EXHIBIT 99 PNC BANK CORP. - - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - - --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 1994 1993 - - ------------------------------------------------------------------------------------------------------------------------------- FINANCIAL PERFORMANCE (IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS) Net interest income (taxable-equivalent basis) $505,804 $463,568 Income before cumulative effect of changes in accounting principles 205,689 187,011 Net income 205,689 167,618 Earnings per common share Before cumulative effect of changes in accounting principles Primary .87 .79 Fully diluted .86 .78 Net income Primary .87 .71 Fully diluted .86 .70 Net interest margin 3.68% 4.14% Returns before cumulative effect of changes in accounting principles Return on average total assets 1.41 1.59 Return on average common shareholders' equity 19.32 19.86 Returns based on net income Return on average total assets 1.41 1.42 Return on average common shareholders' equity 19.32 17.89 Net charge-offs to average loans .29 .76 After-tax profit margin 26.91 22.53 Overhead ratio 55.84 54.14 SELECTED AVERAGE BALANCES (IN MILLIONS) Total assets $ 58,966 $ 47,794 Total earning assets 55,182 44,980 Securities 21,238 18,980 Loans, net of unearned income 32,023 25,214 Deposits 31,737 28,090 Shareholders' equity 4,330 3,814 - - -------------------------------------------------------------------------------------------------------------------------------
MARCH 31 December 31 March 31 1994 1993 1993 - - ------------------------------------------------------------------------------------------------------------------------------ PERIOD-END RATIOS Capital Risk-based capital Tier I 9.86% 9.57% 10.51% Total 12.42 12.11 12.64 Leverage 7.15 7.85 7.96 Common shareholders' equity to total assets 6.97 6.93 7.50 Asset quality Nonperforming loans to total loans 1.09 1.15 1.93 Nonperforming assets to total loans and foreclosed assets 1.56 1.65 2.92 Nonperforming assets to total assets .85 .89 1.45 Allowance for credit losses to total loans 2.94 2.92 3.62 Allowance for credit losses to nonperforming loans 269.60 253.12 187.85 Book value per common share As reported $18.14 $18.34 $16.42 Excluding net unrealized securities gains/losses 18.53 17.96 16.42 - - ------------------------------------------------------------------------------------------------------------------------------ CONTENTS CORPORATE FINANCIAL REVIEW THREE MONTHS 1994 VERSUS THREE MONTHS 1993................ 2 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET................................ 15 CONSOLIDATED STATEMENT OF INCOME.......................... 16 CONSOLIDATED STATEMENT OF CASH FLOWS...................... 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................ 18 Average Consolidated Balance Sheet and Net Interest Analysis................................. 20 Corporate Information....................................... 22
1 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW THE CORPORATE FINANCIAL REVIEW SHOULD BE READ IN CONJUNCTION WITH THE PNC BANK CORP. AND SUBSIDIARIES ("CORPORATION") CONSOLIDATED FINANCIAL STATEMENTS INCLUDED HEREIN. Overview During the first quarter of 1994, the economy continued to experience moderate growth. Management expects improved economic conditions to continue throughout 1994 accompanied by additional increases in short-term interest rates. Net income for the first quarter of 1994 was $205.7 million, or $.86 per fully diluted share, compared with $167.6 million, or $.70 per share, for 1993. Income before accounting changes in the prior year period was $187.0 million or $.78 per fully diluted share. Return on assets and return on common shareholders' equity were 1.41 percent and 19.32 percent, respectively, in 1994, compared with 1.42 percent and 17.89 percent, in 1993. The corresponding 1993 returns before accounting changes were 1.59 percent and 19.86 percent. The results for the first quarter of 1994 include a full-period contribution from the acquisition of PNC Mortgage (formerly Sears Mortgage Banking Group). The results for the first three months of 1993 include the cumulative effect of adopting Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," and a change in the method of accounting for certain intangible assets, primarily purchased mortgage servicing rights. The cumulative effect of these changes reduced net income by $9.0 million and $10.4 million, respectively. Mergers and Acquisitions On November 30, 1993, the Corporation completed its acquisition of PNC Mortgage for $328 million in cash. The purchase price is subject to certain post-closing adjustments. With this acquisition, the Corporation added assets of $7.6 billion; a mortgage servicing portfolio approximating $27 billion, including $21 billion serviced for others; and a national residential mortgage production network consisting of 120 locations in 33 states. On January 21, 1994, the Corporation consummated the acquisition of United Federal Bancorp, Inc. ("United"), State College, Pennsylvania, for $156 million in cash. United's assets totaled $900 million at closing. In addition, the Corporation has a pending agreement to acquire First Eastern Corp. ("First Eastern"), Wilkes-Barre, Pennsylvania, which had total assets of $2.0 billion at March 31, 1994. This transaction has an indicated value of approximately $330 million and is expected to close in the second quarter of 1994. 2 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW Income Statement Review INCOME STATEMENT HIGHLIGHTS - - --------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 Change ----------------- IN MILLIONS 1994 1993 Amount Percent - - -------------------------------------------------------------------- Net interest income-- taxable-equivalent basis $506 $464 $42 9.1% Provision for credit losses 25 61 (36) (59.0) Noninterest income 258 280 (22) (7.8) Noninterest expenses 427 387 40 10.3 Income before cumulative effect of changes in accounting principles 206 187 19 10.2 Net income 206 168 38 22.6 - - --------------------------------------------------------------------
NET INTEREST INCOME AND NET INTEREST MARGIN On a fully taxable-equivalent basis, net interest income for the first quarter of 1994 increased $42.2 million, or 9.1 percent, compared with the first quarter of 1993. The increase was due to higher levels of average earning assets.
NET INTEREST MARGIN COMPARISON - - ------------------------------------------------------------ THREE MONTHS ENDED MARCH 31 Basis Point TAXABLE-EQUIVALENT BASIS 1994 1993 Change - - ------------------------------------------------------------ Book-basis yield on earning assets 6.23% 6.84% (61) Effect of loan fees .14 .18 (4) Taxable-equivalent adjustment .06 .09 (3) - - ------------------------------------------------------------ Taxable-equivalent yield on earning assets 6.43 7.11 (68) Rate on interest-bearing liabilities 3.69 4.03 (34) - - ------------------------------------------------------------ Interest rate spread 2.74 3.08 (34) Impact of noninterest-bearing sources .53 .63 (10) Net benefit of interest rate swaps .41 .43 (2) - - ------------------------------------------------------------ Net interest margin 3.68% 4.14% (46) - - ------------------------------------------------------------
As expected, the net interest margin narrowed during the quarter when compared with the comparable period in 1993, primarily due to the PNC Mortgage acquisition. The maturity structure and nature of the liabilities assumed relative to the assets acquired resulted in a narrower interest rate spread. In addition, the proportion of noninterest-bearing sources supporting earning assets declined. This impact was partially mitigated by the benefit of lower prepayments on mortgage-related assets in a rising rate environment. Interest rate swaps were used to reduce exposure to changes in interest rates. The net interest margin comparison illustrates the net benefit of interest rate swaps segregated from the applicable margin components. VOLUME/RATE ANALYSIS - - --------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 Increase (Decrease) 1994 VERSUS 1993 Due to Changes in: ----------------------------------- Rate IN MILLIONS Volume Rate Volume Total - - ------------------------------------------------------------------ Interest income $182 $(68) $(14) $100 Interest expense 85 (22) (5) 58 Net interest income 105 (52) (11) 42 - - ------------------------------------------------------------------
