PNC BANK CORP.
Quarterly Report on Form 10-Q
For the quarterly period ended March 31, 1998
Page 1 represents a portion of the first quarter 1998 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 32.
Financial
Highlights
Three months ended March 31 1998 1997
- -------------------------------------------------------------------------------------------------------
FINANCIAL PERFORMANCE (in thousands, except per share data)
Revenue
Net interest income (taxable-equivalent basis) $644,230 $637,283
Noninterest income 538,915 433,303
Total revenue 1,183,145 1,070,586
Net income 269,260 266,309
Per common share
Basic earnings $.88 $.81
Diluted earnings .87 .80
Cash dividends declared .39 .37
RATIOS
Performance
Return on
Average common shareholders' equity 21.10% 19.48%
Average assets 1.51 1.54
Net interest margin 3.96 3.98
Noninterest income to total revenue 45.55 40.47
After-tax profit margin 22.76 24.88
Efficiency 61.53 59.54
Capital
Leverage 7.36% 7.17%
Common shareholders' equity to assets 7.15 7.25
Asset Quality
Net charge-offs to average loans .67% .47%
Nonperforming assets to loans and foreclosed assets .61 .82
Allowance for credit losses to loans 1.67 2.13
Allowance for credit losses to nonperforming loans 320.96 346.11
PERIOD-END BALANCES (in millions, except per share data)
Assets $72,355 $71,166
Earning assets 65,210 64,255
Loans, net of unearned income 54,511 52,575
Securities available for sale 7,511 9,593
Deposits 46,068 44,902
Borrowed funds 18,375 18,547
Shareholders' equity 5,487 5,478
Common shareholders' equity 5,173 5,162
Book value per common share $17.20 $16.45
=======================================================================================================
PNC BANK CORP.
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1
Financial
Review
This Financial Review should be read in conjunction with the PNC Bank Corp. and
subsidiaries' ("Corporation" or "PNC Bank") unaudited Consolidated Financial
Statements and the Financial Review and audited Consolidated Financial
Statements included in the Corporation's 1997 Annual Report.
OVERVIEW
PNC BANK CORP. The Corporation is one of the largest diversified financial
services companies in the United States and operates seven lines of business:
Regional Community Banking, Corporate Banking, National Consumer Banking, Asset
Management and Mutual Fund Servicing, Private Banking, Mortgage Banking, and
Secured Lending. Financial products and services are customized for specific
customer segments and offered nationally and in PNC Bank's primary geographic
markets in Pennsylvania, New Jersey, Delaware, Ohio, Kentucky, Indiana,
Massachusetts and Florida.
SUMMARY FINANCIAL RESULTS Net income for the first three months of 1998 was $269
million or $.87 per diluted share compared with $266 million and $.80,
respectively, a year ago. Earnings were impacted by noncash expenses associated
with purchase acquisitions. Excluding the impact of goodwill and other
amortization related to purchase transactions, diluted earnings per share for
the first quarter of 1998 and 1997 were $.93 and $.86, respectively.
Returns on average common shareholders' equity and average assets were 21.10%
and 1.51% compared with 19.48% and 1.54%, respectively, in 1997.
Total revenue increased $113 million in the quarter-to-quarter comparison driven
by growth in noninterest income. Noninterest income increased to $539 million in
the first quarter of 1998, a 24.5% increase over the same period in 1997
reflecting significant growth in asset management, mutual fund servicing and
mortgage banking. Noninterest income represented 46% of total revenue in the
first quarter of 1998 compared with 40% in the prior-year quarter.
Taxable-equivalent net interest income was $644 million, an increase of $7
million from the first quarter of 1997. The net interest margin was 3.96%
compared with 3.98% in the prior year.
The provision for credit losses was $30 million for the first quarter of 1998
compared with $10 million in the prior year.
Noninterest expense increased $97 million to $741 million primarily due to
amortization of mortgage servicing rights ("MSR"), incentive compensation
commensurate with growth in fee-based revenue and higher marketing costs
associated with national consumer banking initiatives. The efficiency ratio,
computed excluding distributions on capital securities, was 61.5% for the first
quarter of 1998 compared with 59.5% a year ago.
Average earning assets increased $1.4 billion from the prior-year quarter to
$65.2 billion as higher loans and mortgages held for sale more than offset
securities portfolio reductions. Average loans grew 4.2% to $54.1 billion, a
$2.2 billion increase from the prior year. Growth in credit cards and middle
market commercial loans more than offset the downsizing of the indirect
automobile lending portfolio and the impact of loan securitizations. The
increase in average mortgages held for sale was $1.4 billion reflecting higher
production volume. Average securities decreased $2.3 billion to $7.8 billion or
11.9% of average earning assets. Loans represented 83.0% of average earning
assets compared with 81.4% a year ago.
Shareholders' equity totaled $5.5 billion at March 31, 1998. The leverage ratio
was 7.36% and Tier I and total risk-based capital ratios were 7.67% and 11.24%,
respectively.
Asset quality and coverage ratios remained strong. The ratio of nonperforming
assets to loans and foreclosed assets was .61% at March 31, 1998 and December
31, 1997. The allowance for credit losses was 321% of nonperforming loans and
1.67% of total loans at March 31, 1998 compared with 352% and 1.79%,
respectively, at December 31, 1997. Net charge-offs were .67% of average loans
for the first quarter of 1998 compared with .47% for the first quarter of 1997.
The increase was primarily associated with consumer bankruptcies and an increase
in credit card outstandings.
BUSINESS STRATEGIES Financial services providers today are challenged by intense
competition, changing customer demands, increased pricing pressures and the
ongoing impact of deregulation. Traditional loan and deposit activities face
particularly challenging competitive pressures as both banks and nonbanks
compete for customers with access to a broad array of banking, investment and
capital markets products. Many of these traditional businesses have moderate
growth expectations and require significant capital to support balance sheet
leverage that entails credit and interest rate risk.
PNC BANK CORP.
-----
2
PNC Bank has responded to these challenges by transitioning to an organization
comprised of distinct lines of business with highly focused customer segments.
This approach provides the basis for differentiated businesses capable of
competing in today's environment where banks and other financial service
providers seek the same customers.
The Corporation has focused on altering the business mix and investing in
specialized financial services businesses including asset management, mutual
fund servicing, private banking, mortgage banking, treasury management and
capital markets. These businesses are largely fee-based and less capital
intensive and have superior growth outlooks on a national scale. More meaningful
contributions from these businesses, coupled with disciplined management of
traditional banking activities, expansion of national distribution capabilities
and reduction of wholesale leverage activities have allowed PNC Bank to
significantly improve the composition of the earnings stream.
REGIONAL COMMUNITY BANKING provides financial products and services to small
business and retail customers within PNC Bank's geographic footprint. Regional
Community Banking's focus is on employing information and customer knowledge to
identify and meet consumer preferences for traditional and automated products
and services through retail branches and alternative distribution channels.
CORPORATE BANKING provides credit, capital markets and treasury management
products and services to large and mid-size businesses, institutions and
government entities. Teams of specialists focus on specific industry segments,
including communications, health care, public finance, large corporate,
financial institutions, energy, metals and mining and emerging growth.
NATIONAL CONSUMER BANKING provides consumer products and services through
technologically advanced cost efficient channels. National Consumer Banking's
focus is on delivering convenient financial services nationally by expanding
direct marketing and through establishing affinity relationships.
ASSET MANAGEMENT AND MUTUAL FUND SERVICING includes BlackRock, Inc.
("BlackRock") which offers fixed income, domestic and international equity and
liquidity products; PFPC Inc. ("PFPC"), the Corporation's mutual fund servicing
business; HAWTHORN, which serves the ultra-affluent market, and PNC Bank's
institutional trust business.
BlackRock represents the recent combination of PNC Bank's investment advisory
and asset management capabilities under a single organization and brand. This
integration created one of the largest asset managers in the country, leveraging
the BlackRock Financial Management reputation as an established world-class
fixed income manager. BlackRock is focused on expanding marketing and delivery
channels for a wide range of institutional and retail investment products.
PFPC specializes in providing institutional money managers, brokerage firms,
pension managers and insurance companies with custom designed products including
accounting and administration, transfer agent and custody services. PFPC is the
second largest mutual fund accounting agent and the third largest mutual fund
transfer agent in the United States and is focused on domestic and international
expansion.
PRIVATE BANKING offers personalized investment management, brokerage, personal
trust, estate planning and traditional banking services to the affluent.
Services are provided by teams of specialists working together to provide advice
and creative financial solutions.
MORTGAGE BANKING is focused on delivering mortgage originations and servicing,
and expanding sales of products including second mortgages, home equity lines of
credit, credit cards and insurance.
SECURED LENDING is engaged in commercial real estate banking, business credit
and equipment leasing activities within PNC Bank's primary geographic markets
and nationally.
Real estate banking provides comprehensive services to a broad base of clients
including commercial and residential developers, investors, mortgage bankers and
property management companies.
Business credit is among the top ten firms in the United States in asset-based
financing providing asset-based lending, syndication and treasury management
services.
Leasing provides equipment lease financing for a wide range of customers and is
focused on growth from the existing PNC Bank corporate customer base and
national markets.
Subsequent to quarter end, PNC Bank completed the acquisitions of the assets and
servicing portfolio of Midland Loan Services, L.P. ("Midland") and the
asset-based finance business of BTM Capital Corp. ("BTM Capital"), a subsidiary
of The Bank of Tokyo-Mitsubishi, Ltd. These transactions are consistent with
Secured Lending's strategic plan to establish a national presence and expand
fee-based revenue.
PNC BANK CORP.
-----
3
Financial
Review
LINE OF BUSINESS REVIEW
Financial results for PNC Bank's lines of business are derived from the
Corporation's management accounting system. Line of business information is
based on management accounting practices which conform to and support PNC Bank's
current management structure and is not necessarily comparable with similar
information for any other financial services institution.
The management accounting process uses various balance sheet and income
statement assignments and transfers to measure business unit performance.
Assignments and transfers change from time to time as the management accounting
system is enhanced and business or product lines change. There is no
comprehensive, authoritative body of guidance for management accounting
equivalent to generally accepted accounting principles.
Financial statements for the lines of business do not necessarily use the same
classifications as the consolidated financial statements. The financial results
presented herein reflect each line of business as if operated on a stand-alone
basis. Securities or borrowings and related interest rate spreads have been
assigned to the lines of business based on their net asset or liability
position.
Total line of business financial results differ from consolidated financial
results primarily due to eliminations, different provision for credit loss
methodologies and corporate administration and other unassigned items.
Eliminations offset transactions between the lines of business which primarily
relate to assigned securities or borrowings. Corporate administration and other
unassigned includes net securities gains, certain holding company expenses and
other items not assigned in the management accounting process.
Capital is assigned to each business unit based on management's assessment of
inherent risks and equity levels at independent companies providing similar
products and services. As a result, total capital assigned will differ from
consolidated shareholders' equity.
Return on
Revenue Earnings (Loss) Assigned Capital Average Assets
Three months ended March 31 - ----------------------------------------------------------------------------------------------
dollars in millions 1998 1997 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Regional Community Banking $402 $404 $103 $100 30% 29% $34,968 $35,422
Corporate Banking 179 155 56 50 20 19 14,832 14,636
National Consumer Banking 173 183 (13) 22 (8) 13 11,507 11,185
Asset Management and Mutual Fund
Servicing 154 96 43 18 59 29 921 688
Private Banking 105 96 23 20 28 28 2,536 2,408
Mortgage Banking 104 66 16 3 18 4 11,569 9,650
Secured Lending 68 68 34 34 26 29 7,124 6,131
----------------------------------------------- ---------------------
Total lines of business 1,185 1,068 262 247 23 22 83,457 80,120
Eliminations (4) (32) (24) (20) (15,120) (13,776)
Provision for credit losses 36 23
Corporate administration and other
unassigned 2 35 (5) 16 3,804 3,957
----------------------------------------------- ---------------------
Total consolidated $1,183 $1,071 $269 $266 21% 19% $72,141 $70,301
====================================================================================================================================
PNC BANK CORP.
