valuable transaction accounts,
while other time deposits decreased in the period-to-period comparison. Average
borrowed funds for the first six months of 2000 decreased $1.3 billion compared
with the first six months of 1999 as lower bank notes and repurchase agreements
more than offset increases in Federal Home Loan Bank ("FHLB") borrowings,
federal funds purchased and subordinated debt. The increase in subordinated debt
was related to funding the ISG acquisition.
PROVISION FOR CREDIT LOSSES The provision for credit losses was $66 million for
the first six months of 2000 compared with $103 million for the first six months
of 1999. Net charge-offs were $65 million or .26% of average loans for the first
six months of 2000 compared with $102 million or .38%, respectively, for the
first six months of 1999. The decreases were primarily due to the sale of the
credit card business in the first quarter of 1999.
NONINTEREST INCOME Noninterest income was $1.585 billion for the first six
months of 2000 and represented 59% of total revenue. On a comparable basis,
noninterest income increased $379 million or 31%, excluding $331 million of
gains on the sale of the credit card business, equity interests in EPS and
Concord, and $142 million of valuation adjustments associated with exiting
certain non-strategic wholesale lending businesses in 1999. The increase was
primarily driven by strong growth in certain fee-based businesses, the benefit
of the ISG acquisition and higher equity management revenue.
Asset management fees of $382 million for the first six months of 2000 increased
$52 million or 16% primarily driven by new business. Assets under management
were $224 billion at June 30, 2000, a 19% increase compared with June 30, 1999.
Fund servicing fees were $319 million for the first six months of 2000, a $213
million increase compared with the prior-year period primarily driven by the ISG
acquisition. Excluding ISG, fund servicing fees increased 22% primarily due to
existing client growth, new business and market appreciation.
Brokerage fees of $131 million for the first six months of 2000 increased $22
million or 20% reflecting the expansion of Hilliard Lyons' distribution network
and the impact of significant activity in the equity markets. Consumer services
revenue of $107 million for the first six months of 2000 increased 4% compared
with the prior-year period excluding credit card fees. The increase was
primarily due to higher consumer transaction volume.
Corporate services revenue of $162 million for the first six months of 2000
increased 4% compared with the prior-year period, excluding the impact of the
valuation adjustments associated with the exited portfolio last year.
Net residential mortgage banking revenue of $116 million for the first six
months of 2000 decreased $14 million compared with the prior-year period as an
increase in net servicing revenue was more than offset by the impact of lower
origination and related securitization volume resulting from lower refinancing
activity.
Equity management revenue was $135 million for the first six months of 2000
compared with $26 million in the prior-year period. The Corporation does not
expect to sustain equity management revenue at the level experienced during the
first six months of 2000. Equity investments are carried at estimated fair value
and accordingly revenue related to these investments may be affected by market
volatility.
Net securities losses were $3 million for the first six months of 2000. Net
securities gains were $42 million for the first six months of 1999,
substantially all related to the gain from the sale of Concord stock.
Other noninterest income of $136 million for the first six months of 2000
increased $15 million or 12% compared with the prior-year period, excluding
non-core items last year.
NONINTEREST EXPENSE Noninterest expense was $1.674 billion for the first six
months of 2000 compared with $1.462 billion for the first six months of 1999,
excluding non-core items. The efficiency ratio was 56.5% for the first six
months of 2000 compared with 53.0% for the prior-year period, also excluding
non-core items. The increases were primarily related to the ISG acquisition and
higher expenses commensurate with fee-based revenue growth. Average full-time
equivalent employees totaled approximately 27,000 and 26,200 for the first six
months of 2000 and 1999, respectively. The increase was primarily due to the ISG
acquisition, partially offset by the impact of efficiency initiatives in the
traditional banking and mortgage banking businesses.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
14
<PAGE> 16
FINANCIAL REVIEW
CONSOLIDATED BALANCE SHEET REVIEW
LOANS Loans outstanding of $50.9 billion at June 30, 2000 increased $.9 billion
from year-end 1999 primarily due to an increase in commercial, home equity and
residential mortgage loans. Total outstandings and exposure designated for exit
during 1999 totaled $3.7 billion and $10.5 billion, respectively. At June 30,
2000, the remaining outstandings and exposure associated with this initiative
totaled $1.5 billion and $4.9 billion, respectively. Loans that were designated
for exit in 1999 and reclassified to held for sale are excluded from the
following table.
DETAILS OF LOANS
June 30 December 31
In millions 2000 1999
----------------------------------------------------------------
Consumer
Home equity $6,333 $6,068
Automobile 1,420 1,691
Other 1,494 1,598
----------------------------------------------------------------
Total consumer 9,247 9,357
Residential mortgage 13,096 12,869
Commercial
Manufacturing 5,702 5,355
Retail/wholesale 4,673 4,301
Service providers 3,000 3,208
Real estate related 3,010 2,862
Communications 1,316 1,370
Health care 803 772
Financial services 1,115 1,300
Other 2,521 2,300
----------------------------------------------------------------
Total commercial 22,140 21,468
Commercial real estate
Mortgage 732 761
Real estate project 1,955 1,969
----------------------------------------------------------------
Total commercial real estate 2,687 2,730
Lease financing 3,834 3,663
Other 670 683
Unearned income (732) (724)
----------------------------------------------------------------
Total, net of unearned income $50,942 $50,046
================================================================
Loan portfolio composition continued to be geographically diversified among
numerous industries and types of businesses.
NET UNFUNDED COMMITMENTS*
June 30 December 31
In millions 2000 1999
----------------------------------------------------------------
Consumer $4,740 $4,603
Residential mortgage 1,545 648
Commercial 24,208 23,251
Commercial real estate 892 740
Lease financing 148 136
Other 246 1,513
----------------------------------------------------------------
Total $31,779 $30,891
================================================================
* Excludes unfunded commitments related to loans designated for exit.
Commitments to extend credit represent arrangements to lend funds provided there
is no violation of specified contractual conditions. Commercial commitments are
reported net of participations, assignments and syndications, primarily to
financial institutions, totaling $6.7 billion and $7.2 billion at June 30, 2000
and December 31, 1999, respectively.
Net outstanding letters of credit totaled $4.1 billion and $4.6 billion at June
30, 2000 and December 31, 1999, respectively, and consisted primarily of standby
letters of credit, which commit the Corporation to make payments on behalf of
customers when certain specified future events occur. Unfunded commitments and
letters of credit related to loans designated for exit totaled $3.4 billion at
June 30, 2000 and $4.8 billion at December 31, 1999.
SECURITIES AVAILABLE FOR SALE The fair value of securities available for sale at
June 30, 2000 was $7.3 billion, $309 million lower than December 31, 1999. Total
securities used to hedge residential MSR were $2.0 billion at June 30, 2000.
Portfolio securities represented 7% of total assets at June 30, 2000. The
expected weighted-average life of the portfolio securities decreased to 4 years
and 5 months at June 30, 2000 compared with 4 years and 7 months at year-end
1999. The expected weighted-average life of total securities available for sale
at June 30, 2000 remained consistent at 5 years and 7 months compared with
year-end 1999.
DETAILS OF SECURITIES AVAILABLE FOR SALE
Amortized Fair
In millions Cost Value
----------------------------------------------------------------
JUNE 30, 2000
PORTFOLIO SECURITIES
Debt securities
U.S. Treasury and government agencies $153 $148
Mortgage-backed 3,661 3,502
Asset-backed 954 923
State and municipal 116 113
Other debt 39 38
Corporate stocks and other 587 595
----------------------------------------------------------------
Total $5,510 $5,319
================================================================
RESIDENTIAL MORTGAGE BANKING RISK MANAGEMENT
Debt securities
U.S. Treasury and government agencies $1,727 $1,551
Mortgage-backed 435 432
----------------------------------------------------------------
Total 2,162 1,983
----------------------------------------------------------------
Total securities available for sale $7,672 $7,302
================================================================
DECEMBER 31, 1999
PORTFOLIO SECURITIES
Debt securities
U.S. Treasury and government agencies $411 $400
Mortgage-backed 3,918 3,769
Asset-backed 1,051 1,027
State and municipal 134 131
Other debt 40 39
Corporate stocks and other 590 594
----------------------------------------------------------------
Total $6,144 $5,960
================================================================
RESIDENTIAL MORTGAGE BANKING RISK MANAGEMENT
Debt securities
U.S. Treasury and government agencies $1,791 $1,587
Mortgage-backed 68 64
----------------------------------------------------------------
Total 1,859 1,651
----------------------------------------------------------------
Total securities available for sale $8,003 $7,611
================================================================
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
15
<PAGE> 17
FUNDING SOURCES Total funding sources were $66.0 billion at June 30, 2000 and
December 31, 1999. Increases in demand, savings and money market deposits that
resulted from consumer banking marketing initiatives offset decreases in
deposits in foreign offices and federal funds purchased.
