10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 15, 1999
PNC BANK
Quarterly Report on Form 10-Q
For the quarterly period ended September 30, 1999
Page 1 represents a portion of the third quarter 1999 Financial Review which is
not required by the Form 10-Q report and is not "filed" as part of the Form
10-Q.
The Quarterly Report on Form 10-Q and cross reference index is on page 35.
Consolidated Financial Highlights
PNC BANK CORP.
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FINANCIAL REVIEW
This Financial Review should be read in conjunction with the PNC Bank Corp. and
subsidiaries' ("Corporation" or "PNC Bank") unaudited Consolidated Financial
Statements included herein and the Financial Review and audited Consolidated
Financial Statements included in the Corporation's 1998 Annual Report.
OVERVIEW
PNC BANK CORP. The Corporation is one of the largest diversified financial
services companies in the United States operating retail banking, asset
management and wholesale banking businesses that provide products and services
nationally and in PNC Bank's primary geographic markets in Pennsylvania, New
Jersey, Delaware, Ohio and Kentucky.
Financial services providers today are challenged by intense competition,
changing customer demands, increased pricing pressures and the ongoing impact of
deregulation. Traditional loan and deposit activities face particularly
challenging competitive pressures as both banks and nonbanks compete for
customers with access to a broad array of banking, investment and capital
markets products. Recently enacted financial services reform legislation will
allow banks and insurance companies to further expand the range of products and
services offered to customers.
PNC Bank has responded to these challenges by transitioning to an organization
managed as separate businesses with highly focused customer segments. This
management structure enables PNC's businesses to operate with an entrepreneurial
focus on the valuation dynamics and competitive opportunities unique to their
industry segments. This business model also allows the Corporation to enhance
consolidated value by leveraging technology, information, branding, marketing,
and financial resources across all businesses.
The Corporation has altered its business mix by investing in specialized
financial services businesses, including asset management, mutual fund
servicing, investment advisory, mortgage banking and corporate services. These
businesses are largely fee-based, less capital intensive and provide growth
opportunities on a national scale. More meaningful contributions from these
businesses, coupled with disciplined management of traditional banking
activities, have allowed PNC Bank to significantly improve the composition of
its revenue stream.
Pursuant to this strategy, in July 1999, the Corporation announced an agreement
to acquire First Data Investor Services Group, Inc. ("ISG"), the mutual fund
servicing subsidiary of First Data Corporation, for $1.1 billion in cash. The
transaction is expected to close in the fourth quarter of 1999, subject to
customary closing conditions. Also, during the first quarter of 1999, the
Corporation completed the sale of its credit card business and made the decision
to exit certain out-of-footprint large corporate, national healthcare and other
non-strategic institutional lending businesses.
Additionally, in October, 1999, BlackRock, Inc., PNC Bank's investment
management subsidiary, issued 9 million shares of class A common stock at $14.00
per share in an initial public offering. PNC Bank will continue to own
approximately 70% of BlackRock's stock and expects to record an after-tax gain
of approximately $60 million during the fourth quarter of 1999 as a result of
this offering.
SUMMARY FINANCIAL RESULTS Consolidated net income for the first nine months of
1999 was $960 million or $3.14 per diluted share. Results for the first nine
months of 1999 included $358 million of pretax gains on the sales of PNC Bank's
credit card business, an equity interest in Electronic Payment Services, Inc.
("EPS"), Concord EFS, Inc. ("Concord") stock and twelve branches in western
Pennsylvania. The first nine months of 1999 also included $142 million of
valuation adjustments associated with exiting certain institutional lending
businesses, $98 million of costs related to efficiency initiatives and a $30
million contribution to the PNC Bank Foundation. Excluding these items, earnings
for the first nine months of 1999 were $895 million or $2.92 per diluted share,
return on average common shareholders' equity was 21.24% and return on average
assets was 1.59%. Earnings for the first nine months of 1998 were $830 million
or $2.68 per diluted share.
Taxable-equivalent net interest income was $1.875 billion for the first nine
months of 1999, a $59 million decrease compared with the first nine months of
1998. The net interest margin was 3.70% for the first nine months of 1999
compared with 3.86% in the prior-year period. These declines were primarily due
to the sale of the credit card business in the first quarter of 1999. Excluding
the credit card business, net interest income was $1.809 billion for the first
nine months of 1999, an increase of $113 million or 7% compared with the first
nine months of 1998, and the net interest margin was 3.62% and 3.60% in 1999 and
1998, respectively.
Noninterest income was $2.046 billion for the first nine months of 1999, a $442
million increase compared with the first nine months of 1998. Excluding the
gains and valuation adjustments from 1999 and $86 million of branch gains and
$30 million of valuation adjustments from 1998, noninterest income increased
$282 million or 18% in the period-to-period comparison primarily due to growth
in fee-based revenue.
PNC BANK CORP.
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FINANCIAL REVIEW
The provision for credit losses was $133 million for the first nine months of
1999 compared with $110 million a year ago. Net charge-offs were $131 million or
.33% of average loans for the first nine months of 1999 compared with $267
million or .65%, respectively, for the first nine months of 1998. The decreases
were due to the sale of the credit card business in the first quarter of 1999.
Noninterest expense was $2.314 billion for the first nine months of 1999, an 8%
increase compared with the first nine months of 1998. Noninterest expense
increased 5% compared with the prior-year period excluding $98 million of costs
related to efficiency initiatives and a $30 million contribution to the PNC Bank
Foundation in 1999 and $55 million of costs primarily for consumer delivery
initiatives in 1998. The increase supported revenue growth in fee-based
businesses. The efficiency ratio improved to 53.78% for the first nine months of
1999 compared with 55.50% in the prior year due to a continued focus on
improving returns in traditional businesses.
Total assets were $73.0 billion at September 30, 1999, compared with $77.2
billion at December 31, 1998. The decline was primarily due to the sale of the
credit card business in the first quarter of 1999. Shareholders' equity totaled
$5.9 billion at September 30, 1999, compared with $6.0 billion at December 31,
1998. The leverage ratio was 7.74% and Tier I and total risk-based capital
ratios were 8.47% and 11.95%, respectively, at September 30, 1999.
Overall asset quality characteristics remained relatively stable during the
first nine months of 1999. The ratio of nonperforming assets to total loans,
loans held for sale and foreclosed assets was .65% at September 30, 1999 and
.55% at December 31, 1998. Nonperforming assets were $361 million at September
30, 1999, compared with $332 million at December 31, 1998. The allowance for
credit losses was $674 million and represented 215% of nonaccrual loans and
1.31% of period-end loans at September 30, 1999. The comparable ratios were 255%
and 1.31%, respectively, at December 31, 1998.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act with respect to financial performance
and other financial and business matters. Forward-looking statements are
typically identified by words or phrases such as "believe," "expect,"
"anticipate," "intend," "estimate," "may increase," "may fluctuate," and
variations of such words and similar expressions, or future or conditional verbs
such as "will," "would," and "could" or similar expressions. The Corporation
cautions that these forward-looking statements are subject to numerous
assumptions, risks and uncertainties, all of which change over time, and the
Corporation assumes no duty to update forward-looking statements. Actual results
could differ materially from those anticipated in these forward-looking
statements.
In addition to factors previously disclosed by the Corporation and those
identified elsewhere herein, the following factors, among others, could cause
actual results to differ materially from forward-looking statements: the
inability of the Corporation or others to remediate year 2000 concerns in a
timely and adequate fashion; continued pricing pressures on loan and deposit
products; increased credit risk; the introduction, withdrawal, success and
timing of business initiatives and strategies; intensified competition; the
ability to realize cost savings or revenues and implement integration plans
associated with acquisitions and divestitures; changes in global and domestic
economic conditions generally and in primary geographic markets in which the
Corporation conducts business; changes in interest rates and financial and
capital markets; inflation; customer borrowing, repayment, investment and
deposit practices; customers' acceptance of PNC Bank's products and services;
and the impact, extent and timing of technological changes, capital management
activities, actions of the Federal Reserve Board and legislative and regulatory
actions and reforms.
REVIEW OF BUSINESSES
PNC Bank operates seven major businesses engaged in retail banking, asset
management and wholesale banking activities: PNC Regional Bank, PNC Advisors,
BlackRock, PFPC Worldwide, PNC Institutional Bank, PNC Secured Finance and PNC
Mortgage.
Business results are based on PNC Bank's management accounting practices. There
is no comprehensive, authoritative body of guidance for management accounting
equivalent to generally accepted accounting principles; therefore, PNC Bank's
results are not necessarily comparable with similar information for any other
financial services institution. Financial results are presented as if each
business operated on a stand-alone basis.
PNC BANK CORP.
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The following changes were made in the first quarter of 1999 to the presentation
of business results: PNC Regional Bank reflects the combination of PNC Regional
Community Bank and PNC National Consumer Bank. Branch-based brokerage activities
(previously included in PNC Advisors), the middle market customer segment
(previously included in PNC Corporate Bank) and regional real estate lending and
leasing activities in PNC Bank's geographic footprint (previously included in
PNC Secured Finance) were also combined with PNC Regional Bank. Additionally,
residential mortgages (previously included in PNC Mortgage) were realigned with
PNC Regional Bank. Certain out-of-footprint large corporate, national healthcare
and other non-strategic institutional lending businesses as well as venture
capital activities (previously included in PNC Corporate Bank) are included in
Other. PNC Institutional Bank is comprised of the remaining activities that were
previously in PNC Corporate Bank. BlackRock reflects legal entity results for
BlackRock, Inc. Financial results for 1999 and 1998 are presented consistent
with this structure.
The management accounting process uses various balance sheet and income
statement assignments and transfers to measure performance of the businesses.