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4
REGIONAL COMMUNITY BANKING
Three months ended March 31 -
dollars in millions 1998 1997
- ----------------------------------------------------------------
INCOME STATEMENT
Net interest income $332 $336
Noninterest income 70 68
---------------------
Total revenue 402 404
Provision for credit losses 8 5
Noninterest expense 223 233
---------------------
Pretax earnings 171 166
Income taxes 68 66
---------------------
Earnings $103 $100
---------------------
AVERAGE BALANCE SHEET
Loans
Consumer $4,966 $4,893
Commercial 2,508 1,984
Residential mortgage 1,246 1,250
Other 202 410
---------------------
Total loans 8,922 8,537
Assigned assets and other assets 26,046 26,885
---------------------
Total assets $34,968 $35,422
---------------------
Net deposits
Certificates $15,237 $15,879
Money market 6,895 6,009
Noninterest-bearing demand 4,769 4,837
Interest-bearing demand 3,944 4,090
Savings 2,583 3,001
---------------------
Total net deposits 33,428 33,816
Other liabilities 138 189
Assigned capital 1,402 1,417
---------------------
Total funds $34,968 $35,422
---------------------
PERFORMANCE RATIOS
After-tax profit margin 26% 25%
Efficiency 55 58
Noninterest income to total revenue 17 17
Return on assigned capital 30 29
================================================================
Regional Community Banking contributed 39% of total line of business earnings in
the first quarter of 1998 compared with 40% in the first quarter of 1997.
Earnings increased $3 million or 3% primarily due to a reduction in noninterest
expense.
Total revenue was essentially unchanged in the first quarter of 1998 as higher
transaction fees were offset by lower net interest income associated with lower
deposits.
The $3 million increase in the provision for credit losses resulted from
recoveries in the first quarter of 1997.
Noninterest expense declined $10 million or 4% reflecting the impact of
continued strategies designed to respond to customer behavior while improving
the effectiveness and efficiency of the delivery system. These initiatives are
expected to continue to positively impact results, and will be enhanced by the
sale of 16 branches in Pennsylvania which is anticipated to close during the
second quarter of 1998.
CORPORATE BANKING
Three months ended March 31 -
dollars in millions 1998 1997
- ---------------------------------------------------------------
INCOME STATEMENT
Credit-related revenue $79 $75
Noncredit revenue
Treasury management 54 48
Equity management 23 15
Capital markets 15 13
Other 8 4
-------------------
Total noncredit revenue 100 80
-------------------
Total revenue 179 155
Provision for credit losses 2 (9)
Noninterest expense 90 85
-------------------
Pretax earnings 87 79
Income taxes 31 29
-------------------
Earnings $56 $50
-------------------
AVERAGE BALANCE SHEET
Loans $13,853 $13,756
Other assets 979 880
-------------------
Total assets $14,832 $14,636
-------------------
Net deposits $2,487 $2,074
Assigned funds and other liabilities 11,228 11,513
Assigned capital 1,117 1,049
-------------------
Total funds $14,832 $14,636
-------------------
PERFORMANCE RATIOS
After-tax profit margin 31% 32%
Efficiency 50 55
Noncredit revenue to total revenue 56 52
Return on assigned capital 20 19
===============================================================
Corporate Banking contributed 21% of total line of business earnings in the
first quarter of 1998 compared with 20% in the same period last year. Earnings
increased $6 million or 12% in 1998 driven by growth in noncredit revenue.
Credit-related revenue primarily represents net interest income from loans.
Noncredit revenue, which includes noninterest income and the benefit of
compensating balances in lieu of fees, increased $20 million or 25%. This
increase reflects the emphasis on expanding revenue from fee-based services as
well as higher equity management gains. The ratio of noncredit revenue to total
revenue increased from 52% a year ago to 56% in the first quarter of 1998.
Noninterest expense increased $5 million or 6% reflecting higher operating costs
associated with growth and investment in treasury management and capital markets
services.
PNC BANK CORP.
-----
5
NATIONAL CONSUMER BANKING
Three months ended March 31 -
dollars in millions 1998 1997
- ---------------------------------------------------------------
INCOME STATEMENT
Net interest income $120 $102
Noninterest income 53 81
--------------------
Total revenue 173 183
Provision for credit losses 78 52
Noninterest expense 116 95
--------------------
Pretax earnings (loss) (21) 36
Income taxes (benefit) (8) 14
--------------------
Earnings (loss) $(13) $22
--------------------
AVERAGE BALANCE SHEET
Loans
Dealer finance $5,018 $5,336
Credit card 3,748 3,043
Education 1,366 1,762
Other 638 396
--------------------
Total loans 10,770 10,537
Other assets 737 648
--------------------
Total assets $11,507 $11,185
--------------------
Net deposits $114 $80
Assigned funds and other liabilities 10,702 10,416
Assigned capital 691 689
--------------------
Total funds $11,507 $11,185
--------------------
PERFORMANCE RATIOS
After-tax profit margin (8)% 12%
Efficiency 67 52
Noninterest income to total revenue 31 44
Return on assigned capital (8) 13
===============================================================
National Consumer Banking's results are predominated by start-up investments
primarily in AAA and other affinity businesses. As these investments mature and
scale of the business increases, management expects returns will improve. During
the first quarter of 1998 National Consumer Banking incurred a loss of $13
million in the first quarter of 1998 compared with earnings of $22 million in
the prior-year quarter. Earnings in the first quarter of 1997 included pretax
income of $24 million from securitization of education loans and $13 million
from the establishment of the merchant services joint venture that was used to
support investments and marketing costs associated with AAA.
The loss in the first quarter of 1998 resulted from AAA and credit card
initiatives which reduced earnings by $27 million. These initiatives were
unfavorably impacted by intense industry competition, including aggressive
teaser rates offered on credit cards, higher credit costs and increased
marketing expense associated with national business expansion. Management
currently expects that the AAA initiative will be profitable in mid 1999.
The increase in the provision for credit losses of $26 million or 50% related to
consumer bankruptcies and an increase in credit card outstandings. Management
has undertaken enhanced collection efforts and a more focused marketing strategy
directed at PNC Bank's geographic footprint and affinity relationships. As a
result, the growth rate in credit card outstandings is expected to slow and net
charge-offs are expected to remain relatively stable during the remainder of
1998.
PNC BANK CORP.
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6
ASSET MANAGEMENT AND MUTUAL FUND SERVICING
Asset Mutual Fund
Management Servicing Total
-----------------------------------------------------------
Three months ended March 31 - dollars in millions 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT
Advisory, processing and other fees $88 $60 $41 $33 $129 $93
Other income 20 20
Net interest income 3 1 2 2 5 3
-----------------------------------------------------------
Total revenue 111 61 43 35 154 96
Operating expense 63 44 28 22 91 66
-----------------------------------------------------------
Pretax earnings 48 17 15 13 63 30
Income taxes 14 7 6 5 20 12
-----------------------------------------------------------
Earnings $34 $10 $9 $8 $43 $18
-----------------------------------------------------------
AVERAGE BALANCE SHEET
Loans $55 $17 $89 $57 $144 $74
Assigned assets and other assets 664 495 113 119 777 614
-----------------------------------------------------------
Total assets $719 $512 $202 $176 $921 $688
-----------------------------------------------------------
Net deposits $455 $308 $103 $87 $558 $395
Other liabilities 47 24 19 17 66 41
Assigned capital 217 180 80 72 297 252
-----------------------------------------------------------
Total funds $719 $512 $202 $176 $921 $688
-----------------------------------------------------------
PERFORMANCE RATIOS
After-tax profit margin 31% 16% 21% 23% 28% 19%
Efficiency 57 72 65 63 59 69
Noninterest income to total revenue 97 98 95 94 97 97
Return on assigned capital 64 23 46 45 59 29
==============================================================================================================================
Asset Management and Mutual Fund Servicing contributed 16% of total line of
business earnings in the first quarter of 1998 compared with 7% in the first
quarter of 1997. Earnings increased $25 million to $43 million in the first
quarter of 1998 due to an increase in revenue.
During the first quarter of 1998 PNC Bank's fixed income, equity and liquidity
capabilities were consolidated under BlackRock. This combination created one of
the largest asset managers in the United States with a focus on expanding
marketing and delivery channels for a wide range of institutional and retail
investment products.
Asset Management earnings increased $24 million over the prior year, primarily
due to after-tax gains of $16 million realized in the first quarter of 1998 from
the sale of an equity stake to BlackRock management. Excluding these gains,
earnings increased $8 million or 80% due to strong revenue growth resulting from
new business and market appreciation. Operating expense increased $19 million
commensurate with the growth in revenue.
Fee income is driven by the level of assets under management which are
summarized in the following table:
ASSETS UNDER MANAGEMENT
March 31 - in billions 1998 1997
- ---------------------------------------------------------------
BlackRock
Fixed income $59 $47
Liquidity 42 34
Equity and other 15 10
-------------------
Total BlackRock 116 91
Other
Fixed income 7 5
Equity 26 20
-------------------
Total other 33 25
-------------------
Total assets under management $149 $116
-------------------
Proprietary mutual funds
BlackRock Funds $16 $12
Other 20 18
-------------------
Total proprietary mutual funds $36 $30
===============================================================
PNC BANK CORP.
-----
7
Financial
Review
Assets under management totaled $149 billion at March 31, 1998, a 28% increase
compared with a year ago. BlackRock had managed assets of $116 billion at March
31, 1998, an increase of 27% over the prior-year quarter. The remaining managed
assets are comprised of personal and corporate trust assets.
Total assets under administration were $456 million at March 31, 1998, an
increase of $109 billion of 31% in the year-to-year comparison.
Mutual Fund Servicing experienced double digit growth in assets and accounts
serviced compared with the first quarter of 1997 leading to a 23% increase in
total revenue. Operating expenses increased $6 million due to higher
compensation expense commensurate with revenue growth and increased investments
in technology and facilities associated with business expansion.
PFPC's assets and accounts serviced were as follows:
March 31 1998 1997
- ---------------------------------------------------------------
Assets (billions)
Custody $248 $203
Accounting/administration 218 138
- ---------------------------------------------------------------
Accounts (millions)
Shareholder 4.7 4.5
Checking and credit/debit card 2.1 1.7
===============================================================
Revenue from investment management and mutual fund servicing is included in the
Asset Management and Mutual Fund Servicing line of business. Revenue from
marketing asset management products and services to consumers is included
primarily in Private Banking. The following table sets forth revenue and
earnings from asset management products, services and activities included in
each line of business.
Three months ended March 31 -
in millions Revenue Earnings
- ---------------------------------------------------------------
1998
Asset Management and
Mutual Fund Servicing $154 $43
Private Banking 60 18
-------------------
Total $214 $61
- ---------------------------------------------------------------
1997
Asset Management and
Mutual Fund Servicing $96 $18
Private Banking 54 13
-------------------
Total $150 $31
===============================================================
Asset Management and Mutual Fund Servicing revenue is primarily affected by the
volume of new business, the value of assets managed and serviced, investment
performance and financial market conditions. Revenue may be positively affected
by strong investment performance or improving financial markets. Conversely,
declining performance or deteriorating financial markets may have an adverse
effect on revenue.
PNC BANK CORP.
-----
8
PRIVATE BANKING
Three months ended March 31 -
dollars in millions 1998 1997
- ---------------------------------------------------------------
INCOME STATEMENT
Net interest income $29 $27
Noninterest income
Investment management and trust 58 52
Brokerage 16 15
Other 2 2
-------------------
Total noninterest income 76 69
-------------------
Total revenue 105 96
Provision for credit losses 1 2
Noninterest expense 68 61
-------------------
Pretax earnings 36 33
Income taxes 13 13
-------------------
Earnings $23 $20
-------------------
AVERAGE BALANCE SHEET
Loans
Residential mortgage $987 $1,060
Consumer 920 803
Commercial 540 407
Other 32 72
-------------------
Total loans 2,479 2,342
Other assets 57 66
-------------------
Total assets $2,536 $2,408
-------------------
Net deposits $1,779 $1,609
Assigned funds and other liabilities 423 510
Assigned capital 334 289
-------------------
Total funds $2,536 $2,408
-------------------
PERFORMANCE RATIOS
After-tax profit margin 22% 21%
Efficiency 65 64
Noninterest income to total revenue 72 72
Return on assigned capital 28 28
===============================================================
Private Banking contributed 9% of total line of business earnings in the first
quarter of 1998 compared with 8% a year ago. Earnings increased $3 million or
15% due to revenue growth.
Noninterest income increased $7 million or 10% in the first quarter of 1998 due
to higher assets under administration driven by new business and market value
appreciation. This growth resulted from an enhanced sales management process
focused on delivering investment management and brokerage products. Assets under
administration were $62 billion at March 31, 1998, an increase of $13 billion
from March 31, 1997. Net interest income increased $2 million or 7% due to loan
and deposit growth.