DETAILS OF FUNDING SOURCES
June 30 December 31
In millions 2000 1999
----------------------------------------------------------------
Deposits
Demand, savings and money market $30,604 $28,689
Retail certificates of deposit 14,371 14,153
Other time 622 633
Deposits in foreign offices 1,829 3,193
----------------------------------------------------------------
Total deposits 47,426 46,668
Borrowed funds
Federal funds purchased 882 1,281
Repurchase agreements 994 1,122
Bank notes and senior debt 6,878 6,975
Federal Home Loan Bank borrowings 6,406 6,656
Subordinated debt 2,426 2,327
Other borrowed funds 999 986
----------------------------------------------------------------
Total borrowed funds 18,585 19,347
----------------------------------------------------------------
Total $66,011 $66,015
================================================================
CAPITAL The access to and cost of funding new business initiatives including
acquisitions, the ability to engage in expanded activities, the 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 June 30, 2000, the Corporation and each bank subsidiary were considered well
capitalized based on regulatory capital ratio requirements.
RISK-BASED CAPITAL
June 30 - dollars in millions 2000 1999
----------------------------------------------------------------
Capital components
Shareholders' equity
Common $5,845 $5,442
Preferred 313 313
Trust preferred capital securities 848 848
Goodwill and other (2,277) (1,321)
Net unrealized securities losses 241 241
----------------------------------------------------------------
Tier I risk-based capital 4,970 5,523
Subordinated debt 1,970 1,740
Eligible allowance for credit losses 666 673
----------------------------------------------------------------
Subtotal 7,606 7,936
Investment in unconsolidated finance
subsidiary (14)
----------------------------------------------------------------
Total risk-based capital $7,592 $7,936
================================================================
Assets
Risk-weighted assets and
off-balance-sheet instruments $67,330 $67,689
Average tangible assets 73,926 73,910
================================================================
Capital ratios
Tier I risk-based 7.38% 8.16%
Total risk-based 11.28 11.72
Leverage 6.72 7.47
================================================================
The capital position is managed through balance sheet size and composition,
issuance of debt and equity instruments, treasury stock activities, dividend
policies and retention of earnings.
During the first six months of 2000, PNC repurchased 4.7 million shares of
common stock. On February 17, 2000, the Board of Directors authorized the
Corporation to purchase up to 10 million shares of common stock through February
28, 2001. Approximately 7.4 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, interest rate, liquidity and market
risk. To manage these risks, PNC 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
counterparty may not perform in accordance with contractual terms. Credit risk
is inherent in the financial services business and results from extending credit
to customers, purchasing securities and entering into 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 BY TYPE
June 30 December 31
Dollars in millions 2000 1999
----------------------------------------------------------------
Nonaccrual loans
Commercial $259 $219
Residential mortgage 39 56
Commercial real estate
Real estate project 6 13
Mortgage 6 8
Consumer 3 2
Lease financing 3 1
----------------------------------------------------------------
Total nonaccrual loans 316 299
Foreclosed and other assets
Residential mortgage 15 12
Commercial real estate 4 5
Other 29 22
----------------------------------------------------------------
Total foreclosed and other assets 48 39
----------------------------------------------------------------
Total nonperforming assets $364 $338
================================================================
Nonaccrual loans to total loans .62% .60%
Nonperforming assets to total loans,
loans held for sale and foreclosed
assets .66 .61
Nonperforming assets to total assets .48 .45
================================================================
The above table excludes $18 million and $13 million of equity management assets
at June 30, 2000 and December 31, 1999, respectively, carried at estimated fair
value.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
16
<PAGE> 18
FINANCIAL REVIEW
The amount of nonperforming loans that were current as to principal and interest
was $24 million at June 30, 2000 and $42 million at December 31, 1999. There
were no troubled debt restructured loans outstanding as of either period end.
CHANGE IN NONPERFORMING ASSETS
In millions 2000 1999
----------------------------------------------------------------
January 1 $338 $332
Transferred from accrual 200 160
Returned to performing (5) (2)
Principal reductions (75) (103)
Sales (19) (21)
Charge-offs and other (75) (33)
----------------------------------------------------------------
June 30 $364 $333
================================================================
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
Amount Percent of Loans
--------------------------------------------
June 30 December 31 June 30 December 31
Dollars in millions 2000 1999 2000 1999
--------------------------------------------------------------------
Consumer $20 $25 .22% .27%
Residential mortgage 38 34 .29 .26
Commercial 28 30 .13 .14
Commercial real estate 2 5 .07 .18
Lease financing 3 2 .10 .05
--------------------------------------------
Total $91 $96 .18 .19
====================================================================
ALLOWANCE FOR CREDIT LOSSES In determining the adequacy of the allowance for
credit losses, the Corporation makes specific allocations to 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. Those factors may include, among other
things, 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'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 provision for credit losses for the first six months of 2000 and the
evaluation of the allowance for credit losses as of June 30, 2000 reflected
changes in loan portfolio composition and changes in asset quality. The
unallocated portion of the allowance for credit losses at June 30, 2000
represented 20% of the total allowance and .26% of total loans compared with 20%
and .27%, respectively, at December 31, 1999.
ROLLFORWARD OF ALLOWANCE FOR CREDIT LOSSES
In millions 2000 1999
----------------------------------------------------------------
January 1 $674 $753
Charge-offs (88) (134)
Recoveries 23 32
----------------------------------------------------------------
Net charge-offs (65) (102)
Provision for credit losses 66 103
Divestitures (81)
----------------------------------------------------------------
June 30 $675 $673
================================================================
The allowance as a percent of nonaccrual loans and period-end loans was 214% and
1.33%, respectively, at June 30, 2000. The comparable year-end 1999 amounts were
225% and 1.35%, respectively.
CHARGE-OFFS AND RECOVERIES
Six months ended Percent of
June 30 Net Average
Dollars in millions Charge-offs Recoveries Charge-offs Loans
-------------------------------------------------------------------------
2000
Consumer $23 $11 $12 .26%
Residential mortgage 3 1 2 .03
Commercial 59 10 49 .45
Lease financing 3 1 2 .13
-----------------------------------------------------------
Total $88 $23 $65 .26
-------------------------------------------------------------------------
1999
Consumer $34 $14 $20 .37%
Credit card 60 2 58 8.63
Residential mortgage 6 1 5 .08
Commercial 30 13 17 .14
Commercial real estate 1 1
Lease financing 3 1 2 .16
-----------------------------------------------------------
Total $134 $32 $102 .38
=========================================================================
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
17
<PAGE> 19
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.
INTEREST RATE RISK Interest rate risk arises primarily through the Corporation's
traditional 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 further 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. An income simulation model is used to measure the
sensitivity of net interest income to changing interest rates over the next
twenty-four month period. 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. At June 30, 2000, if interest rates were to gradually increase by 100
basis points over the next twelve months, the model indicated that net interest
income would decrease by .9%. If interest rates were to gradually decrease by
100 basis points over the next twelve months, the model indicated that net
interest income would increase by 1.1%.
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 to
identify inherent risk and develop appropriate strategies.
An economic value of equity model is used by the Corporation to value 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 June 30, 2000, if
interest rates were to instantaneously increase by 200 basis points, the model
indicated that the economic value of existing on-balance-sheet and
off-balance-sheet positions would decline by 1.0% of assets. If interest rates
were to instantaneously decrease by 200 basis points, the model indicated that
the economic value of existing on-balance-sheet and off-balance-sheet positions
would increase by .1% of assets.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
18
<PAGE> 20
FINANCIAL REVIEW
LIQUIDITY RISK Liquidity represents the Corporation's ability to obtain
cost-effective funding to meet the needs of customers as well as the
Corporation's financial obligations. Liquidity is centrally managed by Asset and
Liability Management, with oversight provided by the Corporate Asset and
Liability Committee and the Finance Committee of the Board of Directors.
