ML20234E618
| ML20234E618 | |
| Person / Time | |
|---|---|
| Site: | Beaver Valley |
| Issue date: | 12/31/1986 |
| From: | Obrien T PNC FINANCIAL CORP. |
| To: | |
| Shared Package | |
| ML20234E542 | List: |
| References | |
| NUDOCS 8709220451 | |
| Download: ML20234E618 (109) | |
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~.se nssso u.c m, ,snsnssm,un,s Cdmbined Consolidated Fincncial Highlights - . 27.1947,
' l he o.mbmed umsohdated hnanual resuln in(lude the accounts of Ciuzens Fidehty Corporation. which was merged on Febru Percentage 1986 .I985 increase >n ihamands. ruept per Jav data for The Year S 859,662 $ 760,934 13 % <et interest income (taxable-equivalent basis) ... .. , ....
i iignincant and unusual transactions: 1 (44,000)
.\dditional prmision for credit losses ... .. . .. .. ..
Gain on sale of mortgage banking subsidiary .. . .... 59,703 i Net effect on a pre tax basis . . . . .. . . ..... 15,703*
. .... ... ..., 286,307 228,831 25 1
<et income' .. . .. . ...
.arnings per common share:
Primary . .... . . .. ... . . .. . . ... .... 4.44* 3.63 22' Fullv diluted . .. . .. . ... . . .. ... ..... 4.19* 3.44 22-it December 31 .. .
'otal assets . . ..... . ........ . .. $ 26,936,055 522,760,745. 18 ! .oans, net of unearned income . ....... . . . .. 15,602,821 12,687,710 23 ! >eposits . .. .. .... . . . .. . .. 17,610,572 14.633,907 20 j shareholders' equity . . . . .. ...... . . .. ...... 1,693,605. 1,395.732 .21 shareholders' equity per common share . ,. ... . .... 24.66 21.42 15 i
elected Ratios-For The Year i iased on net income: Return on average assets . . . . . . . 1.22 % ~ 1.14 % c Return on average shareholders' equity .... ... . 18.71. 17.62 i iased on net income excluding the aft'er tax effect of significant , and unusual transactions: ' Return on average assets . .. .. .. ,. 1.15 Return on average shareholders' equity . . .... .. . 17.74
'criod end primary capital ratio . . .. .. . . 7.41 7.24 4
'eriod end total capital ratio . . .. . .. ......... 8.70 7 87 1 ionperforming loans to period end loans . . . . . 1.49 1.48 y illowance for credit losses to period end loans . . . . ........ 1,61 1.40 p
'llowance for credit losses to nonperforming bans . . .. .... 108.06 94.54 j
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' I he atter tas elleu of the $ngnificant and unusual transactions increased net income by $14.8 million or $.24 per share on a primart basis and l 5 22 per share on a full) dduced hasn. p 1
minri Annual Meeting - o Our Shareholder 1 The annual meeting of the share- )
^ 'NC Financial Corp Nianagement holders of PNC Financial Corp will
- omnunee 5 be held Tuesday, April 28,1987 at WC nnanaal Corp noard of Directors 1I A.M. in Lincoln Hall The
- ommittees 6 Union League Club of Philadelphia,
'nde m i'erformance 8 Broad and Sansom Streets, l :orporate Financial Resiew Philadelphia, Pennsylvania.
\lanagement 5 Dncuuion and
\nalun 1986 sersus l985) 16 linancial Information-table of contents 27 l Otrenors and Executise Officers of PNC Rnanual Corp 77 Directors and Executise Officers of l'nnapal Subsidianes 78 shareholder Information, inside back coser
To OCa Si A n i.it o t.o r a c l It is mv pleasure, as chief executive officer of PNC Financial Corp, to report that PNC achieved , I l another record earnings performance in 1986. It is also my pleasure, speaking on behalf of our entire organization, to welcome the shareholders and staff of Citizens Fidelity Corporation to PNC. Citizens' , management and its more than 2,500 employees are characterized b3 the same desire to excel-the same .
-I
, pride in performance-that motivates PNC's peo-I pie and has made us one of the nation's foremost - ,..~ financial institution 5.
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Performance in IW6 , The merger with Citizens was completed on Febru. - ar) 27,1987, and this report includes the combined $ financial information for PNC and Citizens. The combined company's performance is highlighted on 76-nII.o hn l the preceding page and is discussed in greater detail l in the Corporate Financial Review beginning on page 16. Highlights of 1986 , Consolidated net income totaled a record $286.3 The major event of the past year was our agreement million in 1986, an increase of 25 percent over to merge with Citizens Fidelity Corporation of Lou-1985. Earnings per common share were $4.19 on a isville, Kentucky. Immediately after Pennsylvania's fully diluted basis. 22 percent higher than the $3.44 interstate banking legislation took effect inJune, we per share earned in 1985. Our impros ed earnings signed a definitive agreement with Citizens, one of l principally resulted from a higher level of net inter- the largest bank holding companies in its state. est income generated from strong growth in loans Citizens, led by Chairman and Chief Executive Offi. and insestment securities. Additional significant cerj. David Grissom, who is also a vice chairman contributors include increased gains from invest- and director of PNC, had assets of $4.7 billion at ment securities, higher trust income and a gain from > ear end 1986 and a record of excellent fmancial the sale of The Kissell Company. In recognition of results. The merger is consistent with our stated PNC's continued earnings growth in May the board position of affiliating only with the highest quality of directors increased the quarteriv dividend by 15 institutions in terms of management, financial per-percent to an annual dividend rate of $1.52 per formance and market presence. common share. Citizens' board of directors We also completed several acquisitions which fur-increased the quarterly dividend in 1986 by 16 per. ther strengthened our position in the state of Penn-cent, to an annual dividend rate of $.80. sylvania. In March, we finalized the merger with The The two key performance ratios-return on assets Hershey Bank of Dauphin County. It has three and return on equity-both showed improvement offices in the economically attractive area of South m er 1985. PNC's return on assets was 1.15 percent Central Pennsylvania and positions us to expand in 1986 and return on equity was 17.74 percent. Sig- our market presence to the east and northeast nificant and unusual transactions were excluded toward our Provident and Northeastern bank affili-from net income in computing these returns. How- ates. Consistent with our policy of enhancing our eser,if they were included, the returns would have position in local markets, two of our Pennsylvania been 1.22 percent and 18.71 percent, respectively, affiliate banks made acquisitions. Pittsburgh
, and would rank PNC first in both return on assets and in return on equity among the nation's 25 larg.
est banking companies. The combined company's l total assets of $26.9 billion at year end 1986 would j hase ranked 18th among the nation's bank holding l companies, and 1986 net income would have ranked 9th. I
, ya 1 I
lo )ia N(gHinal05H* R < m National Bank wmpleted a merger with The , ; Bridgeulle frust Cmnpant, a $151 million bank. 1 J which will gise us excellent representauon in an a l
.uea w here we had no branch othces. .\larine Bank, ' s ,s j our Eric alhhate, aho recentl3 completed a merpr . s j M- I with the First National Bank of Cochranton, a bank ' s uith assets in excess of S30 million, and three # ,
,g. 1 branch offices, w hi(h u dl complement our existing I 34 hankmg offices in Northwestern Pennsslunia.
We now operate 348 community banking facilities throughout Pennssivania, Kentucks, and Indiana, and proside our financial sersices through offices in 19 states and X foreign countries. j j
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s l ot u% on ( ore ilusinewes .# / I Significant strides were made in each of our three #' # j j major lines of business: retail banking; w holesale i banking; and trust and mones management. Our Q ,4"
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hasic strategs is to build on the inherent strengths '. ' o ' 4 (f l that we base in these businesses since each has l l prmed its abilits to produce dhersified. profitable ! l grow th. _ In the retad hanking area. we increased average tutely tripling the naticaal arerag) These results installment loan outstanding bs 25 percent abo,e reflect ow success in devdoping additional businms 1985 les els, w hde the national increase was approxi- within cet established market and the new lending ; matelv 14 percent. We accomplished this while relationships we are genemting from the loan pro- - maimaining our high credit standards.This growth duction offices we opened over the past few 3 ears in l reflects a market drian approach to the retail busi- ciues sdch as Lies Angeles, New tork Chicago and l ness. We also have imensified our sales training and Athnta. We also %d considerable growth in loans are automating our branch support sutems. In to selected specialized industries such as communi-addition, we are using telemarketing ano dipct mail , catiora and teal estate. to supplement the efforts of our branch personrel. Our Dallae and Tampa offices, .vhich bau been m 1 or example,30 percent of Prosident's consumer placejuu em a year, also .made meaningful contn-loan solume is now generated ti rough the butions, a id we are optimistic these offices will con-telemarketing process. tinue toyosper We plan to centinue our new mas 1.ooking ahead to later in 1987, we will pilot a ket de.velopms.by opening additionalloan offices consumer bankmg unit tailored to proside upsc.de in 1987, and we see opportunities to increase out (ustomers with one-stop access to esery retail fman. market penejauon in New Yo.i and Orlando when oal service PNC ollers, including trust, brokerage, we consolidate Citizens' offices into PNC's o!fices in msestments and loans. Following this pilot, we those markert i anticipate opening similar centers in a number of NonJnterest income also rose as a result of l selected markets. increated loan syndication, fees generated from ' Our extenske branch network has also permitted wr@mr. banking activities--.domesticalh ind on-a focused marketing effort toward another rapidly shoiband the growth of business imhncrpm W growing market segment: the small business entre. service: sectl.r, We have earned a natibnal eputa- i preneur. Using this focused approach, Pittsburgh tion for our pieneenas desempment of elet tronic : Nationa: has achies ed the number one market posi- paymens technology, and sevral of the largest cor. tion in Southwestern Pennsshania in prcividir.g prations in the world re:ently began t.o use our banking services to companies with annnaf sales of up to Sio million. - In our a holesale-or corporate bankmp-area, , loan growth also was up substantially in 1986, , mcreasing bs more than 20 percent and apprcdi,
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l l expertise in this area. We expect that this action soll continue to grow in the sears ahead. Our third major busincu is based upon our 4 unique strengths and market leadership in trust and auet management. Altogether. our trust activities wnuitute one of the most ugni6 cant comributors - to PNC's non. interest income in 1986 providing
$127,6 million-a 20 percent increase mer 1985 e
-m non interest iesenue, Two of our newer initiathes ahich are generating mcreased lesels of trust fee income are BHC Securi-
- nes. Inc.. a registered broker dealer, and PNC Trust Compam of New York. PNC originated BHC Secu. j rities and is the krgest equin ou ner among 23 #
financialinstiauions located throughout the United # States. BHC executes and clears brokerage orders j for the customers of these and other institutions. and its wlume of bminess h rising rapidh as more I and more customers turn to their banks for broker- E*'*"'P e" *" -l
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age sersices, PNC Trust Compam performs admin-istrathe. cmtodial and clearing services for $22 l billion of assets for mutual funds and our athliate banks. and will be a platform for tha delisery of offer their customers a range of sersices f ar beyond other senices in the future. w hat was presiousiv available. PNC's imestment ! The management of persqnal trust assets contin. banking expertise in tax-exempt huancing has been ues to proude a significant and uable source of fee particularly effectis e in helping us grow in the area mcome. la order to insure futm e grow th in this of underwriting bonds in the health care field. We area. w e bas e reorganized to expand our products are confident that our various investment acthities and enhance our seruce deiner) to the younger and will produce an increased contribution to earnings growmg ailluent segments of the market which tra. over the next few 3 ears. dinonalk hase not been users of trust sersices. On the muitutional side. our strong competitive Enhancing Shareholder Value im esiment per tormance and im estment support The past sear has again confirmed the sahdits of capabilities base enabled us to continue as a leader our guiding principle-to enhance shareholder in penuon. endowment and mutual fund manage. value by generating a highly superior return on ment and as a major prmider of custodial transfer, equitv. This, in turn. is achiesed by stressing a securities processing and imestment research ser. return on assets mentalitt in each of our athliates. sites to the mutual funds industry. This focus is fun'damental to the success of our At the end of the sear the market salue of all trust operation. It ensures that w e delis er the highest assets reached 570 billion, a 34 percent increase quality fmancial senices to our customers at com-mer the presious year. Of this amount 541 billion petith e prices. , represents assets mer which discretionary imest. Unquestionabh. PNC has become an es en more ment powers are exercised, making PNC one of the formidable contender in the hnancial marketplace largest bank imestment managers in the United as a result of the Citizens merger. N!easured b) mar. States. Contnbuting signi6 canth to the merall ket capitalization. PNC now cands fust in the Slid-growth of trust anets is the addition of a number of Atlantic. Niid Central region and among the top 10 new mutual fund customers as well as a general rise in the market salue of securities. l'inally. I want to emphasize that our rapidly growing imestment banking area is on its way to becoming a fourth major business. Both merchant and im estment banking has e been s ery valuable resources for our alfdiate banks, which may now 3
To Ot a su e um m RC banking institutions nationwide. We especially value I want to take this opportunity to recognize the this ranking because we recognize that it is based on fine contributions of those directors who left our l Shareholder confidence m both the present and the board during the past year: Harold D. Hoopman, i future salue of their imestment. John D. Ong andJames S. Pasman,Jr. And, I want As we look forward to 1987 and the longer term, I to pay a special tribute toJ. Richard Boylan, a sice want to reconfirm our sision of PNC's future. We chairman and director of PNC and vice chairman of intend to continue as we hue always operated- Prosident National Bank, who died on Starch 30 at committed to the highest standards of customer ser. the age of 57. Dick was a pioneer in the trust and s ice, financial performance, and professionalism investment field and PNC was fortunate to hase his among our employees at esers level. We are not extraordinary talents. We will miss him as a business interested in sheer size, or indeed in anv other crite- associate and as a friend. ria that are not directly related to actual perform ' Performance, the legacy of those who built PNC, ance. This beliefin performance is fundamental to characterizes the board of directors and is illus-our thinking, continually reinforced throughout our trated at every level of our organization. From the company, and is the key to our excellent financial executive officers to the tellers on the front line of results. customer service, PNC people arejustifiably proud We know that the coming year will bring a host of of their company and their contribution. to it. PNC new challenges. The national economy still is bur- has a cohesive, consistent plan for what it wants to dened by a massise federal budget deficit and a accomplish. We have so many people in the mar-heavily negative balance of trade abroad. Possibly ketplace, and so many market segments, that it is no one can accuratelv forecast the impact of the essential to have everyone focused on the same recent sweeping resision of the tax law. In addition, objectives. The concept of a shared mission is vital uncertainty continues in the banking industry about to our success, and we make every effort to ingrain it the potential for regulatory changes and their in all of our employees, effects. . The following pages offer a closer look at a few of To assist me in effectis ely meeting these challen- the people who,in their different ways, demonstrate ges, we hase formed a new managemen,t committee PNC's pride in performance. Each individual exem. w hich will work with me on the broad policy and plifies in an outstanding way pride and performance i strategic issues affecting PNC. This committee, injob, community, and personal achievement. Each [ which is pictured on the facing page, includes Roger also represents thousands of other equally talented , S. Hillas, chairman: Robert C. N!ilsom, vice chair. PNC professionals who are proud and active , man: andJ. David Grissom, vice chairman, contributors to PNC and their communities.Today j more than 11,000 people work together to sustain j PNC People: Pride in Performance our record of performance. I am most pleased to { PNC has achieved consistently outstanding per- dedicate this year's annual report to all of them. formance because we have attracted, trained, and l motivated talented individuals-people with enthusiasm, vitality, and creativity-who are dedi- , , cated to quality, i PNC's people strength begins with our board of I directors, w hose responsive involvement is essential Sincerely, j to our success. We are fortunate to have as new Thomas H. O'Brien ! directors William E. Swales, president of Starathon President and Chief Executive Officer Oil Company, and Dr. Konrad 51, Weis, president and chief executive officer of Bayer USA Inc., who joined the board in August. We also welcomej. Dasid Grissom, and three other directors from Citizens: Robert N. Clav, president of Clay Holding i Company: T. Ballard hforton,Jr., executive-in-residence at the University of Louisville School of Business; and Thomas C. Simons, chairman and j chief executive officer of Capital Holding l l Corporation. ) i 1 ', _____-_ a
E - P.NC Fn o(: gL CORP .\l LN AGEMEN T COMUTTEE
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- I .mpo roatunn Nominating . Iudit I.t t r to RicuT LErr To RIGHT LEFT To RicHT th>ugle D. Danforth Charles R. Pullin Edwin I. Colodny (standing) john l. MacWilliams.J r. Thomas E. Bolger W. Craig McClelland William E. Swales Merle E. Gilliand James L. Davis Rocleric }{. Ross G.J. Tankersley Donald I. Moritz -
1.nter A. llamburg (sitting) PatriciaJ. Clifford R. J. Wean.Jr. llenrs L tiillman Malcolm M. Prine Franklin L. Morgal
\nthom J. A. Brsan F. Eugene Dixon,Jr. Quentin C. McKenna %t Putured: James E. Lee John L. R)on.Jr.
Konrad M. Weis l Nor PicTt. RED) l Howacd Gittis Richard P. Simmons Paul R. Staley i I- an . r mm,tice The Boards of Directors and (Nor PicTt RED) Executive OfTicers of PNC Financial Edwin 1. Colodnv. Douglas D. Danforth. F. Eugene Dixon.Jr., Corp and its Principal Subsidiaries Merle E. Gilliand. Lester A. Ilamburg, James E. Lee are listed beginning on page 77. 7
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(,' Lorraine Hamilton's career is m :v dominated bv two great forces
.. a.Q y -an unwavermg dedication to 9 banking and a strong commitment p : -j: - # t2 to community sersice.
s. Whatever the challenge-completing a complicated loan or or another satellite ollice has finding a home for the homeless-established a customer relation- she is willing to take it on. ship, an attempt is made to extend Dennis K. Johnson. sice presi-that relationship to other PNC dent and manager of.\tarine banks by cross selling services. Bank's Liberty Plaza office in Erie, Each satellite ollice devises its also noted that Lorraine is a own marketing strategy. "You " good listener." She has the ability can't market the same way on the to discern a customer's needs and West Coast as on the East Coast " match them with bank products. Bill said. So the oflices are gisen During her 14 years in banking, great latitude in approaching their she has worked her way up from markets. teller to adntinistrative assistant Under Bill's leadership, the Chi- trainee and is taking college cago operation grew at an annual courses in pursuit of her career rate of tio percent in a climate of objectives, sulf competition. Growth was Although Lorraine is also quite achies ed not for its own sake, but busy at home, she finds time to for the sake of profitability. serve on the board of directors of "We has e three objectives: to the Community Drop In Center, earn at least one percent on assets, to serse customers and to ensure credit quality," he said. "We are j PNC Financial Corp operates a successful for two reasons. Those netu oik ofloan production olTices objectis es are instilled in our peo-m Les tines-New York. Los pie from the very beginning, and Angeles. Atlanta. Cleseland, PNC provides products that lampa. Dallas and Chicago. Their enable us to achiese them." lum uon is to generate loans and des elop new business wah For-r* - tune 1.000 companies. ' k /
' I he objectis e is to help PNC gron outside its natural operating i egion." *.ud William E. Fallon, . g w ho was u(e president and man- i . ,5 ager of the Chicago ollice before takmg mer leadership of the .\lui-tinanonal group m Philadelphia.
"I think of us as a premier bank wah a number of high-quality ser-s es to otfer a multinational cor-poration." he said. Cash manage- I -
ment. tavoriented financing and trust senices are the kinds of products that hase special appeal to mullmationals. Once Chicago 9
- p Inc., a United Wav member agencs ' du s cute them. if the customer desires.