PROVISION FOR CREDIT LOSSES The provision for credit losses was $25.0 million in the first quarter of 1994, compared with $61.4 million in the first quarter of 1993. Continuing improvement in economic conditions combined with management's ongoing efforts to improve asset quality resulted in lower nonperforming assets and charge-offs, and a higher reserve coverage of nonperforming loans. The improvement in asset quality is expected to result in a lower full-year provision in 1994 when compared with the prior year. NONINTEREST INCOME Noninterest income totaled $258.6 million in the first quarter of 1994, compared with $280.3 million in the corresponding 1993 period. Net securities gains for the quarter totaled $30.4 million, compared with $105.2 million in the year-earlier period. Excluding net securities gains, noninterest income as a percentage of total revenue was 31.1 percent in the first quarter of 1994, compared with 27.4 percent a year earlier. 3 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW
NONINTEREST INCOME - - --------------------------------------------------------------------------------------------------------------------- Change THREE MONTHS ENDED MARCH 31 -------------------- IN THOUSANDS 1994 1993 Amount Percent - - --------------------------------------------------------------------------------------------------------------------- Investment management and trust Trust $ 49,399 $ 44,793 $ 4,606 10.3% Mutual funds 23,568 21,480 2,088 9.7 - - ------------------------------------------------------------------------------------------------------- Total investment management and trust 72,967 66,273 6,694 10.1 - - ------------------------------------------------------------------------------------------------------- Service charges, fees and commissions Deposit account and corporate services 39,806 38,478 1,328 3.5 Credit card and merchant services 12,920 12,908 12 .1 Brokerage 8,677 7,717 960 12.4 Corporate finance 10,679 8,583 2,096 24.4 Other services 15,820 13,759 2,061 15.0 - - ------------------------------------------------------------------------------------------------------- Total service charges, fees and commissions 87,902 81,445 6,457 7.9 - - ------------------------------------------------------------------------------------------------------- Mortgage Banking Servicing 35,022 6,294 28,728 456.4 Marketing 2,870 1,600 1,270 79.4 - - ------------------------------------------------------------------------------------------------------- Total mortgage banking 37,892 7,894 29,998 380.0 - - ------------------------------------------------------------------------------------------------------- Net securities gains 30,392 105,161 (74,769) (71.1) Other 29,398 19,508 9,890 50.7 - - ------------------------------------------------------------------------------------------------------- Total $258,551 $280,281 $(21,730) (7.8)% - - ---------------------------------------------------------------------------------------------------------------------
New business accounted for the increase in trust income. Trust assets totaled $111 billion at March 31, 1994, compared with $105 billion a year ago. The Corporation exercised discretionary investment authority over $30 billion of such assets at March 31, 1994, compared with $32 billion a year ago. Mutual fund accounting and administrative fees increased $2.5 million, or 16.1 percent, to $18.1 million in the first quarter of 1994 as a result of new business. Investment advisory fees declined 7.2 percent to $5.5 million during the first quarter of 1994, due to a decline in the level of advised money market mutual fund assets. Mutual funds serviced totaled $80 billion at March 31, 1994, including $23 billion over which the Corporation exercised discretionary investment authority. The comparable amounts were $71 billion and $25 billion, respectively, a year ago. Service charges, fees and commissions increased $6.5 million, or 7.9 percent, to $87.9 million. Increased transaction volume related to new business and acquisitions accounted for the growth in deposit account and corporate services revenue. Increased syndication and advisory activity accounted for the growth in corporate finance fees. Mortgage banking income increased $30.0 million to $37.9 million, primarily as a result of the PNC Mortgage acquisition. During the first quarter of 1994, the Corporation originated $2.0 billion of residential mortgages, the majority of which represented new financing. Although the volume of originations was adversely impacted by the rising interest rate environment, the market value of mortgage servicing rights increased. Gains of $5.1 million were realized from the sale of mortgage servicing rights during the first quarter of 1994. At March 31, 1994, the Corporation's mortgage servicing portfolio totaled $35.3 billion with a weighted-average coupon of 7.74 percent, including $28.3 billion serviced for others. The increase in other noninterest income is attributable to higher gains from sales of assets and venture capital activity. These increases were partially offset by lower trading account profits. 4 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW
NONINTEREST EXPENSES - - ------------------------------------------------------------------ THREE MONTHS ENDED MARCH 31 Change ---------------- IN THOUSANDS 1994 1993 Amount Percent - - ------------------------------------------------------------------ Compensation $164,792 $140,349 $ 24,443 17.4% Employee benefits 42,107 36,055 6,052 16.8 - - -------------------------------------------------------- Total staff expense 206,899 176,404 30,495 17.3 Net occupancy 32,420 29,667 2,753 9.3 Equipment 32,862 28,652 4,210 14.7 Amortization of intangible assets 19,560 10,704 8,856 82.7 Federal deposit insurance 18,176 16,465 1,711 10.4 Taxes other than income 11,096 8,829 2,267 25.7 Other 105,833 116,294 (10,461) (9.0) - - -------------------------------------------------------- Total $426,846 $387,015 $ 39,831 10.3% - - ------------------------------------------------------------------
NONINTEREST EXPENSES Noninterest expenses totaled $426.8 million in the first quarter of 1994, compared with $387.0 million in the year-earlier period. The overhead ratio was 55.8 percent in the first quarter of 1994, compared with 54.1 percent in 1993. The ratio increased due to higher relative operating expenses associated with PNC Mortgage. Staff expense increased 17.3 percent to $206.9 million, primarily due to acquisitions completed in the second half of 1993. Average full-time equivalents totaled 20,900 for the first quarter 1994, compared with 17,600 in the year-earlier period. Approximately 3,500 average full-time equivalents were added from acquisitions. Excluding the impact of acquisitions, staff expense increased 2.4 percent. Net occupancy and equipment expense increased $2.8 million and $4.2 million, respectively, primarily due to acquisitions, occupancy of an office building purchased in 1993 and an upgrade of computer equipment. Amortization of intangible assets increased $8.9 million primarily due to higher levels of purchased mortgage servicing rights associated with the PNC Mortgage transaction. The decrease in the other category related to certain accruals recorded in 1993. 5 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW Line of Business Results The management accounting process uses various methods of balance sheet and income statement allocations, transfers and assignments to evaluate the performance of various business units. Unlike financial accounting, there is no comprehensive, authoritative body of guidance for management accounting equivalent to generally accepted accounting principles. The following information is based on management accounting practices which conform to and support the management structure of the Corporation and is not necessarily comparable with similar information for any other financial institution. Designations, assignments, and allocations may change from time to time as management accounting systems are enhanced or product lines change. During 1994, certain methodologies were changed and, accordingly, results for 1993 are presented on a consistent basis. For management reporting purposes, the Corporation has designated four distinct lines of business: Corporate Banking, Retail Banking, Investment Management and Trust, and Investment Banking. Management categorizes the operating units within these lines of business based on their mature or growth nature. The businesses targeted for growth include Treasury Management, Mortgage Banking, Mutual Funds, Asset Management, and Brokerage. Management believes these targeted businesses have attractive growth potential and continues to make significant investments in them. For the more mature business units, such as Corporate Banking and Consumer Banking, the emphasis is on managing the revenue and expense relationship to enhance profitability. The financial results presented in this section reflect each line of business as if it operated on a stand-alone basis. Securities or borrowings have been assigned to each line of business based on its net asset or liability position. The remaining securities and borrowings emanating from management of the Corporation's overall asset/liability position and related interest rate spread and net securities gains are included in Portfolio Management.