Access to capital markets funding sources is a key factor affecting liquidity
management. Access to such markets is in part based on the Corporation's credit
ratings, which are influenced by a number of factors including capital ratios,
credit quality, and earnings. Additional factors that impact liquidity include
the maturity structure of existing assets, liabilities, and off-balance-sheet
positions, the level of liquid securities and loans available for sale, and the
Corporation's ability to securitize and sell various types of loans.
Liquidity can also be provided through the sale of liquid assets, which consist
of short-term investments, loans held for sale and securities available for
sale. At June 30, 2000, such assets totaled $13.2 billion with $3.9 billion
pledged as collateral for borrowing, trust and other commitments. Liquidity can
also be obtained through secured advances from the FHLB, of which PNC is a
member. These borrowings are generally secured by residential mortgages and
mortgage-backed securities. At June 30, 2000, approximately $7.9 billion of
residential mortgages were available as collateral for borrowings from the FHLB.
Funding can also be obtained through alternative forms of borrowing, including
federal funds purchased, repurchase agreements and short-term and long-term debt
issuances.
Liquidity for the parent company and subsidiaries is also generated through the
issuance of securities in public or private markets and lines of credit. At June
30, 2000, the Corporation had unused capacity under effective shelf registration
statements of approximately $1.4 billion of debt and equity securities and $400
million of trust preferred capital securities. In addition, the Corporation had
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 $380 million at June 30, 2000. 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.
MARKET RISK Most of PNC's trading activities are designed to provide capital
markets services for customers. The performance of PNC'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 using this
measurement was less than $600 thousand at June 30, 2000.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
19
<PAGE> 21
FINANCIAL DERIVATIVES A variety of off-balance-sheet financial derivatives are
used as part of the overall risk management process to manage the 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. 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 residential
mortgage banking and student lending 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 six months of 2000, financial derivatives used in interest rate
risk management decreased net interest income by $17 million compared with a $32
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 six months of 2000.
FINANCIAL DERIVATIVES ACTIVITY
<TABLE>
<CAPTION>
Weighted-
Average
2000 - dollars in millions January 1 Additions Maturities Terminations June 30 Maturity
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate risk management
Interest rate swaps
Receive fixed $7,413 $368 $(1,075) $(1,000) $5,706 2 yrs. 9 mos.
Pay fixed 5 5 6 mos.
Basis swaps 1,650 773 (104) 2,319 3 yrs. 9 mos.
Interest rate caps 474 (82) (17) 375 4 yrs.
Interest rate floors 3,311 (25) (14) 3,272 1 yr. 11 mos.
------------------------------------------------------------------------------------------------------------------
Total interest rate risk management 12,853 1,141 (1,286) (1,031) 11,677
Mortgage banking risk management
Residential
Forward contracts
Commitments to purchase loans 304 12,444 (12,408) 340 2 mos.
Commitments to sell loans 1,194 15,939 (14,778) 2,355 2 mos.
Options 96 426 (269) 253 2 mos.
Options - MSR 7,675 405 8,080 3 yrs. 5 mos.
------------------------------------------------------------------------------------------------------------------
Total residential 9,269 29,214 (27,455) 11,028
Commercial - interest rate swaps 643 861 (85) (883) 536 6 yrs.
------------------------------------------------------------------------------------------------------------------
Total mortgage banking risk management 9,912 30,075 (27,540) (883) 11,564
Student lending activities
Forward contracts 681 86 (3) (354) 410 2 yrs. 1 mo.
Credit-related activities
Credit default swaps 4,315 93 4,408 1 yr. 2 mos.
------------------------------------------------------------------------------------------------------------------
Total $27,761 $31,395 $(28,829) $(2,268) $28,059
=================================================================================================================================
</TABLE>
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
20
<PAGE> 22
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 June 30, 2000.
FINANCIAL DERIVATIVES
<TABLE>
<CAPTION>
Weighted-Average Interest
Rates
Notional Estimated -------------------------
June 30, 2000 - 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 $4,000 $(48) 7.02% 5.49%
Basis swaps designated to other earning assets 245 12 6.50 6.99
Interest rate caps designated to loans (2) 375 11 NM NM
Interest rate floors designated to loans (3) 3,272 (1) NM NM
-----------------------------------------------------------------------------------------------------
Total asset rate conversion 7,892 (26)
Liability rate conversion
Interest rate swaps (1)
Receive fixed designated to:
Interest-bearing deposits 125 (2) 7.06 6.73
Borrowed funds 1,581 (31) 7.04 6.49
Pay fixed designated to borrowed funds 5 1 6.09 7.51
Basis swaps designated to borrowed funds 2,074 2 7.01 7.06
-----------------------------------------------------------------------------------------------------
Total liability rate conversion 3,785 (30)
-----------------------------------------------------------------------------------------------------
Total interest rate risk management 11,677 (56)
Mortgage banking risk management
Residential
Forward contracts
Commitments to purchase loans 340 11 NM NM
Commitments to sell loans 2,355 (13) NM NM
Options 253 5 NM NM
Options - MSR (3) 8,080 32 NM NM
-----------------------------------------------------------------------------------------------------
Total residential 11,028 35
Commercial
Pay fixed interest rate swaps designated to
securities (1) 154 11 5.86 7.10
Pay fixed interest rate swaps designated to loans (1) 382 17 6.64 6.81
-----------------------------------------------------------------------------------------------------
Total commercial 536 28
-----------------------------------------------------------------------------------------------------
Total mortgage banking risk management 11,564 63
Student lending activities
Forward contracts 410 NM NM
Credit-related activities
Credit default swaps 4,408 (3) NM NM
-----------------------------------------------------------------------------------------------------
Total financial derivatives $28,059 $4
===============================================================================================================================
</TABLE>
(1) The floating rate portion of interest rate contracts is based on
money-market indices. As a percent of notional value, 30% were based on
1-month LIBOR, 67% on 3-month LIBOR and the remainder on other short-term
indices.
(2) Interest rate caps with notional values of $89 million, $113 million and
$169 million require the counterparty to pay the Corporation the excess, if
any, of 3-month LIBOR over a weighted-average strike of 6.09%, 1-month LIBOR
over a weighted-average strike of 5.67% and Prime over a weighted-average
strike of 8.77%, respectively. At June 30, 2000, 3-month LIBOR was 6.77%,
1-month LIBOR was 6.64% and Prime was 9.50%.
(3) Interest rate floors with notional values of $3.0 billion, $3.8 billion and
$3.4 billion require the counterparty to pay the Corporation the excess, if
any, of the weighted-average strike of 4.63% over 3-month LIBOR, the
weighted-average strike of 5.08% over 10-year CMT and the weighted-average
strike of 5.16% over 10-year CMS, respectively. At June 30, 2000, 3-month
LIBOR was 6.77%, 10-year CMT was 6.03% and 10-year CMS was 7.25%.
NM - Not meaningful
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
21
<PAGE> 23
OTHER DERIVATIVES To accommodate customer needs, PNC enters into
customer-related financial derivative 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
<TABLE>
<CAPTION>
At June 30, 2000
--------------------------------------------------------------------
Positive Negative Average
Notional Fair Fair Net Asset Fair
In millions Value Value Value (Liability) Value*
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Customer-related
Interest rate
Swaps $12,909 $128 $(132) $(4) $(6)
Caps/floors
Sold 4,367 (24) (24) (27)
Purchased 4,192 22 22 25
Foreign exchange 4,150 59 (47) 12 7
Other 3,270 42 (40) 2 4
-----------------------------------------------------------------------------------------------------------------------------------
Total customer-related 28,888 251 (243) 8 3
Other 1,218 6 (1) 5 6
-----------------------------------------------------------------------------------------------------------------------------------
Total other derivatives $30,106 $257 $(244) $13 $9
===================================================================================================================================
</TABLE>
* For the six months ended June 30, 2000
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
22
<PAGE> 24
FINANCIAL REVIEW
SECOND QUARTER 2000 VS. SECOND QUARTER 1999
Consolidated net income for the second quarter of 2000 was $315 million or $1.06
per diluted share, an 8% increase compared with core diluted earnings per share
for the second quarter of 1999. Return on average common shareholders' equity
was 21.91% and return on average assets was 1.68% for the second quarter of 2000
compared with 21.21% and 1.60%, respectively, on a core basis for the second
quarter of 1999. Cash earnings per diluted share were $1.16 for the second
quarter of 2000, up 12% compared with core cash earnings per diluted share a
year ago. Reported earnings for the second quarter of 1999 were $315 million or
$1.03 per diluted share. Core earnings per diluted share, which exclude the gain
from the sale of Concord stock partially offset by a contribution to the PNC
Foundation, were $.98. Core cash earnings per diluted share were $1.04 in the
second quarter of 1999.