Methodologies change from time-to-time as management accounting practices are
enhanced and businesses change. Securities or borrowings and related net
interest income are assigned based on the net asset or liability position of
each business. Capital is assigned based on management's assessment of inherent
risks and equity levels at independent companies providing similar products and
services. Support areas not directly aligned with the businesses are allocated
primarily based on the utilization of these services.
Total business financial results differ from consolidated financial results
primarily due to differences between management accounting practices and
generally accepted accounting principles, divested and exited businesses,
venture capital activities, sales of equity interests, minority interests in
subsidiaries, eliminations and unassigned items, the impact of which is
reflected in Other.
The Corporation is managed as a portfolio of distinct businesses that are
positioned to compete as stand-alone companies while enhancing PNC Bank's
consolidated value by leveraging technology, information, branding, marketing
and financial resources across all businesses. Total business earnings were $885
million for the first nine months of 1999, a 22% increase compared with the
prior-year period. The contribution from asset management businesses increased
to 21% of total business results while the regional bank and wholesale
businesses accounted for 55% and 24% of total business results, respectively.
RESULTS OF BUSINESSES
* BlackRock's assets are presented as of period end.
PNC BANK CORP.
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FINANCIAL REVIEW
PNC Regional Bank provides credit, deposit, branch-based brokerage and
electronic banking products and services to retail customers as well as credit,
leasing, treasury management and capital markets products and services to
mid-sized and small businesses primarily within PNC Bank's geographic footprint.
PNC Regional Bank utilizes experienced relationship managers and sophisticated
information technology to identify consumer preferences for products, services
and delivery channels of choice.
Consumers are increasingly demanding the convenience of multiple delivery
channels and choice among products and services. As consumer preferences have
changed, PNC Regional Bank has focused on offering desired products and
balancing resources between traditional branches and technology-driven
alternative delivery channels.
PNC Regional Bank contributed 55% of total business earnings for the first nine
months of 1999 compared with 63% in the first nine months of 1998. Earnings
increased $39 million or 9% to $490 million for the first nine months of 1999
and the return on assigned capital and efficiency ratios improved due to
strategies designed to respond to changing customer preferences while improving
the effectiveness and efficiency of the delivery system. These strategies
resulted in revenue growth and a reduction in operating costs in the
period-to-period comparison. Excluding the impact of $86 million of branch gains
and $40 million of costs related to consumer delivery initiatives in 1998,
earnings increased 16%.
Excluding the impact of the branch gains in 1998, revenue increased 4% to $1.734
billion for the first nine months of 1999 compared with the prior-year period.
The increase was primarily due to growth in deposits and fee-based services. The
decrease in the provision for credit losses as well as consumer loans was
primarily due to the downsizing of the indirect auto loan portfolio.
Excluding the impact of costs related to consumer delivery initiatives in 1998,
noninterest expense decreased 1% for the first nine months of 1999 compared with
the prior-year period.
PNC Regional Bank engages in credit and deposit activities that are affected by
economic and financial market conditions. Accordingly, changes in the economy or
financial markets could impact asset quality and results of operations.
PNC BANK CORP.
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PNC Advisors, the nation's fourth largest manager of trust and high net
worth assets, offers personalized investment management, high-end brokerage,
personal trust, estate planning and traditional banking services to affluent and
wealthy individuals, and investment management, trust and administrative
services to pensions, 401(k) plans and charitable organizations.
PNC Advisors strives to be the "financial advisor of choice" in the growing
affluent market, providing a full range of high quality, customized and
predominantly fee-based investment products and services. Consistent with this
objective, in the fourth quarter of 1998, the Corporation acquired
Hilliard-Lyons, Inc. ("Hilliard Lyons"), a firm primarily focused on delivering
brokerage services and investment advice to affluent clients. PNC Advisors is
expanding the Hilliard Lyons brand and organization throughout PNC Bank's
geographic footprint, which includes several of the nation's wealthiest
metropolitan areas.
PNC Advisors contributed 13% of total business earnings for the first nine
months of 1999 compared with 12% in the prior-year period. Earnings of $111
million for the first nine months of 1999 increased $24 million or 28% compared
with the first nine months of 1998 driven by strong revenue growth.
Revenue increased $203 million or 58% for the first nine months of 1999 compared
with the prior-year period. The increase was due to higher brokerage revenue
primarily from the Hilliard Lyons acquisition and higher investment management
and trust revenue primarily resulting from new business. The period-to-period
increase in noninterest expense and the efficiency ratio as well as the lower
return on assigned capital was attributable to the Hilliard Lyons acquisition.
* Assets under management do not include brokerage assets administered.
At September 30, 1999, PNC Advisors managed $66 billion of assets, a 25%
increase compared with the prior-year period due to new business and the
Hilliard Lyons acquisition. Brokerage assets administered by PNC Advisors
increased $24 billion in the period-to-period comparison to $29 billion at
September 30, 1999, primarily due to the Hilliard Lyons acquisition.
PNC Advisors' revenue is affected by the volume of new business, the
value of assets managed, investment performance and financial market conditions.
Revenue may be positively affected by strong investment performance or improving
financial markets. Conversely, declining performance or deteriorating financial
markets may have an adverse effect on results of operations.
PNC BANK CORP.
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FINANCIAL REVIEW
BlackRock, one of the largest publicly traded investment management firms in the
United States, offers fixed income, domestic and international equity and
liquidity investment products and is focused on expanding marketing and delivery
channels for a wide range of institutional and retail customers.
In October 1999, BlackRock, Inc. issued 9 million shares of class A common
stock at $14.00 per share in an initial public offering with PNC Bank retaining
approximately 70% of BlackRock's stock. The proceeds from the offering were used
to retire a portion of BlackRock's revolving line of credit with the
Corporation. Management anticipates that this offering will assist BlackRock in
attracting and retaining the highest quality professionals and support its
long-term growth objectives.
BlackRock contributed 5% of total business earnings for the first nine months of
1999 compared with 3% a year ago. Earnings of $42 million for the first nine
months of 1999 nearly doubled compared with the prior-year period primarily due
to revenue growth resulting from new business. Advisory and administration fees
for the first nine months of 1999 increased $64 million or 32% compared with the
prior-year period primarily due to a 23% increase in assets under management and
higher performance fees. The increase in operating expense in the
period-to-period comparison supported revenue growth.
At September 30, 1999, BlackRock managed $148 billion of assets for individual
and institutional investors. Approximately 90% were invested in fixed
income and liquidity funds that historically have been less volatile than equity
funds.
BlackRock's proprietary mutual fund family, representing approximately $47
billion of total assets under management, provides individual and institutional
investors with a full range of equity, bond and money market investment
products.
BlackRock's revenue is affected by the volume of new business, the value of
assets managed, investment performance and financial market conditions. Revenue
may be positively affected by strong investment performance or improving
financial markets. Conversely, declining performance or deteriorating financial
markets may have an adverse effect on results of operations.
PNC BANK CORP.
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PFPC Worldwide ("PFPC"), the Corporation's global fund servicing operation,
provides a wide range of accounting, administration, transfer agency, custody,
securities lending and integrated banking transaction services to mutual funds,
pension and money fund managers, partnerships, brokerage firms, insurance
companies and banks. Continued growth of its Dublin, Ireland operation has
expanded PFPC's international presence. PFPC will continue to leverage its
technology platform, providing customized services for clients and promoting its
full service capabilities to the global funds marketplace.
In July 1999, the Corporation announced an agreement to acquire First Data
Investor Services Group ("ISG"), the mutual fund servicing subsidiary of First
Data Corp., for $1.1 billion in cash. ISG is one of the nation's leading
providers of processing services for pooled investment products, a high-growth
industry that includes mutual funds and retirement plans. ISG's integration with
PFPC is expected to create one of the nation's leading full-service transfer
agents, while significantly strengthening PFPC's position as a full-service
provider of accounting services. The transaction will also add key related
businesses, including retirement plan servicing, to PFPC's growing operations.
The transaction is expected to close in the fourth quarter of 1999, subject to
customary closing conditions.
PFPC contributed 4% of total business earnings for the first nine months of 1999
and 1998. Earnings increased $5 million or 17% to $34 million for the first nine
months of 1999 primarily due to revenue growth. Revenue increased $29 million or
21% to $170 million for the first nine months of 1999 driven by new business,
existing client growth and market appreciation. Operating expense increased in
the period-to-period comparison to support revenue growth and infrastructure
costs associated with business expansion.
At September 30, 1999, PFPC provided custody and accounting/administration
services for $353 billion and $246 billion, respectively, of mutual fund and
other pooled assets. The comparable amounts were $287 billion and $228 billion,
respectively, a year ago. The increase in custody and accounting/administration
assets serviced in the period-to-period comparison was 23% and 8%, respectively.
PFPC's revenue is affected by the number and value of customer accounts serviced
and financial market conditions. Revenue may be positively affected by
increasing customer account values or improving financial markets. Conversely,
declining customer account values or deteriorating financial markets may have an
adverse effect on results of operations.
PNC BANK CORP.
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FINANCIAL REVIEW
PNC Institutional Bank provides specialized credit, capital markets and treasury
management products and services to corporations, institutions and government
entities nationwide. The strategic focus for PNC Institutional Bank is to
further enhance shareholder value in a business that historically has been
capital intensive as a result of credit-related balance sheet activities. PNC
Institutional Bank is emphasizing relationships that utilize higher margin
noncredit products and services, especially treasury management and capital
markets, and is exiting certain businesses and relationships with limited
opportunity for satisfactory returns.
Consistent with this strategy, during the first quarter of 1999 PNC
Institutional Bank made the decision to exit certain out-of-footprint large
corporate, national healthcare and other non-strategic institutional lending
businesses. The operating results for these activities are excluded from
business results in both periods.