Sometimes the pressure is Or the customer may want to that shelters people who are tem-intense for Robert W, Lambert approve every mose before a porarily homeless. It is her way of showing that bankers base an obli. and his colleagues in the Trust " buy" orl' sell"is made. In any gation to the wmmunity in which dhision of Provident National esent, the portfolio manager has Bank in Philadelphia. A vice presi- to be creatiye in achieving the thes lhe and wmk. dent. he manages approximately customer's objectn es. 1.ot raine has an allinitt for the 230 accounts with a collecthe "Imestment managers hase
" people side" uf banking, w hether it inmhes arranging a car loan or value of nearly $1 billion. better tools to work with todas."
But in his 32 years at Provident. he said, but that doesn't mean it is cashmg a check. Her performance also demonstrates a comprehen. he has a virtuall> unblemished easier to manage a portfolio. Com-sne understanding of PNC's prolit record of retaitiing customers for puters base made the securities the bank. This kind of perform- markets more etlicient, whn h is an goals.
"We want to serse the customer ance has helped make PNC one of advantage. But the iolume of to the best of our ability and set the largest trust operations in the information is tremendous, com-stav within the bank's guidelines. country. plicating the decision making If that happens profitability will Bob likes the challenge of han. process and compressing it into a dling large asset portfolios, and tighter time frame. /
take care ofitselff customers base a high regard for But in the end, those decisions Lorraine's growth in herjob has been lostered hv the bank's polict his im estment advice. His greatest have to be made by people. That's of participate management. satisfaction is dern ed from tailor- why thejob continues to fascinate Employees are encouraged to sub- ing a portfolio to the best interests Bob after more than three mit suggestions. "N!anagement is of the customer.That takes some decades. open to ideas because that's how doing because objectives vary the bank gets ahead." she said. , from one account to another. Teamwork Pays Off One customer mav be interested Behind every merger and acqui-mainly in income, while another is sition there's an incredible amount looking strictly for growth. The of paperwork. Stacks oflegal doc. test for portfolio managers,like uments hase to be processed to ( Bob. is to achies e the customer's satisfy the regulatory authorities 7 j
,j goals within the limitations of the and the merging parties. Fre-t* ij securities markets. quentiv the work pace is feserish.
. j PNC's prolit target-earning at least one percent return on assets with tight deadlines and a compel.
ling need for accuracv.
-is "always in our sights." he Sic,re than three years ago, said. "We earn our money from Starianne S. Dean was the second fees. When we can make an employee tojoin the newiv formed account grow, both the bank and Financial & Sterger/ Acquisition the customer prosper." Services department of PNC The bank's arrangements with Financial Corp. Now, fh e mergers trust customers vary considerably. later, the staff numbers 10 and the A portfolio manager may make all pace is as fast as ever. I the investment decisions and exe- "Often documents have to be i mosed quickly from one city to another, sometimes in the same day," Starianne said. "But there's a
' lot of teamwork in our department
' - and we always get thejob done." <
Activity was brisk during the i h Citizens Fidelitt merger, PNC's i I, , ,
! biggest transaction since the con- .
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u llillion a D,n right-ensure productnit) and There was a s ery good reason quality-we will drise the maxi. for establishing quality circles in mum profit to the bottom line," the Corporate Services depart- Peter said. ment in PNC's corporate banking Creating new products is sers
, area. important. "We hsten to w hat the "We have a ss stem in place to customer wants and make esert mose mones-about $8 billion a effort to proside it, either with an das-through a paper base or existing product or one that we electronically," said Peter R. Begg, des elop."
sice president and manager of the Banks are sery good at mming unit. Productivity and elliciency money, electronically or b) paper, are bywords in Peter's operation 'As long as we can do it better and because they represent the key more cost effectively, we'll base teasons why customers use cash management sersices. The quality circle teams meet '% regularly and "we listen to what ' y ,, , l thes base to sav, because our '" emplosees know how to do things best," Peter said. Employ ees are encouraged to contribute ideas $ that willincrease productivity and qualitv. Under his leadership, the .. department has registered produc. E tisitt gains of five percent or more in each of the past five years. ._
"Esen if a suggestion realizes only -
a small sasings, it adds up," Peter said. " Suppose sou cut vour costs l hs $500 or $600 a month. That's , 56.000 or 57.200 a sear. And once - Sou get the savings,it's there for- s'~ ever." a Corporate Services handles company to-company payments, which are usually large transac-tions. Because ofits expertise in electronic transfers, PNC will be
\lananne is known for keeping responsible for 10 Midwestern her cool when the going gets states in a new bill-paying network tough. During her three tears in established for a major automobile the department, she has put in manufacturer. The network is con-some " heroic time" w hile remain- sidered a forerunner of the mg unfailingh pleasant. (heckless society.
"Profitabihts is alwavs a consid. The Corporate Services oflices eranon." she said. "but we don't in Pittsburgh and Philadelphia also think ofit the same wav a loan ofTi- do the balance reporting for PNC (er would. In our department. it's banks and process statements for a matter of being as elficient and all the cotparate customers.
cut efTectise as possible." What's the key to profitability in Teamwork protects the " bottom this operation? kne. "We take the tack that if we do it It
customers," he said. "Nis primart later to students at the other acad- tion and ellicient service are the objeme is to proside senice at emies. L'nder the direction of key to the center's success. 'l he the low est possible cost. This is Robert L. Corr, sice president and Afilitary Center has a very sophisti. the kes o earning one percent on manager of the Northeastern Bank cated customer base that includes assets and 18 percent on share- of Penns>hania operation, the Stil- a number of generals and holder equits. itary Center has evoh ed into a admirals. When Peter isn't w resthng with highly specialized banking unit on "We can approve a loan .,nd big numbers. he's apt to be " talk. a global scale, deliver the funds wnhin 15 to 20 ing shop" with his peers at other The center has 18.000 custom- minutes after we get the request. hanks or of ficiating at high school ers-commissioned officers and whether the borrower is in Korea. 3 football games. He is president of retirees-scattered around the Texas or Germany." Bob said. ! the Pittsburgh Chapter of the w orld. Stost are long-time Bank Administration Institute and depositors who established an hern"ti a member of the board of the West account relationship during their " Customers come to us first if Penn Football Of ficials Associa. college days at the military acade- they have a problem." tion. mies or on ROTC campuses. That's what Louise St. Ford, a "The majority of our depositors senior teller at The Hershey base never seen this office and Bank's Headquarters Otrice, likes in many was s. the Stilitan Cen- probably never will," Bob said, best about herjob. She enjoys j ter in Scranton. Penns>lvania. "We have managed to get mili- dealing with people. especially j marches to a different drumbeat tary officers who have neser seen when they need help. j ihan other PNC operations, us to deposit their money with "Ifit weren't for them 1 This unusual operation began us." wouldn't have ajob " she said. around 1940, first making auto Because of high interest rates in Lois Pfautz, vice president of the ] loans to West Point cadets an,d 1980, there were serious thoughts l of closing the military department. ' j The academy loan business, which t.auissamumados e, . ,%. A.,,,.., 1 was originally the primary activity, emesmycomessy s~
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was no longer attractive because of , %' the high cost of money, sesomeonessessnesses y Bob was instrumentalin con- ~8"*"mammew , serting the Stilitary Center to full- m%%% service banking. Today it is one of noseeresinymme PNC's fastest growing business units.
"We have many customers who _
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are stationed in places where they can't easily attend to day-to-day ' banking matters. Submariners,'for y example, stay at sea for 90 days or , longer. Automatic bill pa>ing is \ especially useful to these people," g . s .j Bob said. Excellent lines of commum,ca- .
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nie meselrmy es our q . tors hows never seen Walo eF flee end preinehty never we . . . (but) we have managed to get . , mistory officerg weqe have - ,. - -
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.unone in the bank except a teller. m - .[:f, ,j,i.rg 'T T ,). .g in uct, the teller s wmdow is the z' ~ . Q, . 3 . j (L make.or-break point for most q '- T i- y, M.,3 h.mk. customer relationships. T t
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kne" of banking,it is vital for them ' $ g; gd.Q m enel at people relations. Expe- . , . , y _{ o,' g j nented tellers like Louise are ; -, w .g ;r ' A
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(onstantly tries to improve. achies ed," Ed said. " Relationships .#^ y ,* )
"When people are lined up at were developed with American ; .,
the window, I test myself" she companies abroad and later .'.C said. "I go down the line and try to expanded to the United States. It .W "w-identifs each of the customers so I was an effectis e way of winning * (an call them by name when they new customers." get to me ' In one instance, the Paris omce because you cannot afford to lose Louise, a French Canadian who provided a special service for an track of being profitable." The has hudt a new life in the United Amercian fatt-food chain which best ideas for new products " bub-states, has her own profit formula: led to a bank connection with b~1e up from the bouom because nothing less than quality sevice for another PNC office in the firm's nobody knows the market better esen customer. headquarters city in the United than the person on the scene " States. Every employee can make a con-enn iene The offshore philosophy calls tribution. This happened in his The mternational operations of for developing a profitable piece office when a member of his staff PNG linancial Corp are conducted of business, and, at the same time, was opening mail and came t.pon a m Le> cities around the world. trying to cross-sell PNC's services check for a million dollars from a PNC has offices in Paris, XIdan, in other locations. Casselle said he company in Canada. Rome Ssdnev, Hong Kong, Bue- feels "very much like an entrepre- "We found out there was a com-nos Aires, Rio deJaneiro, Sao neur"in carrying out that strategy pany in oar.own backyard with a Paulo and Mexico City-araegic at PNC International Bank in Phil- tremendous business across the locations where many American adelphia, to which he was assigned Canadian border, and we didn't companies do business. early in 1986. know about them," Ed recalled. Edwardj. Casselle, vice pesi- "Every day there are new prob. "If we didn't have our emplo>ee dent and general manager, PNC lems and new opportunities. No involved in sharing the informa-International Bank, has partici- two are the same," he said, non with management, we would pated in the growth of this global "That's what Ilike abou Aejob. have lost that opportunity." network. While he was manager of We have a constantly evoinag set the Paris branch, the omte's busi- of products and an expanding Customers Cometir t ness portfolio tripled in three customer base, There are always "When a person tehs you his or wars, new challenges." her needs, you know it's Sourjob The significance of tnpling the Ed believes "the bottom line has to help that person." portfolio in France was not the to drive what you are doing That's how Man H. Lerch feels 13
~
, . . , .m.,.,
r Coatessille Business and Profes- them into a formula that < ass,
# sional Association. a group that 'This is v hat you hase to do to 1 promotes cisic actisities in the achiese the desired result.' Return downtown area. on assets and shareholder equat
. lar>'s knowledge of the com-
\ alwa> s bas e top priorits.
Y munity and her abilits to esaluate "It is ourjob to work with man-agers in pncing tran' actions, with
- - - -d8 loan applicants is important to the ,
hank's profitability. While she tax consequem es in mind, to pro-6 tect the honom line. I his is an ! l - doestn conscioush think of earn-. aspett of nn pmuion ihat I p.o tu-4 mg one percent on assets, herjob [ performance is instrumental in ulark enjm. um king on the tront L.
at hiesing that goal. lines with lending and other
( [,
.k "I think I'm as disappointed as the customer when a loan is officers in the pricing ol produos.
" Changes in the in law are not l
i ,, . j ~ turned down, but a loan has to be alwas5 a cost. lirequenth thes rep-resent a unique opportunity to l 7 good for the bank as well as the ;
- deselop a new product. 'I he < hal-c' customer. I think if a loan is l 2 > approsed, the system ensures that
' the bank will meet its of jecth es,"
she explained. J The Entrepreneurial Approach Nowhere within PNC does the entrepreneurial spirit reign more freely than in the office ofjoseph J. Nelson, semor vice president l' and director of corporate taxes. about her responsibilities at the Coatessille office of Prmident Joe, who recentiv mos ed to PNCN headquarters in Pittsburgh from
"' T W '
National Bank where she is Prmident, believes that PNC's awntant manager and banking management sisle contributes sig-nificantiv to des eloping emplot- I ot ticer. - . gy N N!aris forte is sening peo- ees' strengths. ' ple-a qualits that is supported by "Our top management not only her credentials: first winner of permits but encourages creativity. Prmident's annual Florence They take ordinary people and Lautas Award for customer ser- permit them to produce extraordi- ., sice. She is also one of 13 charter nary results by taking the ropes off members of the bank's Customers and encouraging a can do atti. ^ Club. tude," he said. - ,
\s
".\larv gis es eserything to each His department serves as PNC's
\
customer." said Romaine R. " watchdog" on tax developments Dunlap, manager of the and interpreter of changes in the N Coatesulle office. "She's not tax code. Quite often existing . e afraid of amthing that comes products has e to be repriced, and . across her desk. It would be sometimes new products are cre- i'/ unusual for her to pass a problem ated as a consequence of tax along to somebods else." changes. "But," Joe says, "we have .. The Coatessille offke has bcer to do more than know what's in a kader among slaantial mstitu- the law. We have to be able to '
~
.g.
tions in cflorts to restore the com- explain it in terms managers with - J ,y
,, , ,;, n' 'l munitis prospents. Niani per. ditTerent responsibilities and '
.'l ' * :. V L' 4 sonal contnbunon to this project perspectnes can understand. . . - . .
l- , n her sersice as treasurer of the "We take the tax laws and blend
-f I4
Y g
;ynge and satisfaction of this part
,,i nn job is hard to duplicate. I
~
.qre siew oursehes as both O ,
m,,nagen and entrepreneurs," Joe ' s.od. q\ hat I hke best ab out my , p,b is that I leel as if I'm running nn ow n bu mess." . l - ~ g hentutks winner Cuitens Fidelity Corporation, ' the newest member of PNC. rein-bene, our mans streagths with the ' <
.nidiuon of $4.7 billion in assets (
and 2.500 skilled employ ees. This '
,, nuh a merger of similar part-nen e.nh dedicated to the dual objeuises of achiesing high profit-
.dnha and quality customer service.
I he same kind of energ) that dines PNC's people is also deeply k meramed in the people of ' Kenunks hased Cinzens Fidelity. j l>unng the past the sears the com- Y pam's return on assets has aser- ...- a
.iged 1.22 percent, return on ,'
ecpun has equaled 18.3 percent
.md earnings base grow n at a'l 7.1 ,
j. peicent annual rate. f , The (orporate cultures of the , s , , ino msolutions are an euellent blend in other ua> s as well. Cai/ ens' lending policies base icsulted in a credit qualit) that is . sasth supermr to peer group aser- -
/ ""J " k ' '
ages. and the bank's capital base I' ' shows abose aserage strength. ' I he b.mk's management and . emplosces h.n e cu elled in two _. peutic areas: an ab lits to gener-
.ue lee inonne-including bank
< aid sers aes prosided to card-lN.#
holders. merchants and other t b - 3 4- , .
'\' - . <
banks, nationwide-and a propen-sin for (ontrolling expenses.
. j . ,.
Sas s '!hm O'Brien. " Citizens v.
~
1idelin Chairman Dasid Grissom , , . .
's ' N7 C * .
. E. .
's ami his outstanding team hase '.' ( 5 -
built a well managed. hign. . . .
.. [-
E .' T ' sh -
-l performance compam that has .. . .
- y. m ' . * * - b ' .%
produce ..c. .EO I _L3',C{:p ' iesuks. The combining of ' ' , , our p's w'd sery strong financial Citizens muhiple strengths s.ith ' '
,c PNC il! significant enhance . , s.
osition as one of the leading ~ banking institunons in our region." I 13 I
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. A review of the two key proRa ..e- 4. ; V.-
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5: However,if theywdren'YtIniOmrt@ ' d N)h; 18J1ErespectivelytQy%. , J -
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. 9 19;: ;p. .g & 4 ,.h ,.y ;
- n ~ -
.n ,. q . q# r ;3; primarily due to lower yields on loans and investment securities. Average
.;.'r...! d M loans camed a yield of 10.38% in 1986, a decrease of 126 basis points. .. , y M.
Within the loan category, commercial and industrial loan yields declined
" *~ "
N[.%q-g. 146 basis points as the prime lending rate declined 160 basis points to an
?.h de, average of 8.33% for the year. The yield on installment loans declined 107 basis points to 12.38% During that same time, the investment secu- -Q "
rities portfolio earned 9.71% down 106 basis points. Yields declined on - - U. S. Treasury securities by 145 basis points to 8.96% on U. S. Govern- ! ment agencies by 142 basis points to 10.15% and on State and munici-- , .s pal securities by.105 basis points to 10.84%. Interest bearing depositsr , ,T %, - with banks earned 7.45% a decrease of 203 basis points. e44. . .g 4;,"' i ?,c/ Interest expense increased $33.6 million or 2.8% to $1.3 billion ind . 1986 as total interest bearing sources. increased $2.9 billion or 19.3%, toe vMja. l
$17.9 billion and the average rate paid fbe thest sources decffned 113M Mi[.D A "
d
.fg
' .4 basis points to 7.01'fii Totalinterest , bearing deposits averaged $11.9 bi14.p'k lion, an increase of $1.9 billion. The rate paid for'such-deposits declined -
c ..MQ?I TM
=q' W.;
112 basis points to 6.97%. Money market accounts averaged $3.2' billion. , an increase of $498 million, while the rate paid on these deposia,..' ,I;, 3li?M .. -7 4, declined 138 basis points to 6.01% Negotiable certi&atesof deposirQ W;: . ;Q ^ .; ~y .
./
increased $1.1 billion on averageto a level of $3.2 billion while their conj r . a df ' ~ . * .
- i#i YYY declined 122 basis points to 7.098)P. Othertime ftind deposits incensed $694 4%' p.H$h y%
million declined 118on basisaverage points to 8.46%C to~~-?'
$3.3 .- billiourwhiWthef 1M rate $N4M paid. film pg%[s@N[". J. @N T V As interest rates continued (5 decline disYingathe y' esse sh '
h D g 4[. s. jh ing was obtained by access to the short-term m6:ney markegspeici6 p-federal funds purchased and repurchase agreemenss. Theseinstsum
~^
. p p $ $ h @,. - P g.#6; O (C' Mi8 ' h S:
averaged $4.2 billion, for these funding sources was 6.99E.down 112 basiipoing'.pbp an increase of " $598 milliorw Th'e
, c. . , ,o, - . . c . . , . h..
W S' p.:Ay./ Provisionfor Creditlassesu;l&, ,,, The provisiors for credit losses wass
.&t&~ A$ S' E _ _
f,_*MgW.--
~-
-N.MP $j.$
liorr, including a provisioerof 't 7 ~ 40'erter[o4 9 y
?ii[*'
1986 largely to allocate cred t '" dIF( exposure, principally Mexic Jo ' ,
.O m..M-- #
for the year by.$71.2 milliwh ,
~ hk' . .
age loans, compared with .Q4jiliar E quality and theallowance. 5
.,s .y ;G,. A.+ .. ,
'M 3-Non.laterest income '
Total non inserest inco rm m e f gain from the sale of the , bankisig s'u8ddiEst Erdid!ssgiuclMB
"'~
4787. milf Simiill ' I % gain, non-interest higher than 1985. bincomeyp$ p/ 1-p PNC Financial's trust activitied * * . . 've \p p * ..' N , ' an increase of $E2'milliort . e .?c. : larfe'es conyonent of or 19.9g%986 trust ind.id IffikS'aidikibir ~ g ~ ~ '. h. ' $
,resulsing frona new accounts 6ad) die ~tudaiirdynairhes
- g a M'IMincrease k was due K
- netMiente: Additiorialijt thir full'liopewEivuorrealistrefhuist (' +
schedule implemented in March 1985. Corporate trust fees increasede * ,.5 ;. p g.c"m.y#w k WJ g4, "
. "^2 %.. $3.1 million or 17.4% due to expanded mutual fund custody servicea. .