Noninterest expense increased $7 million due to additional sales and service
personnel, higher incentive compensation commensurate with revenue growth, and
investments in technology designed to improve customer service quality.
Private Banking revenue is primarily affected by the volume of new business, the
value of assets managed and serviced, investment performance and financial
market conditions. Revenue may be positively affected by strong investment
performance or improving financial markets. Conversely, declining performance or
deteriorating financial markets may have an adverse effect on revenue.
MORTGAGE BANKING
Three months ended March 31 -
dollars in millions 1998 1997
- ---------------------------------------------------------------
INCOME STATEMENT
Servicing fees $41 $38
Origination and securitization 42 12
Sales of servicing and other 7 1
MSR amortization (33) (7)
Hedging activities 7 (7)
-------------------
Net mortgage banking revenue 64 37
Net interest income 40 29
-------------------
Total revenue 104 66
Operating expense 77 60
-------------------
Pretax earnings 27 6
Income taxes 11 3
-------------------
Earnings $16 $3
-------------------
AVERAGE BALANCE SHEET
Residential mortgage loans $7,761 $7,573
Mortgages held for sale 2,321 958
Other assets 1,487 1,119
-------------------
Total assets $11,569 $9,650
-------------------
Escrow deposits $719 $564
Assigned funds and other liabilities 10,494 8,764
Assigned capital 356 322
-------------------
Total funds $11,569 $9,650
-------------------
PERFORMANCE RATIOS
After-tax profit margin 15% 5%
Efficiency 70 89
Net mortgage banking revenue to total 62 56
revenue
Return on assigned capital 18 4
===============================================================
Mortgage Banking contributed 6% of total line of business earnings in the first
quarter of 1998 compared with 1% in the first quarter of 1997. Earnings
increased $13 million to $16 million in the first quarter of 1998 primarily due
to an increase in revenue.
Net mortgage banking revenue increased $27 million or 73% resulting from higher
loan origination and securitization income, reflecting significant mortgage
refinance activity, and gains on sales of MSR. Net interest income increased $11
million or 38% in the comparison due to a $1.4 billion increase in mortgages
held for sale reflecting higher production volume.
PNC BANK CORP.
-----
9
Financial
Review
Operating expense increased $17 million in the first quarter of 1998 reflecting
a $9 million increase in origination expenses. PNC Bank's investments to build a
superior technology platform contributed to an improvement in the efficiency
ratio to 70% in the first quarter of 1998.
During the first quarter of 1998 Mortgage Banking funded $2.3 billion of
residential mortgages with 69% representing retail originations. The comparable
amounts were $1.1 billion and 65%, respectively, in the first quarter of 1997.
The year-to-year increase reflects the combination of higher refinance activity
and initiatives to expand retail origination capabilities. At March 31, 1998 the
mortgage servicing portfolio totaled $42.5 billion, including $33.6 billion of
loans serviced for others, had a weighted-average coupon of 7.91% and an
estimated fair value of $515 million. Capitalized MSR totaled $406 million at
March 31, 1998 compared with $344 million a year ago.
MORTGAGE SERVICING PORTFOLIO
In millions 1998 1997
- ---------------------------------------------------------------
January 1 $40,701 $39,543
Originations 2,260 1,090
Purchases 3,512 1,312
Repayments (2,962) (1,212)
Sales (1,030) (39)
--------------------
March 31 $42,481 $40,694
===============================================================
MSR value and amortization are affected by changes in interest rates. If
interest rates decline and the rate of prepayment increases, the underlying
servicing fees and related MSR value would also decline. Higher prepayment
activity resulted in higher amortization in 1998. In a period of rising interest
rates, a converse relationship would exist. The Corporation seeks to manage this
risk by using financial instruments with values that move in the opposite
direction of MSR value changes. Accordingly, increased hedging activity
mitigated the higher amortization expense. Net mortgage banking revenue includes
servicing fees, MSR amortization and the impact from securities and interest
rate floors used to hedge the value of MSR.
SECURED LENDING
Three months ended March 31 -
dollars in millions 1998 1997
- ---------------------------------------------------------------
INCOME STATEMENT
Net interest income $57 $49
Noninterest income 11 19
-------------------
Total revenue 68 68
Provision for credit losses (6) (4)
Noninterest expense 23 15
-------------------
Pretax earnings 51 57
Income taxes 17 23
-------------------
Earnings $34 $34
-------------------
AVERAGE BALANCE SHEET
Loans
Commercial $2,924 $2,019
Project and construction 1,968 1,971
Lease financing 1,069 811
Commercial mortgages 1,039 1,166
Other 18 47
-------------------
Total loans 7,018 6,014
Other assets 106 117
-------------------
Total assets $7,124 $6,131
-------------------
Net deposits $918 $629
Assigned funds and other liabilities 5,683 5,025
Assigned capital 523 477
-------------------
Total funds $7,124 $6,131
-------------------
PERFORMANCE RATIOS
After-tax profit margin 50% 50%
Efficiency 34 22
Noninterest income to total revenue 16 28
Return on assigned capital 26 29
===============================================================
Secured Lending contributed 13% of total line of business earnings in the first
quarter of 1998 compared with 14% in the first quarter of last year. Earnings
in the first quarter of 1998 and 1997 totaled $34 million.
Higher net interest income was primarily due to a 17% increase in average loans.
The decline in noninterest income resulted from nonrecurring gains of $12
million in the first quarter of 1997. The increase in noninterest expense in
1998 resulted from a decrease in expense recoveries from workout activities.
PNC BANK CORP.
----
10
On April 3, 1998, PNC Bank completed the acquisition of Midland, the nation's
largest servicer of commercial mortgage-backed securities with a total servicing
portfolio of approximately $25 billion. This transaction greatly expands PNC
Bank's commercial real estate financial services capabilities including
origination, securitization, servicing, investment advisory and risk management.
Midland is expected to add approximately $100 million to noninterest income and
approximately $70 million to noninterest expense on an annual basis and, net of
financing cost, is expected to contribute positively to earnings in 1998 and
provide significant revenue growth opportunities as more real estate customers
demand sophisticated, technology-driven services and increased access to capital
markets.
On April 15, 1998, the Corporation completed the acquisition of the asset-based
finance business of BTM Capital. The purchase included a $600 million portfolio
of asset-based loans and loan commitments and regional sales offices. This
transaction is expected to enhance the growth of this business on a national
basis.
FORWARD-LOOKING STATEMENTS
PNC Bank has made, and may continue to make, various forward-looking statements
with respect to earnings per share, credit quality, interest rate and market
risk, corporate objectives, revenue composition and growth, Year 2000, AAA
Financial Services, BlackRock, Midland, BTM Capital and other financial and
business matters. The Corporation cautions that these forward-looking statements
are subject to numerous assumptions, risks and uncertainties, all of which
change over time and the Corporation assumes no duty to update forward-looking
statements. Actual results could differ materially from forward-looking
statements.
In addition to factors previously disclosed by the Corporation and those
identified elsewhere in this Financial Review, the following factors, among
others, could cause actual results to differ materially from forward-looking
statements: continued pricing pressures on loan and deposit products; the
success and timing of AAA and other business initiatives and strategies, several
of which are in early stages and therefore susceptible to greater uncertainty
than more mature businesses; competition; changes in economic conditions;
customer borrowing, repayment, investment and deposit practices; continued
customer disintermediation; customers' acceptance of PNC Bank's products and
services; and the extent and timing of technological advancement, capital
management actions, actions of the Federal Reserve Board and legislative and
regulatory actions and reforms.
CONSOLIDATED INCOME STATEMENT REVIEW
INCOME STATEMENT HIGHLIGHTS
Three months ended March 31 -
in millions 1998 1997 Change
- ------------------------------------------------------------------------
Net interest income
(taxable-equivalent basis) $644 $637 $7
Provision for credit losses 30 10 20
Noninterest income before
net securities gains 516 417 99
Net securities gains 23 16 7
Noninterest expense 741 644 97
Income taxes 136 143 (7)
Net income 269 266 3
========================================================================
Taxable-equivalent net interest income increased to $644 million for the first
quarter of 1998, a $7 million increase over the same period a year ago. This
increase resulted from a higher-yielding earning asset mix which offset the
impact of spread compression and a change in deposit mix. Average loans
increased $2.2 billion to $54.1 billion in the quarter-to-quarter comparison
while average securities declined $2.3 billion to $7.8 billion. The net interest
margin was 3.96% compared with 3.98% in the prior-year period.
PNC BANK CORP.
----
11
Financial
Review
NET INTEREST INCOME ANALYSIS
Taxable-equivalent basis Average Balances Interest Income/Expense Average Yields/Rates
Three months ended March 31 - -------------------------------------------------------------------------------------------
dollars in millions 1998 1997 Change 1998 1997 Change 1998 1997 Change
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets
Securities $7,784 $10,089 $(2,305) $117 $158 $(41) 6.01% 6.27% (26) bp
Loans, net of unearned income
Consumer (excluding credit card) 11,186 11,827 (641) 236 245 (9) 8.56 8.41 15
Credit card 3,748 3,043 705 133 101 32 14.38 13.22 116
Residential mortgage 12,784 12,781 3 233 237 (4) 7.31 7.44 (13)
Commercial 20,665 18,406 2,259 407 360 47 7.87 7.82 5
Commercial real estate 3,624 4,101 (477) 79 89 (10) 8.68 8.67 1
Other 2,076 1,764 312 36 29 7 6.99 6.67 32
----------------------------- --------------------------
Total loans, net of unearned 54,083 51,922 2,161 1,124 1,061 63 8.36 8.20 16
income
Other 3,322 1,814 1,508 57 30 27 6.96 6.68 28
----------------------------- --------------------------
Total interest-earning assets/
interest income 65,189 63,825 1,364 1,298 1,249 49 8.00 7.86 14
Noninterest-earning assets 6,952 6,476 476
-----------------------------
Total assets $72,141 $70,301 $1,840
=============================
Interest-bearing liabilities
Deposits
Demand and money market $14,153 $12,962 $1,191 103 87 16 2.97 2.74 23
Savings 2,646 3,063 (417) 13 15 (2) 1.99 1.96 3
Other time 17,346 17,721 (375) 234 234 5.46 5.34 12
Deposits in foreign offices 800 787 13 11 10 1 5.68 5.28 40
----------------------------- --------------------------
Total interest-bearing deposits 34,945 34,533 412 361 346 15 4.19 4.06 13
Borrowed funds 19,989 18,594 1,395 293 266 27 5.85 5.76 9
----------------------------- --------------------------
Total interest-bearing
liabilities/ interest expense 54,934 53,127 1,807 654 612 42 4.79 4.66 13
-------------------------- ----------------------------
Noninterest-bearing liabilities,
capital securities and 17,207 17,174 33
shareholders' equity
-----------------------------
Total liabilities and
shareholders' equity $72,141 $70,301 $1,840
=============================
Interest rate spread 3.21 3.20 1
Impact of noninterest-bearing sources .75 .78 (3)
----------------------------
Net interest income/margin $644 $637 $7 3.96% 3.98% (2) bp
====================================================================================================================================
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 rates paid can have a significant impact on net interest income and
margin.
For the first three months of 1998, average loans comprised 83.0% of average
earning assets compared to 81.4% for the prior-year period. A higher percentage
of loans in the earning asset base coupled with growth in higher yielding asset
categories, predominantly middle market commercial loans and credit card,
contributed positively to net interest income and margin. These positive impacts
were offset by declining spreads primarily attributable to competitive pressures
on certain loan and deposit products. Funding cost is affected by the
composition of and rates paid on various funding sources. Average deposits
comprised 61.9% and 62.8% of PNC Bank's total sources of funding for the three
months ended March 31, 1998 and 1997, respectively, with the remainder primarily
comprised of wholesale funding obtained at prevailing market rates.
Management anticipates modest balance sheet growth and continuation of the
challenging competitive environment throughout 1998.
PROVISION FOR CREDIT LOSSES The provision for credit losses was $30 million in
the first quarter of 1998 compared with $10 million in the prior-year period.
Management anticipates the Corporation will record higher provisions for credit
losses throughout the remainder of 1998.
PNC BANK CORP.