Taxable-equivalent net interest income was $555 million for the second quarter
of 2000, a $57 million decrease compared with the second quarter of 1999. The
net interest margin was 3.41% for the second quarter of 2000 compared with 3.64%
in the second quarter of 1999. The decreases were primarily due to funding costs
related to the ISG acquisition, downsizing of certain credit-related businesses
in 1999 and the impact of the higher interest rate environment.
The provision for credit losses was $35 million in the second quarter of 2000
and net charge-offs were $34 million, compared with $25 million and $24 million,
respectively, in the prior-year period.
Noninterest income of $796 million for the second quarter of 2000 increased $173
million or 28% compared with the prior-year quarter, excluding the $41 million
gain on the sale of Concord stock in 1999. The increase was primarily driven by
growth in fee-based businesses, the benefit of the ISG acquisition and higher
equity management revenue.
Asset management fees of $196 million for the second quarter of 2000 increased
$27 million or 16% compared with the second quarter of 1999 primarily driven by
new business. Assets under management were $224 billion at June 30, 2000, a 19%
increase compared with June 30, 1999. Fund servicing fees were $164 million for
the second quarter of 2000, a $110 million increase compared with the second
quarter of 1999 primarily driven by the ISG acquisition. Excluding ISG, fund
servicing fees increased $11 million or 20% compared with the prior-year quarter
primarily due to existing client growth, new business and market appreciation.
Brokerage fees of $60 million for the second quarter of 2000 increased $7
million or 13% compared with the second quarter of 1999 reflecting the expansion
of Hilliard Lyons' distribution network and the impact of higher activity in the
equity markets. Consumer services revenue of $56 million for the second quarter
of 2000 increased $4 million or 8% compared with the prior-year quarter
primarily due to an increase in consumer transaction volume.
Corporate services revenue of $80 million for the second quarter of 2000
decreased $4 million compared with the second quarter of 1999 primarily due to a
lower level of commercial mortgage-backed securitization gains.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
23
<PAGE> 25
Net residential mortgage banking revenue of $62 million for the second quarter
of 2000 decreased $8 million compared with the prior-year quarter as an increase
in net servicing revenue was more than offset by the impact of lower origination
activity. Residential mortgage originations totaled $4 billion for the second
quarter of 2000 compared with $6 billion in the prior-year quarter.
Equity management revenue was $48 million for the second quarter of 2000
compared with $17 million in the second quarter of 1999.
There were no net securities gains in the second quarter of 2000. Net securities
gains were $42 million for the second quarter of 1999, substantially all related
to the gain from the sale of Concord stock. Other noninterest income of $80
million for the second quarter of 2000 increased $8 million compared with the
second quarter of 1999.
Noninterest expense was $827 million and the efficiency ratio was 56% in the
second quarter of 2000 compared with $737 million and 54%, respectively, in the
second quarter of 1999, excluding non-core items. The increases were primarily
related to the ISG acquisition and higher expenses commensurate with fee-based
revenue growth.
Average earning assets were $64.8 billion for the second quarter of 2000
compared with $66.9 billion for the second quarter of 1999. Average earning
assets declined primarily due to a decrease in average loans, which resulted
from the decision to exit certain non-strategic wholesale lending businesses
and the continued downsizing of the indirect automobile lending portfolio.
Average securities available for sale decreased $1.4 billion compared with the
prior-year quarter. Average loans held for sale increased $1.0 billion compared
with the prior-year quarter primarily as a result of exiting certain
non-strategic wholesale lending businesses during 1999.
Average deposits were $46.7 billion and represented 62% of total sources of
funds for the second quarter of 2000 compared with $45.5 billion and 61%,
respectively, in the second quarter of 1999. The increase in deposits was
primarily due to increases in interest-bearing demand and money market deposits
that resulted from marketing initiatives in the consumer bank.
Average borrowed funds were $19.4 billion for the second quarter of 2000
compared with $20.5 billion for the second quarter of 1999.
The ratio of nonperforming assets to total loans, loans held for sale and
foreclosed assets was .66% at June 30, 2000 compared with .59% at June 30, 1999.
Nonperforming assets were $364 million at June 30, 2000 compared with $333
million at June 30, 1999.
The allowance for credit losses was $675 million and represented 1.33% of
period-end loans and 214% of nonaccrual loans at June 30, 2000. The comparable
ratios were 1.29% and 224%, respectively, at June 30, 1999. Net charge-offs were
$34 million or .27% of average loans in the second quarter of 2000 compared with
$24 million or .18%, respectively, in the second quarter of 1999.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
24
<PAGE> 26
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
------------------------------- -------------------------------
In millions, except per share data 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans $1,018 $989 $2,009 $2,101
Securities available for sale 123 130 240 236
Loans held for sale 97 66 204 122
Other 27 19 49 35
----------------------------------------------------------------------------------------------------------------------------------
Total interest income 1,265 1,204 2,502 2,494
----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 397 333 766 684
Borrowed funds 318 264 626 545
----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 715 597 1,392 1,229
----------------------------------------------------------------------------------------------------------------------------------
Net interest income 550 607 1,110 1,265
Provision for credit losses 35 25 66 103
----------------------------------------------------------------------------------------------------------------------------------
Net interest income less provision for credit losses 515 582 1,044 1,162
----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Asset management 196 169 382 330
Fund servicing 164 54 319 106
Service charges on deposits 50 51 100 101
Brokerage 60 53 131 109
Consumer services 56 52 107 126
Corporate services 80 84 162 21
Net residential mortgage banking 62 70 116 130
Equity management 48 17 135 26
Net securities (losses) gains 42 (3) 42
Other 80 72 136 404
----------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 796 664 1,585 1,395
----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Staff expense 428 364 872 776
Net occupancy 50 52 107 139
Equipment 57 51 117 139
Amortization 28 21 56 49
Marketing 21 17 36 32
Distributions on capital securities 17 16 33 32
Other 226 246 453 423
----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 827 767 1,674 1,590
----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 484 479 955 967
Income taxes 169 164 332 327
----------------------------------------------------------------------------------------------------------------------------------
Net income $315 $315 $623 $640
----------------------------------------------------------------------------------------------------------------------------------
Net income applicable to diluted earnings $311 $311 $614 $631
EARNINGS PER COMMON SHARE
Basic $1.07 $1.04 $2.11 $2.10
Diluted 1.06 1.03 2.09 2.08
CASH DIVIDENDS DECLARED PER COMMON SHARE .45 .41 .90 .82
AVERAGE COMMON SHARES OUTSTANDING
Basic 289.8 297.4 290.8 299.9
Diluted 292.2 300.9 293.1 303.2
==================================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
25
<PAGE> 27
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30 December 31
In millions, except par value 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $3,138 $3,097
Short-term investments 1,408 1,148
Loans held for sale 4,510 5,798
Securities available for sale 7,302 7,611
Loans, net of unearned income of $732 and $724 50,942 50,046
Allowance for credit losses (675) (674)
----------------------------------------------------------------------------------------------------------------------------------
Net loans 50,267 49,372
Goodwill and other amortizable assets 4,366 4,123
Other 4,746 4,264
----------------------------------------------------------------------------------------------------------------------------------
Total assets $75,737 $75,413
==================================================================================================================================
LIABILITIES
Deposits
Noninterest-bearing $9,088 $8,441
Interest-bearing 38,338 38,227
----------------------------------------------------------------------------------------------------------------------------------
Total deposits 47,426 46,668
Borrowed funds
Federal funds purchased 882 1,281
Repurchase agreements 994 1,122
Bank notes and senior debt 6,878 6,975
Federal Home Loan Bank borrowings 6,406 6,656
Subordinated debt 2,426 2,327
Other borrowed funds 999 986
----------------------------------------------------------------------------------------------------------------------------------
Total borrowed funds 18,585 19,347
Other 2,721 2,604
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 68,732 68,619
----------------------------------------------------------------------------------------------------------------------------------