PNC Institutional Bank contributed 9% of total business earnings for the first
nine months of 1999 compared with 8% in the prior-year period. Earnings of $84
million for the first nine months of 1999 increased $26 million or 45% compared
with the prior-year period due to higher revenue and a lower provision for
credit losses.
Total revenue of $313 million for the first nine months of 1999 increased $33
million or 12% compared with the first nine months of 1998. Credit-related
revenue primarily represents net interest income from loans and increased 9% in
the period-to-period comparison driven by higher loan outstandings. Noncredit
revenue, which includes noninterest income and the benefit of compensating
balances in lieu of fees, increased $22 million or 14% compared with the prior
year primarily driven by growth in treasury management. The higher provision for
credit losses in 1998 related to exposure to a single healthcare relationship.
Treasury management and capital markets products offered through PNC
Institutional Bank are sold by several businesses across the Corporation and
related revenue is included in the results of those businesses. Total
consolidated revenue from treasury management was $194 million for the first
nine months of 1999, a 13% increase compared with the first nine months of 1998.
Total consolidated revenue from capital markets was $75 million for the first
nine months of 1999, a 16% increase compared with the prior-year period.
PNC Institutional Bank engages in credit and capital markets activities, which
are impacted by economic and financial market conditions. Accordingly, changes
in the economy or financial markets could impact asset quality and results of
operations.
PNC BANK CORP.
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PNC Secured Finance, serving corporate clients nationwide, is engaged in
commercial real estate finance, including loan origination, securitization and
servicing; asset-based financing, including lending, syndication and treasury
management services; and equipment lease financing.
During the second quarter of 1998, PNC Secured Finance acquired Midland Loan
Services, L.P. ("Midland"), one of the nation's largest servicers of commercial
mortgages. This acquisition, along with several other investments made by PNC
Secured Finance in 1998, reflects its continuing strategy to increase
noninterest income and expand nationally.
PNC Secured Finance contributed 9% of total business earnings for the first nine
months of 1999 compared with 7% in the prior-year period. Earnings increased 52%
to $79 million for the first nine months of 1999 driven by higher revenue.
Net interest income increased $26 million or 22% to $146 million for the first
nine months of 1999 compared with the prior-year period driven by higher average
loans resulting from the strategic expansion of asset-based and equipment lease
financing as well as an increase in outstandings to existing customers.
Noninterest income increased $51 million to $78 million for the first nine
months of 1999 primarily due to commercial mortgage banking revenue from Midland
and the comparative impact of valuation adjustments recorded in 1998.
The increase in the provision for credit losses was primarily due to the
comparative impact of net recoveries in 1998.
At September 30, 1999, the commercial mortgage servicing portfolio totaled $43
billion compared with $32 billion at September 30, 1998, substantially all of
which is serviced for others.
PNC Secured Finance engages in credit and capital markets activities, which are
impacted by economic and financial market conditions. Accordingly, changes in
the economy or financial markets could impact asset quality and results of
operations.
PNC BANK CORP.
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FINANCIAL REVIEW
PNC Mortgage originates, purchases and services residential mortgages and
related products. PNC Mortgage also acquires and securitizes residential
mortgages as private-label mortgage-backed securities and performs the master
servicing of those securities for investors. At September 30, 1999, PNC Mortgage
was the nation's twelfth largest servicer and fourteenth largest originator of
residential mortgages.
PNC Mortgage contributed 5% of total business earnings for the first nine months
of 1999 compared with 3% in the first nine months of 1998. Earnings nearly
doubled to $45 million for the first nine months of 1999 primarily due to higher
servicing volumes. Net mortgage banking revenue and operating expense increased
in the comparison as a result of a larger servicing portfolio. The efficiency
ratio improved significantly as PNC Mortgage continued to leverage its
technology platform and servicing capabilities.
During 1999, PNC Mortgage funded $16 billion of residential mortgages, with 37%
consisting of retail originations. The comparable amounts were $15 billion and
36%, respectively, in the first nine months of 1998. Production volume for the
first nine months of 1999 consisted of $6 billion of originated loans and $10
billion of mortgages acquired through correspondent and contractual flow
agreements. The corresponding amounts for the first nine months of 1998 were $5
billion and $10 billion, respectively.
At September 30, 1999, the residential mortgage servicing portfolio totaled $73
billion and had a weighted-average coupon of 7.50%. In addition, the master
servicing portfolio grew 77% in the comparison to $34 billion at September 30,
1999. Capitalized residential MSR totaled $1.5 billion at September 30, 1999 and
had an estimated fair value of $1.7 billion.
Securities available for sale increased $1.7 billion for the first nine months
of 1999 compared with the prior-year period and are utilized as part of PNC
Mortgage's risk management strategies.
For the first nine months of 1999 PNC Mortgage securitized $9 billion of loans
and was the nation's fourth largest private mortgage conduit.
The value of MSR and related amortization are affected by changes in interest
rates. If interest rates decline and the rate of prepayments increases, the
underlying servicing fees and related MSR value also would decline. In a period
of rising interest rates, a converse relationship would exist. PNC Mortgage
seeks to manage this risk by using financial instruments as hedges designed to
move in the opposite direction of MSR value changes. Changes in interest rates
also can affect the level of mortgage originations that generally decline as
interest rates increase and increase as interest rates decline.
PNC BANK CORP.
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CONSOLIDATED INCOME STATEMENT REVIEW
NET INTEREST INCOME Changes in net interest income and margin result from the
interaction between the volume and composition of earning assets, related yields
and associated funding costs. Accordingly, portfolio size, composition and
related yields earned and funding costs can have a significant impact on net
interest income and margin.
Taxable-equivalent net interest income was $1.875 billion for the first nine
months of 1999, a $59 million decrease compared with the first nine months of
1998. The net interest margin was 3.70% for the first nine months of 1999
compared with 3.86% in the prior-year period. These declines were primarily due
to the sale of the credit card business in the first quarter of 1999. Excluding
the credit card business, net interest income was $1.809 billion for the first
nine months of 1999, an increase of $113 million or 7% compared with the first
nine months of 1998, and the net interest margin was 3.62% and 3.60% in 1999 and
1998, respectively.
Average loans for the first nine months of 1999 were $1.5 billion lower than the
prior-year period as growth in commercial and other loans were more than offset
by lower credit card and indirect auto loans. Loans represented 80% of average
earning assets for the first nine months of 1999 compared with 83% for the
prior-year period. Average loans held for sale increased $0.8 billion in the
period-to-period comparison, reflecting the decision in the first quarter of
1999 to exit certain institutional lending businesses.
Average securities available for sale increased to $8.7 billion compared with
$7.4 billion in the prior-year period and represented 13% of average earning
assets for the first nine months of 1999 compared with 11% a year ago. The
increase was primarily due to securities purchased as part of PNC Mortgage's
risk management strategies.
PNC BANK CORP.
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FINANCIAL REVIEW
Funding cost is affected by the composition of funding sources as well as
related rates paid thereon. Average deposits comprised 61% and 60% of total
sources of funds for the first nine months of 1999 and 1998, respectively, with
the remainder primarily comprised of wholesale funding obtained at prevailing
market rates. Average demand and money market deposits increased $3.1 billion or
21% to $17.5 billion for the first nine months of 1999 primarily reflecting a
shift from certificates and savings accounts as well as overall deposit growth.
PROVISION FOR CREDIT LOSSES The provision for credit losses was $133 million in
the first nine months of 1999 compared with $110 million in the prior-year
period. Net charge-offs were $131 million or .33% of average loans for the first
nine months of 1999 compared with $267 million or .65%, respectively, for the
first nine months of 1998. The decreases were due to the sale of the credit card
business in the first quarter of 1999.
NONINTEREST INCOME Noninterest income was $2.046 billion for the first nine
months of 1999, a 28% increase compared with the first nine months of 1998.
Excluding gains and valuation adjustments in both years, noninterest income
increased 18% in the period-to-period comparison primarily due to growth in
fee-based revenue. Noninterest income for the first nine months of 1999 included
$358 million of gains on the sales of PNC Bank's credit card business, an equity
interest in EPS, Concord stock and twelve branches in western Pennsylvania.
The first nine months of 1999 also included $142 million of valuation
adjustments associated with exiting certain institutional lending businesses.
Noninterest income for the first nine months of 1998 included $86 million of
branch gains and $30 million of valuation adjustments.
Asset management fees grew 20%, primarily reflecting new business. Assets under
management increased to approximately $193 billion at September 30, 1999,
compared with $152 billion at September 30, 1998. Mutual fund servicing fees
grew 19% compared with the first nine months of 1998 due to new business,
existing client growth and market appreciation. At September 30, 1999, PFPC
Worldwide provided custody and accounting/administration services for $353
billion and $246 billion, respectively, of mutual fund and other pooled assets.
The comparable amounts were $287 billion and $228 billion, respectively, a year
ago.
Consumer services revenue increased $67 million or 25% compared with the first
nine months of 1998 primarily due to an increase in brokerage accounts
associated with the Hilliard Lyons acquisition. The decrease in corporate
services revenue primarily reflected the impact of the valuation adjustments in
1999 associated with the exited portfolios. Excluding valuation adjustments in
both periods, corporate services revenue increased 29% compared with the
prior-year period primarily due to growth in commercial mortgage banking,
capital markets and treasury management fees.
Net residential mortgage banking revenue grew $50 million or 32% compared with
the prior-year period primarily due to a larger servicing portfolio. Residential
mortgage production volume, including both retail and correspondent activity,
totaled $16 billion for the first nine months of 1999 compared with $15 billion
in the prior-year period. At September 30, 1999, approximately $73 billion of
residential mortgages were serviced compared with $60 billion at September 30,
1998.