----
12
NONINTEREST INCOME Change
Three months ended March 31 - -------------------
dollars in millions 1998 1997 Amount Percent
- ---------------------------------------------------------------
Asset management $141 $107 $34 31.8%
Mutual fund servicing 40 33 7 21.2
Service charges on deposits 40 42 (2) (4.8)
Consumer service fees
Credit card 27 19 8 42.1
Brokerage 15 13 2 15.4
Insurance 10 9 1 11.1
Other 37 35 2 5.7
------------------------
Total consumer
service fees 89 76 13 17.1
Corporate finance and
capital markets 52 49 3 6.1
Mortgage banking
Servicing 29 28 1 3.6
Origination 17 8 9 NM
Marketing 25 3 22 NM
Sales of servicing 7 1 6 NM
------------------------
Total mortgage
banking 78 40 38 95.0
Net securities gains 23 16 7 43.8
Other 76 70 6 8.6
------------------------
Total $539 $433 $106 24.5%
===============================================================
NM - not meaningful
Noninterest income totaled $539 million in the first quarter of 1998, a $106
million or 24.5% increase compared with the prior-year period driven by strong
asset management, mutual fund servicing and mortgage banking growth.
Asset management and mutual fund servicing benefited from significant new
business and strong financial markets.
Mortgage banking revenue grew primarily due to higher marketing gains and
origination volume reflecting significant mortgage refinance activity in the
first quarter of 1998. Net securities gains were $23 million in the first
quarter of 1998 including $9 million from sales of securities that hedged MSR.
NONINTEREST EXPENSE Change
Three months ended March 31 - -------------------
dollars in millions 1998 1997 Amount Percent
- ----------------------------------------------------------------
Staff expense
Compensation $291 $250 $41 16.4%
Employee benefits 63 58 5 8.6
-------------------------
Total staff expense 354 308 46 14.9
Net occupancy and
equipment
Net occupancy 49 47 2 4.3
Equipment 47 42 5 11.9
-------------------------
Total net occupancy
and equipment 96 89 7 7.9
Amortization
Goodwill 13 13
Mortgage servicing
rights 33 8 25 NM
Other 11 9 2 22.2
-------------------------
Total amortization 57 30 27 90.0
Marketing 37 23 14 60.9
Distributions on
capital securities 13 7 6 85.7
Other 184 187 (3) (1.6)
-------------------------
Total $741 $644 $97 15.1%
================================================================
NM - not meaningful
Noninterest expense increased $97 million to $741 million in the first quarter
of 1998 primarily due to MSR amortization, incentive compensation commensurate
with growth in fee-based revenue and higher marketing costs associated with
national consumer banking initiatives. Average full-time equivalent employees
totaled approximately 25,000 in the first three months of 1998 compared with
approximately 24,500 in the prior-year period.
YEAR 2000 The Corporation has been working since 1995 to prepare its computer
systems and applications for the year 2000. This process involves reviewing,
modifying and replacing existing hardware and software as necessary and
communicating with external service providers and customers to determine whether
they are addressing their year 2000 issues appropriately. The Corporation is
also assessing the potential for computer systems of third parties such as
vendors, customers, governmental entities and others to impact the Corporation's
business operations.
Given the Corporation's common technology infrastructure and the progress made
to date, management estimates the review and modification of its computer
systems and applications will be substantially completed by December 31, 1998.
The estimated total cost to become year 2000 compliant, which is being expensed
as incurred, is approximately $30 million substantially all of which will be
incurred by the end of 1998. Failure of the Corporation or third parties to
correct year 2000 issues could cause disruption of operations resulting in
increased operating costs and other adverse effects. In addition, to the extent
customers' financial positions are
PNC BANK CORP.
----
13
Financial
Review
weakened as a result of year 2000 issues, credit quality could be affected. It
is not possible to predict with certainty all of the adverse effects which may
result from a failure of the Corporation or third parties to become fully year
2000 compliant.
BALANCE SHEET REVIEW
PERIOD-END BALANCE SHEET HIGHLIGHTS
March 31 December 31
In millions 1998 1997 Change
- ---------------------------------------------------------------
Assets $72,355 $75,120 $(2,765)
Earning assets 65,210 66,688 (1,478)
Loans, net of unearned income 54,511 54,245 266
Securities 7,511 8,522 (1,011)
Deposits 46,068 47,649 (1,581)
Borrowed funds 18,375 19,622 (1,247)
Shareholders' equity 5,487 5,384 103
===============================================================
LOANS Loans outstanding increased $266 million from year-end 1997 to $54.5
billion at March 31, 1998. Loan portfolio composition continues to be
geographically diversified among numerous industries and types of businesses and
remained relatively consistent in the comparison. As the Corporation's
businesses evolve, the loan portfolio is expected to remain diversified.
Management anticipates modest loan portfolio growth in 1998. Certain
reclassifications of loan balances were made for the current reporting period;
however, prior period amounts were not restated.
LOANS
March 31 December 31
In millions 1998 1997
- ---------------------------------------------------------------
Consumer
Home equity $5,004 $4,848
Credit card 3,729 3,830
Automobile 3,099 3,221
Education 1,197 1,223
Other 1,806 1,913
---------------------
Total consumer 14,835 15,035
Residential mortgage 12,351 12,785
Commercial
Manufacturing 4,242 3,838
Retail/wholesale 3,900 3,575
Service providers 2,671 2,497
Real estate related 2,343 2,047
Communications 1,273 1,154
Health care 1,415 1,504
Financial services 1,516 1,027
Other 4,463 4,347
---------------------
Total commercial 21,823 19,989
Commercial real estate
Mortgage 1,351 1,848
Real estate project 2,116 2,126
---------------------
Total commercial real estate 3,467 3,974
Lease financing and other 2,428 2,874
Unearned income (393) (412)
---------------------
Total, net of unearned income $54,511 $54,245
===============================================================
NET UNFUNDED COMMITMENTS
March 31 December 31
In millions 1998 1997
- ---------------------------------------------------------------
Consumer (excluding credit card) $3,485 $3,363
Credit card 16,981 16,385
Residential mortgage 2,234 2,144
Commercial 31,750 29,707
Commercial real estate 1,216 1,167
Other 842 1,082
----------------------
Total $56,508 $53,848
===============================================================
Commitments to extend credit represent arrangements to lend funds provided there
is no violation of specified contractual conditions. Commercial commitments are
reported net of $4.9 billion and $5.9 billion of participations, assignments and
syndications, primarily to financial institutions, at March 31, 1998 and
December 31, 1997, respectively.
Net outstanding letters of credit totaled $4.6 billion and $4.7 billion at March
31, 1998 and December 31, 1997, 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.
SECURITIES AVAILABLE FOR SALE The securities portfolio declined $1.0 billion
from year-end 1997 to $7.5 billion at March 31, 1998. The expected
weighted-average life of the securities portfolio was 3 years and 3 months at
March 31, 1998 compared with 2 years and 9 months at year end 1997.
SECURITIES AVAILABLE FOR SALE
March 31, 1998 December 31, 1997
----------------------------------------
Amortized Fair Amortized Fair
In millions Cost Value Cost Value
- ---------------------------------------------------------------
Debt securities
U.S. Treasury and
government
agencies $2,017 $2,001 $1,102 $1,105
Mortgage-backed 4,123 4,083 4,672 4,623
Asset-backed 793 794 2,079 2,083
State and municipal 147 153 170 177
Other debt 34 33 34 33
Corporate stocks and other 446 447 501 501
-------------------------------------
Total $7,560 $7,511 $8,558 $8,522
===============================================================
Securities available for sale may be sold as part of the overall asset/liability
management process. Realized gains and losses are reflected in the results of
operations and include gains or losses on associated financial derivatives.
During the first quarter of 1998, $3.8 billion of securities were sold at a $23
million net gain of which $9 million was from sales of securities that hedged
MSR. No financial derivatives were designated to securities available for sale
at March 31, 1998 and December 31, 1997.
PNC BANK CORP.
----
14
FUNDING SOURCES Deposits were $46.1 billion at March 31, 1998, a decline of $1.6
billion from year end, primarily due to a decrease in short-term foreign
deposits. A $1.2 billion decrease in borrowed funds from $19.6 billion at
year-end 1997 was primarily the result of a decline in federal funds purchased
partially offset by an increase in repurchase agreements and other borrowed
funds.
FUNDING SOURCES
March 31 December 31
In millions 1998 1997
- ---------------------------------------------------------------
Deposits
Demand, savings and money market $27,171 $27,475
Time 17,110 17,125
Foreign 1,787 3,049
----------------------
Total deposits 46,068 47,649
Borrowed funds
Bank notes and senior debt 9,503 9,826
Federal funds purchased 773 3,632
Repurchase agreements 1,827 714
Other borrowed funds 4,591 3,753
Subordinated debt 1,681 1,697
----------------------
Total borrowed funds 18,375 19,622
----------------------
Total $64,443 $67,271
===============================================================
CAPITAL The access to and cost of funding new business initiatives including
acquisitions, deposit insurance costs, ability to pay dividends and the level
and nature of regulatory oversight depend, in large part, on a financial
institution's capital strength. The minimum regulatory capital ratios are 4% for
Tier I risk-based, 8% for total risk-based and 3% for leverage. However,
regulators may require higher capital levels when particular circumstances
warrant. To qualify as well capitalized, regulators require banks to maintain
capital ratios of at least 6% for Tier I, 10% for total risk-based and 5% for
leverage.
At March 31, 1998, the Corporation and each bank subsidiary met the well
capitalized capital ratio requirements.
RISK-BASED CAPITAL
March 31 December 31
Dollars in millions 1998 1997
- ---------------------------------------------------------------
Capital components
Shareholders' equity
Common $5,172 $5,069
Preferred 315 315
Trust preferred capital securities 650 650
Goodwill and other (925) (949)
Net unrealized securities losses 32 23
----------------------
Tier I risk-based capital 5,244 5,108
Subordinated debt 1,589 1,666
Eligible allowance for credit losses 856 861
----------------------
Total risk-based capital $7,689 $7,635
======================
Assets
Risk-weighted assets and
off-balance-sheet instruments $68,415 $68,756
Average tangible assets 71,227 69,948
======================
Capital ratios
Tier I risk-based 7.67% 7.43%
Total risk-based 11.24 11.11
Leverage 7.36 7.30
===============================================================
The capital position is managed through balance sheet size and composition,
issuance of debt and equity instruments, treasury stock activities, dividend
policies and retention of earnings.
During the first quarter of 1998, PNC Bank repurchased 1.7 million shares of
common stock. Subsequent to quarter end, the Corporation's board of directors
authorized the repurchase of up to 10 million shares of common stock through
April 30, 1999. These purchases may be made in open market or privately
negotiated transactions.
PNC BANK CORP.
----
15
Financial
Review
RISK MANAGEMENT
In the normal course of business, the Corporation assumes various types of risk,
the most significant of which are credit, liquidity and interest rate risk.
Market risk is also inherent in the Corporation's business operations. Market
risk is the risk of loss associated with adverse changes in the fair value of
financial instruments due to changes in interest rates, exchange rates and
equity prices. To manage these risks, PNC Bank has risk management processes
designed to provide for risk identification, measurement, monitoring and
control.
CREDIT RISK Credit risk represents the possibility that a customer or
counterparty may not perform in accordance with contractual terms. Credit risk
is inherent in the financial services business and results from extending credit
to customers, purchasing securities and entering into off-balance-sheet
financial derivative transactions. The Corporation seeks to manage credit risk
through diversification, limiting exposure to any single industry or customer
and requiring collateral or selling participations to third parties.
NONPERFORMING ASSETS
March 31 December 31
Dollars in millions 1998 1997
- ---------------------------------------------------------------
Nonperforming loans
Commercial $145 $128
Commercial real estate
Mortgage 46 84
Real estate project 35 10
Residential mortgage 51 44
Consumer 7 10
---------------------
Total nonperforming loans 284 276
Foreclosed assets
Commercial real estate 23 27
Residential mortgage 19 21
Other 9 9
-------------------
Total foreclosed assets 51 57
-------------------
Total nonperforming assets $335 $333
-------------------
Nonperforming loans to loans .52% .51%
Nonperforming assets to loans and
foreclosed assets .61 .61
Nonperforming assets to assets .46 .44
===============================================================
The amount of nonperforming loans that were current as to principal and interest
was $34 million at March 31, 1998 and December 31, 1997. There were no
restructured loans outstanding for either period presented.