LINE OF BUSINESS HIGHLIGHTS - - --------------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 IN MILLIONS, EXCEPT RATIOS Return on Earnings Average Assets Assigned Equity -------------- -------------------- ---------------- 1994 1993 1994 1993 1994 1993 - - --------------------------------------------------------------------------------------------------------------------------------- Corporate Banking Large Corporate $ 25 $ 18 $ 3,494 $ 3,048 26% 20% Middle Market 62 41 9,689 9,815 20 11 - - --------------------------------------------------------------------------------------------------------- Total Corporate Banking 87 59 13,183 12,863 21 13 - - --------------------------------------------------------------------------------------------------------- Retail Banking Consumer Banking 67 62 24,412 23,349 20 20 Mortgage Banking 17 7 9,653 3,325 17 18 - - --------------------------------------------------------------------------------------------------------- Total Retail Banking 84 69 34,065 26,674 20 20 - - --------------------------------------------------------------------------------------------------------- Investment Management and Trust Trust 10 11 389 357 40 51 Mutual Funds 6 6 139 104 45 62 - - --------------------------------------------------------------------------------------------------------- Total Investment Management and Trust 16 17 528 461 42 55 - - --------------------------------------------------------------------------------------------------------- Investment Banking Portfolio Management 37 83 9,841 7,869 63 139 Brokerage and Underwriting 8 6 542 259 49 39 - - --------------------------------------------------------------------------------------------------------- Total Investment Banking 45 89 10,383 8,128 60 117 - - --------------------------------------------------------------------------------------------------------- Total lines of business 232 234 Unallocated items (26) (47) Cumulative effect of accounting changes (19) - - ----------------------------------------------------------------------------- Total $206 $168 - - ---------------------------------------------------------------------------------------------------------------------------------
6 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW Earnings contributed by the lines of business totaled $232 million in the first quarter of 1994, compared with $234 million in the first quarter of 1993. Excluding net securities gains, earnings from the lines of business were $213 million and $166 million, respectively. These results exceeded reported consolidated net income by $26 million and $66 million, respectively, due to the cumulative effect of changes in accounting principles in 1993, provision for credit losses in excess of specific reserve allocations and certain unallocated corporate expenses. CORPORATE BANKING Corporate Banking provided 38 percent of line of business earnings in the first quarter of 1994. Large Corporate benefited from an 11 percent increase in average loans and improved asset quality. Middle Market earnings increased as a result of a reduction in the provision for credit losses as asset quality improved in both the commercial and real estate project portfolios. RETAIL BANKING The contribution of Retail Banking earnings was 36 percent in the first quarter of 1994. Consumer Banking average loans and deposits increased 12 percent and 3 percent, respectively, compared with the first quarter of 1993, primarily due to acquisitions. Operating expenses of this mature business increased less than 4 percent when compared with the prior year, as increased expenses related to acquisitions were partially offset by branch and back office consolidations. The increase in Mortgage Banking earnings reflect the contribution of the acquired assets and mortgage banking operations of PNC Mortgage. Average mortgage-related assets increased $6.3 billion to $9.7 billion. INVESTMENT MANAGEMENT AND TRUST Investment Management and Trust contributed 7 percent of line of business earnings. Trust earnings declined in the quarter-to-quarter comparison as increased income from new business was more than offset by higher marketing and incentive expenses. Mutual Funds earnings were unchanged in the first quarter of 1994. Increased revenues from investment in the PNC Family of Funds as well as expanded accounting and administrative services were offset by lower investment advisory fees and increased marketing costs. INVESTMENT BANKING The earnings contribution from Investment Banking was 19 percent in 1994. Portfolio Management earnings declined in the comparison as net securities gains were $30.4 million in the first quarter of 1994, compared with $105.2 million in 1993. The gains were significantly higher last year as certain mortgage-backed securities were sold in a higher prepayment environment to provide more stability to net interest income. Increased earnings in Brokerage and Underwriting reflect higher brokerage and venture capital income, which was partially offset by additional investment in this targeted business.
Balance Sheet Review BALANCE SHEET HIGHLIGHTS - - -------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 ------------------- FULL YEAR AVERAGES IN MILLIONS 1994 1993 1993 - - -------------------------------------------------------------------- Total assets $58,966 $47,794 $50,321 Total earning assets 55,182 44,980 47,340 Securities 21,238 18,980 20,403 Loans, net of unearned income 32,023 25,214 25,959 Deposits 31,737 28,090 28,442 Borrowings 11,543 10,149 10,373 Shareholders' equity 4,330 3,814 3,957 - - --------------------------------------------------------------------
The changes in the average balance sheet reflect the impact of acquisitions, stronger loan demand, and asset/liability management activities. Average earning assets increased $10.3 billion when compared with the first quarter of 1993, $5.7 billion of which were real estate mortgage and consumer loans. Average total loans for the first quarter of 1994 increased 27.0 percent to $32.0 billion when compared with the first quarter of 1993. Excluding the impact of acquisitions, average loans increased 3.9 percent in the quater-to-quarter comparison due to increased loan demand and higher levels of short-term commercial and money market loans. 7 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW LOANS - - ---------------------------------------------------------------------------------------------------------------------------------
MARCH 31, 1994 December 31, 1993 --------------------------- ------------------------------ UNFUNDED Unfunded IN MILLIONS OUTSTANDINGS COMMITMENTS Outstandings Commitments - - --------------------------------------------------------------------------------------------------------------------------------- Commercial Manufacturing $ 2,772 $ 4,591 $ 2,765 $ 4,351 Retail/Wholesale 1,956 1,692 1,789 1,570 Services 1,746 1,658 1,586 1,599 Financial services 992 1,905 872 1,666 Communications 1,290 1,148 1,337 732 Real estate related 511 220 557 177 Investment/Holding Co. 421 276 454 264 Other 3,095 3,417 3,103 3,089 - - --------------------------------------------------------------------------------------------------------------------------------- Total commercial 12,783 14,907 12,463 13,448 - - --------------------------------------------------------------------------------------------------------------------------------- Real estate project Residential construction and development 62 69 70 72 Commercial construction and development 265 263 280 221 Medium-term financings Standing 897 135 875 142 Other 465 64 505 68 - - --------------------------------------------------------------------------------------------------------------------------------- Total real estate project 1,689 531 1,730 503 - - --------------------------------------------------------------------------------------------------------------------------------- Real estate mortgage Residential 8,045 1,149 8,036 1,521 Commercial 1,040 6 905 6 - - --------------------------------------------------------------------------------------------------------------------------------- Total real estate mortgage 9,085 1,155 8,941 1,527 - - --------------------------------------------------------------------------------------------------------------------------------- Consumer Automobile 2,469 2,428 Home equity 2,253 1,406 2,238 1,360 Student 1,131 4 1,103 27 Credit card 677 3,160 725 3,065 Other 1,988 233 2,031 214 - - --------------------------------------------------------------------------------------------------------------------------------- Total consumer 8,518 4,803 8,525 4,666 - - --------------------------------------------------------------------------------------------------------------------------------- Other 1,428 390 1,871 400 Unearned income (209) (222) - - --------------------------------------------------------------------------------------------------------------------------------- Total, net of unearned income $33,294 $21,786 $33,308 $20,544 - - ---------------------------------------------------------------------------------------------------------------------------------