Net securities gains were $44 million in the first nine months of 1999,
primarily relating to the gain from the sale of Concord stock.
Other noninterest income increased $238 million in the period-to-period
comparison primarily due to the credit card, EPS and branch gains in the first
nine months of 1999, partially offset by the impact of $86 million of branch
gains recorded in the first nine months of 1998.
PNC BANK CORP.
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NONINTEREST EXPENSE Noninterest expense was $2.314 billion for the first nine
months of 1999, an 8% increase compared with the first nine months of 1998. On a
comparable basis, noninterest expense increased 5%, excluding costs related to
efficiency initiatives in both years and a contribution to the PNC Bank
Foundation in 1999. The increase was commensurate with revenue growth in
fee-based businesses. The efficiency ratio improved to 53.78% compared with
55.50% in the prior year due to a continued focus on improving returns in
traditional businesses. Average full-time equivalent employees totaled
approximately 25,700 in the first nine months of 1999 compared with 25,300 a
year ago, an increase of 2% mainly due to acquisitions.
CONSOLIDATED BALANCE SHEET REVIEW
LOANS Loans outstanding decreased $6.3 billion from year-end 1998 to $51.4
billion at September 30, 1999 primarily due to the impact of strategies designed
to downsize certain portfolios. During 1999, the Corporation sold the credit
card business, exited certain institutional lending businesses, decided to sell
education loans in repayment and downsize the indirect auto portfolio. Total
exposure and outstandings related to the exited institutional lending
businesses were $4.2 billion and $1.2 billion, respectively, at September 30,
1999. Total outstandings in exited portfolios decreased approximately 40% since
March 31, 1999.
Loan portfolio composition continued to be geographically diversified among
numerous industries and types of businesses.
Commitments to extend credit represent arrangements to lend funds provided there
is no violation of specified contractual conditions. The decrease in commitments
to extend credit was the result of the sale of the credit card business and the
decision to exit certain institutional lending businesses. Commercial
commitments are reported net of participations, assignments and syndications
totaling $6.1 billion at September 30, 1999 and $5.9 billion at December 31,
1998.
Net outstanding letters of credit totaled $4.4 billion and $4.7 billion at
September 30, 1999 and December 31, 1998, respectively, and consisted primarily
of standby letters of credit that commit the Corporation to make payments on
behalf of customers when certain specified future events occur.
PNC BANK CORP.
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FINANCIAL REVIEW
SECURITIES AVAILABLE FOR SALE The securities portfolio increased $1.0 billion
from December 31, 1998 to $8.1 billion at September 30, 1999 primarily due to
securities purchased as part of PNC Mortgage's risk management strategies. The
expected weighted-average life of the securities portfolio increased to 5 years
and 7 months at September 30, 1999 compared with 5 years and 3 months at
year-end 1998.
Securities available for sale may be sold as part of the overall asset and
liability management process. Realized gains and losses are reflected in results
of operations. Unrealized gains and losses are reflected in accumulated other
comprehensive loss.
The notional value of financial derivatives designated to securities available
for sale was $222 million at September 30, 1999. The negative fair value of such
derivatives was $200 thousand at September 30, 1999. There were no derivatives
designated to securities available for sale at December 31, 1998.
FUNDING SOURCES Total funding sources were $64.0 billion at September 30, 1999,
a decrease of $4.4 billion compared with December 31, 1998, primarily resulting
from reduced funding related to the credit card business that was sold in the
first quarter of 1999. The decrease in the first nine months of 1999 was
primarily in time deposits and bank notes and senior debt partially offset by an
increase in foreign deposits. Through September 30, 1999, the Corporation issued
$250 million of 6 1/8% subordinated notes, $300 million of 6.95% notes and $300
million of 7.00% notes. In October 1999, the Corporation issued $400 million of
7.50% subordinated notes.
CAPITAL The access to and cost of funding new business initiatives including
acquisitions, ability to pay dividends, deposit insurance costs, and the level
and nature of regulatory oversight depend, in large part, on a financial
institution's capital strength. At September 30, 1999, the Corporation and each
bank subsidiary were considered well capitalized based on regulatory capital
ratio requirements.
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.
The $250 million of 6 1/8% subordinated notes and $400 million of 7.50%
subordinated notes both qualify as Tier II risk-based capital.
During the first nine months of 1999, PNC Bank repurchased 11.1 million shares
of common stock. On February 18, 1999, the Board of Directors authorized the
Corporation to purchase up to 15 million shares of common stock through February
29, 2000. Approximately 7.8 million shares remain under this authorization.
PNC BANK CORP.
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RISK MANAGEMENT
In the normal course of business, the Corporation assumes various types of risk,
the most significant of which are credit, liquidity, interest rate and market
risk. To manage these risks, PNC Bank has risk management processes designed to
provide for risk identification, measurement, monitoring and control.
CREDIT RISK Credit risk represents the possibility that a borrower or counter
party may not perform in accordance with contractual terms. Credit risk is
inherent in the financial services business and results from extending credit to
customers, purchasing securities and entering into off-balance-sheet financial
derivative transactions. The Corporation seeks to manage credit risk through,
among others, diversification, limiting exposure to any single industry or
customer, requiring collateral or selling participations to third parties and
purchasing credit-related derivatives.
The amount of nonperforming loans that were current as to principal and interest
was $37 million at September 30, 1999 and $28 million at December 31, 1998.
There were no troubled debt restructured loans outstanding as of either period
end.
At September 30, 1999, education loans in repayment were reclassified to loans
held for sale.
ALLOWANCE FOR CREDIT LOSSES In determining the adequacy of the allowance for
credit losses, the Corporation makes allocations to specific problem commercial,
commercial real estate and other loans based on discounted cash flow analyses or
collateral valuations for impaired loans and to pools of watchlist and
nonwatchlist loans for various credit risk factors. Allocations to loan pools
are developed by business segment and risk rating and are based on historical
loss trends and management's judgment concerning those trends and other relevant
factors. Those factors may include, among others, actual versus estimated
losses, current regional and national economic conditions, business segment and
portfolio concentrations, industry competition and consolidation, and the impact
of government regulations. Consumer and residential mortgage loan allocations
are made at a total portfolio level based on historical loss experience adjusted
for portfolio activity and current economic conditions.
While PNC Bank's commercial, commercial real estate and consumer pool reserve
methodologies strive to reflect all risk factors, there continues to be a
certain element of risk associated with, but not limited to, potential
estimation or judgmental errors. Unallocated reserves are designed to provide
coverage for such risks. While allocations are made to specific loans and pools
of loans, the total reserve is available for all credit losses.
Senior management's Reserve Adequacy Committee provides oversight for the
allowance evaluation process including quarterly evaluations, and methodology
and estimation changes. The results of the evaluations are reported to the
Credit Committee of the Board of Directors.
PNC BANK CORP.
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16
Financial Review
The increase in the provision for credit losses in the first nine months of 1999
and the evaluation of the allowance for credit losses as of September 30, 1999
reflected changes in loan portfolio composition, changes in asset quality, the
impact of selling the credit card business and the decision to exit certain
institutional lending businesses. The unallocated portion of the allowance for
credit losses represented 19% of the total allowance and .25% of total loans at
September 30, 1999, compared with 22% and .29%, respectively, at December 31,
1998.
The allowance as a percent of nonaccrual loans and period-end loans was 215% and
1.31%, respectively, at September 30, 1999. The comparable year-end 1998 amounts
were 255% and 1.31%, respectively.
The actual level of net charge-offs and the provision for credit losses in
future periods can be affected by many business and economic factors and may
differ from current or historical experience.
LIQUIDITY RISK Liquidity represents the Corporation's ability to obtain
cost-effective funding to meet the needs of customers, as well as the
Corporation's financial obligations. Liquidity is centrally managed by Asset and
Liability Management, with oversight provided by the Corporate Asset and
Liability Committee and the Finance Committee of the Board of Directors.
Access to capital markets funding sources is a key factor affecting liquidity
management. Access to such markets is in part based on the Corporation's credit
ratings, which are influenced by a number of factors including capital ratios,
credit quality, and earnings. Additional factors that impact liquidity include
the maturity structure of existing assets and liabilities, the level of liquid
investment securities and loans available for sale and the Corporation's ability
to securitize various types of loans.
Liquidity risk management includes consideration of the Corporation's
contractual asset and liability maturities, as well as off-balance sheet
positions. This is complemented by an assessment of additional anticipated
funding requirements. Based upon these factors, the Corporation seeks to manage
its deposits and wholesale funding sources to provide a diversified mix of
products and maturities designed to produce the desired level of liquidity.
Liquidity can also be provided through sale of liquid assets and alternative
forms of borrowing. Liquid assets consist of short term investments, loans held
for sale and securities available for sale. At September 30, 1999, such assets
totaled $13 billion with $3.9 billion pledged as collateral for borrowing, trust
and other commitments. Funding can also be obtained through secured advances
from the Federal Home Loan Bank ("FHLB") system, of which PNC Bank is a member.
These borrowings are generally secured by residential mortgages. At September
30, 1999, approximately $4.9 billion of residential mortgages were available as
collateral for borrowings from the FHLB.
PNC BANK CORP.
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In order to prepare for potential liquidity needs related to the century change
event, Asset and Liability Management has implemented a plan designed to provide
the Corporation with a greater degree of liquidity flexibility in the fourth
quarter of 1999. Key aspects of this plan include a reduced amount of wholesale
debt maturing in the fourth quarter of 1999, as well as a significant increase
in the amount of collateral identified and available to support securitized
alternative borrowings. At September 30, 1999, the Corporation had over $13
billion of loans available to support borrowings from the FHLB system or the
Federal Reserve's special liquidity facility ("SLF"). The SLF was put into place
by the Federal Reserve in August, 1999 to provide member banks with an
additional funding source to meet year-end 1999 liquidity requirements.