CHANGE IN NONPERFORMING ASSETS
In millions 1998 1997
- ---------------------------------------------------------------
January 1 $333 $459
Transferred from accrual 78 70
Returned to performing (1) (14)
Principal reductions (50) (56)
Sales (16) (16)
Charge-offs and valuation adjustments (9) (14)
---------------------
March 31 $335 $429
===============================================================
ACCRUING LOANS
PAST DUE 90 DAYS OR MORE
Amount Percent of Loans
--------------------------------------------
March 31 December 31 March 31 December 31
Dollars in millions 1998 1997 1998 1997
- ------------------------------------------------------------------
Consumer
Guaranteed
education $18 $26 1.51% 2.32%
Credit card 72 69 1.92 1.80
Other 32 32 .32 .33
------------------
Total consumer 122 127 .82 .87
Residential
mortgage 60 60 .49 .47
Commercial 43 78 .18 .39
Commercial real
estate 9 23 .27 .59
------------------
Total $234 $288 .43 .53
==================================================================
ALLOWANCE FOR CREDIT LOSSES In determining the adequacy of the allowance for
credit losses, the Corporation makes allocations to specific problem loans based
on discounted cash flow analyses or collateral valuations for impaired loans and
to pools of watchlist and nonwatchlist loans for various credit risk factors.
Allocations to loan pools are developed by risk rating and industry
classifications and based on management's judgment concerning historical loss
trends and other relevant factors. These factors may include, among others,
local, regional and national economic conditions, portfolio concentrations,
industry competition and consolidation and the impact of government regulation.
Consumer and residential mortgage loan allocations are based on historical loss
experience adjusted for portfolio activity and current economic conditions.
PNC BANK CORP.
----
16
ALLOWANCE FOR CREDIT LOSSES
In millions 1998 1997
- ---------------------------------------------------------------
January 1 $972 $1,166
Charge-offs (107) (89)
Recoveries 17 29
---------------------
Net charge-offs (90) (60)
Provision for credit losses 30 10
Acquisitions 3
---------------------
March 31 $912 $1,119
===============================================================
The allowance as a percent of nonperforming loans and period-end loans was 321%
and 1.67%, respectively, at March 31, 1998. The comparable year-end 1997 amounts
were 352% and 1.79%.
CHARGE-OFFS AND RECOVERIES
Net Percent of
Three months ended March 31 - Charge- Charge- Average
dollars in millions offs Recoveries offs Loans
- ----------------------------------------------------------------------------
1998
Consumer $25 $10 $15 .54%
Credit card 72 3 69 7.47
Residential mortgage 2 2 .06
Commercial 6 3 3 .06
Commercial real estate 2 1 1 .11
-----------------------------
Total $107 $17 $90 .67
- ----------------------------------------------------------------------------
1997
Consumer $30 $9 $21 .72%
Credit card 46 7 39 5.20
Residential mortgage 2 1 1 .03
Commercial 10 9 1 .02
Commercial real estate 1 3 (2) (.20)
-----------------------------
Total $89 $29 $60 .47
============================================================================
Credit card net charge-offs increased $30 million in the quarter-to-quarter
comparison. This increase was primarily due to a higher level of consumer
bankruptcies and higher outstandings.
LIQUIDITY RISK Liquidity represents an institution's ability to generate cash or
otherwise obtain funds at reasonable rates to satisfy commitments to borrowers
and demands of depositors and debtholders and to invest in strategic
initiatives. Liquidity risk represents the possibility the Corporation would be
unable to generate cash or otherwise obtain funds at reasonable rates to satisfy
such obligations or investments in strategic initiatives. Liquidity risk is
managed through the coordination of the expected maturities of assets,
liabilities and off-balance-sheet positions and is enhanced by the ability to
raise funds in capital markets through direct borrowing or asset
securitizations. The ability to raise funds in the capital markets depends,
among other factors, on credit ratings, market conditions, capital
considerations and investor demand.
Liquid assets consist of cash and due from banks, short-term investments, loans
held for sale and securities available for sale. At March 31, 1998, such assets
totaled $13.2 billion, with $5.4 billion pledged as collateral for borrowing,
trust and other commitments. Liquidity is also provided by residential mortgages
which may be used as collateral for funds obtained through the Federal Home Loan
Bank ("FHLB") system. At March 31, 1998, approximately $3.9 billion of
residential mortgages were available as collateral for borrowings from the FHLB.
In addition, bank affiliates have access to funds as issuers of unsecured notes
in domestic and foreign markets.
During the first three months of 1998, cash and due from banks decreased $1.7
billion to $2.6 billion compared with a decrease of $920 million during the
year-earlier period. Net cash used by operating activities totaled $83 million
in the first three months of 1998 compared with $73 million provided a year
earlier. Investing activities provided net cash of $1.3 billion and $1.4 billion
in the first three months of 1998 and 1997, respectively. Net cash used by
financing activities totaled $3.0 billion in the first three months of 1998
compared with $2.4 billion used a year earlier.
The principal source of parent company revenue and cash flow is dividends from
subsidiary banks. PNC Bancorp, Inc. is a wholly-owned subsidiary of the parent
company and is the holding company for all bank subsidiaries. There are legal
limitations on the ability of bank subsidiaries to pay dividends and make other
distributions to PNC Bancorp, Inc. and in turn the parent company. Without
regulatory approval, the amount available for dividend payments to PNC Bancorp,
Inc. by all bank subsidiaries was $732 million at March 31, 1998. Dividends may
also be impacted by capital needs, regulatory requirements, corporate policies,
contractual restrictions and other factors.
Liquidity for the parent company and subsidiaries is also generated through the
issuance of securities in public or private markets and lines of credit. The
Corporation has unused capacity under effective shelf registration statements of
approximately $1.4 billion of debt and equity securities. After March 31, 1998,
the Corporation issued $140 million of subordinated debt under a shelf
registration statement and filed a shelf registration statement relating to $600
million of trust preferred capital securities. In addition, the Corporation had
a $500 million unused line of credit.
Management believes the Corporation has sufficient liquidity to meet current
obligations to borrowers, depositors, debtholders and others. The impact of
replacing maturing liabilities is reflected in the income simulation model used
in the overall asset/liability management process.
PNC BANK CORP.
----
17
Financial
Review
INTEREST RATE RISK Interest rate risk arises primarily through the Corporation's
core business activities of extending loans and accepting deposits. Many
factors, including economic and financial conditions, movements in market
interest rates and consumer preferences affect the spread between interest
earned on assets and interest paid on liabilities. In managing interest rate
risk, the Corporation seeks to minimize its reliance on a particular interest
rate scenario as a source of earnings, while maximizing net interest income and
net interest margin. To achieve these objectives, the Corporation uses
securities purchases and sales, long-term and short-term funding vehicles,
financial derivatives and other capital markets instruments.
Interest rate risk is centrally managed by Asset and Liability ("A&L")
Management. The Corporation actively measures and monitors all 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 & Liability Committee ("ALCO") provides strategic direction to
A&L Management and, in doing so, reviews capital markets activities and interest
rate risk exposures. The Finance Committee of the Board of Directors is
responsible for overseeing the Corporation's interest rate risk management
process.
The Corporation measures and manages both the short-term and long-term effects
of changing interest rates. A net interest income simulation model is used to
measure the sensitivity of net interest income to changing interest rates over
the next twenty-four month period; and an economic value of equity model is used
to measure the sensitivity of the value of existing on-balance-sheet and
off-balance-sheet positions to changing interest rates.
The income simulation model is the primary tool used to measure the direction
and magnitude of changes in net interest income resulting from changes in
interest rates. Forecasting net interest income and its sensitivity to changes
in interest rates requires that the Corporation make assumptions about the
volume and characteristics of new business and the behavior of existing
positions. These business assumptions are based on the Corporation's experience,
line of business plans and published industry experience with input by key line
of business managers. Any significant changes in major assumptions are reviewed
by ALCO. This review includes an assessment of the motivation for the change and
its effect on the simulated results. 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 timing, magnitude and frequency of interest rate changes, the
difference between actual experience and the assumed volume and characteristics
of new business and the 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. Through the first three months of 1998, the Corporation's interest rate
risk exposures were consistently within policy limits. At March 31, 1998, if
interest rates were to increase by 100 basis points over the next twelve months,
net interest income would decline by 0.8%. If interest rates were to decrease by
100 basis points over the next twelve months, net interest income would increase
by 0.1%.
PNC BANK CORP.
----
18
The Corporation models additional interest rate scenarios covering a wider range
of rate movements to identify yield curve, term structure and basis risk
exposures. These scenarios are developed based on historical rate relationships
or management's expectations regarding the future direction and level of
interest rates. Depending on market conditions and other factors, these
scenarios may be modeled more or less frequently. Such analyses are used in
conjunction with the income simulation model and economic value of equity model
to identify inherent risk and develop appropriate strategies.
The Corporation measures the sensitivity of the value of its balance sheet and
off-balance-sheet positions to movements in interest rates using an economic
value of equity sensitivity model. The model computes the value of all current
on-balance-sheet and off-balance-sheet positions under a range of instantaneous
interest rate changes. The resulting change in the value of equity is the
measure of overall long-term interest rate risk inherent in the Corporation's
existing on-balance-sheet and off-balance-sheet positions. The Corporation uses
the economic value of equity model to complement the income simulation modeling
process.
The Corporation's recently amended risk management policies provide that the
change in economic value of equity should not decline by more than 1.5% as a
percentage of the book value of assets for a 200 basis point instantaneous
increase or decrease in interest rates.
Economic value of equity sensitivities are periodically reported to ALCO and the
Finance Committee of the Board of Directors. Based on the results of the
economic value of equity model at March 31, 1998, if interest rates were to
increase by 200 basis points, the economic value of existing on-balance-sheet
and off-balance-sheet positions would decline by 0.48% of assets. If interest
rates were to decrease by 200 basis points, the economic value of existing
on-balance-sheet and off-balance-sheet positions would decline by 0.18% of
assets.
MARKET RISK Most of PNC Bank's trading activities are designed to provide
capital markets services for Corporate Banking and Private Banking customers.
While some market risk exposure is a necessary outgrowth of providing services
to customers, the performance of PNC Bank's trading operations is predominantly
based on providing services to customers and not on positioning the
Corporation's portfolio for gains from market movements.
PNC Bank's market risk is predominantly related to interest rate risk associated
with normal loan and deposit taking. 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 maximum loss due to a two
standard deviation one day move. The combined quarter-end value-at-risk of all
trading operations was less than $300 thousand.
PNC BANK CORP.
----
19
Financial
Review
FINANCIAL DERIVATIVES
A variety of off-balance-sheet financial derivatives are used as part of the
overall interest rate risk management process to manage interest rate risk
inherent in the Corporation's line of business activities. Interest rate swaps
and purchased interest rate caps and floors are the primary instruments used for
these purposes. Interest rate swaps are agreements to exchange fixed and
floating interest rate payments calculated on a notional principal amount. The
floating rate is based on a money market index, primarily short-term LIBOR
indices. Purchased interest rate caps and floors are agreements where, for a
fee, the counterparty agrees to pay the Corporation the amount, if any, by which
a specified market interest rate exceeds or is less than a defined rate applied
to a notional amount, respectively.
Forward contracts provide for the delivery of financial instruments at a
specified future date and at a specified price or yield. Such contracts are
primarily used to manage risk positions associated with certain mortgage banking
activities.
Financial derivatives involve, to varying degrees, interest rate and credit risk
in excess of the amount recognized in the balance sheet, but less than the
notional amount of the contract. For interest rate swaps, caps and floors, only
periodic cash payments and, with respect to caps and floors, premiums, are
exchanged. Therefore, cash requirements and exposure to credit risk are
significantly less than the notional value.
The following table sets forth changes in off-balance-sheet financial
derivatives used for interest rate risk management and mortgage banking
activities during the first three months of 1998.
FINANCIAL DERIVATIVES ACTIVITY Weighted-
Average
1998 - dollars in millions January 1 Additions Maturities Terminations March 31 Maturity
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate risk management
Interest rate swaps
Receive fixed $4,320 $1,815 $(477) $(40) $5,618 2 yr. 0 mo.
Pay fixed 448 251 (42) (190) 467 6 yr. 4 mo.
Basis swaps 1,011 100 1,111 4 yr. 9 mo.
Interest rate caps 542 84 (35) 591 3 yr. 11 mo.
Interest rate floors 3,645 3,181 (1,000) 5,826 1 yr. 9 mo.
-----------------------------------------------------------------
Total interest rate risk management 9,966 5,431 (1,554) (230) 13,613
Mortgage banking activities
Forward contracts
Commitments to purchase loans 1,652 4,461 (4,378) 1,735 2 mo.
Commitments to sell loans 1,335 6,150 (4,998) 2,487 2 mo.
Interest rate floors - MSR 1,470 250 1,720 4 yr. 3 mo.