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. 3; all of the increase as this methodof extensively. ;/
Mortgage origination fees we 1986 as a result of the sale of th(e' sidiary during the second quarter, ated servicing fees of $13.1 millio carned through mortgage banking ary bank level. M ' Trading account profits- s gina on debt securities to$rM&321.0: from the sale of sbott terraMeasury, ment National Mortgage Association of higher pay out rates on tAa,% from the sale of the GNMA Securitiinik GNMA Securities. The net gain in i previous year. 2 Net gains from the sale of equity ad8 lion for the year compared with net gauw view of the strength of bank stocks durmy I made it advantageous to restructure a portion of , portfolio into bank stocks with lower multiples.# -:
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-1 Total non interest expenses were $659.7 imadh 1986,
# %.x . -l
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$70.0 million or 11.9%. Salaries and bonuses incredd. : ' d'/WAjy##< cM~
8 Y!'i" " 'I hi ' e '~ . [I d$37.8." po. . increase was due to a combination of'Ieveraf ~ idiragd
~ ...O u. 8 f;;s"!T .. i T. t t 4 @ 7 ' ":1. '4." f,x' 4 ber of full time employees increased 3% in responair3~.'
ness volume, net ora reduction in employees related to th4 sale of'tiieb to expandedb '" $gj$ - kb
~
mortgage banking subsidiary. The cost ofincentive compensation basedg.f. ,- e P'
";e.'
F. on performance increased year to year and merie and promotioriaf@V ' 3, + '
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f- w'. 'a,",,.- g.Salariesand bonuses Q..l.g~RG. $39644CN.SWe novee benesna. .;.n::s :ca W 1 a% K' Jagr$
?
;?* .
p@.s , Tour iare pen .dt c -m,ssaM. t.. -P . s.M A 4:., ' i'?.' - iJ M.i. Net occupancy cupenses4;.g .34,s
".'.7 g"a-Equipsmentexpensee other nee . .. . . F t!. ..i.M ;M 2
% '- i
-g Totainon interess .'.C.t. M TF ipdi ;$~$
4 g4 . 4%, ~
.W. i. $ ft;l ;
*,G.'. 4
.) i 43? * .
2'Q' +f % : (@ ,
, . , .g' . .y , n0 a- d
^
,w@ . Employee benefitdid - ..
2 milh.on. A major c ,, M. MC.' employee insurancet ~ ^
. $16.5 million Pa
_q.7 _,,,2 employeennd
-i?.
4 porate pro 6u;ionrr StandardsNdW .
- t < 'This had;then ' '
k"T.. $E2 mi%ri, D%, h!. method to y ' [& f. Net occu
'_g increase n-4 ? - leased fa '
g building , _.:iiN
-c . . Equip e.
e, mcrease
-- p ,; increased . * ~ increased co '
di activity. g, _ .c +^ ANother no,n-i h $213.1 millioidr ~
-Q* including
ice ~ and credit M., level ofliasi '* ' offering new productrand seVv~iked%st , a . - ... ? i [Q 9 also includes expenses directEp relatedQ. c ;%beci' w' ,'* *
*. w .a.q :' . ,j / 9'*s y . . or M.s:,7 Mf"$. o.
O$E. ,mh;M..s
*o: o.
l 1
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. . ~ . . -. . .
. .- n. .a -
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- ly' ' ep ,* N ene ~g ,
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.'~
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Total assets of PNC Financial approximated $26.9 billiors attift. .i of 1986. Total a$erage assets increased $3.4 billion to $23.5 billson , , ; the year, while earning assets averaged $21.1 billibn, alsoincressmg6 , .+ : $3.4 billion. I
' ' ,W N [9.4
~. M (& a -- es, M*,. -
c ,, y', r .- esk' s,(1 1 Loans - - : y . ~. -Lpg o . Total loans increased $2.2 billion or 19.6% to $13.6 bibn on averag4[ ,,; _.3 , ,( ...;, ., e q % Loan growth was well distributed throughout the portfolio with.the De "pd. J exception of the money market portfolio which was unchangeddand 'si,L.n ,.
.Q .
5Jp real estate mortgage portfolio which had a modest 7 decline. W. QQ,,,'f ' ' , .a k.T. ," Domestic commercial loans showed a strong increase of 51'6 . . e~ . 22.3% to an average level of $8.8 billion. Diversi6ed loan growth, , 3 . ; experienced, with the largest increases occurring in the muki. 3 ., . %
'M and middle market areas and industry specializations. ,. .
g4,qk
. n < C; Q in the communications 7 {
and reate%[ 7 [
.- A Loans Avera es,in millions
+< - Qpj,',ig[ht
.,p y, . ij jf y
I
,. i
.;a > [ f
.?
A986 '~~!19'_fEs 9 j Domestic commercial . . S 8,807* g;
-S-7,20Q 703b * ,@
..... 1 Foreign . 788' _ _, ......-. ..$
Total loans sis,seen sn.sary sp, ass @C _ ,,,
.j .g -
q u .; - ~- n - u Foreign loans averaged % *$788 ::A millonganincreas$5 _ u,
. 5 g -
portion of the increase was due to e ~ corporate customers located withini PNC Financial are located. 9 Installment loans showed solid, b 25.5%. Purchases by consumers con . , lower interest ates, automobile reb % confidence. .-.. 1. .
. . a.. - -
Nonperforming Loans, AssentamCAllowansefer ' " _ Nonperforming loans, whicliincludes no ; loans, totaled $232.1 million at the end of 1 ,'; million. The ratio of nonperforming loans - 1.49% versus 1.48% in the priocycar.,Thih ~ > .,
?
Keefe Index of 2.51% for 1986 and 2.62% fdri Nonperforming assets, which-include no N ; real estate owned, totaled $242.4 milliour at year'endi nonperforming assets to year-end loans,itM 7 decreased to 1.55% at December 31,'1986 Goatif4 This compares well with the Keefe Index of 2.78%'and and 1985, respectively.
~'
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-;'.. F ~j % M i Qp'ove,r net ;
Allowances acquired.b '
, credit losses resulted in' " lasses of .
.9, .. $72.8 million'!o $.M ~ .
a me w Keefe index
<- for credit losseet essus.-
f 1.40')$ for:1980 ' '" alS '. ; Y.,., ance for cre@ tioni ' = - yp.4 of the. relative a j 1); I y mcreased tad ' 2,h'@.
$, favorably t 9as:Ne03. " $g N. credit to W' i x pared wn ,
pepod .so [:c..l - was .80% . ij n ..- p* ,?.cf)
- s. .
.,8 4 * .
- F4 * , ' ' .4, ' s;
% ,;~ *. Investmnt- '
- 1,7 , ,
^fgh.,On a com raVD ' { 1
- h'? :'D\.333 i '
W,h, with banks avi'" h. . ,.
..Investm. ent sec.uri f4 . awrag S ,in thedabt ,p E
- d. - '
I',alNefak ~ ,, j
,< c r i
^
' if 'categoriis slidwed t' vet .
.6,.^'^
1oes ins im4 ises sees
' , t.7.. The increase in ahd W ^
tW A".E
,-e7- . '.I .Pc . ; - U~' " M" '
f ;,;)? d. s* ,."$ -
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- ' bT ".:. ,
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' 'M t laveuemment Securities and Interest Bearing Deposits with Ba'shefug. *-
- Averages. in millions y>.,
1986 1985* Asensesr.E U.S. Treasury . . , . . . . . . . . . . $3,191 g g-U.S. Government agencies and
$3,155 ' $0 386).e ~/ . bl#$..,,,,,..
.# .mr.. e ..
70T$ ISI.9'Ol KT; '- ~ " . M r . W/.fT corporations . . . . . . . . . . . . ... 1,343 536 kp ' W 'N0.? g (*'l/?e,ki **.-$.M . a State and municipai . . . . . . . . . . . . . . . . . . . . . 1,603 697 Corporate stocks . . . . . . . . ..... ....... 133 149" 90 (16%9 129.8J.'. (10.7D Q'a ),*h, -
* [,,
Other . . 111 70 4fC - 584- Psj,;ga4,j.S , g. ., .f jt . Total investment securities . . . . . . Interest bearing deposits with banks .
...... 6,280 636 4.607 819-1.677< 36.Su (183).
(21SW f: y]Q . . . . ,
' " " g @.;ijf..r
.. of,E, . ...
; -6
( 7dN - Total .. $6,916 $$A26 - $T.490. 27.5%Q.4. . J ' W h;p.h".f! . ,(, * ! ,
*l
~ ;f
, .kf:[.j[b
. {g. "[ ~;fisp 1x;,q wy
~...,.a ;
;p.2 se, n additions of GNMA pass through securities, all f'edemlly insured"argrq (f.K r.. ,g.a timely payment of principal and interest. Additions to the tax ex ..f d Y ,
portfolio were chiefly in the fornt of short-term hig!*gradr, - , jd; . ' T r' The average maturity of the investment securities portieHsiat. ' - 1986 increased to.5 years, I month from 3 years,5 moesks" . y.; { ' #- 31,19856 .
~ ' " '
~ i; .-*
a, n Exposure to banks in which interest bearing deposi' tis Id Jcg tinues to be monitored within country and individual.bant' ~ s ,. - t .4.,4
.j y ;
Drpositr and Borrowed Fundr .." ,$T ' E.,M.W Total average.deposits increased $2.3 billion ,ci.por 17.9% to 8 y. F c' : Money market deposit accounts, upon whiclicurrest paid and which offer good liquidity, increased $49E averaged $3.2 billion: Negotiable certificates of deposit in ~
^
. M[~*
of $3.2 billion. Nearly all of thein ^ ' certificates in the two to eight year-certificates were utilized to fund Federal funds purchased'and r lion, up $598 rnillion/This category ' , funds borrowed principally freas: both overnight and longer ternC Commercial paper and oW,wt terne ' ' lion, up $213 million. In Oiscorn includes borrowings from . Loan. Mae) which are collateraliz istudene least borrowings from the United Statse~lhasuryu, account note program. 'Itese s'o uries pre 6 peuuva rates.. 1. ~.t Average demand and other non interess $855million to $3.2 billion.The inw EE ^ de'anandlpalancessr-e - . :> -
.g.9,;.0 Wi4Ir original.maturitics ex mallibei, up 3142 million. During 1986 PNC ~
owned financing subsidiary, issued $200 million 8% Nnotesilleriiv l . The notes are considered as secondary capital by the Beastor ,' ,- 1 M
..;e.,.;:5.
% . $ np<'13 7.. g; *
- e -
- g. y
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a ;."[.(5, .T" , 24 ' .aw
/ P ,+.. 9.%;,d g
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- ;;js;f-. . y. ,,
f.' of the Federal Reserve System in.6alculating capiial adequacgi.. . 1, . . -
# in 1986 $133 million of floating rate notes, originally issued '" ~ '
by*PNdl%EA 4 " # r r, W i 7. Funding Corp in 1983 and with final maturities in 1992 and l (handon. l 8- redeemed at the request of the holders. During 1986, PNC Taterna - 5 Financial Services Limited, a wholly-owned Autralian Subsidiary,issuedf.as a$.. {'M ny,,'"'"+ ' 7 A$60 million of 14% % Australian Dollar Notes due in 1989; The 14%')E~g",s"a*s ; . ,"' rate represents a competitive rate for three year Australian dollarW7'e~f :Q'" " su as
- .. borrowings. Long term borrowings from Sallie Mae increased $100 milC ,1 g' l Y lion to $173 million at December 31,1936. ..$.J 1 se, a
,. ; . .(%
'h. % #. 4
*g>r;;." , 8" '
g ' s Shareholders' Epity ;; ", Shareholders' equity totaled $1.7 billion at ;year end 1986, anh};Y r a 9y,)
>;. sis.se
~'
$298 million or 21.3% over 1985. Approximately two-thisds'of _ g increase was from the retention of earnings less dividende, whird S ** '
y' t remainder was the result of the issuanceof common stock upe ?:' i M cise of conversion rights, sales under dividend reinvestment i employee benefit plans, and the issuance of commonstock5iky" _ - g. k' s with various mergers. Book valueper common shareincr .
':f Selected Data-Shareholders' Eqinity.
.V . .' ?jhfiCl, f
' N ?AMf7 7.,g l
l 19N - 198 Y * +19sF 94 . Balance-end of year ,
'r 9 6.Off? ['W.'* *
- 0 (in thousands) . ... . $1,693,645+ $1.396/J3KSA.1
/ Book value per share . . . . ) "< 'l
+
Period end capital ratios:*- 334.66*if e.4 Jh .;c $4 ' '
, '.3.p $2L4re.f; .
E l Tf Pnmary capital . . . .. 7.4tNp'$4.249%.D Total capital . . . . . . 8.70ty'.7.93r , Y,e. Internal capital generation ** II.SFr$c'Elt&R/k'T[1 . I [ . ;!, - N. v. y,,*:% .: l l v t' A *forPnmars creda losses wpna and utal capia : anndy pme,arehndedad
~
b;e; gy. , G Gg_
% ** Net iname teu att dwidendsdadamt .#'. r.- ~4-h,,;
~, .
.c j
4,+ .: :
-', at December SI)1 *3 common share had- g., ?,.,.
N,/ . 1.,$ 74 Cash dividendd y $1.52 per share.St }. e dividends at.a five,y ,,;7
-- the capital;basenec ~lf 3., Thee posi " %
"^'
" " " D.
0, - indicato ;such strengtleare'
,,. levels. At! ember 31,'1986[ '
; .h..P
. ,C tively. Thadd ratios contintwse %~- "T, *" ^{;:;
J f, Federal R'e serve Board's
)./ '
7 tiv ely. "
.; ;p ;
f*
'.. " .4a '
&j Lipidity and Interest Ri4G5enki *):.?
j... ' During 1986, managemenipolicssop
,g$. - porate liquidity. The terned*Iiquxbey z .;.g.,
institution to meet futuredessands . yN-ji depositors. A bank's overaltliquidity posia " , p" Q . +
', capability to rapidly convert assets to cash and ita'ascessi . ..
1 existing sources of funds. , r ',., .g' g.* w4
, "EDJh-
.s , .
4 s . v. 5 W.@@ . - -
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25
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?:Tg.ybi QQ;..
?p% ' '.*'- :': nA.c.w.
- u. a t: ,,
C r- u .. ~ Given the tradeoff between liquidity and earnings:.;it.Le t >.. sibility of management to maximize the interest margin within, liquidity constraints. Guidelines have been established which ' measurements of the total liquid assets as well as key ratiosin L uid assets, total earning assets, and purchased funds. Subsidiaft , ., ' are required to monitor and report such tiquidity board of directors and to senior corporate management.- s 4 ration to botis theitg, E,h M. .. ,f. At year end each bank within the company was well within guideline MIS ~ (* .?N , c 9 4.i-D[
. t tolerance levels, and corporate liquidity as a whole was strong Ae'J. 'g D.*.
"S.hE(
December S t.1986, total liquid assets, including cash, shortetcent ~ ties, and money market loans, were 197o of total earning asselddid )N> above self imposed liquidity guidelines. 1Jud. '; ef
, 5 :}-
Specific actions were undertaken during the year that had'the. ' effect of bolstering corporate liquidity. These included issuanceio6 P'I.5,. term corporate debt, acquisition ofintermediate term fisie'derasp deposits, and substitutions ofintermediate. term ffoating-rate heiidi: u ties for overnight and other very short. term sources ofbank ,. 'E q, g addition, new sources of funds were developed and un ,
' fl.
accessed. d.+w:Q, ? *f ' h In conjunction with maintaining a satisfactory lefel.offi' ' - agement must control the degree of interest rate risk ia.the ' ' ' sheet. Managing interest rate sensitivity involves car specified time intervals, of any imbalances betweeriint ~ '- assets and interest sensitive liabilities. Becauscirnktam# dig potential interest rate risk, internal guidelines hata, "*f ., .. defme acceptable risk. PNC Financial's self-imposed, # i also applicable to each affiliate bank, defines.the " interest sensitive assets or liabilities repricingwithim onec ? centage of total earning assets to be 10')k' Myps?* .l ow. Inflation and Changing Prices 4.:', ; The majority of assets and liabilities.of a ' ~ tary in nature and therefore differ' ~ ~ industrial companies that have sign inventories. It is the reaction to i the Federal Reserve Board to regu g have a greater effect on a financiatii 3 effects of higher costs for g,oods and" . $ positioned to cope with changing interest' may best be determinedpyjaa analysie of. bility structure. In particuladyour attenticaE' net interest income, and ifquidity and ' ,
,,"~
Fedent income Taxes If the Financial Accounting Standards
,the accounting for income taxes is promtil
- have a significant impact on the resultsrof' the foreseeable future. 6 pcfrM
.. j - ne Tax Reform Act of 1986 will not hadar
! ' results of operations of PNC Financialir,thii ' Financial has adjusted credit, investment. and servicar ' ing the new tax laws. / ** Z y, , g. a..: p
;i ;.] W
- y. q.y v nc h! g
- gg [jnaticial C4>rp JHd Mihudiarit% l
.;nancial information- Fible of Contents l Consolidated Financial Statemen ts:
Co m Mned Consolidated Financial Statements: Ernst & Whinney, independent Auditors 27 Management's Statement on Financial Reporting 61 pmbined Consolidated Balance Sheet 28 Report of Ernst & Whinney, Independent Auditors 61 Consolidated Balance Sheet 62 co mbined Consolidated income Statement 29 Consolidated Statement of Income 63 combmed Consolidated Statement of Changes in
%areholders' Equus 30 Consolidated Statement of Changes in Shareholders' rombmed Consolidated Statement of Changes in Financial Equity 64 Consolidated Statement of Changes in Financial Posmon 31 wie, to Combmed Consol dated Fma,ncial Statements 32 Position 65 j
Notes to Consolidated Financial Statements 66 i Com6ia'd Consolidated Statistical Information 42 Combined Consolidated Management's
' . Discussion and Analysis:
Annual Resiew-1985 sersus 1984 53 l
, quarterly Resiew 56 )
l i I L l t l i I PNC Financial Corp and Subsidiaries Combined Consolidated Financial Statements I Report of Ernst & Whinney, Independent Auditors f shareholders and Board of Directors
! PNC Financial Corp j Patsburgh, Pennsyls ania We base examined the combined consolidated balance sheet of PNC Financial Corp and subsidiaries as of December 31,1986 and 1985, and the related combined consolidated statements ofincome, changes in shareholders' equity, and thanges m financial position for each of the three years in the period ended December 31,1986 (which statements are sup-piemental to the historical audited consolidated financial statements and related notes thereto, included on pages 61 through 76). The combined consolidated financial statements give retroactive effect to the merger of Citizens Fidelity Cor-poration with and into a wholly-owned subsidiarv of PNC Financial Corp on February 27,1987, which has been accounted for as a pooling ofinterests as described in the notes to the combined consolidated fmancial statements. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accountmg records and such other auditing procedures as we considered necessary in the circumstances.