Total commercial loans outstanding and unfunded commitments increased $1.8 billion, or 6.9 percent, from December 31, 1993, reflecting expanded economic activity. Total real estate project exposure remained relatively stable since year end. Residential construction and development loans rely upon unit sales of residential properties as the primary source of repayment. Medium-term financings have remaining terms of up to five years. This category includes completed construction projects which are in the leasing phase, and tenant- occupied commercial and residential real estate which depends upon sale or permanent take-out for ultimate repayment of the loan. Medium-term financings collateralized by projects where rental income exceeds debt service and operating costs are classified as standing loans. 8 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW Retail and office projects accounted for 30 percent and 27 percent, respectively, of total real estate project exposure at March 31, 1994. Multi-family and hotel/ motel projects each accounted for 9 percent. No other project type accounted for more than 7 percent. Projects in the Corporation's primary markets, which include Delaware, Indiana, Kentucky, New Jersey, Ohio and Pennsylvania, accounted for 69 percent of the total outstandings. The southeast region of the United States accounted for 17 percent and no other geographic region accounted for more than 6 percent. Residential mortgages outstanding remained relatively flat from year-end 1993. Approximately $350 million of residential mortgages were acquired in the United acquisition. This was offset by scheduled repayments and prepayment activity. Increased automobile, home equity and student loans were offset by seasonal declines in credit card outstandings. Highly leveraged transactions (HLTs) are included in various commercial loan categories. Consistent with the federal bank regulators' uniform definition, HLTs include financing transactions involving the buyout, acquisition or recapitalization of an existing business and credits extended to highly leveraged industries. At March 31, 1994, the loan portfolio included $979 million of HLT outstandings and $234 million of unfunded commitments. The comparable amounts at December 31, 1993 were $953 million and $186 million, respectively. The communications, manufacturing and retail/wholesale industries accounted for 64 percent, 21 percent and 9 percent, respectively, of total HLT exposure at March 31, 1994. HLT outstandings represented 2.9 percent of total loans at both March 31, 1994 and December 31, 1993. At March 31, 1994, the Corporation had 64 customers with loans designated as HLT. The ten largest HLT outstandings and unfunded commitments totaled $478 million and $43 million, respectively, one of which was classified as nonperforming. During the first quarter of 1994, the Corporation originated and/or participated in $155 million of commitments to new HLT customers, compared with $43 million in the corresponding 1993 period. HLT loan fees recognized in income during the first quarter of 1994 totaled $1.3 million and deferred HLT loan fees totaled $4.6 million at March 31, 1994. The yield on the HLT portfolio, including loans classified as nonperforming, was 6.5 percent during the first quarter of 1994. RISK ELEMENTS During the first quarter of 1994, overall asset quality continued to improve. Assuming modest economic growth and excluding the impact of the First Eastern acquisition, management anticipates the favorable trend will continue during 1994. NONPERFORMING ASSETS - - --------------------------------------------------------------
MARCH 31 December 31 IN MILLIONS, EXCEPT RATIOS 1994 1993 - - ------------------------------------------------------------- Nonaccrual loans Commercial $208 $181 Real estate project 87 91 Real estate mortgage 60 84 - - ------------------------------------------------------------- Total nonaccrual loans 355 356 - - ------------------------------------------------------------- Restructured loans 9 28 - - ------------------------------------------------------------- Total nonperforming loans 364 384 - - ------------------------------------------------------------- Foreclosed assets Real estate project 94 108 Real estate mortgage 40 42 Other 23 20 - - ------------------------------------------------------------- Total foreclosed assets 157 170 - - ------------------------------------------------------------- Total nonperforming assets $521 $554 - - ------------------------------------------------------------- Nonperforming loans to total loans 1.09% 1.15% Nonperforming assets to total loans and foreclosed assets 1.56 1.65 Nonperforming assets to total assets .85 .89 - - -------------------------------------------------------------
At March 31, 1994, $107 million of nonperforming loans were current as to principal and interest, compared with $102 million at December 31, 1993. Nonperforming HLT loans totaled $59 million at March 31, 1994, compared with $25 million at December 31, 1993. 9 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW CHARGE-OFFS AND RECOVERIES - - --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 1994 1993 ------------------------------------- ------------------------------------- NET Net IN MILLIONS CHARGE-OFFS RECOVERIES CHARGE-OFFS Charge-offs Recoveries Charge-offs - - --------------------------------------------------------------------------------------------------------------------------------- Commercial $12 $ 7 $ 5 $29 $ 8 $21 Real estate project 3 3 12 12 Real estate mortgage 6 1 5 2 2 Consumer 17 7 10 20 6 14 - - --------------------------------------------------------------------------------------------------------------------------------- Total $38 $15 $23 $63 $16 $47 - - ---------------------------------------------------------------------------------------------------------------------------------
At March 31, 1994, office, retail and land projects accounted for 60 percent of total nonperforming real estate project assets. The Corporation's primary markets accounted for 59 percent of total nonperforming real estate project assets at March 31, 1994. The southeast region of the United States and metropolitan Washington D.C. area accounted for 29 percent and 7 percent, respectively. Accruing loans contractually past due 90 days or more as to the payment of principal or interest totaled $177 million at March 31, 1994, compared with $135 million at December 31, 1993. Residential mortgages and student loans in the amount of $77 million and $38 million, respectively, were included in the total at March 31, 1994, compared with $55 million and $41 million at year end. Annualized net charge-offs as a percentage of average loans were .29 percent for the first quarter of 1994, compared with .76 percent in the corresponding 1993 period. The 1994 net charge-offs and recovery levels reflect the continued improvement in overall asset quality and the Corporation's loan workout efforts. There were no significant charge-offs or recoveries of HLT credits during the first quarters of 1994 and 1993. ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses totaled $980 million at March 31, 1994, compared with $972 million at December 31, 1993. The allowance as a percentage of period-end loans and nonperforming loans was 2.94 percent and 269.60 percent, respectively, at March 31, 1994. The comparable year-end amounts were 2.92 percent and 253.12 percent, respectively. These ratios are expected to decline slightly as a result of the First Eastern acquisition. ASSET/LIABILITY MANAGEMENT The primary objective of asset/liability management is to provide maximum levels of net interest income while maintaining acceptable levels of interest rate and liquidity risk and facilitating the Corporation's funding needs. To achieve this objective, asset/liability management uses a variety of investment alternatives, funding sources and off-balance-sheet instruments in managing the overall interest rate risk profile of the Corporation. ALCO policies include limits on the amounts of various financial instruments, types of funding, and the level of interest rate sensitivity. Asset/liability management seeks to minimize the credit risk associated with its activities. This is primarily accomplished by entering into transactions with only a select number of high quality institutions, establishing credit limits with counterparties and, where applicable, requiring segregated collateral. A dynamic income simulation model is the primary mechanism used in assessing the impact on net interest income of changes in interest rates. Various assumptions related to interest rates, mortgage prepayments, and loan and deposit growth are used in the model. At March 31, 1994, the Federal funds and 5-year U.S. Treasury Note rates were 3.50 percent and 6.23 percent, respectively. In management's most likely interest rate scenario, the Federal funds rate was projected to increase to 4.25 percent and the 5-year U.S. Treasury Note rate was projected to decline to 6.15 percent over the next twelve months, reflecting a flattening of the yield curve. This scenario assumed that the market would afford opportunities to reinvest available funds in assets with appropriate maturities relative to expected funding sources. 10 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW Based on the most likely scenario, the simulation model projected an increase in net interest income accompanied by higher earning asset levels and a narrower net interest margin. Management also develops higher and lower interest rate scenarios based on alternative economic assumptions. At March 31, 1994, each of these scenarios projected an increase in net interest income when compared with the prior year. However, in the lower rate scenario, the model projected net interest income would be 3.8 percent less than the most likely scenario assuming the Federal funds and 5-year U.S. Treasury Note rates fell gradually to 2.00 percent and 3.40 percent, respectively, over the next year. In the higher rate scenario, the model projected net interest income would be 5.5 percent less than the most likely scenario assuming the Federal funds and 5-year U.S. Treasury Note rates rose gradually to 5.50 percent and 7.40 percent, respectively. In management's opinion, these alternative scenarios are unlikely to occur. Such projected results are based on current on- and off-balance-sheet positions and do not reflect actions management could take to mitigate an adverse impact on net interest income. An interest rate sensitivity ("gap") analysis represents a point-in-time net position of assets, liabilities and off-balance-sheet instruments subject to repricing in specified time periods. The liability sensitivity of the cumulative one-year gap position was 19.1 percent of total earning assets at March 31, 1994, which declined to 3.8 percent within 24 months. Gap analysis alone does not accurately measure the magnitude of changes in net interest income since changes in interest rates do not impact all categories of assets, liabilities, and off-balance-sheet positions equally or simultaneously. The Corporation enters into interest rate swaps to alter the maturity and repricing structure of the balance sheet ("hedge swaps") and as an intermediary for customers ("customer swaps"). At March 31, 1994, hedge swaps and customer swaps accounted for 77 percent and one percent, respectively, of the total notional amount of all interest rate swap, futures, forward, foreign currency exchange and option contracts. The notional amount of hedge and customer swaps totaled $13.8 billion and $188 million, respectively, at March 31, 1994. The corresponding December 31, 1993 amounts were $11.8 billion and $490 million, respectively. At March 31, 1994, credit risk related to swaps under collateralized agreements totaled approximately $14 million with 44 percent collateralized by U.S. Government agencies and corporations securities.