-----------------------------------------------------------------
Total mortgage banking activities 4,457 10,861 (9,376) 5,942
-----------------------------------------------------------------
Total $14,423 $16,292 $(10,930) $(230) $19,555
====================================================================================================================================
During the first quarter of 1998, financial derivatives used in interest rate
risk management increased net interest income by $2 million compared with a $3
million increase in the prior-year period.
PNC BANK CORP.
----
20
The following table sets forth by designated assets and liabilities the notional
value and the estimated fair value of financial derivatives used for interest
rate risk management and mortgage banking activities. Weighted-average interest
rates presented are those expected to be in effect based on the implied forward
yield curve.
FINANCIAL DERIVATIVES
Forward Yield Curve
Notional Estimated -------------------------
March 31, 1998 - dollars in millions Value Fair Value Paid Received
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate risk management
Asset rate conversion
Interest rate swaps (1)
Receive fixed designated to loans $4,545 $50 5.75% 6.09%
Pay fixed designated to loans 208 (1) 6.63 5.84
Basis swaps designated to other earning assets 337 3 5.63 5.93
Interest rate caps designated to loans (2) 591 5 NM NM
Interest rate floors designated to loans (3) 5,826 1 NM NM
---------------------------------
Total asset rate conversion 11,507 58
Liability rate conversion
Interest rate swaps (1)
Receive fixed designated to:
Interest-bearing deposits 400 10 5.84 6.28
Borrowed funds 673 30 5.85 6.38
Pay fixed designated to borrowed funds 259 4 6.09 6.09
Basis swaps designated to borrowed funds 774 5 5.88 5.91
---------------------------------
Total liability rate conversion 2,106 49
---------------------------------
Total interest rate risk management 13,613 107
Mortgage banking activities
Forward contracts
Commitments to purchase loans 1,735 (2) NM NM
Commitments to sell loans 2,487 (5) NM NM
Interest rate floors - MSR (3) 1,720 26 NM NM
---------------------------------
Total mortgage banking activities 5,942 19
---------------------------------
Total financial derivatives $19,555 $126
====================================================================================================================================
(1) The floating rate portion of interest rate contracts is based on
money-market indices. As a percent of notional value, 69% were based on
1-month LIBOR, 25% on 3-month LIBOR and the remainder on other short-term
indices.
(2) Interest rate caps with notional values of $313 million, $139 million and
$135 million require the counterparty to pay the excess, if any, of 3-month
LIBOR over a weighted-average strike of 6.32%, 1-month LIBOR over a
weighted-average strike of 5.89% and Prime over a weighted-average strike of
8.84%, respectively.
(3) Interest rate floors with notional values of $5.6 billion and $1.7 billion
require the counterparty to pay the Corporation the excess, if any, of the
weighted-average strike of 5.04% over 3-month LIBOR and the weighted-average
strike of 5.82% over 10-year CMT, respectively.
At March 31, 1998, 1-month LIBOR was 5.69%, 3-month LIBOR was 5.71%, Prime was
8.5% and 10-year CMT was 5.67%.
NM - not meaningful
CUSTOMER-RELATED DERIVATIVES To accommodate customer needs, PNC Bank enters into
financial derivatives transactions primarily consisting of interest rate swaps,
caps, floors and foreign exchange contracts. Risk exposure from customer
positions is managed through transactions with other dealers. These positions
are recorded at estimated fair value and changes in value are included in the
results of operations. The opposing schedule sets forth information relating to
positions associated with customer derivatives.
Positive Negative
Notional Fair Fair Net Asset
March 31, 1998 - in millions Value Value Value (Liability)
- -----------------------------------------------------------------------------
Interest rate
Swaps $4,394 $20 $(19) $1
Caps/floors
Sold 1,978 (5) (5)
Purchased 1,795 4 4
Foreign exchange 1,397 21 (21)
Other 1,068 1 (1)
-----------------------------------------
Total $10,632 $46 $(46)
=============================================================================
PNC BANK CORP.
----
21
Consolidated
Statement of Income
Three months ended March 31 - in thousands, except per share data 1998 1997
- ------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans and fees on loans $1,118,644 $1,055,908
Securities 115,253 156,205
Other 57,610 30,043
----------------------------------
Total interest income 1,291,507 1,242,156
INTEREST EXPENSE
Deposits 361,522 346,155
Borrowed funds 292,581 266,076
----------------------------------
Total interest expense 654,103 612,231
----------------------------------
Net interest income 637,404 629,925
Provision for credit losses 30,000 10,000
----------------------------------
Net interest income less provision for credit losses 607,404 619,925
NONINTEREST INCOME
Asset management 141,065 106,899
Mutual fund servicing 40,521 32,673
Service charges on deposits 39,964 41,754
Consumer service fees 88,943 76,311
Corporate finance and capital markets 51,712 49,356
Mortgage banking 77,694 40,232
Net securities gains 22,842 16,426
Other 76,174 69,652
----------------------------------
Total noninterest income 538,915 433,303
NONINTEREST EXPENSE
Staff expense 354,284 308,432
Net occupancy and equipment 95,809 89,284
Amortization 57,179 29,831
Marketing 37,396 22,841
Distributions on capital securities 13,193 6,956
Other 183,379 187,047
----------------------------------
Total noninterest expense 741,240 644,391
----------------------------------
Income before income taxes 405,079 408,837
Income taxes 135,819 142,528
----------------------------------
Net income $269,260 $266,309
==================================
EARNINGS PER COMMON SHARE
Basic $.88 $.81
Diluted .87 .80
CASH DIVIDENDS DECLARED PER COMMON SHARE .39 .37
AVERAGE COMMON SHARES OUTSTANDING
Basic 300,567 321,752
Diluted 306,148 327,917
==================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP.
----
22
Consolidated
Balance Sheet
March 31 December 31
Dollars in millions, except par value 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $2,581 $4,303
Short-term investments 718 1,526
Loans held for sale 2,399 2,324
Securities available for sale 7,511 8,522
Loans, net of unearned income of $393 and $412 54,511 54,245
Allowance for credit losses (912) (972)
-------------------------
Net loans 53,599 53,273
Other 5,547 5,172
-------------------------
Total assets $72,355 $75,120
=========================
LIABILITIES
Deposits
Noninterest-bearing $10,117 $10,158
Interest-bearing 35,951 37,491
-------------------------
Total deposits 46,068 47,649
Borrowed funds
Bank notes and senior debt 9,503 9,826
Federal funds purchased 773 3,632
Repurchase agreements 1,827 714
Other borrowed funds 4,591 3,753
Subordinated debt 1,681 1,697
-------------------------
Total borrowed funds 18,375 19,622
Other 1,775 1,815
-------------------------
Total liabilities 66,218 69,086
-------------------------
Mandatorily redeemable capital securities of subsidiary trusts 650 650
SHAREHOLDERS' EQUITY
Preferred stock 7 7
Common stock - $5 par value
Authorized: 450,000,000 shares
Issued: 350,353,116 and 348,447,600 shares 1,752 1,742
Capital surplus 1,088 1,042
Retained earnings 4,788 4,641
Deferred benefit expense (43) (41)
Accumulated other comprehensive income (32) (23)
Common stock held in treasury at cost: 49,543,007 and 48,017,641 shares (2,073) (1,984)
-------------------------
Total shareholders' equity 5,487 5,384
-------------------------
Total liabilities, capital securities and shareholders' equity $72,355 $75,120
==========================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP.
----
23
Consolidated
Statement of Cash Flows
Three months ended March 31 - in millions 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $269 $266
Adjustments to reconcile net income to net cash provided (used) by operating activities
Provision for credit losses 30 10
Depreciation, amortization and accretion 94 73
Deferred income taxes 10 52
Net securities gains (23) (16)
Net gain on sales of assets (55) (48)
Changes in
Loans held for sale (75) (434)
Other (333) 170
---------------------
Net cash provided (used) by operating activities (83) 73
INVESTING ACTIVITIES
Net change in loans (1,305) (1,450)
Repayment of securities available for sale 412 650
Sales
Securities available for sale 3,832 3,691
Loans 979 692
Foreclosed assets 17 21
Purchases
Securities available for sale (3,225) (2,112)
Loans (51) (105)
Net cash received for acquisitions/divestitures 29
Other 635 28
---------------------
Net cash provided by investing activities 1,323 1,415
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits (41) (966)
Interest-bearing deposits (1,536) 197
Federal funds purchased (2,859) (996)
Sale/issuance
Bank notes and senior debt 1,949 2,480
Repurchase agreements 28,553 17,541
Other borrowed funds 25,664 24,823
Common stock 43 52
Repayment/maturity
Bank notes and senior debt (2,272) (1,760)
Repurchase agreements (27,440) (17,655)
Other borrowed funds (24,799) (25,483)
Subordinated debt (6)
Acquisition of treasury stock (96) (516)
Cash dividends paid (122) (125)
---------------------
Net cash provided (used) by financing activities (2,962) (2,408)
---------------------
DECREASE IN CASH AND DUE FROM BANKS (1,722) (920)
Cash and due from banks at beginning of year 4,303 4,016
---------------------
Cash and due from banks at end of period $2,581 $3,096
===================================================================================================================================
CASH PAID FOR
Interest $659 $629
Income taxes 5 2
NONCASH ITEMS
Transfers from loans to other assets 13 17
Conversion of debt to equity 16 6
===================================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP.
----
24
Notes to
Consolidated Financial Statements
BUSINESS PNC Bank Corp. ("Corporation" or "PNC Bank") is one of the largest
diversified financial services organizations in the United States. The
Corporation's major businesses include Regional Community Banking, Corporate
Banking, National Consumer Banking, Asset Management and Mutual Fund Servicing,
Private Banking, Mortgage Banking, and Secured Lending. Financial products and
services are customized for specific customer segments and offered nationally
and in PNC Bank's primary geographic markets in Pennsylvania, New Jersey,
Delaware, Ohio, Kentucky, Indiana, Massachusetts and Florida. PNC Bank is
subject to intense competition from other financial services companies with
respect to these businesses and is subject to the regulations of certain federal
and state agencies and undergoes periodic examinations by certain regulatory
authorities.
ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION The unaudited consolidated interim
financial statements have been prepared in accordance with generally accepted
accounting principles and include the accounts of PNC Bank and its subsidiaries,
most of which are wholly owned. In the opinion of management, the financial
statements reflect all adjustments, which are of a normal recurring nature,
necessary for a fair statement of the results for the interim periods presented.
Certain prior period amounts have been reclassified to conform to reporting
classifications utilized for the current reporting period. These
reclassifications did not impact the Corporation's financial condition or
results of operations.
In preparing the unaudited consolidated interim financial statements, management
is required to make estimates and assumptions that affect the amounts reported
in the financial statements. Actual results will differ from such estimates and
such differences may be material to the financial statements.
The notes included herein should be read in conjunction with the audited
consolidated financial statements included in PNC Bank's 1997 Annual Report.
ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is a reserve for
estimated credit losses established through provisions charged against income.
Loans deemed to be uncollectible are charged against the allowance account and
recoveries of previously charged-off loans are credited to the allowance.
The allowance is maintained at a level believed by management to be sufficient
to absorb estimated potential credit losses. Management's determination of the
adequacy of the allowance is based on evaluations of the credit portfolio and
other relevant factors. This evaluation is inherently subjective as it requires
material estimates including, among others, the amounts and timing of expected
future cash flows on impaired loans, estimated losses on consumer loans and
residential mortgages, and general amounts for historical loss experience,
economic conditions, uncertainties in estimating losses and inherent risks in
the various credit portfolios, all of which may be susceptible to significant
change.
SOFTWARE COSTS Effective January 1, 1998, the Corporation adopted Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." SOP 98-1 requires the capitalization of certain
costs incurred in connection with developing or obtaining software for internal
use. Qualifying software costs are capitalized and amortized over the estimated
useful life of the software. Prior to the adoption of SOP 98-1, software costs
were expensed as incurred. Restatement of prior year financial statements was
not required. The adoption of SOP 98-1 did not have a material impact on the
Corporation's financial position or results of operations.
FINANCIAL DERIVATIVES The Corporation uses off-balance-sheet financial
derivatives as part of the overall asset/liability management process, in
mortgage banking activities and in providing risk management services to
customers. Substantially all such instruments are used to manage risk related to
changes in interest rates. Financial derivatives primarily consist of interest
rate swaps, purchased interest rate caps and floors, forward contracts and
foreign exchange contracts.
To accommodate customer needs, PNC Bank also enters into financial derivative
transactions primarily consisting of interest rate swaps, caps, floors and
foreign exchange contracts. Interest rate risk exposure from customer positions
is managed through transactions with other dealers.