In our opimon, the combined consolidated fmancial statements referred to abose present fairly the combined consoli-dated financial position of PNC Financial Corp and subsidiaries at December 31,1986 and 1985 and the combined consoli-dated results of their operations and changes in their financial position for each of the three years in the period ended December 31,1986. af ter giving retroactive effect to the merger of Citizens Fidelity Corporation with and into a wholly-owned subsidiary of PNC Financial Corp as described in the notes to the combined consolidated financial statements,in mnformity with generally accepted accounting principles applied on a consistent basis. Pittsburgh. Pennssivania February 27,1987 l l l 27
P,NC l'INANCIAL. CORP AND St'B51 DIARIES e y,e ,
.C6mbined ConWlidated Balancemheet .Ct-Dollars in ihous.inds December 31 1986 /M m
- for j
AssIts Cash and due from banks . . . . . .. . . .... . . . . . . . . . $ 2,249,855 $ l.770.073 Interest bearing deposits with banks . Federal funds sold and resale agreements
. .. 711,284 224,317 601.876 239,514 I"%
1.o l 9# 94.907 f #' Trading account securities . . . . ... .. .. 642.950 i
*"Y!
10,360 Stortgages held for sale . ... . Imestment securities (market salue of $7.329,250 and $5.823.562) : 7,074,270 - 144.686 5.648.181
' I "' I Loans, net of unearned income of $356.083 and $314.156 . ... .. . ..,. . 15,602,821 12.687,710' '
Allowance for credit losses . . . . - . ... .. . .. . . . ,- (250,854) (178.091, . Net loans . . .. . . . . . . ... . . 15.351,967 12.509.619 th Premises. equipment and leasehold improvements , , . . . ... . . .. . .... . ... 252,876 241.845' ;b 1 Customers' acceptance liability , .. . .... . .. ., .. ... .... . 414,800 442,259'
~
Other assets . . . . ,. . ,, .. . .. . ...... 491,419' 519.742 To'ai asseis $26,936,055 $22.760,74} fn ' Li:bilities Dt* "1 g, l Deposits in domestic offices:
$ 4,395,623' ~ ' $ 3,608.459 y- / 'j .
1 Non interest bearing , , . . . ., . . .. . . . . Interest bearing . . . . .. .. . . .. . , 12,712,601 10,550.374 _ . Deposits in foreign offices . . .. . .. . .. .... 502.348 475.074 1 Total deposits 17410,572 14,633.907 11' ] Short term borrowings- l Federal funds purchased . , .. , ,. ..,,. . .....,,. . 1,877,459 1,656#)0 l Repurchasc agreements . . . . ... ,, .... .. .. .... . ..... , 2,828,811 > 2,282,437 ; Commercial paper . .. . ,, .. . . .. .... ....... 391,216' 528,824 .'g riy Other . . . . .. . . . , 919,692 863.802 q., - Total short term borrowings . .. .. .. .. . , . 6,017,178 5.331,153 < Ulc j
'747,373- 544,882 =
frt J Other borrowings . . . . ... ... .. . . ...., .. .... ..
. g.,
Acceptances outstanding , , . .. . . . . ......... , 474,800 442.259-b(., Accrued expenses and other liabilities .. . ,. . 392,527 412.812 l Totalliabilities . . . . . . . .... . .. 25,242,450 21.365,013 qg
) ' /
.1 Shareholders' Equity ,I Preferred stock-$1. par value , ,,
Authorized: 9.739.693 shares in 1986 c No S lasued and outstanding: 3,330,158 shares in 1986 and 3,472,974 shares in 1985 , , . . . , . . . . . .3,330 . 3,473- %1 Aggregate liquidation value: $70.663 in 1986 and $73,695 in 1985 pet J Common stock-55 par value Ne I Authorized: 100,000.000 shares in 1986 Eq 'j Issued: 65.876,165 shares in 1986 and 61.782.982 shares in 1985 .. . ,, . , ,. 329,381 308,915 ott Capitai surplus .. .. .. . . ., , ... . . . , , . , ,. . .. 230,858 165.897 Retained earnings . . ... . .. . .. . .. . .., , ,, ,,
- 1,130,262 917,673 -
Common stock held in treasurv at cost-55,523 shares in 1986 and 55.523 shares in 1985 . . (226) (226) Total shareholders' equity .. .. .., , 1,693,605 1,395.732 b' Total liabilities and shareholders' equity . . .. . . .. $26,936,055 $22.760.76 == See nuompanung Notn to Comkned Consohdated Funannal Statnnents gy Fi F 7 Ave
- p.
l' {
.P.P 7 28
{y.
kp - 2 ij . 1 g g@ctaL CORP AND b,t'B51 DIARIES L gnbined Consolidated Statement of Income - q ; ; p..u .,nds. enePt Per share data T[ nded December 31 ' I986 1985 Iny
&ncomt ..i.... : $1,324.605 : $ 1.237.160
!l I"" "d'
'and fees on I ans... . ... .. . . .....,.. . . $ 1.090.524 =
..... o.... . .... ., . .. ... ... . 47,401 77.655. 103.890
- Uf,',,gi u sold 1 funds ith and banks resale .agreements
. . . . . a . .- . .. .. . .. ..... 21,089 24.612' ;27.627 h ...... . . . .. ... . .. . , .. 10,636 31.140 23,065 l~ ding acc unt securines . .
l hngages held for sale , .. .... . . . - . . . ... ... 8.390 :19.740 20.907 ! I'ne,iment securines: i,nable .j. .. . . . . .. - . .. ".. . . . . . 420,849 398.011 280.045 l l rp esempt , . .. .... . . ........ ..... .. >'.. . . - . . .. . 99,866 .45.262- '32.279 l poidends. .... ..o .. ... ....., . . . . .... -. .... 9,225 . 9.737 8.521
.. . . . ... . .. .. . .... . . .. 2,401 12.298 2.367 (nher . l
%:alinterest income . .. . .. . .. . . ... 1,944.462 1.845.615 1.589.225 l
- j 1
Interest Expense
. . . ,, . .. ...... ., ... .... . ... ....... .. 829,362 806.051 695,183-peposits . ,
4, hon.ierm borrowings . . . . . .... .. . ... ...... .... 372,485 369.185 - 355,347 ody.r borrowings . . ... . ... . . . . . . . .. 53,223 46.215 44.224 .
..Motalinterest expense . . . .. . . . . . . . . . . . . . 1.255,070 1.221.451 1.094.754'
~4 5det interest income . . . .
.. .... ... .. , . .......... ...... 689,392; 624,164 494 471 l'rm.sion for credit losses . .. .... . . .... ... . 143,765 '72.419 47.2041 Net interest income after provision for credit losses .
, . . .. 545,627 551.745. 447.267-r Non. Interest income ,.
Irust income . . .. .. . . .. . .. . .... ........... . .... 127,558' ' 106.382 87,199 senice dOrges, fees and commissions . ... .. . .. .,......., ... 162,709 144.656 112.206 - wngage servicing fees .. . .. . .. ..... . ... .. ...... 16,021 32.363 30.845 j lrading account profits .. . . . . .... . ......... 8,368 - ' 8.811 _'5.095 1l Net equay and other security gains . . . . . .., . . ...... . ... .31,383- 15.181 13.838 ' ! Nei debt security gains (losses) . . . ..... . . . . .. . ... ........ 20,961 2,519 '(2.801) -l ' (;a n on salc of mortgage banking subsidiary . . , , . . . . . . . ..... . .. 59,703 . other mcome .. . . .... .. . ... . ... 20,845 13.739 13.371 ; 1 Total non-interest income . . ... ... .. .. . . . ... 447,548 323.651 259.753 Non. Interest Expenses
%Iaurs and bonuses . . . ..... ..... ...... ... . . . ...... 266,344 239.088, 195.639 -
l'enen, profa sharing and other employee benefits . . . ......... . .. -71,647- 66.506 61.587 Ntuccupancy expense . . ., .... ... .. .. ... .. . ... 50,629 45.075 36.538 Equipment expense . . . . . . .. .. .... ........ ... .... . . 58,013- 51,317 39.754 1 Otherexpenses . . . . . . ... .. .. . . 213.069 187.758 149.742- 1 J Total non interest expenses . . . . .. .. . . . , 659,702 589.744 483.260 j income before income taxes . . . . . , . .... . ., .... . ... 333,473 285.652 223.760
}pphcable income taxes . . ... . .. .. . .. . .. . ..., 47,166 56.821 '46.562: ;
Net income . . . ... ... .. .. . ..... .... .. . $ 286,307 $ 228.831 - $ 177.198 Earnings Per Common Share: Pnmarv . ... , , . . . . ,, .. . . ...... .. . $4.44 - $3.63 $3.05 = .i Fulh diluted ..... . .. . . . . . . . . . .... 4.19 3.44 2.94 Ayerage common shares outstanding: ! Pnmarv .. . . . . . . . ... ,, , .. . ... . .. . ... . 63,136 61.248 57.267 Full diluted . .. . . ........,...,. . .... . . . . 68,710 67.145 60.988.
"'"ompmnmt Votn to Combmed Consohdated hnannal Statements.
l J N _ 29 !
e ~ ~ D .\ , R ff a , 6 ' 4
' ] ; f' ,
v~
? t:s ,. t PNC Fis4NctAt. Cone Aso Stlastotaalis .1 3 <. ,
,. s'ep 4 -
Combined Consolidated Statement of Changes in Sharchdikrs' Equity (., . (. Dollars m thousands, except per share data
. ~ . - - -
_. c 4, ,,.. , c en;emt* Stock +StocV y common . c1.*a,act . l'rtai..e4 f. nun ; ,,, s
;_5LI r,,lkle $$ hir f*sluu Su.fl,a' iamngr jtock .y #
'a J I S ? $134,899 t !i102,014 . $ 703,959 $(P26). $ 940,7!0 Fin Balance at Januarv 1,1984 . ,.. . ,,,
177.198 : !77,198 ' Net income . ....- .. . . ... . . W" . Cash disidends declared: Preferred stock . . ... . . ...... (2.%4) ' MACO I Common stock (PNC Financial-$1.lI per share-,
/, , y Citizens-$.61 per share) ... . . ....., ,
i .'M,940) ( /s59,340L ,,
.j Stock issued (preferred-1,4 li,790; comrnon- '
-1.119,704): 3 . C 10,891 - '
Dividend reimestment and err.ployee benefit plans . 9 1,607 9,27) > Conversion of preferred stock . , ,. .. t10 3 . .< 10'? (96) . Plan of merger . .. ......,.. . .. 1,414 c 3,884 5$,958 s .f 59.256 L Imi, :
~ .
Transfer to reHect three.for.two stock split , . . 0.630 4.668 ?/10,298',. D. Net foreign currency translation adjustments . .. (335) -(335): Balance at December 31,1984 . . , . . $1,5M $1561'27 $17),419 "
;$4 798,711 3(226) $ 1.125.956 i
' 228,831' 228,831 l Net income . . . . . . . . . ... , .
l Cash dividends declared: . . Preferred stock ... .. . .. .... . P',216) ..I6.216) Common stock (PNC Financial-$1.28 per sharm , Citizens-$.69 per share) , ,. .
. ,, 3 y ,.
.(73.070) v73.070)
Stock issued (preferred-1.948,366: common-- _ 2,273,800): i Exercise of warrants . . ... ....s ...... I10 , 741 4,4751 , 5,35V
;15 2,437 13,730 .!6,18; N-Disidend reimestment and employee benefit plans .
Conversion of preferred stock . . 441 (393)' C
. . . (48)
Comersion of debentures . , . , . .. _ 999 '.4,427 5AM M Plan of merger ... .... ...
, 1,841 6.751: 60,211 -
% 203 P Warrants assumed under Plan of merger . .
1,2 U 4 9 3* ( Transfer to reRect two.for.one stock split . . 117,701 '(117,701) ,. s Transfer to reflect three.for two stock split , , . 23,'i l 8 . 7,016 0 0.804) C
~
Net foreign currencv translation adjustments . ... .. . 221 221. Balance at December 31,1985.. . . .. . . , . $3,473 $308.9i3 Md5.d97 $ 917,6U $(226> $1,375,752' Net income . . . .. . . 286,301- 286,307 - Cash dividends declared: ' I'@. (6,085) , (6,086) Preferred stock ,,. . Common stock (PNC Financial-51.47 per ihne;
;((
4 Citizens-$.80 per share) .. . g86,997) - (86.997F Purchase of treasurv stock (common-14,7 M) s (669) (669) 2 Stock issued (preferred-142,816; commor.- ~" 4.093.183): " Exercise of warrants . .. ... . . 1, . . 29' 2W '825 1.119 ' hC) Dividend reinvestment and employee beitefit plans .- 1 4 a 3.835 - 18.868 669 23,436 Con ersion of preferred stock . .. (176) 4 873 (60; . . ine, Comersion of debentures . . . . . . . . o , 4,902 18,W L ,21943 t,. Plans of merger . ........ , . . . . 10.533' 27,9.'4 19.361 57.316 3. l Net foreign currency translation adjustments . . . . _- _ _ . . . . , .
-4 . 4 ,
Bilance at December S t.1986 . . ,,.i.. $3,330 $329,3F.1 ! $230.8';d * '$1 t30 262 . , $(226) $1443,600 L
-.m s::::xec.r=..ua e c= ~ w= :=rtz: =:: - g, :
See aaompanynnt Notes to Comkned Conschdated fumsmi Stawme u. > .c t;
' n l:.
Inci a, a nz
* %v o, L
. .' t i
e
')
r
, ' V i
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.(. J 30 , o ., ,
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e 1
.j
, @wnt CORP AND St'B5f DIARIES gighilled C ago idated li Pl" U m i w ys in F iom ;,p iM . ,y g ,i,..ound' -
' Q ,,rlallu enk 3I I986 IW l'n 4 l
.. 'I ncial resources were provided by (applied to): .
i 'Pd ."gn mo,me ent .4 .. . .. ... . $ 286,307 5 228.831- $ 177.198 I',,,nnin ,dp Hemslor tredu losses, not reqmrmg hnancial resources deprecation. amortization and
. . 201,254 133.852 83.865 Ghl resoutces prosided b5 operations . . 487,561 362.683 201.063 ;.I g,,.h diudends declared . (93.083)' (79.286) '161.804) .;
Ttmanual resources prosided bs operations 394,478 283.397 199.259 . ;. ; [Ideocase) m deposus and other financing acthities: ; pcpouto 1 pemand and other non interest bearing deposits . 768,024 254.513 415.592 l [ntoest bearmg demand .. . . 201,298 133.696 267.022 (omgs.. . . .60,366 (45.451) (287,960) giones market deposits . . .. 550,341 502.027 '351,378 segonable certificates of deposit . 1,235,064 679.896 357.491 ! Other ume . . . . . (227,196) 187.766 3 4 4.6'"> ! pepouts in foreign offices . . . , . 27,275 100.789 (282.249). 1 peposits acquired in mergers . 361,493 1.573.070 755.980 1
~ Imrease in deposits . . . . 2,976,665- 3.406.306 1.921.876 l gn,rt.ierm borrowings . 765,253 962.323 908.470
- l other borrowings . (227,664) (14.84I) ( 1.722) -
I other liabihties acquired in' mergers . 5,422 32.115 59.087 l l pnaceds from debt issued .. .y . 368,111 134.253 I comeruon of preferred stock 'and debentures . (23,816) (5.867) t 107) soisk issued in mergers . . 57,816 93.046 '59.256 y.,mmon stock issued 47,702 27.405 10.998 j i haal hnancial resources prosided bs deposits and other ! hnanang acusities . 3,969,489 4.634.740 2.957.858
.im rea e> decrease in nonearning assets and liabilities:
(: ash and due from banks (475,077) (254.390)' (336.369) ISemnes. equipment and leasehold improvements, net (38,937) (44,146) < 32.237) uiher. net . . . 12,354 (5.64 2) (13.856) Net nonearning assets and liabilities acquired in mergers . (15.127) (161.299) (81.914) Daal hnancial resources applied to nonearning assets . (516,787) (465.477) (464.376) l increase in financial resources invested in earning assets . $3,847,180 $4 452.660 52.692.741 increase (decrease) in earning assets: , l imerest bearing deposits with banks . . . . . . $ 109,412 $(410.492) $ (379.492) i tederal funds sold and resale agreements . (81,772) * (67.180) (19.258) l Irading account securities .. . . . (547,943) 344.751 (166.846)
\longages held for sale . . . . . .. .. . (131,664) (31.975) (36.701)
Imeument securities .. . . . . 1,302,473 - 1.378.138 530.163 loans. . . . . . . , . . 2,805,999 1.668.244 1.992.466 f arning auets acquired in mergers . . . 390,675 1.571.174 792.409 locrease in earning assets . $3,847,180 $4.452.660 $2.692,74 l L . . l 1 L 'ounmpan.weg Notes to Combmed Coroolidatrd Fmannal Statementt 1
)
1.
~m Notes to Cornbined Consolidated Financisi Staternents
- Au dollar amormts preunted m the tabln air m Ihomands ruept m otherxm owted. i j
Combined Consolidated Financial Statements financial rutures and Swaps: Interest rate futures and for- { ward placement contracts purchased or sold for the trad. ' In. i The combined consolidated fmancial statements give ret- ing account are valued at market, and any resulting gains ' a re j roacthe effect to the merger of Citizens Fidelity Corpora. or losses are included in trading profits. .
'im l tion ("Citizensf) with and into a subsidiary of PNC Finan- Financial futures are used to hedge asset and liability th cial Corp ("PNC Financial").This transaction has been positions. Such transactions are characterized as general tio accounted for on a pooling of-interests basis, and such hedges, are valued at market, and any resulting gains or (W hnancial statements are presented as if the merger had losses are included in other income. Financial futures are it been consummated for all the periods presented. These also used as specific hedges and accordingly, gains and att ,
combined consolidated financial statements and related losses are deferred and amortized oser the remaining life an . I notes thereto are presented as supplemental information of the hedged asset or liability, . le. to the audited historical consolidated fmancial statements Net amounts receivable or payable under interest rate and related notes thereto included on pages 61 through swaps that are specifically designated as hedges are Pe
- 76. As required by generallv accepted accounting princi- recorded as adjustments to the interest income or expense - ~ FH 3 ples the combined consolid ted financial statements will related to the hedged asset or liability. @j become the historical consolidated fmancial statements Itu l upon issuance of consolidated fmancial statements for the Mortgages Heldfor Sale: Mortgages held for sale are carrier #*
period ended March 31,1987. at the lower of aggregate cost or market value. Gains and losses on mortgages held for sale are included in other I' 1 Accounting Policies income, f"' i tra i The accounting and reportiag policies of PNC Financial " I Loans: Loan interest income is accrued on the principal and its subsidiaries, including Cinzens, conform with gen-amount outstanding, except for interest on installment erally accepted accounting principles. A description of the # "' loans and lease fmancing income which is recognized on sigmficant accounting policies is presented below. the sum-of-the months digits method which results in lese , Basis of Presentation: The combined consolidated fmancial statements of PNC Financialinclude the accounts of PNC rates of return over the terms of the loans and leases. The accrual ofinterest on loans is discontinued when,in Nl management'sjudgment. it is determined that the collec. " Fmancial and its subsidiaries (substanually all of which are l tion ofinterest, but not necessarily principal, is doubtful. w holly-ow ned).
. Accrued and unpaid interest for the current sear is E All significant intercompany accounts and transacoons '
charged against current income and any interest accrued gI hate been eliminated m the combmed consolidated finan. and unpaid for prior periods is charged against the allow- 4 cial statements. ance for credit losses, The accrual basis of accounting is used except that cer- bei l tain sources of resenue are recorded on the cash basis, the Allowancefor Credit losses: Management regularly reviews resuhs of w hich approximate the accrual basis, the loan portfolio, letters of credit, acceptances, loan com- ini
. mitments, and other fmancial guarantees and prosides for on Securities: Investment securities consist of debt, equity and credit losses based on experience and management's esti- no .
other securities. Debt securities are carried at cost adjusted mate of potential losses, nu for amorozation of premium and accretion of discount to l maturity. Marketable equity securities are carried at the Depreciation and Amortization: Depreciation and amortiza-lower of aggregate cost or market value. Trading account tion of premises, equipment and leasehold impros ements the securities include debt securities and other investments are computed principally by the straight line method for the held for trading purposes and are carried at market value. fmancial reporting purposes and by accelerated methods the Gains and losses are computed principally on the specific for federal income tax purposes. idenufication method
- Intar.pble assets, which are included in other assets, are amortized using accelerated and straight line methods over the estimated usefullives of the respective assets.