Liquidity for the parent company and subsidiaries is also generated through the
issuance of securities in public or private markets and lines of credit and
through asset securitizations and sales. During the first nine months of 1999,
the Corporation issued $850 million of senior and subordinated debt. In October
1999, the Corporation issued $400 million of subordinated debt reducing the
unused capacity under effective shelf registration statements to approximately
$1.5 billion of debt and equity securities and $400 million of trust preferred
capital securities. In addition, the Corporation has an unused line of credit of
$500 million.
The principal source of parent company revenue and cash flow is dividends from
subsidiary banks. PNC Bancorp, Inc. is a wholly-owned subsidiary of the parent
company and is the holding company for all bank subsidiaries. There are legal
limitations on the ability of bank subsidiaries to pay dividends and make other
distributions to PNC Bancorp, Inc. and in turn the parent company. Without
regulatory approval, the amount available for dividend payments to PNC Bancorp,
Inc. by all bank subsidiaries was $586 million at September 30, 1999. Dividends
may also be impacted by capital needs, regulatory requirements, corporate
policies, contractual restrictions and other factors.
Management believes the Corporation has sufficient liquidity to meet current
obligations to borrowers, depositors, debt holders and others. The impact of
replacing maturing liabilities is reflected in the income simulation model in
the overall asset and liability management process.
INTEREST RATE RISK Interest rate risk arises primarily through the Corporation's
traditional business activities of extending loans and accepting deposits. Many
factors, including economic and financial conditions, movements in market
interest rates and consumer preferences, affect the spread between interest
earned on assets and interest paid on liabilities. In managing interest rate
risk, the Corporation seeks to minimize its reliance on a particular interest
rate scenario as a source of earnings, while maximizing net interest income and
net interest margin. To achieve these objectives, the Corporation uses
securities purchases and sales, long-term and short-term funding, financial
derivatives and other capital markets instruments.
Interest rate risk is centrally managed by Asset and Liability Management. The
Corporation actively measures and monitors components of interest rate risk
including term structure or repricing risk, yield curve or nonparallel rate
shift risk, basis risk and options risk. Senior management's Corporate Asset and
Liability Committee provides strategic direction to Asset and Liability
Management and, in doing so, reviews capital markets activities and interest
rate risk exposures. The Finance Committee of the Board of Directors is
responsible for overseeing the Corporation's interest rate risk management
process.
The Corporation measures and manages both the short-term and long-term effects
of changing interest rates. An income simulation model is used to measure the
sensitivity of net interest income to changing interest rates over the next
twenty-four month period. An economic value of equity model is used to measure
the sensitivity of the value of existing on-balance-sheet and off-balance-sheet
positions to changing interest rates.
The income simulation model is the primary tool used to measure the direction
and magnitude of changes in net interest income resulting from changes in
interest rates. Forecasting net interest income and its sensitivity to changes
in interest rates requires that the Corporation make assumptions about the
volume and characteristics of new business and the behavior of existing
positions. These business assumptions are based on the Corporation's experience,
business plans and published industry experience. Key assumptions employed in
the model include prepayment speeds on mortgage-related assets and consumer
loans, loan volumes and pricing, deposit volumes and pricing, the expected life
and repricing characteristics of nonmaturity loans and deposits, and
management's financial and capital plans.
PNC BANK CORP.
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FINANCIAL REVIEW
Because these assumptions are inherently uncertain, the model cannot precisely
estimate net interest income or precisely predict the effect of higher or lower
interest rates on net interest income. Actual results will differ from simulated
results due to the timing, magnitude and frequency of interest rate changes, the
difference between actual experience and the assumed volume and characteristics
of new business and behavior of existing positions, and changes in market
conditions and management strategies, among other factors.
The Corporation's interest rate risk management policies provide that net
interest income should not decrease by more than 3% if interest rates gradually
increase or decrease from current rates by 100 basis points over a twelve-month
period. At September 30, 1999, if interest rates were to gradually increase by
100 basis points over the next twelve months, the model indicates that net
interest income would decrease by 0.9%. If interest rates were to gradually
decrease by 100 basis points over the next twelve months, the model indicates
that net interest income would increase by 1.2%.
The Corporation models additional interest rate scenarios covering a wider range
of rate movements to identify yield curve, term structure and basis risk
exposures. These scenarios are developed based on historical rate relationships
or management's expectations regarding the future direction and level of
interest rates. Depending on market conditions and other factors, these
scenarios may be modeled more or less frequently. Such analyses are used in
conjunction with the net interest income simulation model and economic value of
equity model to identify inherent risk and develop appropriate strategies.
The Corporation measures the sensitivity of the value of its on-balance-sheet
and off-balance-sheet positions to movements in interest rates using an economic
value of equity model. The model computes the value of all current
on-balance-sheet and off-balance-sheet positions under a range of instantaneous
interest rate changes. The resulting change in the value of equity is the
measure of overall long-term interest rate risk inherent in the Corporation's
existing on-balance-sheet and off-balance-sheet positions. The Corporation uses
the economic value of equity model to complement the net interest income
simulation modeling process.
The Corporation's risk management policies provide that the change in economic
value of equity should not decline by more than 1.5% of the book value of assets
for a 200 basis point instantaneous increase or decrease in interest rates.
Based on the results of the economic value of equity model at September 30,
1999, if interest rates were to instantaneously increase by 200 basis points,
the economic value of existing on-balance-sheet and off-balance-sheet positions
would decline by 1.02% of assets. If interest rates were to instantaneously
decrease by 200 basis points, the economic value of existing on-balance-sheet
and off-balance-sheet positions would increase by .24% of assets.
MARKET RISK Most of PNC Bank's trading activities are designed to provide
capital markets services for customers of PNC Institutional Bank, PNC Secured
Finance, and PNC Advisors. The performance of PNC Bank's trading operations is
predominantly based on providing services to customers and not on positioning
the Corporation's portfolio for gains from market movements.
Market risk associated with trading, capital markets and foreign exchange
activities is managed using a value-at-risk approach that combines interest rate
risk, foreign exchange rate risk, spread risk and volatility risk. Exposure is
measured as the potential loss due to a two standard deviation, one-day move.
The combined period-end value-at-risk of all trading operations using this
measurement was less than $700 thousand at September 30, 1999.
PNC BANK CORP.
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FINANCIAL DERIVATIVES
A variety of off-balance-sheet financial derivatives are used as part of the
overall risk management process to manage interest rate, market and credit risk
inherent in the Corporation's business activities. Interest rate swaps and
purchased interest rate caps and floors are the primary instruments used for
interest rate risk management. Interest rate swaps are agreements to exchange
fixed and floating interest rate payments calculated on a notional principal
amount. The floating rate is based on a money market index, primarily short-term
LIBOR indices. Purchased interest rate caps and floors are agreements where, for
a fee, the counterparty agrees to pay the Corporation the amount, if any, by
which a specified market interest rate exceeds or is less than a defined rate
applied to a notional amount, respectively.
Forward contracts provide for the delivery of financial instruments at a
specified future date and at a specified price or yield. Such contracts are
primarily used to manage risk positions associated with certain mortgage banking
activities.
Credit-related derivatives provide, for a fee, an assumption of a portion of the
credit risk associated with the underlying financial instruments. Such contracts
are primarily used to manage credit risk and regulatory capital associated with
commercial lending activities.
Financial derivatives involve, to varying degrees, interest rate, market and
credit risk in excess of the amount on the balance sheet, but less than the
notional amount of the contract. For interest rate swaps, caps and floors, only
periodic cash payments and, with respect to caps and floors, premiums, are
exchanged. Therefore, cash requirements and exposure to credit risk are
significantly less than the notional value.
During the first nine months of 1999, financial derivatives used in interest
rate risk management increased net interest income by $44 million compared with
a $9 million increase in the prior-year period.
The following table sets forth changes in the notional value of
off-balance-sheet financial derivatives used for risk management during the
first nine months of 1999.
PNC BANK CORP.
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The following table sets forth, by designated assets and liabilities, the
notional value and the estimated fair value of financial derivatives used for
risk management. Weighted-average interest rates presented are those expected to
be in effect based on the implied forward yield curve at September 30, 1999.
(1) The floating rate portion of interest rate contracts is based on
money-market indices. As a percent of notional value, 29% were based on
1-month LIBOR, 68% on 3-month LIBOR and the remainder on other short-term
indices.
(2) Interest rate caps with notional values of $166 million, $156 million and
$213 million require the counterparty to pay the excess, if any, of 3-month
LIBOR over a weighted-average strike of 6.18%, 1-month LIBOR over a
weighted-average strike of 5.74% and Prime over a weighted-average strike
of 8.76%, respectively. At September 30, 1999, 3-month LIBOR was 6.08%,
1-month LIBOR was 5.40% and Prime was 8.25%.
(3) Interest rate floors with notional values of $3.0 billion, $3.3 billion and
$3.2 billion require the counterparty to pay the Corporation the excess, if
any, of the weighted-average strike of 4.63% over 3-month LIBOR, the
weighted-average strike of 5.01% over 10-year CMT and the weighted-average
strike of 4.99% over 10-year CMS, respectively. At September 30, 1999,
3-month LIBOR was 6.08%, 10-year CMT was 5.90% and 10-year CMS was 6.90%.
NM - Not meaningful
OTHER DERIVATIVES To accommodate customer needs, PNC Bank enters into
customer-related financial derivative transactions primarily consisting of
interest rate swaps, caps, floors and foreign exchange contracts. Risk exposure
from customer positions is managed through transactions with other dealers.