CHANGE IN INTEREST RATE SWAPS - - --------------------------------------------------------------------- Hedge Swaps ----------------- NOTIONAL VALUE Receive Pay Customer IN MILLIONS Fixed Fixed Swaps Total - - --------------------------------------------------------------------- Balance at January 1, 1994 $10,619 $1,193 $490 $12,302 Additions 2,650 20 2,670 Maturities/amortization (335) (131) (322) (788) Terminations (200) (200) - - --------------------------------------------------------------------- Balance at March 31, 1994 $12,934 $ 862 $188 $13,984 - - ---------------------------------------------------------------------
Substantially all hedge swaps are indexed amortizing interest rate swaps where the Corporation receives payments based on fixed interest rates and makes payments based on a floating money market rate. Index swaps have remaining expected maturities that range from 2 months to 3 years in management's most likely interest rate scenario. If interest rates rise further, the maturities of certain index swaps would be extended. 11 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW During the first quarter of 1994, hedge swaps benefitted net interest income by $56.7 million, compared with $46.7 million in the corresponding 1993 period. At March 31, 1994, net deferred gains on terminated interest rate swaps totaled $19 million, which is being amortized over various remaining periods of up to two years. Because the Corporation has an aggregate receive-fixed/pay-variable interest rate swap position, an increase in interest rates would reduce the benefit provided by such swaps. However, management would expect several factors to partially or entirely mitigate a decline in the benefit provided by such swaps. As interest rates increase, the Corporation will derive a greater benefit from existing long-term liabilities and noninterest-bearing sources of funds. Also, an increase in interest rates would likely be associated with higher levels of economic activity, providing opportunities for loan growth, increased yields on variable rate assets and higher fee income.
INTEREST RATE SWAPS - - -------------------------------------------------------------- IN MILLIONS Gain Position Loss Position ------------------ ----------------- Total Notional Fair Notional Fair Notional MARCH 31, 1994 Value Value Value Value Value - - ---------------------------------------------------------------------- Hedge swaps Receive fixed $3,534 $71 $ 9,400 $(260) $12,934 Pay fixed 299 563 (47) 862 - - ---------------------------------------------------------------------- 3,833 71 9,963 (307) 13,796 Customer swaps 143 2 45 (2) 188 - - ---------------------------------------------------------------------- Total $3,976 $73 $10,008 $(309) $13,984 - - ---------------------------------------------------------------------- DECEMBER 31, 1993 - - ---------------------------------------------------------------------- Hedge swaps Receive fixed $7,904 $153 $2,715 $ (26) $10,619 Pay fixed 1,193 (86) 1,193 - - ---------------------------------------------------------------------- 7,904 153 3,908 (112) 11,812 Customer swaps 245 3 245 (3) 490 - - ---------------------------------------------------------------------- Total $8,149 $156 $4,153 $(115) $12,302 - - ----------------------------------------------------------------------
LIQUIDITY MANAGEMENT Liquidity represents an institution's ability to generate cash or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers as well as the demands of depositors and debtholders. Liquidity is managed through the coordination of the relative maturities of assets, liabilities and off-balance-sheet positions and is enhanced by the ability to raise funds in capital markets. Liquid assets consist of cash and due from banks, federal funds sold and resale agreements, interest-earning deposits with banks, trading account securities and securities available for sale. At March 31, 1994, such assets totaled $13.5 billion. Liquidity is also provided by securities that may be sold under agreements to repurchase, which totaled $6.8 billion at March 31, 1994. In addition, several bank affiliates have access to funds as members of the Federal Home Loan Bank system. Liquidity for the parent company and its nonbank affiliates is generated through the issuance of securities in public or private markets, lines of credit and dividends from subsidiaries. Under effective shelf registration statements at March 31, 1994, the Corporation has available $140 million of debt, $300 million of preferred stock and $550 million of securities that may be issued as either debt or preferred stock. Additionally, the Corporation has a $150 million unused committed line of credit. Funds obtained from any of these sources can be used for both bank and nonbank activities. In addition to current parent company funds, the funding for pending or potential acquisitions may include the issuance of instruments that qualify as regulatory capital, such as preferred stock or subordinated debt. 12 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW SECURITIES - - --------------------------------------------------------------------------------
MARCH 31, 1994 December 31, 1993 -------------------------------------------- -------------------------------------------- UNREALIZED Unrealized AMORTIZED ------------------ FAIR Amortized ------------------ Fair IN MILLIONS COST GAINS LOSSES VALUE Cost Gains Losses Value - - --------------------------------------------------------------------------------------------------------------------------------- Investment securities Debt securities U.S. Treasury $ 1 $ 1 $ 1 $ 1 U.S. Government agencies and corporations 10,173 $ 5 $292 9,886 10,227 $ 39 $32 10,234 State and municipal 372 24 1 395 389 38 427 Other debt 725 1 12 714 810 3 4 809 Corporate stocks and other 287 1 288 245 245 - - --------------------------------------------------------------------------------------------------------------------------------- Total $11,558 $31 $305 $11,284 $11,672 $ 80 $36 $11,716 - - --------------------------------------------------------------------------------------------------------------------------------- Securities available for sale Debt securities U.S. Treasury $ 3,976 $ 1 $127 $ 3,850 $ 2,402 $ 2 $ 2 $ 2,402 U.S. Government agencies and corporations 5,101 14 54 5,061 8,023 114 16 8,121 State and municipal 2 2 2 2 Other debt 676 8 3 681 788 18 4 802 Corporate stocks and other 137 23 3 157 36 25 61 - - --------------------------------------------------------------------------------------------------------------------------------- Total $ 9,892 $46 $187 $ 9,751 $11,251 $159 $22 $11,388 - - ---------------------------------------------------------------------------------------------------------------------------------
At March 31, 1994, securities totaled $21.3 billion and were comprised of $11.6 billion of investment securities and $9.7 billion of securities available for sale. The comparable amounts at year-end 1993 were $11.7 billion and $11.4 billion, respectively. The securities portfolio includes $16.0 billion of collateralized mortgage obligations and mortgage-backed securities with an aggregate weighted-average expected maturity of 3 years and 3 months. At March 31, 1994, the after-tax net unrealized loss related to securities available for sale totaled $92 million, compared with a gain of $88 million at year end. FUNDING SOURCES - - --------------------------------------------------------------
MARCH 31 December 31 IN MILLIONS 1994 1993 - - ------------------------------------------------------------- Deposits Demand, savings and money market $19,114 $18,621 Time 13,886 14,494 - - ------------------------------------------------------------- Total deposits 33,000 33,115 Borrowed funds Repurchase agreements 5,189 4,995 Treasury, tax and loan 4,601 3,414 Federal funds purchased 1,392 2,066 Commercial paper 431 514 Other 83 673 - - ------------------------------------------------------------- Total borrowed funds 11,696 11,662 Notes and debentures 10,286 9,585 - - ------------------------------------------------------------- Total $54,982 $54,362 - - -------------------------------------------------------------
13 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE FINANCIAL REVIEW Brokered deposits are included in the money market, certificates of deposit of $100,000 or more, and other time categories. Such amounts totaled $3.4 billion at March 31, 1994, compared with $4.1 billion at December 31, 1993. Retail brokered deposits are issued or participated-out by brokers in denominations of $100,000 or less and are fully insured. Such deposits represented 65.9 percent of the total at March 31, 1994, compared with 63.7 percent at year-end 1993. These deposits are expected to decline further in future periods as they mature and alternative funding sources are employed. At March 31, 1994, treasury, tax and loan borrowings increased $1.2 billion from year-end 1993 due to relatively lower costs associated with such funds. During the quarter, the Corporation issued $700 million of unsecured bank notes with maturities of one year. Capital The current economic and regulatory environment has placed an increased emphasis on capital strength. Acquisition capability, funding alternatives, new business activities, deposit insurance costs, and the level and nature of expanded regulatory oversight depend in large part on a banking institution's capital classification. At March 31, 1994, the capital position of each bank affiliate was classified as well capitalized.