32
> c, ,
h ?c ; 1 3 i faxes: Certain item 7 ofincome, expense and credit Mergers and Acquisitions-I"",,luded in one reportmg penod for financial account. or'"' oses and another for income tax purposes. Citizens Fidelity Corporation .
- "d r J income taxes are provided in recognition of these On February 27,1987, Citizens, a Kentucky bank hold.
100 ing company, was merged with and into a wholly owned frerences. Insestment tax credits are accounted subsidiary of PNC Financial. Under the terms of the
""fi[ the flow through method as a reduction of the provi, ~
f i dits merger, each share of Citizens common stock outstanding l "'" tur income taxes, except or ns estment tax cre ' on such date was converted into .77 share of PNC Finan- i butable to lease financing activities which are deferred cial common stock. PNC Financialissued approximately . i i
'"$are being amortized to income over the lives of the l d" 15.8 million shares ofits common stock and cash in lieu of b"# fractional shares for all of the outstanding shares of d Citizens The following presents income information of p,,, ion Plan: In 1986, the provisions of Statement of 'he Separate compames:
hn.unial Accounting Standards No. 87. Employers'
- wanting for Pensions, was adopted. The plans are . ro, vi, yar ended exc co 3y,,d Dnember 31.1986 rinanaal Cettuns ConwInded j
,nnded on a current basis to the extent deductible under $560,696 $689,392 Net interest mcome $128.696 l
** ting federal tax regulations. Net mcome 237.382 48,925 286,307 j jg prign Currency Translation:The financial statements of Indiana Acquisitions .
g, reign subsidiaries, expressed in foreign currencies, are During 1986, Citizens acquired one bank and one bank ,
,,anslated into U.S. dollars. Asset and liability accounts are l uanslated at year-end exchange rates. Income and expense holding company located in Indiana (" indiana Banks").
Under current Indiana law, Citizens is required to divest
. nems are translated each month at the prevailing month.
the Indiana Banks within two years of consummation of the end rates. Adjustments resulting from such translations are
.harged or credited directly to retained earnings, net of merger with PNC Financial. As a result, the transactions el have been accounted for using the equity method and the ihe hins or losses from hedging positions and net of combined consolidated fmancial statements do'not reflect
;ppinable tax effects. Exchange gainrand losses on for, in an currency transactions are reflected in current the accounts of the Indiana Banks. All of the stock of these l institutions was acquired using stock and cash for a total I operations.
recorded investment of approximately $36 million, w hich ' l Earnings Per Common Share: Primary earnings per common is included in other assets. On a combined basis, the Indi. ! hare is calculated by dividing net income less preferred ana Banks' total assets were $384 million and sharehold-ooik dhidend requirements by the weighted average num. ers' equity was $27.2 million. her of shares of common stock outstanding during each penod. Other Mergers and Acquisitions i Fully diluted earnings per common share is based on net During 1985, one bank and three one bank holding
'- income adjusted for interest expense (net of tax) on companies were acquired with assets aggregating $ 1.8 bil.
r outstanding convertible debentures and dividends on lion. All such transactions were recorded under the pur. noncom ertible preferred stock. The weighted average chase method of accounting. number of shares of common stock outstanding is In addition to the Indiana Banks, four banks were imreased by the assumed conversion of outstanding con. acquired during 1986 with assets aggregating $400 mil-r scrtible preferred stock and convertible debentures from lion. Three banks were acquired in transactions accounted
+ 4 beginning of the year or date ofissuance,iflater, and for as purchases. One bank was accounted for as a pooling :
the assumed exercise of stock options and warrants using ofinterests, except that the financial statements were not l ihe treasury stock method. restated since the effect was not material. There were two acquisitions consummated in February l 4
^c 1987, with assets aggregating $122 million. These transac.
l tions will be accounted for as poolings ofinterests except l that the financial statements will not be restated since the I effect is not material. l
'33 ;
I i i Csmpleted Divestiture - Loana 1
, 3 11 o .
On Stay 30,1986 PNC Financial completed the sale ofits # Loans and lease financing are comprised of the following mortgage banking subsidiary, The Kissell Company, for categories: Chd"
$103.2 million in cash. g,,,,3,, 3 , ,,,, ,g g- !
.. Loans: On milhonsO I "
Invcstment Securities nom,,,ic $; ;< Commercial ,. S 9,148.4 The carrying and approximate market values of..mvest- $ 7.3222 Real estate construction . 956.1 5936 RU-ment securities were as follows: Real estate mortgage . 1,378.3 1.107.; N i 1986 1985 nuaHrnent .97 .6 2.4196- I. ' . December J1 Sfonev market , , 212.9 302.0 gal.ui. Can ing Market Carrwig MarArt Foreign ' 826.1 ===== l ue Value l'alue l'alu' , 71)i ' Unearned income (283.6) (267h U.S. Treasury , $3,501.3 $3,5 10 $ .107.0 $3.167.3 ans, net f unearned scome . 15,208.8 E3 U.S. Gos ernment lease Snancing: agencies and Lease receivables i . . 429.7 3283 corporanons . 1,966.4 2,031.5 637.8 678.6 Estimated residual value . . . 36.8 18 g Noud State and municipal 1,305.2 1,329.2 1.661.4 1.625.1 Unearned income (72.5) (4g incon Corporate stocks: Lease 6nancing net of unearned income -. 394.0 '300 7 lodth Starketable equities . 106.6 208.7 107.2 214.5 Total. net of unearned income . orittit
$ 15.602.8 $ 12.587J Other. 25.0 24.7 34.5 33.4 m ,estig Other 169.8 174.1 100.3 104.7-Total The minimum future lease payments receivable for tio" l
- $7,074.3 $7.329.2 $5.648.2 $ 5.823.6 i each of the years 1987 through 1991 are approximately
$101.8 million, $92.2 million, $77.6 million, $60.1 mil. the re y, Data related to marketable equity securities follows:
lion and $37.2 million, respectively. lu Durmber JI 1986 1985 Certain directors and executive o$cers of PNC Finan- 9,nm . Gross unrealized gains . $107,011 $108.025 cial and its significant subsidiaries as well as certain affili. Re in Gross unrealized losses (4,927) (666)
.iggregate co,i 106,580 107.155 ates of these directors and officers were customers of, ~E i 1
and had loans with, subsidiary banks in the ordinary
.iggregate market salue $208.664 $214.514 course of business. All such loans were made on substan. i"$ ;
tially the same terms, including interest rates and collat, intere
.The following table presents the composition of net eral' as those prevailing at the time for comparable
^'
equity and other secunty gains: transactions with other persons and did not involve more Fer she var inded Derrmber Jl 1986 1985 1984 " than a normal risk of collectibility. The aggregate dollar Net gains on marketable equity amount of thest loans was $174.0 million and $142.9 P' secunnes $20,875 $15.408 $ 13.630 million at December 31,1986 and 1985. respectively. N gains dosses) on other secun. m During 1986, new loans of $272.3 million were made and 08 208 d repayments totaled $241.2 million. At December 31. Total . $31,383 $ 15.181 $ 13.838 # ' 1986, there was $11.9 million of potential problem expo-sure to affiliates of R.J. Wean,Jr., a director of PNC Pren Financial, $10.4 million of which represents collateralized g* extensions of credit and $1.5 million represents standby - .d. letters of credit. In addition, there was $8.5 million of Prem potential problem exposure to an affiliate of Harry at co. LaViers,Jr., $8.0 million of which represents collateral- were ized extensions of credit and $.5 million represents "'*# standby letters of credit. hir. LaViers is a director of a subsidiary company. - ['"" uI l
%ng M
es"ta 1 l 34
1 aj i t i ! ( I Depreciation and amortization expense on premises,
! .tilo wance for Credit Losses -
equipment and leasehold improvements, including amor- l in the allowance for credit losses were: tization of capitalized leases, amounted to $33.6 million
' in 1986. $28.3 million in 1985 and $22.1 million in 1984. 9 f,,itw,msn si 1986 19s5 193;
$178.091 $136.406 $106.876 Certain facilities and equipment are leased under short nnmg of sear G"" " acquired m mergers 1,525 14.105 4.032 and long-term lease agreements expiring at various dates (81,350) (60.403). (29.417) to the year 2023. Substantially all such leases are i h"' #" .,. 8.823 15.564 7.711 accounted for as operating leases. Rental expense on 3 "' rge.oirs -(72.527) (44.839) (21.706) such leases amounted to $30.0 'million in 1986, $26.8 143,765 72.419 47.204 million in 1985 and $23.1 million in 1984. Required min-
- imum annual rentals due on noncancellable leases having hn tur
%======-
end credit otacar . lo**es -
$250.854 $178 091 $136.406 terms in excess of one year approximate $153.9 million in the aggregate at December 31,1986. .\linimum annual N0naccrual and Restructured Loans and . rentals for each of the years 1987 through 1991 are .
Other Real Estate approximately $20.9 million, $17.1 million. $14.6 million. I
$12.6 million and $10.0 million, respectively.- ,
[naurual loans are those loans on which interest ie is recorded ontv when received. Restructured represent those debt transactions for which the Repurchase Agreements
.,nonal interest rates, repay ment terms, or bo't h, were PNC Financial enters into sales of securities unde: agree- 1 g,iructured due to a deterioration in the fmancial cond.i. ments to repurchase which are treated as fmancings and .
l non of the borrower. the obligation to repurchase such securiti. s sold is liaal nonaccrual and restructured loan balances and reflected as a liability in the combined consolidated bal. ae related yearly interest data were as follows: ance sheet. The dollar amount of securities underlying g,,,3,, s i 1986 1935 1984 the agreements remains in the respective asset accounts. Cn.mrual . $185,514 $ 147.478 $ 109.373 Repurchase agreement information, including accrued n oruc tured 46.633 40.898 23.783 interest, was as follows:
,,ul $232,147 $ 188.376 S l33.156 December 31,1986 .f urts Sold Repuerhair Len6,im Imsress somputed at Camung - Market intnnt
.inonal termi . $ 22,443 $ 22.282 $ 19.330 Matunty/Tipe of.4 net - .4 mount l'ius a .4 mount Rair imerest recognized . 8.922 9.31) 7.090 Next business day.
U.S. Treasury I At December 31,1986. there were no significant securities . $ 940,153 $ 959,402 $ 945.037 12.56 % outuanding commitments to lend additional funds with U.S, Government agency securities 79.377 82,274 79.953 9.70 respect to nonaccrual and restructured loans. Other real estate, which is included with ,other assets, is 3 to 30 days: S urned at an amount not in excess of estimated fair value '[,"'Y . 612.299 618.597 617.020 6.96 and amounted to $10.3 million and $18.0 milhon at U.S. Government December 31,1986 and 1985, respectively, agency securities 120.195 123,106 120.882 7.12 31 to 90 dass: l Premises, Equipment and Leasehold U.S. Treasury Improvements secerities 660.261 665.556 666.436 5.77 U.S. Government agency secunties 1.015 1.056 1,038 6.59 Premises, equipment and leasehold improvements, stated Over 90 days: at cost less accumulated depreciation and amortization, I were as follows,' U.S. Treasury securities 266.379 266.431 265.362 5.61 l_hrmber il 1986 1985 Deman3: land . $ 26,392 $ 22,159 U.S. Treasury limldings . . 166,238 160.616 securities 6.384 6.481 7.722 5 87 Lympment . 165,006 149.620 U.S. Government 13 aschold improvements . 49.620 41.721 agencv secunties 143.749 146.348 14i.735 15 88 407,256 374.116 Totals . $2.829.812 $f,869.251 $2.845,185 8.96 % Juumulated depreciation and amortization . (154,380) (132.271) yet hnnk salue $252,876 $241.845 35
,;, s , ,
q, , , a m,,# , .. , Other Borrowings The 8% % Convertible Subordinated Debentures Due 10 "" .l 2008 ("8% % Debentures") are convertible at anytime Other borrowings represent obligations with onginal prior to maturity into PNC Financial common stock at I*
.uturities exceeding one year. Other bortow ngs i were as $23 per share. The 8% % Debentures are redecidble ai "'I lollow5: the option of PNC Financial at 105.8% of the principal l
amount declining in annual increments to-100% on %Ia,
..p m,,,bn ji 1986 1995 P: rant compas.y 15,1993. The debentures are subordinated in right of payment to all senior indebtedness of PNC Financial.
""hfi '
114% Nues Due 1989 redeemable after ,(y." ., l i Nm ember 14.1987. ,
$ 49,937 $ 49.919 Interest on the Floating Rate Subordinated Notes Due 'g7 n 1
! 3% % Comer 6lc Subordmated 1997 is payable quarterly at a rate of S of 1% per I"'"' l Debentures Due 2008 23,677 44.574 at'num above the London interbank offered rate for 100,000 100.000 three-month Eurodollar deposits and is reset quarterly.I, [. , e D e 1997 6 25 at sear end) . no event will the rate be less than 5% % per annum. At l subsidi:rie" maturity, the notes will be redeemed from amounts accumulated from the issuance of common or perpetual salSfe eo ga on ih r ng maturities through 1988, at vanable Preferred stock or cettain other securities of PNC Finan. At rates (weighted aserage rate of 6.55% cial and maintained under a segregated fund of invest. lu>la j and 8.05% at year-end) and secured ments. The fund will not constitute security for the notes in ir.n i' bv student loans 173,000 73.000 and income on such investments will be paid to PNC of P.N 35,340 99.990 Financial and will not be part of the fund. Subject to cer. lion
- t 65 nd 835 at r.end)
Floating Rate Notes Due 1995 tain exceptions, PNC Financial must deposit sufficient iired . q (6.34% and 7.77% at Scar end) 31,800 99.965 amounts into such fund so that the fund balance will,'at lion - 'I 8% % wtes Due 1996, redeemable the interest payment dates in Nfarch 1989 and Ntarch l'N ! aRer Ntarch 14.1993 158,661 tand l 1993 and at least 60 days prior to the fmal maturity of 14%% Austrahan Dollar Notes ' the notes in af arch 1997, be equal to at least one third. 39,450 Sc8 ie ) two thirds and the full amount, respectively, of the origi. StotL HW% Comernble Subordmated Debentures due 2005 23,950 26.000 nal amount of the notes. At December 31,1986, $30.0 terrei h eilaneoui 71.558 51.434 million had been deposited into the segregated fund. The PNC l Total $747,373 3544.882 notes, net of the segregated fund ofinvestments, are eli. rerfet gible to be treated as primary capital in the determina. Sl"d tion of capital adequacy by the Board of Governors of the 'i""/ N! miscellaneous borrowings include capital notes, mort- Federal Reserve System. .o du l gage notes and various other borrowings, with rates The two series of floating rate notes, Floating Rate 19f9 l SC" ranging from 7.75% to 10.11%. Notes Due 1992 and Floating Rate Notes Due 1995, are During 1986, PNC Funding Corp issued $200 million guaranteed by PNC Financial. Both series bear interest at d"i( PE of 8% % notes due in 1996 ("8% % Notes"). The 8% % a rate which fluctuates above the weekly 91-day Treasurv U."" Notes are considered as secondary capital by the Board bill auction rate (1992 series-62.5 basis points: 1995 of Gosernors of the Federal Reserve System in calculat- series-50 basis points). The spread above the Treasury k ' .' '. ing capital adequacy ratios. Interest on the notes is pay- bill auction rate on the Floating Rate Notes Due 1995 3Y" h."'" able semiannually and the payment of principal and inter- may be changed on October 14,1989 and 1992. The est is unconditionally guaranteed by PNC Financial, Floating Rate Notes Due 1992 are repayable at par on 1 During 1986. PNC International Financial Services Limited issued A$60 million of 14% % Australian Dollar April 14,1989 at the option of the holder, and are not subject to redemption by PNC Financial. The Floating
]lsto k-Notes due in 1989 ("14 % % Notes"). The 14% % Notes Rate Notes Due 1995 are repayable at par on October T1' are unsecured obligations of a foreign subsidiary and the 14,1989 and 1992 at either the option of the holder or *'"
payment of principal and interest is unconditionally guar- PNC Financial. anteed by PNC Financial. Interest on the notes is payable D~ The 8%% Convertible Subordinated Debentures due semiannually in arrears commencing on Niay 17,1987. December 31,2005 ("8 % % Debentures") are convertible Prefei The foreign subsidiary may redeem all of the outstanding anytime prior to maturity into PNC Financial common notes at face value should such subsidiary be required to pay additional amounts to note holders with respect to stock, subject to certain adjustments, at $28.57 per share. The 8%% Debentures are subordinated in right of pay-f'((e' p neie, certain taxes imposed on the semiannualinterest ment to all senior indebtedness of PNC Financial. The i
===
payments. The 14%% rate represents a competitive rate 8%% De'oentures are redeemable at the option of PNC , for 3 Sear Australian dollar borrowings. ~i 36
4 1
!~
3 f l I jal at 104"L of the principal amount beginning At December 31,1986, there were 82,221 warrants j i
' U"d her $1,1990 and declining in annual increments outstanding. The warrants are exercisable at a price of $38 P" 31,1993. In addition, the 8%To per warrant through August 31,1988 and a price of $40
' [g on December per warrant through the date of expiration on August 31.
Wg.nwres are redeemable at various times and at vari- 1993. 1 yuemages under certain specihed' conditions. _ her borrowings. on a combined consolidated basis, Convertible security holders are entitled to the following
. ,(heduled repa3ments and sinking fund require- conversion privileges: (i) one share of Preferred Stock-A -]
or Preferred Stock-B is convertible into four shares of- ; t fh,;bir the$95.6 million, years million.1987 through 52.3 million 1991 of $3.0 million, and 52.3 mil- . common stock: (ii) 2,4 shares of Preferred Stock-C or - '
?
respectnelv. Other borrowings, for the Parent Com- Preferred Stock-D are convertible into two shares of com-
" mon stock:(iii) outstanding warrants represent the right to f"h imt hase 4gements uheduled of $53.3 million in 1989. repa>ments and sinking fund receive, upon payment of the exercise price,1.8 shares of common stock and one rhare of Preferred Stock-D: (iv) shareholders' Equity 8% % Convertible Subordinated Debentures Due 2008 are convertible into emmon stock at 523 per share: and (v) l 3t the annual meeting held on April 22,1986, the share. the 8% % Convertible Subordinated Debentures Due 2005 1 5,lders approsed an amendment to the Articles ofincor- are convertible into common stock at $28.57 per share. ;
.,,,nmon which increased the number of authorized shares There are no conversion privileges associated with Pre- 1
( pNC Financial common stock, par value 55, from 60 mil- ferred Stock-E. 3,n shares to 100 million shares and the number of autho- PNC Financial has a dividend reinvestment and stock med shares of preferred stock, par value S i, from 5 mil- purchase plan. Shareholders of preferred stock and com-3,,n shares to 10 million shares. mon stock may participate in the plan which provides ' that
' i rNC Financial has the series of preferred stock out- additional shares of PNC Financial common stock may be i
,nmding. $1.80 Cumulatis e Comertible Preferred Stock- I purchased with reinvested dividends at a 5 percent dih woes A and Series B (" Preferred Stock-A and Preferred count from market value and with voluntary cash payments sn,a-- B") has e a liquidation value oT$40 per share. Pre- at market value. Prior to the merger with PNC Financial, 1 l wned Stock-A may be redeemed anytime at the option of Citizens had a stock purchase and dividend reinvestment 1 psc Emancial at 540 per share. Preferred Stock-B is not plan which provided that shareholders of common stock l irdeemable. $1.60 Cumulathe Comertible Preferred and checking account customers could acquire shares of so,d-Senes C (" Preferred Stock-C") has a redemp* Citizens common stock. On the effective date of the l"
i u .n/hquidation value of $20 per share and is redeemable e the option of PNC Financial any time after February 1. merger, such plan was terminated and any remaining obli-Kations were assumed by PNC Financial.The followit.g mm S t.80 Cumulath e Convertible Preferred Stock - number of shares of common stock were purchased pur- l se ries D FPreferred Stock-D") has a redemption / liqui- suant to both plans: 230.428 shares in 1986,226,610 !