FOREIGN CURRENCY TRANSLATION The Corporation has foreign currency exposures for
loans and deposits denominated in foreign currencies. These exposures are
managed by entering into currency swaps and currency forward contracts.
COMPREHENSIVE INCOME Effective January 1, 1998, the Corporation adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established new rules for the reporting and
display of comprehensive income and its components. SFAS No. 130 requires
unrealized gains or losses on securities available for sale to be included in
other comprehensive income. Prior to the adoption of SFAS No.
PNC BANK CORP.
----
25
Notes to
Consolidatd Financial Statements
130, unrealized gains or losses were reported separately in shareholders'
equity. Prior year financial statements have been reclassified to conform to the
requirements of SFAS No. 130. The adoption of SFAS No. 130 had no impact on net
income or shareholders' equity. Total comprehensive income amounted to $261
million and $196 million during the first quarter of 1998 and 1997,
respectively.
EARNINGS PER COMMON SHARE Basic earnings per common share is calculated by
dividing net income adjusted for preferred stock dividends declared by the
weighted-average number of shares of common stock outstanding.
Diluted earnings per common share is based on net income adjusted for interest
expense, net of tax, on outstanding convertible debentures and dividends
declared on nonconvertible preferred stock. The weighted-average number of
shares of common stock outstanding is increased by the assumed conversion of
outstanding convertible preferred stock and convertible debentures from the
beginning of the year or date of issuance, if later, and the number of shares of
common stock which would be issued assuming the exercise of stock options. Such
adjustments to net income and the weighted-average number of shares of common
stock outstanding are made only when such adjustments dilute earnings per common
share.
RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information," is effective for financial statements for
periods beginning after December 15, 1997. This statement requires financial and
descriptive information about an entity's operating segments to be included in
the annual financial statements. This standard, when implemented, is not
expected to materially impact the reported financial position or results of
operations of the Corporation.
SECURITIES AVAILABLE FOR SALE
The following table sets forth the amortized cost and fair value of the
Corporation's securities portfolio, all of which is available for sale.
March 31, 1998 December 31, 1997
-----------------------------------------------------------------------------------
Unrealized Unrealized
Amortized ------------------ Fair Amortized ------------------ Fair
In millions Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------
Debt securities
U.S. Treasury and government agencies $2,017 $1 $17 $2,001 $1,102 $4 $1 $1,105
Mortgage backed 4,123 3 43 4,083 4,672 4 53 4,623
Asset backed 793 2 1 794 2,079 5 1 2,083
State and municipal 147 6 153 170 7 177
Other debt 34 1 33 34 1 33
----------------------------------------------------------------------------------
Total debt securities 7,114 12 62 7,064 8,057 20 56 8,021
Corporate stocks and other 446 6 5 447 501 3 3 501
----------------------------------------------------------------------------------
Total securities available for sale $7,560 $18 $67 $7,511 $8,558 $23 $59 $8,522
=============================================================================================================================
PNC BANK CORP.
----
26
NONPERFORMING ASSETS
Nonperforming assets were as follows:
March 31 December 31
In millions 1998 1997
- ---------------------------------------------------------------
Nonperforming loans $284 $276
Foreclosed assets 51 57
---------------------
Total nonperforming assets $335 $333
===============================================================
ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses were as follows:
In millions 1998 1997
- ---------------------------------------------------------------
Allowance at January 1 $972 $1,166
Charge-offs
Consumer (excluding credit card) (25) (30)
Credit card (72) (46)
Residential mortgage (2) (2)
Commercial (6) (10)
Commercial real estate (2) (1)
--------------------
Total charge-offs (107) (89)
Recoveries
Consumer (excluding credit card) 10 9
Credit card 3 7
Residential mortgage 1
Commercial 3 9
Commercial real estate 1 3
--------------------
Total recoveries 17 29
--------------------
Net charge-offs (90) (60)
Provision for credit losses 30 10
Acquisitions 3
--------------------
Allowance at March 31 $912 $1,119
===============================================================
FINANCIAL DERIVATIVES
The notional and fair values of financial derivatives used for interest rate
risk management and for mortgage banking activities were as follows:
Positive Negative
Notional Fair Notional Fair
In millions Value Value Value Value
- ---------------------------------------------------------------
MARCH 31, 1998
Interest rate swaps $6,269 $106 $927 $(5)
Interest rate caps 591 5
Interest rate floors 5,600 3 226 (2)
Mortgage banking
activities 1,720 26 4,222 (7)
------------------------------------------
Total $14,180 $140 $5,375 $(14)
===============================================================
DECEMBER 31, 1997
Interest rate swaps $4,849 $106 $930 $(10)
Interest rate caps 542 4
Interest rate floors 3,500 6 145 (1)
Mortgage banking
activities 1,470 26 2,987 (6)
------------------------------------------
Total $10,361 $142 $4,062 $(17)
===============================================================
Customer-related derivatives were as follows:
Positive Negative
March 31, 1998 - Notional Fair Fair Net Asset
in millions Value Value Value (Liability)
- ---------------------------------------------------------------
Interest rate
Swaps $4,394 $20 $(19) $1
Caps/floors
Sold 1,978 (5) (5)
Purchased 1,795 4 4
Foreign exchange 1,397 21 (21)
Other 1,068 1 (1)
----------------------------------------
Total $10,632 $46 $(46)
===============================================================
PNC BANK CORP.
----
27
Notes to
Consolidated Financial Statements
EARNINGS PER SHARE
The following table sets forth basic and diluted earnings per share
calculations.
Three months ended March 31 - in thousands, except per share data 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
CALCULATION OF BASIC EARNINGS PER COMMON SHARE
Net income $269,260 $266,309
Less: Preferred dividends declared 4,849 4,875
------------------------
Net income applicable to basic earnings per common share $264,411 $261,434
------------------------
Basic weighted-average common shares outstanding 300,567 321,752
------------------------
BASIC EARNINGS PER COMMON SHARE $.88 $.81
========================
CALCULATION OF DILUTED EARNINGS PER COMMON SHARE
Net income $269,260 $266,309
Add: Interest expense on convertible debentures (net of tax) 526 769
Less: Dividends declared on nonconvertible preferred stock 4,537 4,537
------------------------
Net income applicable to diluted earnings per common share $265,249 $262,541
------------------------
Basic weighted-average common shares outstanding 300,567 321,752
Weighted-average common shares to be issued using average market price and assuming:
Conversion of preferred stock Series A and B 156 167
Conversion of preferred stock Series C and D 1,175 1,273
Conversion of debentures 1,721 2,505
Exercise of stock options 2,214 1,918
Incentive share awards 315 302
------------------------
Diluted weighted-average common shares outstanding 306,148 327,917
------------------------
DILUTED EARNINGS PER COMMON SHARE $.87 $.80
====================================================================================================================================
PNC BANK CORP.
----
28
OTHER FINANCIAL INFORMATION
In connection with the Midlantic Corporation ("Midlantic") merger, borrowed
funds of Midlantic in the aggregate principal amount of $339 million at March
31, 1998 were jointly and severally assumed by the parent company and its
wholly-owned subsidiary, PNC Bancorp, Inc.
Summarized financial information for PNC Bancorp, Inc. and subsidiaries is as
follows:
PNC BANCORP, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31 December 31
In millions 1998 1997
- ---------------------------------------------------------------
ASSETS
Cash and due from banks $2,580 $4,302
Securities available for sale 7,277 8,276
Loans, net of unearned income 54,380 54,126
Allowance for credit losses (912) (971)
------------------------
Net loans 53,468 53,155
Other assets 7,832 8,144
------------------------
Total assets $71,157 $73,877
========================
LIABILITIES
Deposits $46,553 $47,766
Borrowed funds 16,820 18,437
Other liabilities 1,164 1,145
------------------------
Total liabilities $64,537 $67,348
------------------------
MANDATORILY REDEEMABLE CAPITAL
SECURITIES OF SUBSIDIARY TRUST 350 350
SHAREHOLDERS' EQUITY 6,270 6,179
------------------------
Total liabilities, capital
securities and shareholders'
equity $71,157 $73,877
===============================================================
PNC BANCORP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three months ended March 31 -
in millions 1998 1997
- ---------------------------------------------------------------
Interest income $1,279 $1,233
Interest expense 629 592
----------------------
Net interest income 650 641
Provision for credit losses 30 10
----------------------
Net interest income less provision
for credit losses 620 631
Noninterest income 478 392
Noninterest expense 688 614
----------------------
Income before income taxes 410 409
Income taxes 142 145
----------------------
Net income $268 $264
===============================================================
The amount of dividends that may be paid by bank subsidiaries to PNC Bancorp,
Inc., a first-tier holding company, and in turn to the parent company, are
subject to certain legal limitations. Without regulatory approval, the amount
available for payment of dividends by all subsidiary banks to PNC Bancorp, Inc.
was $732 million at March 31, 1998. Dividends may also be impacted by capital
needs, regulatory requirements, corporate policies, contractual restrictions and
other factors.
PNC BANK CORP.
----
29
Statiscal
Information
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
----------------------------------------
First Quarter 1998
----------------------------------------
Average balances in millions, interest in thousands Average Average
Taxable-equivalent basis Balances Interest Yields/Rates
- ------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets
Loans held for sale $2,363 $42,280 7.16%
Securities
U.S. Treasury and government agencies 5,580 80,283 5.78
Other debt 1,639 27,013 6.59
Other 565 9,211 6.57
-----------------------
Total securities 7,784 116,507 6.01
Loans, net of unearned income
Consumer (excluding credit card) 11,186 236,026 8.56
Credit card 3,748 132,886 14.38
Residential mortgage 12,784 233,641 7.31
Commercial 20,665 406,645 7.87
Commercial real estate 3,624 78,678 8.68
Other 2,076 36,236 6.99
-----------------------
Total loans, net of unearned income 54,083 1,124,112 8.36
Other interest-earning assets 959 15,434 6.48
-----------------------
Total interest-earning assets/interest income 65,189 1,298,333 8.00
Noninterest-earning assets
Allowance for credit losses (947)
Cash and due from banks 2,787
Other assets 5,112
---------
Total assets $72,141
---------
LIABILITIES, CAPITAL SECURITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand and money market $14,153 103,547 2.97
Savings 2,646 12,978 1.99
Other time 17,346 233,622 5.46
Deposits in foreign offices 800 11,375 5.68
-----------------------
Total interest-bearing deposits 34,945 361,522 4.19
Borrowed funds
Bank notes and senior debt 9,972 141,928 5.69
Federal funds purchased 2,404 33,350 5.55
Repurchase agreements 1,523 18,603 4.89
Other borrowed funds 4,408 66,031 5.99
Subordinated debt 1,682 32,669 7.77
-----------------------
Total borrowed funds 19,989 292,581 5.85
-----------------------
Total interest-bearing liabilities/interest expense 54,934 654,103 4.79
-----------------------
Noninterest-bearing liabilities, capital securities and
shareholders' equity
Demand and other noninterest-bearing deposits 9,685
Accrued expenses and other liabilities 1,474
Mandatorily redeemable capital
securities of subsidiary trusts 650
Shareholders' equity 5,398
---------
Total liabilities, capital securities and
shareholders' equity $72,141
------------------------------------
Interest rate spread 3.21
Impact of noninterest-bearing liabilities .75
--------------------------
Net interest income/margin $644,230 3.96%
- -----------------------------------------------------------------------------------------------
----------------------------------------
Fourth Quarter 1997
----------------------------------------
Average balances in millions, interest in thousands Average Average
Taxable-equivalent basis Balances Interest Yields/Rates
- ----------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets
Loans held for sale $1,680 $30,688 7.31%
Securities
U.S. Treasury and government agencies 5,248 77,508 5.90
Other debt 1,949 32,527 6.68
Other 572 10,360 7.21
-------------------------
Total securities 7,769 120,395 6.19
Loans, net of unearned income
Consumer (excluding credit card) 11,108 239,261 8.55
Credit card 3,803 130,091 13.57
Residential mortgage 12,966 241,309 7.44
Commercial 19,838 387,243 7.64
Commercial real estate 4,067 91,975 8.85
Other 1,881 33,248 7.07
-------------------------
Total loans, net of unearned income 53,663 1,123,127 8.27
Other interest-earning assets 975 13,844 5.59
-------------------------
Total interest-earning assets/interest income 64,087 1,288,054 7.96
Noninterest-earning assets
Allowance for credit losses (1,010)
Cash and due from banks 2,991
Other assets 4,801
------------
Total assets $70,869
------------
LIABILITIES, CAPITAL SECURITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand and money market $13,949 105,452 3.00
Savings 2,651 13,243 1.98
Other time 17,061 236,720 5.51
Deposits in foreign offices 994 14,157 5.58
-------------------------
Total interest-bearing deposits 34,655 369,572 4.23
Borrowed funds
Bank notes and senior debt 10,314 150,457 5.71
Federal funds purchased 2,464 34,910 5.54
Repurchase agreements 790 10,358 5.13
Other borrowed funds 3,358 50,839 6.06
Subordinated debt 1,698 33,006 7.78
-------------------------
Total borrowed funds 18,624 279,570 5.91
-------------------------
Total interest-bearing liabilities/interest expense 53,279 649,142 4.82
-------------------------
Noninterest-bearing liabilities, capital securities and
shareholders' equity
Demand and other noninterest-bearing deposits 9,925
Accrued expenses and other liabilities 1,601
Mandatorily redeemable capital
securities of subsidiary trusts 650
Shareholders' equity 5,414
------------
Total liabilities, capital securities and
shareholders' equity $70,869
---------------------------------------
Interest rate spread 3.14
Impact of noninterest-bearing liabilities .81
--------------------------
Net interest income/margin $638,912 3.95%
- ----------------------------------------------------------------------------------------------------
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 are based on amortized historical
cost (excluding SFAS No. 115 adjustments to fair value).