Additionally, the Corporation enters into other derivative transactions for risk
management purposes. These positions are recorded at estimated fair value and
changes in value are included in results of operations.
PNC BANK CORP.
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YEAR 2000 READINESS
The Corporation has been working since 1995 to prepare its computer systems and
applications to meet the year 2000 challenge. This process involves reviewing,
modifying and replacing existing hardware, software and embedded chip technology
systems, as necessary. The Corporation is also assessing the year 2000
preparedness of third parties such as vendors, customers, governmental entities
and others.
As of September 30, 1999, the Corporation's MIS-supported mainframe, mid-range
and PC client-server systems have been tested and returned to use as year 2000
ready and non-PC related hardware and systems have been tested and determined to
be year 2000 ready.
The Corporation has completed its organization-wide assessment of year 2000
issues relating to its identified mission critical embedded chip systems and
continues to review and monitor these systems as necessary. No significant
problems have been identified to date with respect to these systems.
The Corporation has completed its assessment of the year 2000 preparedness of
its identified mission critical service providers and continues to review and
monitor them. The Corporation has not to date identified any material problems
associated with its mission critical service providers. However, the Corporation
can make no guarantee as to the year 2000 readiness of any such service provider
or other third party.
The year 2000 issue may have an adverse impact on the operations and financial
condition of the Corporation's borrowers. PNC Bank periodically compiles and
updates year 2000 profiles for certain of its largest lending relationships for
the purpose of assessing their overall risks. Determination of these risks is
based on an assessment of the borrowers' vulnerability to year 2000 issues,
resources and capacity, adequacy of year 2000 readiness plans, remediation costs
and state of remediation. This information is compiled and analyzed periodically
to determine the possible year 2000 impact on the loan portfolio and allowance
for credit losses. Based on the Corporation's current assessment of the
information it has received to date, management believes the year 2000 issue
will not have a material adverse impact on the quality of the loan portfolio.
The Corporation will continue to review and assess the year 2000 preparedness of
its borrowers during 1999.
PNC Bank has conducted integrated testing to determine whether its mission
critical application systems will perform in coordination with one another. The
Corporation has also conducted testing with certain mission critical vendors
that provide systems-related services. Such testing has not identified any
significant problem that would have a material adverse impact on the
Corporation.
The estimated total cumulative cost to become year 2000 ready, which is being
expensed as incurred, is approximately $25 million. Through September 30, 1999,
on a cumulative basis, the Corporation had expensed approximately $23 million
related to the year 2000 effort. Expenses incurred for year 2000 readiness
efforts are not expected to exceed 2% of technology-related expenses in 1999. No
significant outlays have been made to replace existing systems solely for year
2000 reasons. The costs and the timetable in which the Corporation plans to
complete its year 2000 readiness activities are based on management's best
estimates, which were derived using numerous assumptions of future events
including the continued availability of certain resources, third party
preparedness and other factors. The Corporation can make no guarantee that these
estimates will be achieved, and actual results could differ from such plans.
Contingency plans for year 2000 issues have been and will continue to be
developed and the Corporation will continue to review contingency plans during
1999 and modify them when necessary or appropriate. Certain critical service
provider and systems contingency plans will be tested during 1999. The
Corporation's business continuity plans continue to be reviewed and strengthened
to address year 2000 implications.
PNC Bank's year 2000 remediation efforts and contingency plans are also subject
to oversight and regulation by certain federal bank regulatory authorities.
It is not possible to predict with certainty all of the adverse effects that
could result from a failure of the Corporation or of third parties to become
fully year 2000 ready or whether such effects could have a material adverse
impact on the Corporation. However, if the Corporation were to fail to correct
internal year 2000 problems, if one or more third parties were unable to provide
services required by the Corporation due to year 2000 issues, or if the
Corporation's contingency plans fail to mitigate any such problems, a disruption
of operations could occur, resulting in increased operating costs, loss of
revenues and other material adverse effects. Such disruptions could include a
temporary inability to process transactions and delays in providing services.
The Corporation could also be subject to liquidity risk in the event of deposit
withdrawals due to year 2000 concerns, or if its lenders cannot provide funds
due to year 2000 issues. In addition, to the extent that customers' financial
positions are weakened due to year 2000 issues, credit quality could be
adversely affected.
PNC BANK CORP.
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FINANCIAL REVIEW
THIRD QUARTER 1999 VS. THIRD QUARTER 1998
Net income for the third quarter of 1999 totaled $320 million or $1.06 per
diluted share. Results included a $17 million net after-tax gain or $.06 per
diluted share resulting from the sale of twelve branches in western
Pennsylvania. Core earnings for the quarter were $303 million or $1.00 per
diluted share and, on that basis, return on average common shareholders' equity
was 21.81% and return on average assets was 1.63%. Earnings for the third
quarter of 1998 were $281 million or $0.91 per diluted share. Return on average
common shareholders' equity was 20.52% and return on average assets was 1.48% in
the third quarter of 1998.
Taxable-equivalent net interest income was $599 million in the third quarter of
1999, a $54 million decrease compared with the prior-year quarter. The net
interest margin was 3.59% for the third quarter of 1999 compared with 3.81% in
the third quarter of 1998. These declines were primarily due to the sale of the
credit card business in the first quarter of 1999. Excluding the credit card
business from the third quarter of 1998, net interest income for the third
quarter of 1999 increased 5% and the net interest margin widened six basis
points compared with the prior-year period.
The provision for credit losses was $30 million in the third quarter of 1999 and
net charge-offs were $29 million compared with $45 million and $88 million,
respectively, in the prior-year period.
Noninterest income was $651 million in the third quarter of 1999, a 23% increase
compared with the third quarter of 1998. Excluding branch gains in both years
and valuation adjustments in 1998, noninterest income for the third quarter of
1999 increased 18% compared with the prior-year quarter driven by growth in
fee-based revenue. Noninterest income in the third quarter of 1999 included $27
million of pretax gains from branch sales. Noninterest income in the third
quarter of 1998 included $30 million of pretax gains from branch sales that were
offset by valuation adjustments.
Asset management fees grew 22% compared with the third quarter of 1998 primarily
reflecting new business. Mutual fund servicing fees grew 17% compared with the
prior-year quarter due to new business, existing client growth and market
appreciation.
Consumer services revenue of $105 million for the third quarter of 1999
increased 7% compared with the third quarter of 1998 primarily due to an
increase in brokerage fees associated with the Hilliard Lyons acquisition that
was substantially offset by lower credit card fees.
Corporate services revenue increased $30 million compared with the prior-year
due to higher capital markets and treasury management fees and the comparative
impact of valuation adjustments recorded in 1998.
Net residential mortgage banking revenue grew $28 million or 60% compared with
the prior-year quarter primarily due to growth in the servicing portfolio.
Residential mortgage originations, including both retail and correspondent
activity, totaled $4 billion compared with $7 billion in the prior-year period.
Net securities gains were $2 million in the third quarter of 1999. Excluding the
branch gains in both periods, other noninterest income increased $19 million
compared with the third quarter of 1998 due to various operating items.
Noninterest expense of $724 million increased 4% compared with the third quarter
of 1998 primarily to support growth in fee-based businesses. The efficiency
ratio of 53.3% for the third quarter of 1999 remained consistent with the
prior-year quarter reflecting a continued focus on improving returns in
traditional businesses.
PNC BANK CORP.
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Total assets were $73.0 billion at September 30, 1999. Average earning assets
decreased $2 billion to $66 billion for the third quarter of 1999 compared with
the prior-year quarter at $68 billion. The decrease was primarily due to a $4.2
billion decrease in average loans in the period-to-period comparison that
resulted from the sale of the credit card business and the decision to exit
certain institutional lending businesses. Loans represented 78% of average
earning assets in the third quarter of 1999 compared with 82% a year ago.
Partially offsetting the decrease in average loans was a $1.7 billion increase
in average securities available for sale that was attributable to securities
held to hedge residential mortgage servicing rights. Average securities
available for sale represented 13% and 10% of average earning assets in the
third quarter of 1999 and 1998, respectively.
Average deposits were $44.9 billion and represented 61% of total sources of
funds for the third quarter of 1999 compared with $44.5 billion and 59%,
respectively, in the third quarter of 1998. The increase in average deposits was
primarily in consumer deposits. Average borrowed funds decreased $2.4 billion to
$20.2 billion compared with the third quarter of 1998.
Overall asset quality characteristics remained relatively stable during the
third quarter of 1999. The ratio of nonperforming assets to total loans, loans
held for sale and foreclosed assets was .65% at September 30, 1999 compared with
.54% at September 30, 1998. Nonperforming assets were $361 million at September
30, 1999 compared with $329 million at September 30, 1998.
The allowance for credit losses was $674 million and represented 1.31% of
period-end loans and 215% of nonaccrual loans at September 30, 1999. The
comparable amounts were 1.44% and 289%, respectively, at September 30, 1998. Net
charge-offs were $29 million or .22% of average loans for the third quarter of
1999 compared with $88 million or .62% in the third quarter of 1998. The
decrease was due to the sale of the credit card business in the first quarter of
1999.
PNC BANK CORP.
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Consolidated Statement of Income
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP.
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Consolidated Balance Sheet
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP.
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26
Consolidated Statement of Cash Flows
See accompanying Notes to Consolidated Financial Statements.
PNC BANK CORP.
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Notes to Consolidated Financial Statements
BUSINESS PNC Bank Corp. ("Corporation" or "PNC Bank") is one of the largest
diversified financial services companies in the United States operating retail
banking, asset management and wholesale banking businesses that provide
financial products and services nationally and in PNC Bank's primary geographic
markets in Pennsylvania, New Jersey, Delaware, Ohio and Kentucky. PNC Bank is
subject to intense competition from other financial services companies with
respect to these businesses and is subject to the regulations of certain federal
and state agencies and undergoes periodic examinations by those authorities.
ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION The unaudited consolidated interim
financial statements include the accounts of PNC Bank and its subsidiaries, most
of which are wholly owned. Such statements have been prepared in accordance with
generally accepted accounting principles. All significant intercompany accounts
and transactions have been eliminated.
In the opinion of management, the financial statements reflect all adjustments
of a normal recurring nature necessary for a fair statement of results for the
interim periods presented. Certain prior-period amounts have been reclassified
to conform to reporting classifications utilized for the current reporting
period. These classifications did not impact the Corporation's financial
condition or results of operations.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the amounts reported. Actual results
will differ from such estimates and the differences may be material to the
consolidated financial statements.
The notes included herein should be read in conjunction with the audited
consolidated financial statements included in PNC Bank's 1998 Annual Report.
RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards
("SFAS") No. 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the Effective Date of FASB Statement No. 133" (an amendment of
SFAS No. 133), issued in June 1999, defers the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," until fiscal
years beginning after June 15, 2000. The Corporation expects to adopt SFAS No.
133, as amended by SFAS No. 137, effective January 1, 2001. Management has not
yet determined what effect this statement will have on the financial position
and results of operations of the Corporation.
CASH FLOWS During the first nine months of 1999, divestiture activity which
affected cash flows consisted of $3.2 billion of divested assets and receipt of
$3.0 billion in cash and due from banks. Acquisition and divestiture activity
for the first nine months of 1998 consisted of $539 million of acquired assets,
$535 million of divested liabilities, cash payments totaling $1.1 million and
receipt of $30 million in cash and due from banks.
PNC BANK CORP.
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28
Notes to Consolidated Financial Statements
SECURITIES AVAILABLE FOR SALE
Net securities gains were $44 million for the first nine months of 1999,
substantially all relating to the gain from the sale of Concord EFS, Inc.
("Concord") stock. Net securities losses related to residential mortgage banking
risk management strategies of $117 million were reported in net residential
mortgage banking revenue.
Net securities gains of $76 million for the first nine months of 1998 included
$62 million that were reported in net residential mortgage banking revenue.
ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses were as follows:
In millions 1999 1998
- -------------------------------------------------------------
Allowance at January 1 $ 753 $ 972
Charge-offs
Consumer (49) (62)
Credit card (60) (220)
Residential mortgage (7) (6)
Commercial (48) (21)
Commercial real estate (4) (7)
Other (5) (5)
- -------------------------------------------------------------
Total charge-offs (173) (321)
Recoveries
Consumer 20 26
Credit card 2 12
Residential mortgage 1 1
Commercial 17 12
Commercial real estate 1 2
Other 1 1
- -------------------------------------------------------------
Total recoveries 42 54
- -------------------------------------------------------------
Net charge-offs
Consumer (29) (36)
Credit card (58) (208)
Residential mortgage (6) (5)
Commercial (31) (9)
Commercial real estate (3) (5)
Other (4) (4)
- -------------------------------------------------------------
Total net charge-offs (131) (267)
Provision for credit losses 133 110
Sale of credit card business (81)
Acquisitions 1
- -------------------------------------------------------------
Allowance at September 30 $ 674 $ 816
=============================================================
NONPERFORMING ASSETS
Nonperforming assets were as follows:
September 30 December 31
In millions 1999 1998
- ------------------------------------------------------------------
Nonaccrual loans $314 $295
Foreclosed and other assets 47 37
- ------------------------------------------------------------------
Total nonperforming assets $361 $332
==================================================================
PNC BANK CORP.
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FINANCIAL DERIVATIVES
FAIR VALUE OF FINANCIAL DERIVATIVES The notional and fair values of financial
derivatives used for risk management and mortgage banking activities were as
follows:
Positive Negative
Notional Fair Notional Fair
In millions Value Value Value Value
- -------------------------------------------------------------------
SEPTEMBER 30, 1999
Interest rate
Swaps $ 4,052 $ 35 $ 5,154 $(55)
Caps 539 11
Floors 3,000 2 351 (2)
- -------------------------------------------------------------------
Total interest rate
risk management 7,591 48 5,505 (57)
Mortgage banking
activities 8,092 71 2,697 (11)
Credit default
swaps 4,315 (2)
- -------------------------------------------------------------------
Total $15,683 $119 $12,517 $(70)
===================================================================
DECEMBER 31, 1998
Interest rate
Swaps $ 6,915 $177 $ 2,535 $(10)
Caps 722 6
Floors 1,500 439 (9)
- -------------------------------------------------------------------
Total interest rate
risk management 9,137 183 2,974 (19)
Mortgage banking
activities 9,367 74 906 (10)
Credit default
swaps 4,255 (2)
- -------------------------------------------------------------------
Total $18,504 $257 $ 8,135 $(31)
===================================================================
OTHER DERIVATIVES The following schedule sets forth information relating to
positions associated with customer-related and other derivatives.
Positive Negative
Notional Fair Fair Net Asset
In millions Value Value Value (Liability)
- ------------------------------------------------------------------------------
SEPTEMBER 30, 1999
Customer-related
Interest rate
Swaps $17,076 $ 68 $ (81) $(13)
Caps/floors
Sold 2,907 (20) (20)
Purchased 2,778 17 17
Foreign exchange 2,968 38 (28) 10
Other 684 3 (3)
- -----------------------------------------------------------------------------
Total customer-
related 26,413 126 (132) (6)
Other 2,270 (1) (1)
- -----------------------------------------------------------------------------
Total $28,683 $126 $(133) $ (7)
=============================================================================
DECEMBER 31, 1998
Customer-related
Interest rate
Swaps $11,040 $ 69 $ (89) $(20)
Caps/floors
Sold 2,844 (19) (19)
Purchased 2,589 20 20
Foreign exchange 2,108 33 (27) 6
Other 457 7 (8) (1)
- -----------------------------------------------------------------------------
Total customer-
related 19,038 129 (143) (14)
Other 709 1 1
- -----------------------------------------------------------------------------
Total $19,747 $130 $(143) $(13)
=============================================================================
PNC BANK CORP.
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Notes to Consolidated Financial Statements
SEGMENT REPORTING
PNC Bank operates seven major businesses engaged in retail banking, asset
management and wholesale banking activities: PNC Regional Bank, PNC Advisors,
BlackRock, PFPC Worldwide, PNC Institutional Bank, PNC Secured Finance and PNC
Mortgage.
Business results presented are based on PNC Bank's management accounting
practices and the Corporation's current management structure.
The following changes were made in the first quarter of 1999 to the presentation
of business results: PNC Regional Bank reflects the combination of PNC Regional
Community Bank and PNC National Consumer Bank. Branch-based brokerage activities
(previously included in PNC Advisors), the middle market customer segment
(previously included in PNC Corporate Bank) and regional real estate lending and
leasing activities in PNC Bank's geographic footprint (previously included in
PNC Secured Finance) were also combined with PNC Regional Bank. Additionally,
residential mortgages (previously included in PNC Mortgage) were realigned with
PNC Regional Bank. Certain out-of-footprint large corporate, national healthcare
and other non-strategic institutional lending businesses as well as venture
capital activities (previously included in PNC Corporate Bank) are included in
Other. PNC Institutional Bank is comprised of the remaining activities that
were previously in PNC Corporate Bank. BlackRock reflects legal entity results
for BlackRock, Inc. Financial results for 1999 and 1998 are presented consistent
with this structure.
The management accounting process uses various balance sheet and income
statement assignments and transfers to measure performance of the businesses.
Methodologies change from time-to-time as management accounting practices are
enhanced and businesses change. Securities or borrowings and related net
interest income are assigned based on the net asset or liability position of
each business. Capital is assigned based on management's assessment of inherent
risks and equity levels at independent companies providing similar products and
services. Support areas not directly aligned with the businesses are allocated
primarily based on the utilization of these services.
Total business financial results differ from consolidated financial results
primarily due to differences between management accounting practices and
generally accepted accounting principles, divested and exited businesses,
venture capital activities, sales of equity interests, minority interests in
subsidiaries, eliminations and unassigned items; the impact of which is
reflected in Other.
Additionally, Other for the first nine months of 1999 included gains on the
sales of the credit card business an equity interest in EPS, Concord stock and
twelve branches in Western Pennsylvania. The first nine months of 1999 also
included valuation adjustments associated with exiting certain institutional
lending businesses, costs related to efficiency initiatives and a contribution
to the PNC Bank Foundation.
BUSINESS SEGMENT PRODUCTS AND SERVICES
PNC Regional Bank provides credit, deposit, branch-based brokerage and
electronic banking products and services to retail customers as well as credit,
leasing, treasury management and capital markets products and services to
mid-sized and small businesses primarily within PNC Bank's geographic footprint.
PNC Advisors offers personalized investment management, high-end brokerage
services, personal trust, estate planning and traditional banking services to
affluent and wealthy individuals; and investment management, trust and
administrative services to pensions, 401(k) plans and charitable organizations.
BlackRock offers fixed income, domestic and international equity and liquidity
investment products, and utilizes technology-based risk management capabilities
to provide investment advisory and asset management capabilities for a wide
range of institutional and retail customers.
PFPC Worldwide provides a wide range of accounting, administration, transfer
agency, custody, securities lending and integrated banking transaction services
to mutual funds, pension and money fund managers, partnerships, brokerage firms,
insurance companies and banks.
PNC Institutional Bank provides specialized credit, capital markets and treasury
management products and services to corporations, institutions and government
entities nationwide.
PNC Secured Finance, serving corporate clients nationwide, is engaged in
commercial real estate finance, including loan origination, securitization and
servicing; asset-based financing, including lending, syndication and treasury
management services; and equipment lease financing.