- d. mon salue of $20 and may be redeemed at the option of shares in 1985 and 437,967 shares in 1984. ,
UNC Financial anytime after February 1,1990, $2.60 At December 31,1986 PNC Financial had reserved i umulaine NonNoting Preferred Stock-Series E (" Pre. 8,610,433 shares of common stock to be issued in connec-terred Sto(k-E") has a redemption / liquidation value of tion with pending mergers and under the dividend rein-W.73 per share and is redeemable at the option of PNC vestment plan, employee stock purchase plans and upon hnancial am time after February 1,1990. the exercise of warrants and the conversion of certain debt iloiders of preferred stock (except Preferred Stock-E) and equity securities,
.ae entitled to a number of votes equal to the number of An analysis of the changes in accumulated foreign tull shares of common stock into which such preferred currency translation adjustments follows:
iod is com ernble. t he number of shares of preferred stock outstanding by for rh, vear ended Durmber J 1 1986 1985 1984 enes was as follows: $(1,499) $(1.720) $(1.385: Beginning of vear l_ W n il 1986 1985 Translation adjustment gains (losses), ! Prricrred Hoc k-A 52,188 58.499 net of hedges . . 77 734 t478) ! I' referred Noc k-B 19,773 22.258 Applicable income taxes (benefits) . 73 513 (143) Preterred Smck-C 1,340,741 1.416,668 . Net change for the scar . 4 22I (335) Preterred Stock-D 1,579,356 1.637.449 End of scar . $(1,495) $(1.499) $(1.720) l Preferred Mmk-E 338,100 338.l00 3.330,158 e lotal 3.472.974 1 37- - _ _ - _ _ _ _ _ - _ - _ - _ _ - - _ _ _ - _ _ _ _ _ _ _ _ - _ _ _ _ _ _ - 3
s Employee Benefit Plans The weighted average discount rate and rate of increase in future compensation levels used in determin. PS A qualified profit sharing plan is maintained for all ing the actuarial present value of the projected benefit 80 * ' employees, excePt Cmzens employees, meeting certain C# obligation at December 31,1986 were 7.50%' and 6.00%' age and service requirements. Contributions and cost are respectively, for PNC Financial and 8.95% and 5.50% I ' determined by formulas based on annual earnings as respectively, for Citizens. The expected long. term rate of Pri defined in the plan. Citizens has a contributory Thrift return on plan assets in 1986 was 7.50% for PNC Finan. '"' Plan cosering substantially all of Citizens' employees
- cial and 8.95% for Citizens. ""
Emploser contnbutions to the Thrift Plan are based on The actuarial present value of accumulated plan bene. IS 1 3% of participating employee base pay. In addition, vol. fits for the defined benefit pension plans at December 31' P" I untary employee contributions are matched by the 1985 was $102.8 million based on a discount rate of ""' i employer as set forth in the Plan. Expenses for both 7.50% for PNC Financial and 9.60% for Citizens, includ. I plans were $23.3 million in 1986, $19.1 million in 1985, and $14.2 million in 1984-ing vested benefits of $93.8 million. The plans' net assets available for benefits were $188.7 million.
'"{l "I
PNC Financialand Citizens sponsor defined benefit pension plans covering substantially all employees. The During 1986, PNC Financial established an unfunded ""', nonqualified supplemental executive retirement plan ) plans provide pension benefits that are based on the covering certain key officers of PNC Financial and its sub. ! average of the highest base salary for five consecutive sidiaries. Under the plan, approximately $1.7 million was l years duting the last ten years of credited service for expensed in 1986. "", PNC Financial and the highest aserage monthly earnings In addition to providing pension benefits, PNC Finan. in any 60 consecutive months for Citizens. subject t cial and its subsidiaries provide certain health care and ERISA limitations. Pension contributions are made to the life insurance benefits for retired employees. Those and extent deductible under existing federal tax regulations. 'g$. 1
, similar benefits for active salaried employees are pro.
In 1986 t he Statement of Finar.cial Accounting Stan. dards No. 87-Employers' Accounting For Pensions was vided through an insurance company, the premiums bi adopted. This had the effect of reducing 1986 pension being based on benefits paid. The insurance premium id ! expense for providing such benefits for approximatelY suc l expense by $5.1 milh.on, pnmardy due to a change from 2,300 retirees and 10,300 full time salaried employees gl the entry age actuarial cost method to the projected unit was $11.6 million for 1986. The cost was $10.4 million in ! cost method. Pension expense of $7.3 million and $11.1 million for 1985 and 1984, respectively, and related data, 1985 for approximately 2,200 retirees and 10,400 full time salaried emplosees and the cost was $13.7 million in 1t l hage not been retroactively restated. i 1984 for approximately 1,500 retirees and 8,900 full time - I The following table sets forth the plans' estimated funded status: salaried employees. The cost of providing such benefits I""! I for retirees and full time salaried employees cannot be \' I [)nember 31 1986 separated. ( Actuanal present salue of accumulated benefit obliga. non. including sested benehts of $113.164 . $123,056 PNC Financial has an employee stock purchase plan iT 4 which covers a maximum of 2 million shares of PNC Finan. t cial common stock. Persons who have been continuously Actuanal present salue of projected benent obligation employed by PNC Financial or certain ofits subsidiaries for seruce rendered to -date $182,915 \ for one year are eligible to participate. - Plan assets at fair value-pnmanly listed common stocks. L' S. Gosernment and agency secunties, and Offering periods pursuant to the plan cover 6 month Periods fromjune 1 to Nove,mber 30 and December I to Is collectise funds (248,371) , Plan assets in excess of projected benent obligation (65,456) May 31. Common stock is purchased at the lesser of 85% C t,nrecognued net gain from past experience ddferent from that assumed and effects of changes in assumpoons . . . 16,784 offering period. During 1986, a total of 115,343 shares were issued to participants at prices of $29.43 and $34.96 M t'nrecognued net asset at January 1.1987 50,793 y" per share, a total of 125,130 shares were issued in 1985 at m Accrued pension cost included in other liabilities . $ 2,121 prices of $18.75 and $24.60 per share and a total of pro 129,308 shares were issued in 1984 at prices of $ 15.94 and ,"( P Net pension cost included the following components: $16.15 per share. No charges to earnings have been made with respect to such plan. ., For the star onded Dnember 31 1986 anc
'seruce cost-benents earned during the penod $ 9,603 Stock Option Plans Interest cost on projected benefit obligation . 12,895 ytual return on plan assets (35,256)
Net amororanon and deferral PNC Financial has a stock op ion plan (" Option Plan") 15.004 which covers a maximum of 900,000 shares of common Net penodic penuon cost . $ 2,246 stock that may be granted prior toJanuary 1,1992. The Option Plan provides for the granting ofincentive stock options and nonqualified options. PNC Financial also 38
b I I i 1 l i d k i l Income Taxes 7""ied outstanding ob igat ons un er stoc opt on p ans !
" #""ection w ti h merging Starine Bancorp Inc., North-The current and deferred portions of the income tax pro- I Bancorp. Inc. and Citizens.
# visions, including the tax effect of securities transactions, r the Option Plan, options are granted at exercise l were as follows: '
. not less than the fair market value of PNC Financial
""[m,on stock on the date of grant. Options may not be for th, s,ar ,nded December 31 1986 19s5 19s4 current:
he,ised fordatesix
,rs after the months of the after grant. Payment of thethe option date ofFederal grant, and expire$60,273 Foreign . 5.190
$41.313 $34.925 3.123 7.347 e inas be made in cash or shares of PNC Financial com. state 4,487 1.614 1.247 "h,tock salued at fair market value on the exercise date.k appreciation rights ("S ARs") ma Total current 69.950 48.050 43.519 rentiv with any option granted. SARs entitle the holder Deferred:
Federal (23,465) 7,967 1.728 l he related option to surrender the option and, in lieu of Foreign 681 804 1.315 rcising the option, to receive shares of PNC Financial (22,784) Total deferred 8.771 3.043 mon stock having a fair market value equal to the Total $47,166 $56.821 $46.562 gess of the fair market value of the shares subject to the J
..puon oser the option price of such shares. PNC Financial Applicable to:
Operations . $28,788 $5l 585 $43.923 I me. at its discretion, make all or a portion of such pay- . securities transactions:
.unt in cash. SARs were granted concurrently with respect 8,736 Quity and ther 4.215 3.929 "tock options granted in 1986.1985 and 1984. Debt 9.642 1.021 (1.2901 ;
so charges to earnings have been made with respect to i Total $47,166 n6.821 $46.562
,i,e opnons granted or exercised under the stock option plans. Compensation expense resulting from the valuation The components of deferred income taxes (benefits) I ,,1 SARs was $154 thousand iri 1986 and $872 thousand in which result from timing dirTerences m. the recognition of i
I ip83. .N.o compensation expense was recorded in 1984 as revenue, expenses and credits for tax and fmancial uh saluation was not material. reporting purposes are as follows: l'he following table presents share data related to stock For 'h' war inded Derrmber 31 1986 1985 198J opuun plans: Lease fmancmg . . .$ 5,052 $ 12.014 5 6.420 Optmn Pnce Ham Provision for credit losses (27,249) (8.645) t 10.363) Per Common Share * .C.ommon Prrferred Investment tax credit 2.634 6.631 5.681
. $ 9.81520.22 543,833 Other-net . (3,221) t1.229) 1.305 Unuan 1.1984 .
(, ranted l7.96 22.38 331.254 Total $(22,784) $ 8.771 $ 3.043 ksumed in merger . 17.73 29 09 21.670 19.700 j opoons exercised . Il 36- 29.09 (69.073) (9.000) ] The provision for income taxes is less than the amount i I- j 2 8 determined by application of the Federal statutory a e bsumed m merger . 23.75 18.710 10.394 income tax rate of 46 percent principally because of tax Opuuns exertned . 9.81 29.09 (148.094) (15.894) exempt interest on loans to and obligations of states, lermmated (42.735) municipalities and other public entities. The reconcilia. Dnember 31.1985 9 81 32.88 836.463 5.200 tion between the statutory and effective tax rate follows. Granted 3l.82 41.40 448.402 For the var ended Decembe 31 1986 1985 1994 MRs exercned (1.500) Options exercised . 9.81 32.88 (282.736) (3.850) Statutory tax rate . 46.0 % 46.0 % 46.0 % fermmated (18.769) Tax exempt interest . (26.8) (23.3) (22.0) Onember 31.1986 . S 9.81-$41.40 981,860 1,350 Capital gains . , (4.0) (1.0) ( 1.2) Other-net (1.1) (1.8) (2.0)
*In accordance with the terms of the plans assumed in certain Effective ut rate . . . 14.1% 19.9 % 20.8 %
mergers. option holders m such plans will receive preferred shares in
~"*
propornon to the number of common shares issued. The option poce per common share under such plans is the price for both the The tax reform act of 1986 rePcaled certain investment inmmon and related preferred shares. tax credits retroactively toJanuary 1,1986. An immate-rial amount was included in income during the first three At December 31,1986, options for 215,439 common quarters of 1986 and subsequently reversed.
.ind 1,350 preferred shares were exercisable.
Regulatory Restrictions The dividends that may be paid by subsidiary banks to PNC Financial are subject to certain legal limitations. Under such limitations, the amount available for pas ment of dividends by all subsidiary banks was approximately 39 j w_-___-________
e
. 4 .,n. w .. mi. . n. r .,
_v , i , . m . .s n , i
$476.7 million at December 31,1986. Statement of Income Under current Federal Reserve regulations, the bank- for ih,3,nr rnded ourmber li 1986 1945 3 Con ,
ing subsidiaries of PNC Financial are limited in the Operating Revenue f amount they may loan to their affiliates, including PNC Dnidends from: I" ' l Financial. Such loans must be secured by specified obliga. Bank holding compam and Pf"" tions. In addition, any such loans to a single affdiate may Subsidiary banks ,, . $ 93,507 $ 79.827 $ 60.08g dd' i 5,275 7.590 , tate not exceed 10%, and the aggregate ofloans to all affili- g[",f[njsidiaries . 3.32n ates may not exceed 20%, of each banking subsidiary's t'. S. Treasury securities 6,271 3.462 4.Rr4 bihe capital and surplus. Subsidiary banks , 10,425 11.312 py 3 At December 31,1986, the maximum amount available Non bank subsidiaries 2,471 3.258 6.3oi . Cain on sale of mortgage banking - I"'" for transfer from the subsidiary banks to PNC Financialin ]
"bs ian 5 the form ofloans and dividends approximated 36% of glhe,n9 99 consolidated net assets, m p,, o" l Total operating revenue 174.207 105.740 76.626 Federal Reserve Board regulations require depository ]
institutions to maintain cash reserves with the Federal operating Expenses g , .. ] Intere5t expense 15,511 17.097 10.5;6 Reserse Bank. During 1986, subsidiary banks maintained oiht-i Other expenses . 20,194 9.421 l aserage reserves of approximately $453.3 million. 4.63 # Total operating expenses 35,705 26.518 15.207
^
Unused Lines of Credit income before income taxes and Ni l l equity in undistnbuted net 31,1 i l At December 31,1986, PNC Financial maintained credit income of subsidiaries Applicable income taxes (bencrus)
, 138,502 13,516 79.222 (2.895i 61.419 in I facilities with various financialinsdtutions totaling $127 (1.1%
~ Mid i million. Fees are paid for unused commitments ranging income before equity in undistnb- at th i uted net income of subsidiaries . 124,986 82,117 from % % to % %. All such credits were unused at Decem. .
Equity m undistributed net 62.578 5W I ber 31,1986 and are available for support of commercial y paper and for general corporate purposes. Commercial '"'g,] ([ ding co p ny and men paper is issued by PNC Funding Corp and Citizens. subsidiary banks . . 140,359 139.199 106.586 The wholly-owned subsidiaries of PNC Financial, and is guar- Non-bank subsidiaries . 20,962 7.515 8.0 34 mais anteed by PNC Financial. Net income . $286,307 $228.831 $ 177.198 Ai
=
to of l l Parent Company Financial Statements Statement of Changes in Financial Position a(C0 l i -- tion ' Condensed fmancial statements for PNC Financial Corp for th< uar ended ourmber Ji 1986 19s5 19 0 (Parent Company only) were as follows: Sources of Funds 9 l From operations: flalInce Sheet Net income , , . $286,307 $228.831 $ 177.198 dep Durmher il 1986 1933 Non. cash credits to and operations . . (158,997) (144.617) (112.804) 198
- Cash and due from banks ... ... .$ 170 $ 160 Total funds from operations 127,310 84.214 64.394 I8 l U. S Freasury secunties (market salue Common stock issued 105,518 120.451 70.254 cial
$140.639 and $l36.607) . 139,725 135.840 Proceeds from debt issued 100.000 atfei Imestments m: Decreases in: -
Bank holding company and bank U. S.Treasurv securities 9.453 liabi subsidianes . . . 1,611,114 1,324.189 106,748 Advances to subsidiaries 14,443 Non. hank subsidianes . . . . l06.025 Adsances to subsidiary banks 3,519 17.962 All other net 1,626 3.582 27.960 Goodwill . 29,172 24.633 Total sources of funds . . $248,897 $308.247 $ 172.061 Other anets . 20,597 7.500 Tot-1 assets . $1,911,045 $ 1.616.309 Uses of Funds Fort Cash dindends declared . $ 93,083 $ 79.286 5 61.804 ernt Liabilities Con ersion of preferred ente Dmdends pasable . .$ 20,205 $ 17.228 stock and debentures 23,816 5.867 107 Other borrowings ............. . 173,614 197,493 Reductions in other borrowings 3,000 1,000 500 dep. Accrued expenses and other liabilities . 23,621 5.856 Increases in: eigr Total liabilities 217,440 220.577 U. S. Treasury securities 4.721 47.286 Unii Shtriholders' Equity . 1,693.605
'"**"**"""* *"" at 1.395.732 ,9.386 Net assets acquired in mergers 48,196 100.151 p, Totalliabilities and Other 76,081 56.977 30.184 shareholders' equity . . $1,911,045 $ 1.616.309 '""
Adsances to subsidiaries 17.680 80 Total uses of funds . $ 248,897 $308.247 $ 172.061 40
9f 1 . be directly attributed. Rates used to determine the interest Cof""'itrnents and Contingent Liabilities expense associated with funds used in foreign operations - ormal course of business, there are various legal represent the actual external rates paid during the period-I" ' for selected interest bearing sources of funds. Indirect P"i,e e dings, claims, commitments and contingent expenses are allocated liabili- based upon a time element, usage
"(utstanding nents Among these which are not toreflected are commitments extend in the fmancial or other factors.
.A summary of the corporation's domestic and foreign da her. acceptances institutions, guarantees andoutstanding standby letters ofwhich creoit. are participated with assets at tear end 1986 and 1985 and selected foreign yNC Financial had outstanding standby letters of credit income data for the last three years follows:
+upport of the following obligations: gy,g,, 3, , ,g ,g, 7 .* nae . Domestic assets , ,, $25,252,708 $21.176.356 Foreign assets . I,683,347 1.584.389 Jmount Xet
>,j,, 3 /.146 Total assets . $26,936,055 $22.760345 l
o.mmeraal Paper . $ 41.000 $ 41.000 i empt secunnes -8 $3 8 5 19y1 for the starinded Durmber Il 1986 19s5 Total operating revenue . $143,499 $168.902 $201.981 I al $ 1.890.302 $364,719 $ 1,525,583 3 38,659 9,383 Provision for credit losses , , 5.565 g (16,872) Income (loss) before income taxes 16.768 17.300 e Net outstanding standby letters of credit as of December Net income (losst (8,077) 9.982 9.845 j 41,1985, aggregated $1.6 billion. . In addition, under agreements which provide liquidity to The corporation's foreign activities do not include any holders, there were outstanding commitments to purchase, geographic area which is significant in relation to consoli-
.a the option of the holder, certain loans in the amount of dated activities, PNC International Financial Services Limited, a wholly
$145 million. .
As of December 31,1986. PNC Financial had commit- owned Australian subsidiary, issued A$60 million of j ments outstanding to extend credit totaling $6.1 billion. 14% 7'o Australian Dollar Notes Due 1989. PNC Financial j t hese commitments generally require the customers to unconditionally guaranteed the payment of princip 21, pre- j maintain certain credit standards. mium, if any, and interest on such debt securities. j
~
Acceptances outstanding which have been participated Summarized consolidated fmancialinformation for PNC
=
. m other financialinstitutions and are not reflected in the International Financial Services Limited and subsidiaries, accompanying financial statements amounted to $955 mil- denominated in U.S. dollars, follows: j hun and $826 million at December 31,1986 and 1985.