Mandatorily redeemable capital securities of subsidiary trusts 848 848
SHAREHOLDERS' EQUITY
Preferred stock 7 7
Common stock - $5 par value
Authorized 450 shares
Issued 353 shares 1,764 1,764
Capital surplus 1,287 1,276
Retained earnings 6,358 6,006
Deferred benefit expense (18) (17)
Accumulated other comprehensive loss (254) (267)
Common stock held in treasury at cost: 64 and 60 shares (2,987) (2,823)
----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 6,157 5,946
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities, capital securities and shareholders' equity $75,737 $75,413
==================================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
26
<PAGE> 28
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30 - in millions 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $623 $640
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses 66 103
Depreciation, amortization and accretion 272 217
Deferred income taxes 194 98
Net securities (losses) gains (1) 14
Gain on sale of businesses (290)
Valuation adjustments 23 142
Change in
Loans held for sale 1,265 83
Other (1,195) (604)
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,247 403
-------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in loans (1,005) 340
Repayment of securities available for sale 450 750
Sales
Securities available for sale 3,700 5,687
Loans 16 312
Foreclosed assets 21 21
Purchases
Securities available for sale (3,854) (7,676)
Loans (363)
Net cash (paid) received for divestitures (4) 3,261
Other (117) (27)
-------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (793) 2,305
-------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits 647 (855)
Interest-bearing deposits 111 1,044
Federal funds purchased (399) (70)
Sale/issuance
Repurchase agreements 79,564 71,290
Bank notes and senior debt 2,847 1,320
Federal Home Loan Bank borrowings 2,750 250
Subordinated debt 593 254
Other borrowed funds 20,335 16,790
Common stock 71 67
Repayment/maturity
Repurchase agreements (79,692) (70,921)
Bank notes and senior debt (2,945) (3,226)
Federal Home Loan Bank borrowings (3,000) (1,937)
Subordinated debt (494) (5)
Other borrowed funds (20,292) (16,256)
Acquisition of treasury stock (238) (543)
Cash dividends paid (271) (256)
-------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (413) (3,054)
-------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 41 (346)
Cash and due from banks at beginning of year 3,097 2,534
-------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $3,138 $2,188
===============================================================================================================================
CASH PAID FOR
Interest $1,408 $1,286
Income taxes 181 108
NON-CASH ITEMS
Transfer from loans to loans held for sale 1,489
Transfer from loans to other assets 22 20
===============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS The PNC Financial Services Group, Inc. ("Corporation" or "PNC") is one
of the largest diversified financial services companies in the United States
operating regional banking, corporate banking, real estate finance, asset-based
lending, asset management, global fund services and mortgage banking businesses
that provide products and services nationally and in PNC's primary geographic
markets in Pennsylvania, New Jersey, Delaware, Ohio and Kentucky. The
Corporation is subject to intense competition from other financial services
companies 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 and its subsidiaries, most of
which are wholly owned. Such statements have been prepared in accordance with
accounting principles generally accepted in the United States. All significant
intercompany accounts and transactions have been eliminated.
In the opinion of management, the financial statements reflect all adjustments
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 with the current period presentation. 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 The PNC Financial Services Group,
Inc.'s 1999 Annual Report.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133" (an amendment of SFAS No. 133), issued in June 1999,
defers the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," until fiscal years beginning after June 15,
2000. The Corporation expects to adopt SFAS No. 133, as amended by SFAS No. 137,
effective January 1, 2001, the statement's effective date.
The impact of adopting the provisions of this statement on PNC's financial
position and results of operations is currently not estimable and will depend on
the financial position of the Corporation and the nature and purpose of the
derivative instruments in place as of the effective date.
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.
CASH FLOWS
During the first six months of 2000, acquisition activity that affected cash
flows consisted of $22 million of acquired assets, $2 million of acquired
liabilities and cash payments totaling $3 million. During the first six months
of 1999, divestiture activity that affected cash flow consisted of $3.1 billion
of divested assets and cash receipts of $3.3 billion in cash and due from banks.
TRADING ACTIVITIES
PNC engages in trading activities as part of the Corporation's risk management
strategies and for "market making" in equity securities. Additionally, PNC
participates in derivatives and foreign exchange trading as an accommodation to
customers.
Net trading income for the first six months of 2000 totaled $56 million compared
with a net trading loss of $10 million for the prior-year period that were
included in noninterest income as follows:
Six months ended June 30 - in millions 2000 1999
----------------------------------------------------------------
Net residential mortgage banking
Risk management $15 $(42)
Other income
Market making 23 24
Derivatives trading 7 1
Foreign exchange 11 7
----------------------------------------------------------------
Net trading income (loss) $56 $(10)
================================================================
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
Unrealized
Amortized ------------------------------------- Fair
In millions Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JUNE 30, 2000
PORTFOLIO SECURITIES
Debt securities
U.S. Treasury and government agencies $153 $(5) $148
Mortgage-backed 3,661 $1 (160) 3,502
Asset-backed 954 1 (32) 923
State and municipal 116 2 (5) 113
Other debt 39 (1) 38
-----------------------------------------------------------------------------------------------------------------------------
Total debt securities 4,923 4 (203) 4,724
Corporate stocks and other 587 12 (4) 595
-----------------------------------------------------------------------------------------------------------------------------
Total 5,510 16 (207) 5,319
-----------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL MORTGAGE BANKING RISK MANAGEMENT
Debt securities
U.S. Treasury and government agencies 1,727 1 (177) 1,551
Mortgage-backed 435 3 (6) 432
-----------------------------------------------------------------------------------------------------------------------------
Total 2,162 4 (183) 1,983
-----------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $7,672 $20 $(390) $7,302
=============================================================================================================================
DECEMBER 31, 1999
PORTFOLIO SECURITIES
Debt securities
U.S. Treasury and government agencies $411 $(11) $400
Mortgage-backed 3,918 $2 (151) 3,769
Asset-backed 1,051 (24) 1,027
State and municipal 134 2 (5) 131
Other debt 40 (1) 39
-----------------------------------------------------------------------------------------------------------------------------
Total debt securities 5,554 4 (192) 5,366
Corporate stocks and other 590 9 (5) 594
-----------------------------------------------------------------------------------------------------------------------------
Total 6,144 13 (197) 5,960
-----------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL MORTGAGE BANKING RISK MANAGEMENT
Debt securities
U.S. Treasury and government agencies 1,791 (204) 1,587
Mortgage-backed 68 (4) 64
-----------------------------------------------------------------------------------------------------------------------------
Total 1,859 (208) 1,651
-----------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $8,003 $13 $(405) $7,611
=============================================================================================================================
</TABLE>
The fair value of securities available for sale at June 30, 2000 was $7.3
billion, $309 million lower than December 31, 1999. Total securities used to
hedge residential mortgage servicing rights were $2.0 billion at June 30, 2000.
Portfolio securities represented 7% of total assets at June 30, 2000. The
expected weighted-average life of the portfolio securities decreased to 4 years
and 5 months at June 30, 2000 compared with 4 years and 7 months at year-end
1999. The expected weighted-average life of total securities available for sale
at June 30, 2000 remained consistent at 5 years and 7 months compared with
year-end 1999.
Net securities gains of $1 million and losses of $14 million for the first six
months of 2000 and 1999, respectively, were reported as follows:
Six months ended June 30 -
in millions 2000 1999
------------------------------------------------------------------
Net securities (losses) gains $(3) $42
Net residential mortgage banking 2 (56)
Corporate services 2
------------------------------------------------------------------
Total $1 $(14)
==================================================================
Net securities losses were $3 million for the first six months of 2000. Net
securities gains were $42 million for the first six months of 1999,
substantially all related to the gain from the sale of Concord EFS, Inc. stock.