PNC BANK CORP.
----
30
- -----------------------------------------------------------------------------------------
Third Quarter 1997 Second Quarter 1997
- -----------------------------------------------------------------------------------------
Average Average Average Average
Balances Interest Yields/Rates Balances Interest Yields/Rates
- -----------------------------------------------------------------------------------------
$1,555 $29,046 7.47% $1,408 $25,894 7.36%
5,823 85,530 5.86 6,375 95,834 6.02
1,824 30,155 6.61 2,083 34,051 6.54
569 11,368 7.95 597 10,733 7.20
- ------------------------------ -----------------------------
8,216 127,053 6.17 9,055 140,618 6.21
10,996 235,885 8.51 11,239 237,784 8.49
3,871 122,537 12.56 3,502 106,348 12.18
13,503 252,315 7.47 13,164 244,829 7.44
18,839 373,402 7.76 18,964 373,561 7.79
4,041 89,227 8.64 4,060 88,683 8.64
1,952 33,884 6.94 1,884 33,327 7.08
- ------------------------------ -----------------------------
53,202 1,107,250 8.23 52,813 1,084,532 8.19
981 14,509 5.82 925 13,522 5.86
- ------------------------------ -----------------------------
63,954 1,277,858 7.92 64,201 1,264,566 7.85
(1,059) (1,094)
2,878 2,877
4,808 4,837
- --------------- --------------
$70,581 $70,821
- --------------- --------------
$13,715 103,872 3.00 $13,270 94,394 2.85
2,773 13,850 1.98 2,924 14,377 1.97
17,336 238,948 5.47 17,656 238,928 5.43
1,128 16,190 5.62 1,463 20,301 5.49
- ------------------------------ -----------------------------
34,952 372,860 4.23 35,313 368,000 4.18
9,337 135,910 5.70 8,284 118,950 5.68
2,342 33,220 5.55 3,474 48,693 5.62
935 12,600 5.27 786 10,773 5.43
4,221 63,686 6.03 4,780 70,615 5.91
1,649 32,151 7.80 1,351 26,954 7.98
- ------------------------------ -----------------------------
18,484 277,567 5.92 18,675 275,985 5.88
- ------------------------------ -----------------------------
53,436 650,427 4.82 53,988 643,985 4.77
- ------------------------------ -----------------------------
9,654 9,501
1,460 1,480
650 492
5,381 5,360
- --------------- --------------
$70,581 $70,821
- -----------------------------------------------------------------------------------------
3.10 3.08
.79 .76
----------------------------- ----------------------------
$627,431 3.89% $620,581 3.84%
- -----------------------------------------------------------------------------------------
- ---------------------------------------------
First Quarter 1997
- ---------------------------------------------
Average Average
Balances Interest Yields/Rates
- ---------------------------------------------
$ 1,019 $17,970 7.05%
6,982 105,363 6.05
2,530 41,841 6.62
577 10,666 7.45
- ------------------------------
10,089 157,870 6.27
11,827 245,169 8.41
3,043 100,593 13.22
12,781 237,685 7.44
18,406 359,785 7.82
4,101 88,939 8.67
1,764 29,364 6.67
- ------------------------------
51,922 1,061,535 8.20
795 12,139 6.20
- ------------------------------
63,825 1,249,514 7.86
(1,148)
2,935
4,689
- ------------
$70,301
- ------------
$12,962 87,409 2.74
3,063 14,804 1.96
17,721 233,547 5.34
787 10,395 5.28
- ------------------------------
34,533 346,155 4.06
8,566 117,172 5.47
3,068 40,908 5.38
735 9,756 5.31
4,874 71,272 5.86
1,351 26,968 7.98
- ------------------------------
18,594 266,076 5.76
- ------------------------------
53,127 612,231 4.66
- ------------------------------
9,600
1,466
350
5,758
- ------------
$70,301
- ---------------------------------------------
3.20
.78
-----------------------------
$637,283 3.98%
- ---------------------------------------------
PNC BANK CORP.
----
31
Quarterly Report on
Form 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 1998.
Commission File Number 1-9718
PNC BANK CORP.
Incorporated in the Commonwealth of Pennsylvania
IRS Employer Identification No. 25-1435979
Address: One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Telephone: (412) 762-1553
As of April 30, 1998, PNC Bank Corp. had 300,841,082 shares of common stock ($5
par value) outstanding.
PNC Bank Corp. (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
The following sections of the Financial Review set forth in the cross-reference
index are incorporated in the Quarterly Report on Form 10-Q.
Cross-Reference Page(s)
------------------------------------------ ----------
PART I FINANCIAL INFORMATION
Item 1 Consolidated Statement of Income for the
three months ended March 31, 1998 and
1997 22
Consolidated Balance Sheet as of March
31, 1998 and December 31, 1997 23
Consolidated Statement of Cash Flows for
the three months ended March 31, 1998
and 1997 24
Notes to Consolidated Financial 25-29
Statements
Average Consolidated Balance Sheet and
Net Interest Analysis 30-31
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 2-21
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 18-19
- ---------------------------------------------------- ----------
PART II OTHER INFORMATION
Item 4 Submission of Matters for a Vote of Security
Holders
An annual meeting of shareholders of the Corporation was held on April 28, 1998,
for the purpose of electing 17 directors.
All 17 nominees were elected and the votes cast for and against/withheld were as
follows:
Aggregate Votes
-------------------------------
Nominee For Against/Withheld
- ---------------------------------------------------------------
Paul W. Chellgren 263,348,077 2,090,873
Robert N. Clay 263,326,873 2,112,077
George A. Davidson, Jr. 263,367,135 2,071,815
David F. Girard-diCarlo 261,388,419 4,050,531
Walter E. Gregg, Jr. 263,320,436 2,118,514
William R. Johnson 260,798,417 4,640,533
Bruce C. Lindsay 263,306,987 2,131,963
W. Craig McClelland 263,332,230 2,106,720
Thomas H. O'Brien 263,126,860 2,312,090
Jane G. Pepper 263,059,362 2,379,588
Jackson H. Randolph 263,298,238 2,140,712
James E. Rohr 263,296,601 2,142,349
Roderic H. Ross 263,273,945 2,165,005
Richard P. Simmons 263,293,439 2,145,511
Thomas J. Usher 263,350,110 2,088,840
Milton A. Washington 263,263,500 2,175,450
Helge H. Wehmeier 263,383,972 2,054,978
===============================================================
PNC BANK CORP.
----
32
With respect to the above matter, holders of the Corporation's common and
preferred stock voted together as a single class. The following table sets forth
as of the February 26, 1998 record date the number of shares of each class of
stock that was issued and outstanding and entitled to vote, the voting power per
share and the aggregate voting power of each class:
Number of
Voting Rights Shares Entitled Aggregate
Title of Class Per Share to Vote Voting Power
- ----------------------------------------------------------------
Common Stock 1 300,807,555 300,807,555
$1.80 Cumulative
Convertible
Preferred Stock -
Series A 8 15,108 120,864
$1.80 Cumulative
Convertible
Preferred Stock -
Series B 8 4,384 35,072
$1.60 Cumulative
Convertible
Preferred Stock -
Series C 4/2.4 302,617 504,361*
$1.80 Cumulative
Convertible
Preferred Stock -
Series D 4/2.4 404,955 674,924*
-------------
Total possible votes 302,142,776*
===============================================================
* Represents greatest number of votes possible. Actual aggregate voting power
was less since each holder of such preferred stock is entitled to a number of
votes equal to the number of full shares of common stock into which such
holder's preferred stock is convertible.
Holders of the Corporation's 6,000,000 issued and outstanding shares of
Fixed/Adjustable Rate Noncumulative Preferred Stock-Series F were not entitled
to vote with respect to the matters presented at the meeting.
Item 6 Exhibits and Reports on Form 8-K
The following exhibit index lists Exhibits to this Quarterly Report on Form
10-Q:
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
27 Financial Data Schedule
- ----------------------------------------------------------------
Copies of these Exhibits may be accessed electronically at the Securities and
Exchange Commission's home page at www.sec.gov. Exhibits will also be furnished
without charge by writing to Michelle Sentner, Assistant Vice President,
Financial Reporting, at corporate headquarters. Requests may also be directed to
(412) 762-1553 or to financial.reporting@pncbank.com.
Since December 31, 1997, the Corporation filed the following Current Reports on
Form 8-K:
Form 8-K dated as of January 15, 1998, reporting the Corporation's consolidated
financial results for the three months and year ended December 31, 1997, filed
pursuant to Item 5.
Form 8-K dated as of April 14, 1998, reporting the Corporation's consolidated
financial results for the three months ended March 31, 1998, filed pursuant to
Item 5.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on May 15, 1998, on its
behalf by the undersigned thereunto duly authorized.
PNC Bank Corp.
Robert L. Haunschild
Senior Vice President and
Chief Financial Officer
PNC BANK CORP.
----
33
Corporate
Information
CORPORATE HEADQUARTERS
PNC Bank Corp.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
INTERNET INFORMATION
Information on PNC Bank Corp.'s financial results and its products and services
is available on the Internet at http://www.pncbank.com.
STOCK LISTING
PNC Bank Corp. common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol PNC.
FINANCIAL INFORMATION
Copies of the Corporation's filings with the Securities and Exchange Commission
("SEC"), including Exhibits thereto, may be obtained:
Electronically at the SEC's home page at www.sec.gov.
By writing to Jeffrey A. Wilkins, Vice President, Financial
Reporting, at corporate headquarters.
By calling (412) 762-1553 or via e-mail to financial.reporting@pncbank.com.
INQUIRIES
Individual shareholders should contact: Shareholder Relations at 800-843-2206.
Analysts and institutional investors should contact: William H. Callihan, Vice
President, Investor Relations, at 412-762-8257 or invrela@pncmail.com.
News media representatives and others seeking general information should
contact: Jonathan Williams, Vice President, Media Relations, at 412-762-4550 or
pubrela@pncmail.com.
COMMON STOCK PRICES/DIVIDENDS DECLARED
The table below sets forth by quarter the range of high, low and quarter-end
closing sale prices for PNC Bank Corp. common stock and the cash dividends
declared per common share.
Cash
Dividends
1998 Quarter High Low Close Declared
- ----------------------------------------------------------------
First $61.625 $49.500 $59.938 $.39
================================================================
Cash
Dividends
1997 Quarter High Low Close Declared
- ----------------------------------------------------------------
First $45.000 $36.500 $40.000 $.37
Second 44.750 37.375 41.750 .37
Third 49.750 41.125 48.813 .37
Fourth 58.750 42.875 56.938 .39
---------
Total $1.50
================================================================
REGISTRAR AND TRANSFER AGENT
The Chase Manhattan Bank
P.O. Box 590
Ridgefield Park, New Jersey 07660
800-982-7652
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The PNC Bank Corp. dividend reinvestment and stock purchase plan enables holders
of common and preferred stock to purchase additional shares of common stock
conveniently and without paying brokerage commissions or service charges. A
prospectus and enrollment card may be obtained by writing to Shareholder
Relations at corporate headquarters.
PNC BANK CORP.
----
34