Summarized Consolidated Balance Sheet respec tis eh. Durm6'r Ji 1986 19ss Securities and loans pledged to secure public and trust deposits, repurchase agreements, Sallie Mae borrowings Investment securities . $ 48,245 $ 14.028 Loans 66,037 30.971
.ind for other purposes were $5.6 billion at December 31, , , ,
Other assets 17,984 11.003 'j 1986. Total assets . $132,266 $56.002 In the opinion of management, the consolidated fman. aal position of PNC Financial and subsidiaries will not be Deposits , , , S 73,298 $50A35 i Other borrowings 39,450 affected materially by the outcome of such legal proceed. , ings. claims, or by such commitments and contingent habilities.
$'[ *[,*,',,
Shareholder's equity 5,393 14.125 3.067 ; Totalliabilities and ! Foreign Activities shareholder's equity . $132.266 $56.002
=
Foreign activities include loan and trade services to gov- Summarized Consolidated Statement Of Income -l crnments, fmancial institutions and other commercial i For 'A'),ar ended Durmber J r 1986 19s5 19s4 enterprises and international funding transactions. Assets. deposits held and other liabilities are attributable to for- Imerest income . , $10,726 $ 6.871 (9,597) 5 4.377 (3.458) i Interest expense . , , (5.993) i eign operations if the customer is domiciled outside the 2 O 3'470 United States (including foreign branches of other United g " p, ' * ' , , , 337) 2) (lj9 9tates banks). Niinority interest . (24) 172) j foreign activities are accounted for by the profit center Net income . $ 1,238 5 1.139 $ 973 method under which all resenues and most expenses can ] l 3 f i l 41 , 1
DNC Financial Corp and Subsidiaries Combined Consolidated Statistical Information sur' h Combined Consolidated Selected Financial Data M! i nic" ' j i
,ha 'Im, - .I H '.C. '
1986 1995 19U 19U 1992 Gr Ith , l - Summiry of Operations on thoroundo j . ' ! Net mterest income . . $689.392 ' $624.164 $494.471 $430.686 $401.15 l L 3.;i y ,n. ; l Prmhion tor tredu losses . 143.765 72.419 47.204 27.725 37.043 34 9 .gn ' Non mterest income . 447,548 323.651 259.753 198.136 144.574 28.3 y. , _ Non.inierest expenses 659.702 589.744 483.260' 411.297 349.927 ' 17 6 31o i Apphcable income taxes . 47,166 56.821 46.562 43.933 29.186 22.0 Irr Net mcome . . 286.307 228,831 177.198 145A67 129.569 19.4 Ne l Ne - Par Common Share Data y Earnings: Od Primars S 4.44' $ '3.63 $ ~ 3.05 $ ' 2.63 $ 2.35 15.3 - Fully diluted , , 4.19' 3.44 2.94 2 38 2.33 14.3 ,I l shareholders' equits at year end . . 24.66 21.42 l8.95 16.88 15.20 12.5 3., ,n . Cash dnidends declared; ,,, , g PNC Financial Corp . 1.47 1.28 1.11 1.01 pe,, Predecessor corporations: 3,. Patsburgh Nanonal Corporation . .9 ) g. q Prondent National Corporation .69 % < ni , Citizens Fidehts Corporation . .80 .69 .61 .55 .48 Bxlinee Sheet Highlights at December 31 on milhono . Y ~, Ibtal assets S 26.936 $ 22.761 $ 18.076 $ 14.913 $ 14.019 appi; 1.oans net of unearned income . 15,603 17,611 12,688 9.944 7.545 6.812 m Depouts 14.634 ! !.228 9.306 8.986 m Other borrowmgs (orignal maturines oser one year) 747 545 426 416 172 . shareholders' equus 1,694 1.396 1.126 941 843 g,'r
. Selected Ratios l Return on verage assets 1.15 %" 1.14 % 1.12 % l.06 % l.03 % .k er$ '
Return on aserage shareholders' equay . 17.74 " 17.62 16.80 16.37 16.20 Pn Penod.cnd pnmars capnal ratio 6.65 f ",-
. 7.41 7.24 6.94 6.98 Penod.end total capnal rat i o . 8.70 7.87 7.63 7.79 7.17
.kerage shareholders' equnv to aserage total assets 6.50 6.47 6.65 6.46 6.36 a lni ba ,
' Includes the after tax effect of sigm6 cant and unusual transactions which increased net income by $14.8 million or $.24 per share on a pnman basis and $ 22 per share on a fullv diluted basis.
" Based on net income excludmg the after tax effect of significant and unusual transactions. Based on net income, return on average assets was 122 percent and return on aserage shareholders' equity was 18.71 percent.
e Tax In th U-Inter ' Ad
--d Inter D
3 D l i 42
~
. 3f 4
$taminary nds, exceptof PerOperations share data -s Ftre-l' ra r
^ Compound ;
l ,,,1 rnded Durmber 31 1986 1995 '1984 .1983 1982 . Growth Rate orne . , . $ 1.944,462 $ 1.845.615 $1.589.225 31.295.160 $1,417.730 7.0%
- '"% espense . . .. 1,255,070 1.221.451 1.094.754 864.474 l.016.579 16 rest income . - 689,392 624.164 494.471 430.686 401.151 l 3.7 , l
, ,g,n.n for credit loues I43,765 72.419 47.204 27.725 37.043: 34.9 )
Q. rest income alter prodsion for credit luses $45,627 551.745 447.267 402.961 364.108 12.7 i
' ,'gnterest mcome:
. 127,558 106.382 87.199 73.521' 69.09 L 16.9 'l g,gt income . ,
y.ruce charges, fees and commissions . 162,709 144.656 112.206 95.921 70.512 24 6 16.021 32.363 > 30.845 25.685 17,377 .8 slurigage serucmg fees , , , , 8,368 8.81I .5.095 3.718 ~ 4.983 I 1.9 mding account profits . . we equity and other secunts gams , , 31,383 15.181 13.838 11.545 353 .; set debt security gains (losses) . . . . 20,961 2.519 (2.801) (18.848) (24.210) 7 (;.pn on sale of mortgage banking subsidiary -59,703 20,845 13.739 -13.371 6.594 6.468 '30.7 0 her mcome otal non. interest income 447,548 323.651 259.753 198.136 144.574 28 3 s,in. interest expenses:. 41 aries and bonuses . . 266,344 239.088 195.639 176.241 151.921 15.1 Penuon. proht sharing and other emplosee benents . 71,647 66.506 61.587 49.812 44,168 13.7 set occupancy expense 50,629 45.075 36.538 30.928 27,136 16.0 Equipment expense 58,013 51.317 39.754 32,751 27.527 20.9 Other expenses . . 213.069 187.758 149.742 121.565 99.175 22.3 -
~ rotal non. interest expenses'. 659,702 589.744 483.260 411.297 349.927 17.6 Eume before income taxes . .y i 333,473 285.652 223,760 189.800 .-158.755 19.7 ,
pphcable income taxes . . 47,166 56.821 46.562 43.933 J 29.186' 22.0 ) Net income $ 286,307 5 228,831 $ 177.198 $ 145.867 $ 129.569 19 4 %
? w I
brn ngs per common share: . j Pnmarv . $4.44' $3.63 $3.05 $2.63 $2.35 15.3 %
- Fulls diluted 4.198 3.44 2.94 2.58 2.33 14.3 l l berage common shares outstandmg:
l Pnmars . . 63,136 61.248 57,267 55.295 54.962 Fuilt diluted 68,710 67.145 60.988 57.058 55.648 i alnitudes the after tax effect of sigm6 cant and unusual transactions which increased net income by $14.8 million or 3 24 per share on a pnmary - haus and $ 22 per share on a fully diluted basis. Interest on loans to and obligations of states, municipahties and other public entities are not subject tofederal ; income tax. As such, the stated (pre tax) yield on these assets is lower than taxable assels*of similar nsk and l matunty, in order to make the pre tax income and resultant yields comparable to taxable loans and invest. ments, a taxable-equivalent adjustment is added equally to i'tterest income and to income tax expense, with no efect on after. lax tncome. The taxable-equivalent adjustment -based on thefederal income tax rate of 46%, ; ts shown in the table below.
.j Taxable Equivalent Adjustment In_ thousands br lho uar ended Durmber 31 1986 1985 1984 1983 1982 Interest income-book basis , , . . $ 1,944,462 7.0 %
Md taxable equivalent adjustment 170,270 ~ $136.770 1.845.61599.635
$1.589.225 72.10431.295.160 75.301 $1 Al7,730 17.1 Interest income-taxable equivalent basis . . 2,114,732 1,982.385 1.688.860 1.367,264 1.493.031 7.7 Inierest expense .
. 1,255,070 1.22 t A51 1.094.754 464.474 1.016.579 36 Net mterest mcome-taxable equivalent basis $ 859,662 $ 760.934 $ 594.106 $ 502.790 $ 476.452 16.0 %
43 L____---._ _ _ _ _ _ _ _ ____________.________1__
s 1 i-Werage Combined Consolidated Balance Sheet and Net Interest Analysis ulame sheet amounts in imikons, inteirst in thousands
~
ro the sno miert lMrmbn il (9% ' t em ., Irerage 1,..,,, -
.4rerage Yields / . lmagt ) ,ag 'asable equitalent basn Balances ' Interest Rates Rataru es intnert na,, r t;
- m ets
~
M.- osciest earning anetv l.IlJns. liel 4 d unt'artled ilnisine lbmewor Connneuial $ 8.096 $ 804.856 9.94 ". $ ti661 $ 759.458 11.403 Real essaie tonsomnon 711 76,680 10.78 540 66.923 12.39 5 I" Real estate motigage 108,787 I 1.027 10.59 1.045 113.123 10 M Imialkneni 2.404 297,648 12.38 1.915 237 446 13 43
\lones mailet 270- 19.375 - 7.18 270 23.352: n 65 II 1
- 1. case hnanung 313 25.902 8.24 246 22.902 9 31 1/oreign 788 79.201 10.05 703 M t .193 - i t.M !;
lotal loans 13,609 1.412,449 10.38 l 1.380 1.324.599- 11.64 l 4= ., Imereu bearing depouts unh hanks 636 47.401 7.45 819 77.655 9.48 .- - 1 Federal funds sold and resale agreements 310 21.089 6.80 316 24.612 7.79 ! l Irachng auount se(nnues 157 13.510 8.61 300 37,101 9 31 i,' l
\lorigages held h>r sale 80 8,390 10.49 164 19.740 12.04 1 Imeument secuintes: {- l l'S Freasurs 3,191 285.892 8.96 3.155 328.555 10.4l i l'.S. Gosermnent agenues and 6 orporanons . 1,243 126,203 10.15 536 62.006 11.57 i Siate and munu ipal . l.602 173,673 10.84 697 82.875 11.89 . ,
Corporate sto(Ls 133 14.308 10.76 149 15.493' 10.40' g' ' Other . I11 9,416 8.48 70 7.451 10.64 Total msestment securines . 6.280 609,492 9.71 4.607 - 496.380 l0.77 - g Other interest carmng auets . 29 2,401 8.28 27 2.298 8 51 i
%tal mierest earnmg auctsmierest imome . 21.101 2.114,732 10.02 17.703 1.982.385 11.20 j g 3 g.
sononierest earning auett l Allowante for (redu loues . (218) (163) ,g Cash and due f rom banks . I,452 1.299 g,g, other auets 1,191 1.242 g,g, Total assets $23,526 $20.08 l $ g 33.
.iabilities and Shareholders' Equity merest hearme sounes:
Interest bearmg depouts. I)emand $ 900 $ 46.427 5.16 % $ 683 $ 37.523. 5.49% t, sasings 840- 43,725 5.21 808 41.683 5 16 ,; '
\lonc< matket depout auounts 3,211 192,944 6.01 2.713 200,624 7.39 1,x .
Negoitable cernhcates of depout . 3.151 223,454 7.09 2.079 -172.845 8 31 1.3, Other nme 3,344 282,816 8.46 3.275 315.554 9 64 ' g, p l>eposas m forciun othses 457 39,996 8.75 407 37.822 9 29 L lotal imere t bearme depouts . 11,903 829,362 6.97 9.965 806.051 8.09 7,1. short term horrowmgr Federal funds purchased and repurchase agreements 4,243 296.380 6.98 3.645 295.722 8.11 2.83 Commeraal paper . 480 32,404 6.73 471 38.108 8 10 3-Oiher. 613 43,701 7.12 409 33.355 8 65 2. linal short term borrowmes 5.336 372,485 6.98 4.525 369.185 8 16 3.6; Other borrowings 665 53,223 8.00 523 46.215 8.84 4-. Intal interest beanng sources /mtereu espense
;on miereu bearing sources:
17,904 1,255.070 7.01 15.013 1.221.451 8.14 y Demand and other non-mieresi bearmg depos ts . 3,226 2.871 2. 5 '. Accrued expenses and other habihties 866 898 94 Shareholders' equus . 1,530 1.299 1.03 Total liabilities and shareholders' equity . .. $23,526 $20.081 $ 15.8 7
=====
set interest rate spread 3.01% 3 06 % mpact of nononierest bearing sources 1.06 1.24 Net interest income / margin on earning assets . $ 859,662 4.07 % *
$ 760,934 4.30 %
======
ict miereu mcome/ margin: linmesuc . $19,718 $ 831,819 4.22 5 $ 16.148 $ 728.115 4.51 % 3I2.01 Foreign 1.383 27,843 2.01 1.555 32.819 2 11 144 Combmed $21.101 $ 859.662 4.07 ". $17.703 $ 760.934 11.3 ti#, 4.3ne{ 64
if i i i l
- l'n l 1%I l%2 f
/" L ,rny .hnny . t: runs j l abl . h m:y i with - .bnny Yorith ' l
!Y t ra,, . . t no Bain ,u n loam. Rain Baln un Intnest Rarn i l
l
' ,, p i $ reil,405 l 'i l 7 % 5 3.7 40 $ 432.237 12.09 % i :4 397 $ 303.267 1482% l gij 01.160 14 in 403 ."> 3.00 3 13 09 426 68.347 16 04 j
,,7 03.736 10 37 v54 x4.404 10.12 v5 88.317 10 00 j m0 190.799 I i 48 913 134.448 1433 Al4 121.384 14 91 q
; i43 3*.337 11.11 130 14.628 9 75 60 3.194 13.66 i gi 17.109 10.01 136 15.957 l0 23 137 15.213 11.10 i
-m 101.065 13 48 727 91.424 12.38 729 119.246 16 36 J l
7,3 1.131 031 13 os 6.925 846.l01 12 22 ti. 4 .8 924.168 !4 33
% lotn90 10 99 10 19 1.761 306 176.432 28.127 10.02 9.19 1.636 409 241.608 51.923 14 25 12.70 l 27.627 h;j 26.073 II 24 133 13 163 9 90 117 13.947 13 63 l is; 20.90; 11.18 309 38.760 12.55 104 16.208 15 58
. o 56 220fti3 1084 1.232 133.462 10 83 696 88.332 12.69 "g4 33.239 11 36 334 62.239 11.66 755 85,932 11.38 302 30.187 II m3 472 33.024 11.66 444 55,409 11.45 )
l-;2 16.ti4 7 12 01 m9 9.777 10 99 81 8.971 11.08 j in 3.827 10 63 15 1.414 9 43 10 1.084 10 84 l Tt:4 333.963 I I .13 2.342 261.936 11.18 2.026 239.728 11.83 l G3 2.36, , .17 32 2.705 8 45 38 3.449 9 08 ) 567
~~
1 688..*o0 12.36 l 1.n08 1.367.264 11.38 10.838 1.493.031 1338 i 121! t103) 192) l IJ2 1.001 949 l t foi 1.078 890 j m s;i $133*2 $ 12.585
'~
1 i 5 511 $ 28.99, 1 33 % $ 125 $ 23.092 3 43 % $ 378 $ 19.776 5 23 % n*4 30.136 126 683 34.4l6 3.04 814 41.308 5.07 I 99 169.726 89% 1.433 123.963 8.53 14 1.487 10.62 1 199 I44.496 10 33 1.315 137.333 9 07 2.313 285.501 12.34 2 499 267.602 1031 1.841 197.406 10 72 1.978 248.193 12.35 439 18.206 10 94 373 36.073 9.67 396 52.368 13 22
~ 4 38 695.183 9 33 6.290 352.305 838 3.M93 648.633 11.01 1M3 294.374 10 21 2.420 219.029 9 05 2.318 279316 1007
[ 351 Ji903 10 23 532 49,279 8.93 364 44.743 12 29 143 "3.068 10 32 173 16.07I 9 29 232 28.896 12 46 1 47o 353.347 10 21 3.145 284.379 9.04 2.914 353.353 12.13 428 44.224 10 33 281 27.790 9.89 130 14.591 11 22 I1 __343 1.094 J 34 0 65 9.716 864.474 8 90 8.937 1.016.579 l 1.37 2.YJ5 2.278 2.I13 918 897 735 1 055 891 800 573 $13.782 $ 12.585 231% 2 68 % 2.41 % l 64 1.38 1.99 i 394.106 4:13% $ 302.790 4.26 % $ 476.432 4 40 % H2 019 $ 362.005 4 68 % $ 9.643 $ 468.953 486% $ 8.669 5 424.296 4.89 5
' I 6_48 12.101 1 95 2.163 31833 1 36 2.169 32.156 2.40 D7 $ 394.l06 6 13 % $ 11.808 5 302300 4 26 % $ 10.838 5 476.452 4 40 %
i 45
f
~
Analysis of Year To Year Changes in Net Interest Income i The follmcone table presents. on a fullt tarable npavalent basis an analyus of year-to-year chanen un nel-entrunt nucome segregated into amounts allnbulable 10 both volume and rate vanances. The change in
. saleivolume as allocated 100 penent to the thange tn rate t anance. Since lhe changes in mterest uncome ;
and esprmes att calculated independently for each bne in the table, the lolais for the volume and rate , tolumns are.not the sum of the nndst aduallines. . In thousamh
-]i I"
1986/1985 10ml%4 }, increaseitdecrease r in Inneme e dn ume s m M i encomehspense due to uncome/npnne due to .t* l changes in: thman w Tasable equn alent basis Volums Rate Total (Mume Rare T Interest earning assets l.oans. net of unearned uxome. := l Domesoc Commercial $ 163,590 $(118,192) $ 45,398 $225.478 5( 117.825 > $ 107.633 21,192 (11,435) l Real estate comtruc tion . Real estate mortgage (1,949) (2,387) 9.757 (4,336) 16.917 (11.154) 5.763 Si l l 16.701 2.666 19.367 - gn'l 65,791 (25,789) 40,002 Installment . 90.263 (23.416) 66.847 - 1 ilones market (3,977) (3,977) (8.334) (6.651) (14.985. I Lease hnancing 6,238 (3,238) 3,000 7.504 (1.711) . 3.793 l Foreign . 9.817 (11,811) (1,994) 16.333) (l3.537) (19.870i Total loans . 259,449 (171,599) 87,850 - 334.113 t 163.545) 170.56A Ol r a Interest beanng deposus with banks (17,351) (12,904) (30,255) (13.852) (12.383) (26.235, Federal funds sold and resale agreements (3,056) t. (467) (3,523) 4.388 (7.603) (3.0151 l Iradmg account secunties . (22,165) (1,426) .(23,591) 17.757 16.729) 11.028 % J N!ortgages held for sale . (10,111) (1,238) (11,349) (2.571) 1.404 - ( 1,167) c q Imeument secunnes: U.S. Ireasurs 3,749 (46,412) (42,663) 121.334 (13.344) 107.790 - i l' S Gmernment agencies and corporanons 81,788 (17,591) 64,197 6.703 64 6.767 = I State and municipal 107,607 (16,809) 90,798 23.108 280 23.3M 1% ! Corporate sto(Ls . (1,664) 479 (1,185) 3.243 12.397) 846 u Oiher 4,362 (2,397) I,965 3.614 10 3.624 ,, ' j local imestment securities 180,257 (67.145) 113,112 159.808 (17.393) 142,41 *> Other interest earnmg assets 170 (67) 103 1430) 361 th9 f-Total interest earning assets $380,509 $(248,162) $132,347 $498.737 $(205.212) $293.525 Interest bearing sources of funds ( Interest beanng depouts: . It Demand $ 11,922 $ (3,018) $ 8,904 $ 8.799 $ (273) $ 8.526 Naungs. 1,651 2,042 7 391 6.306 (779) 5.527
\lones market depout accounts 36,827 (44,507) (7,680) 74.036 (43.138) 30.898 ;
Negotiable cernhcates of deposu 89.125 (38,516) 50,609 70.234 I ! (41.885) 28.349 Other tune . 6,648 (39,386) (32,738) 83.097 (35.145) 47,952 R Depours in foreign othces 4,646 (2,472) 2,174 (3.514) 16.870) (10.3841 linal imerest beanng depouts 156,761 (133,450) 23,311 236,183 (125.313) 110.868 Short term borrowmgs: . . Federal funds purchased and repurchase agreements 48,516 (47,858) 658- 77,547 (76.199) 1.348 Commercial paper , . 728 (6,432) (5,704) 12.275 (10.072) 2.203-Other 17,634 (9,288) 8,346 17.299 (7.012) 10.287 Total short. term borrowings 66,168 (62,868) 3,300 106.972 (93.134) 13.838 l p , l Other borrowings . 12.548 (5,540) 7,008 9.690 (7.699) I,991 l Total sources on which interest is paid . 235,210 (201,591) 33,619 353.950 (227.253) 126.697 2 Chonge in net interest income $ 146,057 $ (47,329) $ 98,728 $ 175.445 $ (8.617) $ 166.828 l l 46
9f Investment Securities The tables below present the comune t alue of ent.estment secunttes for each of the past fite vars; the relatwe \ matnttites and)teld characternitcs ofIntistment secunties as of December 31,1936 and theituality dutrt-button of tax eumpt mt'estment secunties for each of the past two years. 3 j ing Value of Investment Securities ' l
.., , h,,usand$
1986 IMS l*H I4D 1 %.?
'fl $1,501.251 $ 3.106.988 . $2.697.270 $ 1.945.263 5 948.725 l
. %a.un .