RISK-BASED CAPITAL AND LEVERAGE RATIOS - - -------------------------------------------------------------- MARCH 31 December 31 IN MILLIONS, EXCEPT RATIOS 1994 1993 - - -------------------------------------------------------------- CAPITAL COMPONENTS Shareholders' equity $ 4,282 $ 4,325 Goodwill (170) (85) Net unrealized securities (gains) losses 92 (88) - - -------------------------------------------------------------- Total Tier I risk-based capital 4,204 4,152 Subordinated debt 554 554 Eligible allowance for credit losses 538 547 - - -------------------------------------------------------------- Total risk-based capital $ 5,296 $ 5,253 - - -------------------------------------------------------------- ASSETS Risk-weighted assets and off- balance-sheet instruments $42,633 $43,380 Average tangible assets 58,796 52,923 - - -------------------------------------------------------------- CAPITAL RATIOS Tier I risk-based capital 9.86% 9.57% Total risk-based capital 12.42 12.11 Leverage 7.15 7.85 - - --------------------------------------------------------------
The minimum regulatory capital ratios are 4.00 percent for Tier I, 8.00 percent for total risk-based and 3.00 percent for leverage. However, regulators may require higher capital levels when a bank's particular circumstances warrant. The leverage capital ratio declined during the first quarter of 1994, as a result of a full-period impact of the PNC Mortgage transaction and the United acquisition. Capital ratios are expected to decline slightly as a result of the First Eastern acquisition. 14 PNC BANK CORP. - - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET - - --------------------------------------------------------------------------------
MARCH 31 December 31 IN MILLIONS, EXCEPT PAR VALUES AND SHARE DATA 1994 1993 - - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 2,536 $ 1,817 Short-term investments 1,208 856 Loans held for sale 996 1,392 Securities available for sale 9,751 11,388 Investment securities, fair value of $11,284 and $11,716 11,558 11,672 Loans, net of unearned income of $209 and $222 33,294 33,308 Allowance for credit losses (980) (972) - - ----------------------------------------------------------------------------------------------------------------------------- Net loans 32,314 32,336 Other 2,800 2,619 - - ----------------------------------------------------------------------------------------------------------------------------- Total assets $61,163 $62,080 - - ----------------------------------------------------------------------------------------------------------------------------- LIABILITIES Deposits Noninterest-bearing $ 6,901 $ 7,057 Interest-bearing 26,099 26,058 - - ----------------------------------------------------------------------------------------------------------------------------- Total deposits 33,000 33,115 - - ----------------------------------------------------------------------------------------------------------------------------- Borrowed funds Federal funds purchased 1,392 2,066 Repurchase agreements 5,189 4,995 Commercial paper 431 514 Other 4,684 4,087 - - ----------------------------------------------------------------------------------------------------------------------------- Total borrowed funds 11,696 11,662 - - ----------------------------------------------------------------------------------------------------------------------------- Notes and debentures 10,286 9,585 Accrued expenses and other liabilities 1,899 3,393 - - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities 56,881 57,755 - - ----------------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Preferred stock--$1 par value Authorized: 17,645,573 and 17,663,791 shares Issued and outstanding: 965,015 and 983,233 shares 1 1 Aggregate liquidation value: $20 Common stock--$5 par value Authorized: 450,000,000 shares Issued: 235,168,185 and 234,994,196 shares 1,175 1,175 Capital surplus 453 450 Retained earnings 2,846 2,715 Deferred ESOP benefit expense (95) (95) Net unrealized securities gains (losses) (92) 88 Common stock held in treasury at cost: 214,733 and 288,959 shares (6) (9) - - ----------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 4,282 4,325 - - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $61,163 $62,080 - - -----------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 15 PNC BANK CORP. - - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF INCOME - - --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 IN THOUSANDS, EXCEPT PER SHARE DATA 1994 1993 - - ------------------------------------------------------------------------------------------------------------------------------ INTEREST INCOME Loans and fees on loans $572,836 $486,219 Securities 295,808 298,497 Other 26,460 8,837 - - ------------------------------------------------------------------------------------------------------------------------------ Total interest income 895,104 793,553 - - ------------------------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE Deposits 200,004 199,177 Borrowed funds 96,737 88,524 Notes and debentures 101,022 52,161 - - ------------------------------------------------------------------------------------------------------------------------------ Total interest expense 397,763 339,862 - - ------------------------------------------------------------------------------------------------------------------------------ Net interest income 497,341 453,691 Provision for credit losses 25,015 61,417 - - ------------------------------------------------------------------------------------------------------------------------------ Net interest income less provision for credit losses 472,326 392,274 - - ------------------------------------------------------------------------------------------------------------------------------ NONINTEREST INCOME Investment management and trust 72,967 66,273 Service charges, fees and commissions 87,902 81,445 Mortgage banking 37,892 7,894 Net securities gains 30,392 105,161 Other 29,398 19,508 - - ------------------------------------------------------------------------------------------------------------------------------ Total noninterest income 258,551 280,281 - - ------------------------------------------------------------------------------------------------------------------------------ NONINTEREST EXPENSES Staff expense 206,899 176,404 Net occupancy and equipment 65,282 58,319 Other 154,665 152,292 - - ------------------------------------------------------------------------------------------------------------------------------ Total noninterest expenses 426,846 387,015 - - ------------------------------------------------------------------------------------------------------------------------------ Income before income taxes and cumulative effect of changes in accounting principles 304,031 285,540 Applicable income taxes 98,342 98,529 - - ------------------------------------------------------------------------------------------------------------------------------ Income before cumulative effect of changes in accounting principles 205,689 187,011 Cumulative effect of changes in accounting principles, net of tax benefit of $5,343 (19,393) - - ------------------------------------------------------------------------------------------------------------------------------ Net income $205,689 $167,618 - - ------------------------------------------------------------------------------------------------------------------------------ EARNINGS PER COMMON SHARE Primary before cumulative effect of changes in accounting principles $.87 $ .79 Cumulative effect of changes in accounting principles (.08) - - ------------------------------------------------------------------------------------------------------------------------------ Primary $.87 $ .71 - - ------------------------------------------------------------------------------------------------------------------------------ Fully diluted before cumulative effect of changes in accounting principles $.86 $ .78 Cumulative effect of changes in accounting principles (.08) - - ------------------------------------------------------------------------------------------------------------------------------ Fully diluted $.86 $ .70 - - ------------------------------------------------------------------------------------------------------------------------------ CASH DIVIDENDS DECLARED PER COMMON SHARE $.32 $.285 AVERAGE COMMON SHARES OUTSTANDING Primary 236,698 235,914 Fully diluted 238,592 238,435 - - ------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 16 PNC BANK CORP. - - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS - - --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 IN MILLIONS 1994 1993 - - --------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 206 $ 168 Adjustments to reconcile net income to net cash provided by operating activities Cumulative effect of changes in accounting principles 19 Provision for credit losses 25 61 Depreciation, amortization and accretion 56 53 Deferred income taxes (8) (21) Net securities gains (30) (105) Net gain on sales of assets (19) (4) Valuation adjustments on foreclosed assets, net of gains on sales (5) (2) Change in Loans held for sale 448 1 Trading account securities (488) (99) Other (153) 40 - - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 32 111 - - --------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Net change in loans (143) 790 Repayment Securities available for sale 955 272 Investment securities 1,216 1,108 Sales Securities available for sale 6,166 7,361 Investment securities 26 11 Loans 537 48 Foreclosed assets 25 12 Purchases Securities available for sale (5,651) (5,798) Investment securities (2,360) (2,828) Loans (10) (222) Net cash paid for acquisition (129) Other 161 (1,093) - - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities 793 (339) - - --------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net change in Noninterest-bearing deposits (171) (805) Interest-bearing deposits (508) (494) Federal funds purchased (674) 1,625 Sale/issuance Repurchase agreements 38,805 54,403 Commercial paper 608 2,745 Other borrowed funds 25,983 6,915 Notes and debentures 820 1,056 Common stock 8 17 Redemption/maturity Repurchase agreements (38,611) (53,092) Commercial paper (691) (2,775) Other borrowed funds (25,386) (9,572) Notes and debentures (210) (105) Acquisition of treasury stock (4) (3) Cash dividends paid to shareholders (75) (67) - - --------------------------------------------------------------------------------------------------------------------------------- Net cash used by financing activities (106) (152) - - --------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 719 (380) Cash and due from banks at beginning of year 1,817 2,117 - - --------------------------------------------------------------------------------------------------------------------------------- Cash and due from banks at end of period $ 2,536 $ 1,737 - - ---------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 17 PNC BANK CORP. - - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Basis of Financial Statement Presentation The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of PNC Bank Corp. and its subsidiaries ("Corporation"), substantially all of which are wholly owned. In the opinion of management, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from such estimates. The notes included herein should be read in conjunction with the consolidated financial statements included in the 1993 Annual Report. Earnings per Common Share Primary earnings per common share is calculated by dividing net income adjusted for preferred stock dividends declared by the sum of the weighted average number of shares of common stock outstanding and the number of shares of common stock which would be issued assuming the exercise of stock options during each period. Fully diluted earnings per common share is based on net income adjusted for interest expense, net of tax, on outstanding convertible debentures and dividends declared on nonconvertible preferred stock. The weighted average number of shares of common stock outstanding is increased by the assumed conversion of outstanding convertible preferred stock and convertible debentures from the beginning of the year and the number of shares of common stock which would be issued assuming the exercise of stock options. Adjustments to net income and the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share. Changes in Accounting Principles SECURITIES Effective December 31, 1993, the Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Securities are classified as investments and carried at amortized cost if management has the positive intent and ability to hold the securities to maturity. Securities purchased with the intention of recognizing short-term profits are placed in the trading account and are carried at market value. Securities not classified as investment or trading are designated securities available for sale and carried at fair value with unrealized gains and losses reflected in shareholders' equity. Prior to the adoption of SFAS No. 115, securities available for sale were carried at the lower of cost or fair value. INCOME TAXES Effective January 1, 1993, the Corporation adopted SFAS No. 109, "Accounting for Income Taxes," which requires the use of the liability method to account for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Previously, deferred income taxes were accounted for using the deferred method. The cumulative effect of the change decreased net income in 1993 by $9.0 million or $.04 per fully diluted share. INTANGIBLE ASSETS Effective January 1, 1993, the Corporation changed its method of accounting for certain identifiable intangible assets, consisting primarily of purchased mortgage servicing rights. Such assets are accounted for at the lower of amortized cost or the estimated value of future net revenues on a disaggregated basis. The estimated value of these assets is determined by discounting the related expected future net cash flows at a rate no less than the original discount rate. Previously, cash flows were not discounted for this purpose. 18 PNC BANK CORP. - - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The cumulative effect of the change decreased net income $10.4 million or $.04 per fully diluted share. Reclassifications Certain prior period amounts have been reclassified to conform to reporting classifications utilized for the current reporting period. These reclassifications did not impact the Corporation's financial condition or results of operations. Mergers and Acquisitions On November 30, 1993, the Corporation consummated its acquisition of PNC Mortgage (formerly Sears Mortgage Banking Group) for $328 million in cash, subject to certain post-closing adjustments. The transaction was recorded under the purchase method of accounting and the total assets of PNC Mortgage were $7.6 billion at closing. During the first quarter of 1994, the Corporation acquired United Federal Bancorp, Inc. ("United"), State College, Pennsylvania, for $156 million in cash. The transaction was recorded under the purchase method of accounting and United's assets totaled $900 million at closing. During the third quarter of 1993, PNC Bank Corp. entered into an agreement to acquire First Eastern Corp. ("First Eastern"), Wilkes-Barre, Pennsylvania, which had total assets of $2.0 billion at March 31, 1994. Under the terms of the agreement, each share of First Eastern's common stock will be exchanged for $27.00 in cash. The transaction has an indicated value of $330 million and is expected to close in the second quarter of 1994 pending the approval of certain regulatory agencies. Cash Flows During the first three months of 1994 and 1993, interest paid on deposits and other contractual debt obligations totaled $422.1 million and $286.3 million, respectively, and applicable income taxes paid were $34.5 million and $28.8 million, respectively. Noncash investing activities consisted of transfers of loans to foreclosed assets aggregating $9.4 million in 1994 and $11.5 million in 1993. Nonperforming Assets Nonaccrual loans, restructured loans and foreclosed assets were as follows:
- - --------------------------------------------------------------- MARCH 31 December 31 IN MILLIONS 1994 1993 - - --------------------------------------------------------------- Nonaccrual loans $355 $356 Restructured loans 9 28 - - --------------------------------------------------------------- Total nonperforming loans 364 384 Foreclosed assets 157 170 - - --------------------------------------------------------------- Total nonperforming assets $521 $554 - - ---------------------------------------------------------------
Allowance for Credit Losses The following table presents changes in the allowance for credit losses:
- - ------------------------------------------------------------- IN MILLIONS 1994 1993 - - ------------------------------------------------------------- Balance at January 1 $972 $897 - - ------------------------------------------------------------- Charge-offs (38) (63) Recoveries 15 16 - - ------------------------------------------------------------- Net charge-offs (23) (47) Provision for credit losses 25 61 Acquisition 6 - - ------------------------------------------------------------- Balance at March 31 $980 $911 - - -------------------------------------------------------------
Notes and Debentures During the first quarter of 1994, certain bank subsidiaries issued $700 million of unsecured bank notes with maturities of one year and rates ranging from 3.50 percent to 3.55 percent. 19 PNC BANK CORP. - - -------------------------------------------------------------------------------- AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS - - --------------------------------------------------------------------------------
1994 1993 TAXABLE-EQUIVALENT BASIS ----------------------------------- ----------------------------------- FIRST QUARTER Fourth Quarter ----------------------------------- ----------------------------------- AVERAGE BALANCES IN MILLIONS, INTEREST IN AVERAGE AVERAGE Average Average THOUSANDS BALANCES INTEREST YIELDS/RATES Balances Interest Yields/Rates - - --------------------------------------------------------------------------------------------------------------------------------- INTEREST EARNING ASSETS Interest-earning assets Loans, net of unearned income Commercial $11,349 $204,046 7.29% $11,096 $192,274 6.87% Real estate project 1,723 31,827 7.49 1,770 31,287 7.01 Real estate mortgage 9,055 151,988 6.71 5,813 107,844 7.42 Consumer 8,450 170,595 8.19 8,279 176,390 8.45 Other 1,446 19,337 5.38 925 14,618 6.31 - - --------------------------------------------------------------------------------------------------------------------------------- Total loans, net of unearned income 32,023 577,793 7.29 27,883 522,413 7.45 - - --------------------------------------------------------------------------------------------------------------------------------- Short-term investments 864 9,220 4.32 757 7,112 3.73 Securities U.S. Treasury 3,439 39,514 4.66 1,699 17,979 4.20 U.S. Government agencies and corporations 15,520 224,558 5.79 16,480 234,589 5.69 State and municipal 377 9,743 10.34 397 10,450 10.50 Other debt 1,688 21,290 5.05 1,652 18,273 4.42 Corporate stocks and other 214 4,181 7.83 200 2,332 4.67 - - --------------------------------------------------------------------------------------------------------------------------------- Total securities 21,238 299,286 5.65 20,428 283,623 5.55 - - --------------------------------------------------------------------------------------------------------------------------------- Other interest-earning assets 1,057 17,268 6.54 770 11,293 5.85 - - --------------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets/interest income 55,182 903,567 6.59 49,838 824,441 6.59 - - --------------------------------------------------------------------------------------------------------------------------------- Noninterest-earning assets Allowance for credit losses (986) (963) Cash and due from banks 2,228 2,097 Other assets 2,542 2,038 - - --------------------------------------------------------------------------------------------------------------------------------- Total assets $58,966 $53,010 - - --------------------------------------------------------------------------------------------------------------------------------- INTEREST BEARING SOURCES OF FUNDS Interest-bearing deposits Demand $ 3,377 6,315 .76% $ 3,225 4,101 .50% Savings 2,391 3,870 .66 2,241 3,867 .68 Money market 6,493 32,255 2.01 6,348 27,528 1.72 Certificates of deposit of $100,000 or more 3,485 43,469 5.04 2,591 32,533 4.99 Other time 9,747 112,223 4.67 9,413 111,252 4.69 Deposits in foreign offices 223 1,872 3.41 163 1,283 3.12 - - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 25,716 200,004 3.15 23,981 180,564 2.99 - - --------------------------------------------------------------------------------------------------------------------------------- Borrowed funds Federal funds purchased 2,254 18,326 3.30 1,798 13,774 3.04 Repurchase agreements 6,065 51,828 3.47 5,749 52,964 3.66 Commercial paper 500 4,095 3.32 542 4,450 3.26 Other 2,724 22,488 3.21 1,364 15,237 4.43 - - --------------------------------------------------------------------------------------------------------------------------------- Total borrowed funds 11,543 96,737 3.37 9,453 86,425 3.63 - - --------------------------------------------------------------------------------------------------------------------------------- Notes and debentures 10,142 101,022 4.04 8,548 86,498 4.01 - - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing sources/interest expense 47,401 397,763 3.39 41,982 353,487 3.35 - - --------------------------------------------------------------------------------------------------------------------------------- Noninterest-bearing sources Demand and other noninterest-bearing deposits 6,021 5,781 Accrued expenses and other liabilities 1,214 1,119 Shareholders' equity 4,330 4,128 - - --------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $58,966 $53,010 - - --------------------------------------------------------------------------------------------------------------------------------- Interest rate spread 3.20 3.24 Impact of noninterest-bearing sources .48 .53 - - --------------------------------------------------------------------------------------------------------------------------------- Net interest income/margin on earning assets $505,804 3.68% $470,954 3.77% - - ---------------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans are included in loans, net of unearned income. The impact of interest rate swaps is included in the interest income/expense and average yields/rates for commercial loans, real estate mortgages, U.S. Government agencies and corporations securities, and interest-bearing sources of funds. 20 PNC BANK CORP. - - -------------------------------------------------------------------------------- AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS - - --------------------------------------------------------------------------------
1993 - - ----------------------------------------------------------------------------------------------------------------------- Third Quarter Second Quarter First Quarter ---------------------------------- ---------------------------------- ---------------------------------- Average Average Average Average Average Average Balances Interest Yields/Rates Balances Interest Yields/Rates Balances Interest Yields/Rates - - ----------------------------------------------------------------------------------------------------------------------- $11,121 $182,947 6.53% $10,705 $179,705 6.73% $10,578 $178,801 6.86% 1,810 30,849 6.76 1,876 32,205 6.89 1,926 33,910 7.14 3,812 77,456 8.13 3,892 82,997 8.53 4,029 89,614 8.90 7,950 173,035 8.63 7,858 172,999 8.83 7,804 174,837 9.09 835 13,619 6.52 853 13,506 6.34 877 14,614 6.69 - - ----------------------------------------------------------------------------------------------------------------------- 25,528 477,906 7.44 25,184 481,412 7.66 25,214 491,776 7.89 - - ----------------------------------------------------------------------------------------------------------------------- 523 5,516 4.18 412 4,113 4.01 612 5,810 3.85 2,077 23,441 4.48 3,149 36,468 4.65 2,261 28,258 5.07 16,687 259,058 6.21 14,626 233,683 6.39 13,458 222,458 6.61 426 11,422 10.72 524 12,408 9.47 549 13,074 9.53 1,697 17,511 4.13 2,803 35,532 5.07 2,639 37,977 5.76 124 1,744 5.63 82 2,233 10.89 73 1,022 5.60 - - ----------------------------------------------------------------------------------------------------------------------- 21,011 313,176 5.96 21,184 320,324 6.05 18,980 302,789 6.39 - - ----------------------------------------------------------------------------------------------------------------------- 362 5,188 5.73 295 5,115 6.92 174 3,056 7.00 - - ----------------------------------------------------------------------------------------------------------------------- 47,424 801,786 6.73 47,075 810,964 6.90 44,980 803,431 7.20 - - ----------------------------------------------------------------------------------------------------------------------- (935) (920) (910) 1,875 2,046 1,850 1,906 1,951 1,874 - - ----------------------------------------------------------------------------------------------------------------------- $50,270 $50,152 $47,794 - - ----------------------------------------------------------------------------------------------------------------------- $ 3,103 3,899 .50% $ 3,074 5,808 .76% $ 3,011 7,045 .95% 2,274 4,544 .79 2,267 6,105 1.08 2,239 7,176 1.30 5,824 25,614 1.74 5,612 27,352 1.95 5,700 29,175 2.08 1,885 26,435 5.58 2,325 33,498 5.78 2,594 36,709 5.74 9,257 112,446 4.82 9,187 114,022 4.98 9,268 117,302 5.13 207 1,558 2.99 247 1,751 2.84 227 1,770 3.16 - - ----------------------------------------------------------------------------------------------------------------------- 22,550 174,496 3.07 22,712 188,536 3.33 23,039 199,177 3.51 - - ----------------------------------------------------------------------------------------------------------------------- 1,489 11,239 3.00 1,756 13,160 3.01 1,512 11,718 3.14 6,772 59,488 3.49 8,304 70,804 3.42 6,967 59,660 3.47 546 4,456 3.24 626 5,166 3.31 1,058 8,758 3.36 1,603 14,036 3.47 799 9,697 4.87 612 8,389 5.56 - - ----------------------------------------------------------------------------------------------------------------------- 10,410 89,219 3.40 11,485 98,827 3.45 10,149 88,525 3.54 - - ----------------------------------------------------------------------------------------------------------------------- 7,027 70,193 3.96 5,578 57,467 4.13 4,744 52,161 4.46 - - ----------------------------------------------------------------------------------------------------------------------- 39,987 333,908 3.32 39,775 344,830 3.48 37,932 339,863 3.63 - - ----------------------------------------------------------------------------------------------------------------------- 5,263 5,379 5,051 1,007 1,129 997 4,013 3,869 3,814 - - ----------------------------------------------------------------------------------------------------------------------- $50,270 $50,152 $47,794 - - ----------------------------------------------------------------------------------------------------------------------- 3.41 3.42 3.57 .52 .54 .57 - - ----------------------------------------------------------------------------------------------------------------------- $467,878 3.93% $466,134 3.96% $463,568 4.14% - - -----------------------------------------------------------------------------------------------------------------------
21 PNC BANK CORP. - - -------------------------------------------------------------------------------- CORPORATE INFORMATION Stock Listing PNC Bank Corp.'s common stock is traded on the New York Stock Exchange (NYSE) under the symbol PNC. Registrar and Transfer Agent Chemical Bank J. A. F. Building P.O. Box 3068 New York, New York 10116-3068 800-982-7652 Inquiries INDIVIDUAL SHAREHOLDERS SHOULD CONTACT: The PNC Bank Hotline at 800-982-7652 or Shareholder Relations at 800-843-2206. ANALYSTS AND INSTITUTIONAL INVESTORS SHOULD CONTACT: William H. Callihan, Vice President, Investor Relations at 412-762-8257. NEWS MEDIA REPRESENTATIVES AND OTHERS SEEKING GENERAL INFORMATION SHOULD CONTACT: Jonathan Williams, Vice President, Media Relations at 412-762-4550. FORM 10-Q: The Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission. Copies of this report, excluding exhibits, may be obtained without charge by writing to Samuel R. Patterson, Senior Vice President, Financial Reporting, at corporate headquarters. Corporate Headquarters PNC Bank Corp. One PNC Plaza Fifth Avenue and Wood Street Pittsburgh, Pennsylvania 15265 Stock Prices/Dividends Declared The table below sets forth the range of high and low sale prices for PNC Bank Corp. common stock and the respective dividends declared per common share by quarter.
- - --------------------------------------------------------------- Daily Sale Prices ----------------------- Cash Dividends High Low Declared - - --------------------------------------------------------------- 1994 QUARTER - - --------------------------------------------------------------- FIRST $29.875 $25.250 $ .320 - - --------------------------------------------------------------- 1993 Quarter - - --------------------------------------------------------------- First $35.000 $27.000 $ .285 Second 36.125 29.750 .285 Third 32.750 28.500 .285 Fourth 31.125 27.625 .320 - - --------------------------------------------------------------- Total $1.175 - - ---------------------------------------------------------------
Dividend Reinvestment and Stock Purchase Plan PNC Bank Corp.'s dividend reinvestment and stock purchase plan enables shareholders 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. 22