Net securities gains of $2 million and net securities losses of $56 million
related to residential mortgage banking risk management strategies were reported
in net residential mortgage banking revenue in the first six months of 2000 and
1999, respectively. Net securities gains of $2 million for the first six months
of 2000, related to commercial mortgage banking activities, were included in
corporate services revenue.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
29
<PAGE> 31
NONPERFORMING ASSETS
Nonperforming assets were as follows:
June 30 December 31
In millions 2000 1999
------------------------------------------------------------------
Nonaccrual loans $316 $299
Foreclosed and other assets 48 39
------------------------------------------------------------------
Total nonperforming assets $364 $338
==================================================================
The above table excludes $18 million and $13 million of equity management assets
at June 30, 2000 and December 31, 1999, respectively, carried at estimated fair
value.
ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses were as follows:
In millions 2000 1999
------------------------------------------------------------------
Allowance at January 1 $674 $753
Charge-offs
Consumer (23) (34)
Credit card (60)
Residential mortgage (3) (6)
Commercial (59) (30)
Commercial real estate (1)
Lease financing (3) (3)
------------------------------------------------------------------
Total charge-offs (88) (134)
Recoveries
Consumer 11 14
Credit card 2
Residential mortgage 1 1
Commercial 10 13
Commercial real estate 1
Lease financing 1 1
------------------------------------------------------------------
Total recoveries 23 32
------------------------------------------------------------------
Net charge-offs
Consumer (12) (20)
Credit card (58)
Residential mortgage (2) (5)
Commercial (49) (17)
Lease financing (2) (2)
------------------------------------------------------------------
Total net charge-offs (65) (102)
Provision for credit losses 66 103
Divestitures (81)
------------------------------------------------------------------
Allowance at June 30 $675 $673
==================================================================
FINANCIAL DERIVATIVES
FAIR VALUE OF FINANCIAL DERIVATIVES The notional and fair values of financial
derivatives used for risk management were as follows:
Positive Negative
Notional Fair Notional Fair
In millions Value Value Value Value
------------------------------------------------------------------
JUNE 30, 2000
Interest rate
Swaps $3,628 $30 $4,402 $(96)
Caps 375 11
Floors 3,000 272 (1)
------------------------------------------------------------------
Total interest rate
risk management 7,003 41 4,674 (97)
Mortgage banking
risk management 8,951 78 2,613 (15)
Forward contracts 410
Credit default swaps 153 4,255 (3)
------------------------------------------------------------------
Total $16,517 $119 $11,542 $(115)
==================================================================
DECEMBER 31, 1999
Interest rate
Swaps $3,666 $46 $5,402 $(108)
Caps 474 12
Floors 3,000 1 311 (1)
------------------------------------------------------------------
Total interest rate
risk management 7,140 59 5,713 (109)
Mortgage banking
risk management 8,747 80 1,165 (1)
Forward contracts 681
Credit default swaps 60 4,255 (4)
------------------------------------------------------------------
Total $16,628 $139 $11,133 $(114)
==================================================================
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
OTHER DERIVATIVES The following schedule sets forth information relating to
positions associated with customer-related and other derivatives.
<TABLE>
<CAPTION>
At June 30
--------------------------------------------------------------
Positive Negative Average
Notional Fair Fair Net Asset Fair
In millions Value Value Value (Liability) Value *
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
Customer-related
Interest rate
Swaps $12,909 $128 $(132) $(4) $(6)
Caps/floors
Sold 4,367 (24) (24) (27)
Purchased 4,192 22 22 25
Foreign exchange 4,150 59 (47) 12 7
Other 3,270 42 (40) 2 4
----------------------------------------------------------------------------------------------------------------------------
Total customer-related 28,888 251 (243) 8 3
Other 1,218 6 (1) 5 6
----------------------------------------------------------------------------------------------------------------------------
Total other derivatives $30,106 $257 $(244) $13 $9
============================================================================================================================
</TABLE>
* For the six months ended June 30, 2000
<TABLE>
<CAPTION>
At December 31
-------------------------------------------------------------- 1999
Positive Negative Average
Notional Fair Fair Net Asset Fair
In millions Value Value Value (Liability) Value
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Customer-related
Interest rate
Swaps $17,103 $110 $(116) $(6) $(13)
Caps/floors
Sold 3,440 (25) (25) (20)
Purchased 3,337 22 22 18
Foreign exchange 3,310 47 (36) 11 7
Other 2,161 22 (9) 13 3
----------------------------------------------------------------------------------------------------------------------------
Total customer-related 29,351 201 (186) 15 (5)
Other 1,238 6 6 4
----------------------------------------------------------------------------------------------------------------------------
Total other derivatives $30,589 $207 $(186) $21 $(1)
============================================================================================================================
</TABLE>
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 was $325 million for the second quarter of 2000 and
$636 million for the first six months of 2000, compared with $156 million and
$435 million, respectively, in 1999.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
31
<PAGE> 33
EARNINGS PER SHARE
The following table sets forth basic and diluted earnings per share
calculations.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------------------------------
In millions, except share and per share data 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALCULATION OF BASIC EARNINGS PER COMMON SHARE
Net income $315 $315 $623 $640
Less: Preferred dividends declared 5 5 10 9
----------------------------------------------------------------------------------------------------------------------------------
Net income applicable to basic earnings per common share $310 $310 $613 $631
----------------------------------------------------------------------------------------------------------------------------------
Basic weighted-average common shares outstanding (in thousands) 289,804 297,427 290,847 299,851
----------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $1.07 $1.04 $2.11 $2.10
==================================================================================================================================
CALCULATION OF DILUTED EARNINGS PER COMMON SHARE
Net income $315 $315 $623 $640
Less: Dividends declared on nonconvertible preferred stock Series F 4 4 9 9
----------------------------------------------------------------------------------------------------------------------------------
Net income applicable to diluted earnings per common share $311 $311 $614 $631
----------------------------------------------------------------------------------------------------------------------------------
Basic weighted-average common shares outstanding (in thousands) 289,804 297,427 290,847 299,851
Weighted-average common shares to be issued using average market price and assuming:
Conversion of preferred stock Series A and B 121 133 121 136
Conversion of preferred stock Series C and D 1,012 1,077 1,020 1,087
Conversion of debentures 20 24 21 24
Exercise of stock options 1,163 1,866 924 1,674
Incentive share awards 69 380 216 380
----------------------------------------------------------------------------------------------------------------------------------
Diluted weighted-average common shares outstanding (in thousands) 292,189 300,907 293,149 303,152
----------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $1.06 $1.03 $2.09 $2.08
==================================================================================================================================
</TABLE>
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT REPORTING
PNC operates eight major businesses engaged in regional banking, corporate
banking, real estate finance, asset-based lending, asset management, global fund
services and mortgage banking activities: Regional Banking, Corporate Banking,
PNC Real Estate Finance, PNC Business Credit, PNC Advisors, BlackRock, PFPC and
PNC Mortgage.
Business results are presented based on PNC's management accounting practices
and the Corporation's current management structure. There is no comprehensive,
authoritative body of guidance for management accounting equivalent to generally
accepted accounting principles; therefore, PNC's business results are not
necessarily comparable with similar information for any other financial services
institution. Financial results are presented to the extent practicable as if
each business operated on a stand-alone basis.
The presentation of business results was changed during the first quarter of
2000 to reflect the Corporation's current operating strategy and recent
organizational changes. Middle market and equipment leasing activities
(previously included in Regional Banking) are reported in Corporate Banking. In
addition, PNC Real Estate Finance and PNC Business Credit are reported
separately within PNC Secured Finance. Regional real estate lending activities
(previously included in Regional Banking) are reported in PNC Real Estate
Finance. Business financial results for the first six months of 2000 and 1999
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. The allowance for credit losses is allocated to the businesses based
on risk inherent in the loan portfolios. Support areas not directly aligned with
the businesses are allocated primarily based on the utilization of 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, equity
management activities, minority interests, residual asset and liability
management activities, eliminations and unassigned items, the impact of which is
reflected in Other.