PNC Mortgage originates, purchases and services residential mortgages and
related products. PNC Mortgage also acquires and securitizes residential
mortgages as private-label mortgage-backed securities and performs the master
servicing of those securities for investors.
PNC BANK CORP.
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31
RESULTS OF BUSINESSES
* Taxable-equivalent basis
** BlackRock's assets are presented as of period end.
PNC BANK CORP.
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Notes to Consolidated Financial Statements
EARNINGS PER SHARE
The following table sets forth basic and diluted earnings per share
calculations.
LITIGATION
The Corporation and persons to whom the Corporation may have indemnification
obligations, in the normal course of business, are subject to various pending
and threatened lawsuits in which claims for monetary damages are asserted.
Management, after consultation with legal counsel, does not at the present time
anticipate the ultimate aggregate liability, if any, arising out of such
lawsuits will have a material adverse effect on the Corporation's financial
position. At the present time, management is not in a position to determine
whether any such pending or threatened litigation will have a material adverse
effect on the Corporation's results of operations in any future reporting
period.
COMPREHENSIVE INCOME
Total comprehensive income was $332 million for the third quarter of 1999 and
$767 million for the first nine months of 1999 compared with $313 million and
$870 million, respectively, in 1998.
PNC BANK CORP.
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OTHER FINANCIAL INFORMATION
In connection with the 1995 Midlantic Corporation ("Midlantic") merger, the
parent company and its wholly-owned subsidiary, PNC Bancorp, Inc., jointly and
severally assumed borrowed funds of Midlantic in the aggregate principal amount
of $200 million at September 30, 1999.
Summarized financial information for PNC Bancorp, Inc. and subsidiaries is as
follows:
PNC BANCORP, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30 December 31
In millions 1999 1998
- ----------------------------------------------------------------
ASSETS
Cash and due from banks $ 2,187 $ 2,527
Securities available for sale 7,897 6,868
Loans, net of unearned income 50,976 57,282
Allowance for credit losses (674) (753)
- ----------------------------------------------------------------
Net loans 50,302 56,529
Other assets 10,320 9,261
- ----------------------------------------------------------------
Total assets $70,706 $75,185
- ----------------------------------------------------------------
LIABILITIES
Deposits $45,915 $47,578
Borrowed funds 16,752 19,402
Other liabilities 1,470 1,130
- ----------------------------------------------------------------
Total liabilities 64,137 68,110
Mandatorily redeemable capital
securities of subsidiary trust 350 350
SHAREHOLDERS' EQUITY 6,219 6,725
- ----------------------------------------------------------------
Total liabilities, capital
securities and shareholders'
equity $70,706 $75,185
================================================================
PNC BANCORP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Nine months ended September 30 - in
millions 1999 1998
- ----------------------------------------------------------------
Interest income $3,647 $3,923
Interest expense 1,759 1,970
- ----------------------------------------------------------------
Net interest income 1,888 1,953
Provision for credit losses 133 110
- ----------------------------------------------------------------
Net interest income less provision
for credit losses 1,755 1,843
Noninterest income 1,450 1,671
Noninterest expense 1,903 2,273
- ----------------------------------------------------------------
Income before income taxes 1,302 1,241
Income taxes 466 438
- ----------------------------------------------------------------
Net income $ 836 $ 803
================================================================
BORROWED FUNDS
In February 1999, the Corporation issued $250 million of 6 1/8% subordinated
notes due 2009 that qualify as Tier II risk-based capital.
In August 1999, the Corporation issued $300 million of 6.95% notes due 2002 and
$300 million of 7.00% notes due 2004. In October 1999, the Corporation, issued
$400 million of 7.50% subordinated notes due 2009 that qualify as Tier II
risk-based capital. The net proceeds from the sale of the notes are expected to
be used to fund the acquisition of ISG.
SUBSEQUENT EVENTS
In October 1999 BlackRock, Inc., PNC Bank's investment management subsidiary,
issued 9 million shares of class A common stock at $14.00 per share in an
initial public offering. PNC Bank will continue to own approximately 70% of
BlackRock's stock and will record an after tax gain of approximately $60 million
during the fourth quarter as a result of this offering.
PNC BANK CORP.
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34
Statistical Information
CONSOLIDATED AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
Nonaccrual loans are included in loans, net of unearned income. The impact of
financial derivatives used in interest rate risk management is included in the
interest income/expense and average yields/rates of the related assets and
liabilities. Average balances of securities available for sale are based on
amortized historical cost (excluding SFAS No. 115 adjustments to fair value).
PNC BANK CORP.
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PNC BANK CORP.
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36
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 September 30, 1999.
Commission File Number 1-9718
PNC BANK CORP.
Incorporated in the Commonwealth of Pennsylvania
IRS Employer Identification No. 25-1435979
Address: One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Telephone: (412) 762-1553
As of October 31, 1999, PNC Bank Corp. had 294,292,472 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 and nine months ended
September 30, 1999 and 1998 25
Consolidated Balance Sheet as of
September 30, 1999 and December 31,
1998 26
Consolidated Statement of Cash Flows for
the nine months ended September 30,
1999 and 1998 27
Notes to Consolidated Financial
Statements 28 - 34
Consolidated Average Balance Sheet and
Net Interest Analysis 35 - 36
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 2 - 24
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 17 - 19
- ----------------------------------------------------------------
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
The following exhibit index lists Exhibits to this Quarterly Report on Form
10-Q:
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
27 Financial Data Schedule
==================================================================
Copies of these Exhibits may be obtained electronically at the Securities and
Exchange Commission's home page at www.sec.gov. Copies may also be obtained
without charge by writing to Lynn Fox Evans, Director of Financial Reporting, at
corporate headquarters, by calling (412) 762-1553 or via e-mail at
financial.reporting@pncbank.com.
Since June 30, 1999, the Corporation filed the following Current Reports on Form
8-K:
Form 8-K dated as of July 15, 1999, reporting the Corporation's consolidated
financial results for the three and six months ended June 30, 1999 and financial
information about the Corporation's businesses for the six months ended June 30,
1999 and 1998, filed pursuant to Item 5.
Form 8-K dated as of July 20, 1999, with respect to the announcement of an
agreement to acquire First Data Investor Services Group, Inc., filed pursuant to
Item 5.
Form 8-K dated as of August 27, 1999, reporting the public offering of
$300,000,000 of 6.95% Notes due 2002 and $300,000,000 of 7.00% Notes due 2004,
filed pursuant to Item 5.
Form 8-K dated as of October 20, 1999, reporting the Corporation's consolidated
financial results for the three and nine months ended September 30, 1999 and
financial information about the Corporation's businesses for the nine months
ended September 30, 1999 and 1998, filed pursuant to Item 5.
Form 8-K dated as of October 26, 1999, reporting the public offering of
$400,000,000 of 7.50% Subordinated Notes due 2009, 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 November 15, 1999, on its
behalf by the undersigned thereunto duly authorized.
PNC Bank Corp.
Robert L. Haunschild
Senior Vice President and
Chief Financial Officer
PNC BANK CORP.
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37
Corporate Information
CORPORATE HEADQUARTERS
PNC Bank Corp.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
STOCK LISTING
PNC Bank Corp. common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol PNC.
INTERNET INFORMATION
Information about PNC Bank Corp.'s financial results and its products and
services is available on the Internet at www.pncbank.com.
FINANCIAL INFORMATION
The Annual Report on Form 10-K is filed with the Securities and Exchange
Commission ("SEC"). Copies of this document and other filings, including
Exhibits thereto, may be obtained electronically at the SEC's home page at
www.sec.gov. Copies may also be obtained without charge by writing to Lynn Fox
Evans, Director of Financial Reporting, at corporate headquarters, by calling
(412) 762-1553 or via e-mail at financial.reporting@pncbank.com.
INQUIRIES
For financial services call 1-800-4-BANKER. Individual shareholders should
contact Shareholder Relations at (800) 843-2206 or the PNC Bank Hotline at (800)
982-7652.
Analysts and institutional investors should contact William H. Callihan, Vice
President, Investor Relations, at (412) 762-8257 or via e-mail at
invrela@pncmail.com.
News media representatives and others seeking general information should contact
Jeep Bryant, Director of Corporate Communications, at (412) 762-8221 or via
e-mail at public.relations@pncbank.com.
COMMON STOCK PRICES/DIVIDENDS DECLARED
The table below sets forth by quarter the range of high and low sale and
quarter-end closing prices for PNC Bank Corp. common stock and the cash
dividends declared per common share.
Cash
Dividends
1999 QUARTER High Low Close Declared
- ---------------------------------------------------------------------
First $59.750 $47.000 $55.563 $ .41
Second 60.125 54.375 57.625 .41
Third 58.063 49.688 52.688 .41
- ---------------------------------------------------------------------
Total $1.23
=====================================================================
Cash
Dividends
1998 QUARTER High Low Close Declared
- ---------------------------------------------------------------------
First $61.625 $49.500 $59.938 $ .39
Second 66.750 53.813 53.875 .39
Third 60.000 41.625 45.000 .39
Fourth 54.625 38.750 54.000 .41
- ---------------------------------------------------------------------
Total $1.58
=====================================================================
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The PNC Bank Corp. dividend reinvestment and stock purchase plan enables holders
of common and preferred stock to purchase additional shares of common stock
conveniently and without paying brokerage commissions or service charges. A
prospectus and enrollment card may be obtained by writing to Shareholder
Relations at corporate headquarters.
REGISTRAR AND TRANSFER AGENT
The Chase Manhattan Bank
P.O. Box 590
Ridgefield Park, New Jersey 07660
800-982-7652
PNC BANK CORP.
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38