BUSINESS SEGMENT PRODUCTS AND SERVICES
Regional Banking provides credit, deposit, branch-based brokerage and electronic
banking products and services to retail customers as well as credit, treasury
management and capital markets products and services to small businesses
primarily within PNC's geographic region.
Corporate Banking provides specialized credit, equipment leasing, treasury
management and capital markets products and services to large and mid-sized
corporations, institutions and government entities primarily within PNC's
geographic region.
PNC Real Estate Finance provides credit products, capital markets financing,
treasury management, commercial mortgage loan servicing and other products and
services to developers, owners and investors in commercial real estate.
PNC Business Credit provides asset-based lending, capital markets and treasury
management products and services to middle market customers on a national basis.
PNC Advisors offers customized 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 pension funds, 401(k) plans and charitable organizations.
BlackRock manages assets for institutions and individuals through a variety of
fixed income, liquidity, equity and alternative investment products, including
BlackRock's flagship fund families.
PFPC, the Corporation's global fund services subsidiary, provides a wide range
of processing services to the investment management community. PFPC provides
customized services to clients in the United States and to the global funds
marketplace through its Dublin, Ireland operation.
PNC Mortgage originates, purchases and services residential mortgages and
related products. PNC Mortgage also acquires and securitizes residential
mortgages as private-label, mortgage-backed securities and performs the master
servicing of those securities for investors.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
33
<PAGE> 35
RESULTS OF BUSINESSES
<TABLE>
<CAPTION>
PNC PNC
Three months ended June 30 Regional Corporate Real Estate Business PNC PNC Total
In millions Banking Banking Finance Credit Advisors BlackRock PFPC Mortgage Other PNC
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000
INCOME STATEMENT
Net interest income* $359 $138 $32 $25 $33 $1 $(12) $5 $(26) $555
Noninterest income 155 68 25 4 161 113 165 77 28 796
------------------------------------------------------------------------------------------------------------------------------------
Total revenue 514 206 57 29 194 114 153 82 2 1,351
Provision for credit losses 10 23 2 35
Depreciation and amortization 21 4 5 3 5 13 3 12 66
Other noninterest expense 249 91 27 7 120 73 124 53 17 761
------------------------------------------------------------------------------------------------------------------------------------
Pretax earnings 234 88 25 20 71 36 16 26 (27) 489
Income taxes 82 32 5 7 26 15 6 10 (9) 174
------------------------------------------------------------------------------------------------------------------------------------
Earnings $152 $56 $20 $13 $45 $21 $10 $16 $(18) $315
====================================================================================================================================
Inter-segment revenue $1 $7 $(2) $(2) $5 $20 $10 $(39)
====================================================================================================================================
Average assets $38,498 $16,270 $5,826 $2,262 $3,556 $480 $1,571 $6,897 $193 $75,553
====================================================================================================================================
1999
INCOME STATEMENT
Net interest income* $357 $118 $30 $17 $34 $(3) $2 $31 $26 $612
Noninterest income 146 64 30 2 152 92 55 85 38 664
------------------------------------------------------------------------------------------------------------------------------------
Total revenue 503 182 60 19 186 89 57 116 64 1,276
Provision for credit losses 15 11 1 (1) (1) 25
Depreciation and amortization 19 4 5 4 4 1 2 16 55
Other noninterest expense 243 88 26 6 119 61 39 91 39 712
------------------------------------------------------------------------------------------------------------------------------------
Pretax earnings 226 79 29 12 64 24 17 23 10 484
Income taxes 83 28 7 4 25 10 6 10 (4) 169
------------------------------------------------------------------------------------------------------------------------------------
Earnings $143 $51 $22 $8 $39 $14 $11 $13 $14 $315
====================================================================================================================================
Inter-segment revenue $2 $2 $(1) $3 $20 $12 $(38)
====================================================================================================================================
Average assets $37,819 $15,589 $5,630 $1,718 $3,358 $406 $258 $7,016 $3,266 $75,060
====================================================================================================================================
Six months ended June 30
In millions
------------------------------------------------------------------------------------------------------------------------------------
2000
INCOME STATEMENT
Net interest income* $703 $272 $59 $49 $68 $2 $(22) $10 $(21) $1,120
Noninterest income 288 148 44 8 330 221 320 148 78 1,585
------------------------------------------------------------------------------------------------------------------------------------
Total revenue 991 420 103 57 398 223 298 158 57 2,705
Provision for credit losses 22 38 2 3 1 66
Depreciation and amortization 42 7 10 1 7 10 26 5 26 134
Other noninterest expense 492 189 57 13 251 144 246 116 32 1,540
------------------------------------------------------------------------------------------------------------------------------------
Pretax earnings 435 186 36 41 137 69 26 37 (2) 965
Income taxes 154 66 3 15 51 29 10 15 (1) 342
------------------------------------------------------------------------------------------------------------------------------------
Earnings $281 $120 $33 $26 $86 $40 $16 $22 $(1) $623
====================================================================================================================================
Inter-segment revenue $1 $3 $7 $41 $19 $(71)
====================================================================================================================================
Average assets $38,182 $16,110 $5,604 $2,173 $3,577 $434 $1,587 $6,615 $833 $75,115
====================================================================================================================================
1999
INCOME STATEMENT
Net interest income * $709 $232 $60 $33 $67 $(6) $5 $56 $120 $1,276
Noninterest income 267 122 48 4 298 180 106 161 209 1,395
------------------------------------------------------------------------------------------------------------------------------------
Total revenue 976 354 108 37 365 174 111 217 329 2,671
Provision for credit losses 33 14 1 55 103
Depreciation and amortization 42 7 10 1 7 9 3 5 104 188
Other noninterest expense 491 169 50 11 236 120 73 171 81 1,402
------------------------------------------------------------------------------------------------------------------------------------
Pretax earnings 410 164 48 24 122 45 35 41 89 978
Income taxes 151 59 11 8 47 19 13 17 13 338
------------------------------------------------------------------------------------------------------------------------------------
Earnings $259 $105 $37 $16 $75 $26 $22 $24 $76 $640
====================================================================================================================================
Inter-segment revenue $3 $1 $5 $39 $21 $(69)
====================================================================================================================================
Average assets $37,673 $15,634 $5,632 $1,658 $3,304 $403 $263 $7,050 $4,386 $76,003
====================================================================================================================================
</TABLE>
* Taxable-equivalent basis
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
34
<PAGE> 36
STATISTICAL INFORMATION
CONSOLIDATED AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
Six months ended June 30
-------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------
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 $5,077 $204 8.02% $3,555 $123 6.88%
Securities available for sale
U.S. Treasury and government agencies
and corporations 3,733 101 5.44 4,720 120 5.11
Other debt 3,660 120 6.52 3,186 98 6.15
Other 616 21 6.97 695 20 5.83
------------------------------------------------------------------------------- --------------------------
Total securities available for sale 8,009 242 6.05 8,601 238 5.56
Loans, net of unearned income
Consumer 9,248 390 8.46 10,841 440 8.19
Credit card 1,355 100 14.90
Residential mortgage 13,001 461 7.09 12,341 433 7.02
Commercial 21,918 911 8.22 23,705 900 7.55
Commercial real estate 2,690 118 8.67 3,397 132 7.71
Lease financing 3,004 109 7.26 2,461 87 7.08
Other 682 28 8.28 476 17 7.27
------------------------------------------------------------------------------- --------------------------
Total loans, net of unearned income 50,543 2,017 7.94 54,576 2,109 7.73
Other 1,245 49 7.99 1,121 35 6.29
------------------------------------------------------------------------------- --------------------------
Total interest-earning assets/interest income 64,874 2,512 7.71 67,853 2,505 7.38
Noninterest-earning assets
Allowance for credit losses (686) (711)
Cash and due from banks 2,598 2,052
Other assets 8,329 6,809
-------------------------------------------------------------------- -------------
Total assets $75,115 $76,003
-------------------------------------------------------------------- -------------
LIABILITIES, CAPITAL SECURITIES
AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand and money market $18,893 297 3.17 $17,258 231 2.69
Savings 2,123 18 1.69 2,503 20 1.62
Retail certificates of deposit 14,497 386 5.35 14,381 356 4.99
Other time 639 20 6.40 2,219 60 5.40
Deposits in foreign offices 1,486 45 5.94 721 17 4.80
------------------------------------------------------------------------------- --------------------------
Total interest-bearing deposits 37,638 766 4.09 37,082 684 3.72
Borrowed funds
Federal funds purchased 2,221 67 5.96 1,445 35 4.79
Repurchase agreements 1,124 30 5.28 2,237 41 3.60
Bank notes and senior debt 6,869 217 6.25 9,512 242 5.07
Federal Home Loan Bank borrowings 6,345 196 6.10 5,266 132 4.99
Subordinated debt 2,398 89 7.44 1,959 74 7.54
Other borrowed funds 785 27 6.86 642 21 6.46
------------------------------------------------------------------------------- --------------------------
Total borrowed funds 19,742 626 6.28 21,061 545 5.15
------------------------------------------------------------------------------- --------------------------
Total interest-bearing liabilities/interest expense 57,380 1,392 4.84 58,143 1,229 4.23
Noninterest-bearing liabilities and shareholders' equity
Demand and other noninterest-bearing deposits 8,300 8,858
Accrued expenses and other liabilities 2,621 2,231
Mandatorily redeemable capital securities
of subsidiary trusts 848 848
Shareholders' equity 5,966 5,923
-------------------------------------------------------------------- -------------
Total liabilities, capital securities
and shareholders' equity $75,115 $76,003
-----------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 2.87 3.15
Impact of noninterest-bearing sources .56 .60
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin $1,120 3.43% $1,276 3.75%
-----------------------------------------------------------------------------------------------------------------------------------
</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).
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
35
<PAGE> 37
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Second Quarter 2000 First Quarter 2000 Second Quarter 1999
------------------------------------------------------------------------------------------------------------------------------------
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>
$4,720 $97 8.21% $5,434 $107 7.86% $3,727 $67 7.07%
3,646 51 5.65 3,819 50 5.24 5,187 66 5.12
3,742 62 6.58 3,578 58 6.45 3,521 55 6.19
619 11 7.02 614 10 6.92 729 10 5.70
------------------------------- ---------------------------- -----------------------------
8,007 124 6.19 8,011 118 5.91 9,437 131 5.56
9,236 198 8.59 9,261 192 8.33 10,729 218 8.16
13,055 232 7.11 12,947 229 7.07 12,496 218 6.97
22,043 464 8.33 21,793 447 8.12 22,846 438 7.58
2,682 59 8.74 2,698 59 8.60 3,396 66 7.66
3,049 55 7.19 2,958 54 7.33 2,478 43 6.98
676 14 8.50 688 14 8.09 534 9 6.99
------------------------------- ---------------------------- -----------------------------
50,741 1,022 8.02 50,345 995 7.87 52,479 992 7.53
1,318 27 8.34 1,173 22 7.60 1,236 19 6.37
------------------------------- ---------------------------- -----------------------------
64,786 1,270 7.82 64,963 1,242 7.62 66,879 1,209 7.20
(689) (683) (678)
2,872 2,324 2,038
8,584 8,073 6,821
---------------- ------------- --------------
$75,553 $74,677 $75,060
---------------- ------------- --------------
$19,431 159 3.30 $18,355 138 3.03 $17,686 118 2.66
2,107 9 1.75 2,138 9 1.64 2,472 10 1.60
14,403 195 5.45 14,591 191 5.25 14,114 172 4.91
641 10 6.44 637 10 6.36 1,832 25 5.47
1,483 24 6.25 1,489 21 5.63 682 8 4.83
------------------------------- ---------------------------- -----------------------------
38,065 397 4.20 37,210 369 3.98 36,786 333 3.63
2,162 34 6.28 2,279 33 5.67 1,230 15 4.77
975 14 5.60 1,272 16 5.04 2,629 25 3.62
6,762 110 6.40 6,976 107 6.10 9,214 117 5.03
6,274 100 6.32 6,417 96 5.89 4,727 59 4.92
2,420 45 7.45 2,377 44 7.43 2,030 38 7.50
795 15 7.39 775 12 6.31 714 10 5.92
------------------------------- ---------------------------- -----------------------------
19,388 318 6.50 20,096 308 6.08 20,544 264 5.08
------------------------------- ---------------------------- -----------------------------
57,453 715 4.97 57,306 677 4.72 57,330 597 4.15
8,597 8,004 8,684
2,650 2,592 2,325
848 848 848
6,005 5,927 5,873
---------------- ------------- --------------
$75,553 $74,677 $75,060
------------------------------------------------------------------------------------------------------------------------------------
2.85 2.90 3.05
.56 .56 .59
------------------------------------------------------------------------------------------------------------------------------------
$555 3.41% $565 3.46% $612 3.64%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Loan fees for the six months ended June 30, 2000 and June 30, 1999 were $60
million and $61 million, respectively. For each of the three months ended June
30, 2000, March 31, 2000, and June 30, 1999 loan fees were $31 million, $29
million, and $30 million, respectively.
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
36
<PAGE> 38
QUARTERLY REPORT ON FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended June 30, 2000.
Commission File Number 1-9718
THE PNC FINANCIAL SERVICES GROUP, INC.
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) 762-2000
As of July 31, 2000, The PNC Financial Services Group, Inc. had 289,222,479
shares of common stock ($5 par value) outstanding.
The PNC Financial Services Group, Inc. (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 and six months ended June
30, 2000 and 1999 25
Consolidated Balance Sheet as of June
30, 2000 and December 31, 1999 26
Consolidated Statement of Cash Flows for
the six months ended June 30, 2000 and
1999 27
Notes to Consolidated Financial
Statements 28 - 34
Consolidated Average Balance Sheet and
Net Interest Analysis 35 - 36
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 2 - 24
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 18 - 22
----------------------------------------------------------------
PART II OTHER FINANCIAL INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibit index lists Exhibits filed with this Quarterly Report on
Form 10-Q:
10.17 Consulting arrangement between the Corporation and
Thomas H. O'Brien
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 obtained electronically at the Securities and
Exchange Commission's home page at www.sec.gov. Copies may also be obtained
without charge by writing to Lynn Fox Evans, Director of Financial Reporting, at
corporate headquarters, by calling (412) 762-1553 or via e-mail at
[email protected].
The Corporation did not file any Reports on Form 8-K during the quarter ended
June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on August 14, 2000, on its
behalf by the undersigned thereunto duly authorized.
THE PNC FINANCIAL SERVICES GROUP, INC.
By: /s/ Robert L. Haunschild
----------------------------
Robert L. Haunschild
Senior Vice President and
Chief Financial Officer
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
37
<PAGE> 39
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
The PNC Financial Services Group, Inc.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
(412) 762-2000
STOCK LISTING
The PNC Financial Services Group, Inc. common stock is listed on the New York
Stock Exchange under the symbol PNC.
INTERNET INFORMATION
Information about The PNC Financial Services Group, Inc.'s financial results and
its products and services is available on the Internet at www.pnc.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 may also be obtained without charge by writing to Lynn Fox
Evans, Director of Financial Reporting, at corporate headquarters, by calling
(412) 762-1553 or via e-mail at [email protected].
INQUIRIES
For financial services call 1-888-PNC-2265. Individual shareholders should
contact Shareholder Relations 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
R. Jeep Bryant, Director of Corporate Communications, at (412) 762-8221 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 The PNC Financial Services Group, Inc. common
stock and the cash dividends declared per common share.
Cash
Dividends
High Low Close Declared
=====================================================================
2000 QUARTER
---------------------------------------------------------------------
First $48.500 $36.000 $45.063 $.45
Second 57.500 41.000 46.875 .45
---------------------------------------------------------------------
Total $.90
=====================================================================
1999 QUARTER
---------------------------------------------------------------------
First $59.750 $47.000 $55.563 $.41
Second 60.125 54.375 57.625 .41
Third 58.063 49.688 52.688 .41
Fourth 62.000 43.000 44.500 .45
---------------------------------------------------------------------
Total $1.68
=====================================================================
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The PNC Financial Services Group, Inc. 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
THE PNC FINANCIAL SERVICES GROUP, INC.
-----
38