.l.966,424 637.827 . 493.123 687.677 - 590.716
, g,ncrnment agenne4 and totporanons 1,305,253 1,661.398 519,091 498.499 475.911
,a n. and mumupal
, ,,yorate stods: 106,580 107,155 108.652 73.73, 10.:262 ggActable equines 24,998 34.494 29.136 22.605 19_.104 other .169,764 32,216 16 4 % 13 213 100 319
,g1,,tal imestment secunties . $7,074.270 $5.648.181 $3.899.488 $ 3.044,239 $2.117.931 F
l Maturity Distribution of Investment Securities in thousands
" Bod thiur Ot cr Ot er One lear (n e l'ars e one liar Through Th rougli Oter . No Fard S tarket . .h >rrner
.>r I.ru Fu e l'rars Ten \rnrs Ten l'rars Alatunn Totat Uslur Alatunty I s 9,,ser sI 19 %
51.249.656 $2.248.254 $ 1,543 $ 1,798 $ $3,501.25l $3,560,954- t 3 r., 4 mo. G rreasun L t Gmernment agenoes and wrporanons . 22.394 46.712 56.683 1.840.635 1,966.424 2.031,517 12 3 r.. I mo. '1 soie and mumcipal . 601.729 215.331 256.106 232.087 1,305.253 1,329.274' 5 3 r.. I mo. j 1.250 . 130.328 131.578 237,472 j rorporate stods 39.607 49.049 32.842 22.304 5.962 169.764 170.033 5 s r., 3 mo. other Totalim estment secunnes $1,933.386 $2.559,346 $348,424 $2,096,824 $136,290 $7,074.270 $7.329.250 S y r.. ! mo, bem of total . 27.3 % 36.3 % 4.9% 29.6 % l .9% 100.0 % weighted aserage sield (2) 9 23 % 8.42 % 11.97 % 10.11 % . 9.10% 9.31 %
.li berage maiunnes are based upon the ongmal matunty dates with the exception of pre refunded tax exempt bonds for which call dates were used and Gmernment Nanonal Ntongage Assonauon obligations for which an esumated matunty of 12 3 ears and 4 months was used.
3 The weighted aserage sields are based on book salue and effectne yields weighted for the scheduled maturity of each securin. Tax exempt
$ccunnes are adjusted to a taxable.equnalent basis using a tax rate of 469.'
quality Distribution, Tax Exempt Investment Securities in milhons linember 3i !986 1989 j Arnount Percent .-l mount Percent ! Pubhc Housmg Authonn' and escrowed bonds" $ 502.1 38.5 % $ 537.8 32.4 % Rated bonds of states and puhucal subdnisions: Aaa 417.1 32.0 318.8 19.2
\al 10.2 .8 - 11.1 .7
\a 179.1 13.7 194.9 11.7 41 , 60.5 4.6 61.1 3.7 A , 56.6 4.3 88.7 5.3 Baal 4.3 .3 1.9 .1 !
Baa 1.1 ,1 1.1 .1 4 Ba . ... ... .. .. .... 5.9 .5 12.9 .8 Rated notes of states and pohncal subdnisions:
\llG I , 7.6 .6 387.7 23.3 inn-rated bonds oflocal poluical subdinsions 60.7 4.6 45.4 2.7
_ Total tax exempt imestment secunties $ 1,305.2 100.0 % $ 1.661.4 100.0 % Full faith and credit of the United States is pledged for the pasment of pnncipal and interest w hen due.
" All esuowed bonds held bs PNC Finanaal are secured bs lull faith and credit obligations of the United States gosernment. -l 47
. l l
Loan Portfolio . 1 Thefollowtitz tables present a suminary of the loan portfoho by category for each of the last five years and. the unatunty distribution and Interest senstttvity of selected loan categones lexcluding residential mortgages of 1 4 family residences, installment loans and lease financingl. l Loan Outstanding -
)
l 'Its ihmiwnds . Onembn li I986 I981 1984 1941 IQ. Domesta Commercial . $ 9,148,456 - 5 7,522.222 $ 5.937,148 54.228.227: 53.749.;;9 Real estate wnstrucuon 956.157 591.540 470.446 338.42l 341.416 l
- l. Real estate mortoge . 1,378,260 1.107.707 - 923.549 ' N23.663 Mm9.2% !
Installment 2,970.557 2.419.575 l.695.110 1.191.916 982.214 3
\lones market . 212,907 301,995 206.874 159,21I 100.526 I
- . Le.ise hnancmg . ;. 466,424 347.707 265.102 209.030 197.854 )
l 15,132,761 12.290.746 9.493.229 6.980.468 6.321.05 _ Tutal domemc Foreign Gusernment and othcial mituunons 170,800. 152.034 136.068- 133.173 54.450 Banks and other hnancial insutuuons . 204,353' 175.447 189.619 238.21l 222.855 Commercial and mdustnal 431.855 369.105 379.834 387,588 411.955' . Other loans . 19.135 14.534' 17.222 9.230 1.512 . Total foreign . , 826,143 711.120 - 722.743 768.202 -690.85 l Total luans . ,, 15,958,904 - 13.001,866 10,220.972 7,748.670 7.011.8U i Less unearned income 356,083 314,156 276.867 203.264 200.176 Total loans, net of unearned income . 515,602,821 512.687.710 $ 9.944.105 $7.545.406 $6.811.711 Lotn Maturities and Interest Sensitivity in thousands ~l l Total One l' ear One Through Over ' Grou Derrmber 11. I436 or Less Ftvr l'ars e Fn>r 1rars Loans Domesdc Commercial , , , $6.434.107 $ 1.865.375 $ 848.974 $ 9.148.456 Real estate construcnon . 442,217 476.374 37,566 956.157 Real estate mortgage , 139.904 .133,447 124.573 397.924 Ntones market . 212,907' 212,907 Foreign . 628,609 102,684 94.850 ' 826.143 Total , , $7,857,744 $2,577,880 $ 1,105,963 $ 11.541,587 Loans wnh predetermined rate . $2.294,112 $ 1,010.783 $ 438,303 $ 3.743,198 ; Loans with Hoating rate . . . 5.563.632 1.567.097 667,660 7.798.389 > Total $7,857,744 $2.577,880 $ 1,105,963 $ 11,541,587 1 i
]
1 l t 48 l
p 1
~ s .. .,
\
i
-)
Nonaccrual and Restructured Loans, Other Real Estate and Past Due Loans The Inble below pwent, inJmmatwn enurnnung nonpnfornung anets includmg rionaccrnal and mtoncitved laant .I loan n tinwfied as "nnnarnnal" when. in the npinwn of management, thne are serimi. doirbts about the jnture <nHntubdtts of mtant and pnncipal. .it that Isme, the nennal of mtnnt is da<onturned, ' prennusly arrunrd and unpard tnInest for Ihr tunent year Is charged ngninst attrent income and any mlnni l nroned and unpnad jns pnar pennds a charged against the allowancefor nedt! [onn. Future.mcome n rec. j nunt:rd only when ansh n reterred. .I Inan is categort:rd as " restructured". iffor reasons related to the bois }' rnu n 's pneou ral dojficultort PNC Finannnl xinnts a concessmn that et wonid not othmeise consider. sonperforming Assets . j
$g ,liouutuls 11 1986 1945 1901 1%) ins 2 i
% aut a rual:
.)
$151.152 $ 106,155 5 60.098 $ 32.M46' $ 61.!n!9'- 4 pomesht go cien . 34.362 41.323 18.375 19.661 27.14 ai 7ul nonaia rual loans . 185.514 147.478 109.373 72.307 39.117
~~~
g rutt ured: j' ponn suc 43.304 40.187 20.976 28.735 41.249 poreign . 3.329 7II 2.807 4.501 214
~~~'~
loul restructured loan
- 46.633 40.898 23.783 33.236 11.463
'~~
Inial non.nt rual anel restrut tured loans $232.147 $ 188.376 $ 133.156 ' ~ $105.743 $ 130.330 s 1.49 % l.48 % 1.34 % ~ 1.40 % l 92 % . l l'en cnt ul intJI loans at '.e.tr.e al .
=:=-- ~
.l cr real estate S 10.273 $ 18.011 $ 18.667 $ 13.389 ' ' $ 10. 436 4
The followsne table presents mformation concerning lonns which are contractually past due 90 days or more as to pnnapal or Interest payments. Past Due Loans In shouuntis lt. woo hn il l986 1985 19 % lou 1982 l'ut llue, . . linmeshc $ 38.973 $ 44.685 $ 23.711 $ 23.844 $ 20.063 h .r cign 4.744 1.862 4.178 7.112 1.350 Inial past due loans $ 43.717 5 46.547 $ 27.889 $ 30.956 5 21.413 , At December 31.1986. PNC Financial had aggregate There were no significant outstanding commitments to onniandings in Argentina of $26.7 million. $19.6 million tend additional funds with respect to nonaccrual and , of which was included in nonaccrual loans. Such loans restructured loans. were placed on nonaccrual status due to perceived trans. At December 31.1985. PSC Financial had 594.3 mil. ler risk problems in Argennna. lion in domestic and foreign loans ($86.3 million and i Ihe amount of interest income that would hase been $8.0 million, respectively) which are not included in the recorded for the years 1986 and 1985 with respect to past due, nonaccrual or restructured categories but where nonatcrual and restructured loans, assuming such loans known information about possible credit problems causes had been current in accordance with their original terms, management to have serious doubts as to the ability of was as followc the borrowers to comply with the present loan repayment in ,honuna, terms over the next six months. Of this amount principal a r*, ,,c ,,us,,# ou,,,,3n is s986 son and interest payments are current on $81.1 million and Domestic . $ 17.684 $ 16.014 in the opinion of management. $74.1 million is ade. Foreign 4.759 6.268 quately secured by accounts receivable, equipment, guar. niees. letters f credit r ther collateral. The amount ofinterest income that was recorded for the sears 1986 and 1985 with respect to such loans was I as follow s: Ifthousamis
&yv ,outa,I D,*ronbn 1I I98h I4M Domestic . $5.374 $6.61 l y
f rentn 3.548 2.702 49
Allowance for Credit Losses i
.I utmannn of the slutnges or the alln; caner lnt (Initt lours for enth of ihr past fwe ynn. nulmbne innn inn 1\
r\pnunur b\ urnpn Innn enIrgent n prnented br{ow , i Summary of Loan Loss Experience i n i b.,m.inel, I Im 6 o.o r ordnt lu mw il 19y4 j%5 jou f in ;
}lm Itilant e ai begoning of se,n Domesi n S 94,582 5 70.'.H 14 5 37.067 5 56.027 5 ug I oician . 37,373 32.092 29.476 iLOI4 5 n,g General e nk . 46.136 33.410 20.333 25.525 24 iq loial 178,091 136.406 106.876 o;.566 Q -~~
\llow ant e ,n epnied ni merger 1,525 14.105 4.032 -
i kilnpunt s t bar Qt'd i)ll. 1)omesta ( '.onunert ul 45,792 35.567 14.396 14.566 n my Real esiate unntria non 530 247 1.118 1.547 6.m Real cuate morigage 595 475 307 181 i% installment . 22.320 16.615 8.709 4.959 i%
- 1. case hnant ing 1,243 1.407 554 939 ,
! l oreign . 10,870 6.092 4.333 5.477 2.m lotal loans t harge<l ot! . 81,350 tio.403 29.417 27 ti49 305 - l t Reteneries on afnotints prestousis thJrged idl: [hnne% ic Conuncrual 4,280 10.597 3.650 8.352 221 j Real cuate t onurutnon . - 115 - 47 6.") Real estate mortgage 194 20 121 19' 43 Installment . 4,071 2.790 " "4 8 2.264 2,014
- l. ease hnanung 135 50 308 55 -
Foreign . 143 1.990 1.384 497 342 l f oial retmeries 8,823 15.564 7.711 11.234 bil j l
- l. Nei t har ac ods 72,527 44.839 21.706 16.415 247A3 1
Allot anon of prmnion (harged to operaong expenser l Domesoc 84,186 52.977 30.689 12.475 23.286 l 1 oreig n 38,659 9.383 5.565 20.442 to 397 ,
\llot anon to general rnL 20,920 10.059 10.950 (5.1921 l.360 i l
l'otal pros nion 143,7G5 72.419 47.204 27.725 -17.043 4 Italante at end of sear: i Domeun 118,421 94.582 70.904 57.0b e ati,027 ) l Foreign . 65,305 37.373 32.092 29.476 14.014 g General rnk 67,128 46.136 33.410 20.333 25.325 l i l'ot al $ 250.854 $ 178.091 $ 136.406 $ 106.876 $ 93.5rti g l Iotal loans, net of unearned income: I
- kerage $ 13,609,023 $ 11/180.075 $8.824.703 $6.924.617 $6.4 48.17 4 j l \t December 31 15,602.821 12,687.7l0 9 944.105 7.545.406 6.811.711 l l Ts a percent ot ,nerage loans
- l Wt sharge offs .53 % .39% .25 % .2 4 % 36 !
Prm mon f or t redit loues I.06 64 .53 .40 57
\llowant e lor tredit loues 1.84 1.56 1.55 1.34 1.48 l Allowant e as a percent ot: ;
l l'otal loans at December 31 1.61 1.40 1.37 1.42 1.40 l l Non-performing loans at December 31 (coserage rano) . 108.06 94.5J 102.44 101.07 73 19 !
.\llowant e as a mulople ot net (harge.otts 3.46 x 3 97x 6 28x ti 51 x 3 86x I
\
+
1 2 1 50 { _____ A
.q ,
;.u i m , m s -.m
( o a'dequate to cmer future credit Imses. g allowance for credit losses is estabbsbed through ~ es to earnings in the form of'a prm'ision for credit When it is determined that the prmpects of recmery
' e . The amount charged to earnings is based on .of the principal of a loan or lease base significant.
\',,er.d tattors which include, but are not limited to, the- diminished. all or part of the outstanding balance is
' tharged against the allowance for credit losses. Subse-
'[,;; , wing:
, ,g continning resiew of past-due, nonaccrual. and . quent recoseries, if am, are credited to the allowante a restrmtured loans, and merall portfolio quality: account. PNC Financial follows the policy of charging olf-
. llegnlar examinations of the loan portfolio by bank all loans classified as " loss" by management or bank reg.
tegulator) ageniies an<l independent accountants; ulatory agencies. Installment loans which are 90 days past
. \nahtical resiew of charge off experience by specific due on a contractual basis are charged off monthh.
viegors of loans and the total loan portfolio; except loans that are insured for credit loss and loam on
. .tlanagement's judgment with respect to economic - which scheduled payments are being recei ed. Credit conditiom and the impact of such . conditions on the card loans are charged off when pa>ments b'ecome pa3t custing portfolio. due between 120 and 150 days. Real estate mortgages t he adequatv of the allowance account is determined are charged off upon the completion of foreclosure pro.
,n accordance with the foregomg factors on at least a ceedings which are instituted based on the circumstances quarted) hasis. In the opinion of management, the bal- surrounding the mortgage and the borrower's abilits to
,nte in the allowance account at December 31,1986 is make pa>ments.
The tables belo:e set (mth an allocatwn of the allowance for nedit losses accordong to the categories ofloans onducat,-d and a prirentage doinbutwn of the allowance allocatwn In inaking the allocatwn. consaderatwn uns gn en to such Jactors as unanagentent \ evaluation of unk on each rategory. current econornic condstwns and charv-off espertence. I Allocation of Allowance for Credit Losses I in %,u amh
~
.llforntion .Immuns a.ww il 1986 1985 194J 1981 19 0
- p. .mes t n ronuneraal 5 83,310 $ 66.762 5 *>0.866 $ 39.900 53x.972 Real ewaic wnuruoion . 3,821 4.006 5.518 6.550 5.610 Real cuate moogage 3,547 1.117 607 550 1.010 in tallment . 24.873 17.923 10.787 7.709 8.201 I me Imanong 2.870 1.774 3.126 2.358 2.234 h,rngn . 65,305 '37.373 32.099 a9.476 14.014 u neral nsk . 67,128 46.136 33.410 20.333 25.525 lotal $250.854 $ 178.091 $ l36.406 $ 106.876 $95.566 Percentage Distribution of Allowance Allocation and Categories of Loans as Percent of Gross Loans
% mbn JI 1986 1985 1954 l983 1982 Allowance Loans Allowante Loans .illowance Loans . Illou ance Loans . lltmrance Exarn Domesnt ronuneraal . 33.2 % 58.7 % 37.5% 60 2 % 37.3 % 60.2 % 3 7. 4 % - 57.1 % 40.8 % 553 %
Real enate mnsuuuion 1.5 6.0 2.2 4.6 4.0 4.6 6.1 4.4 5.9 4.9 Real estate mortgage . 1.4 . 8.6 06 8.5 0.5 9.0 0.5 10.6 1.0 12J Inuallment 9.9 18.6 10.1 18.6 7.9 16 6 7.2 15.4 M.6 14.0
- l. case finandng . 1.2 2.9 2J 2.6 2.3 2.5 2.2' 2.6 2.3 2.8 l hreign , 26.0 5.2 21.0 5.5 23.5 7.1 27 6 9.9 14 J 99 General rkk 26.8 - 25.9 - 24.5 - 19.0 - 263 -
Ibial . 100.0 % 100.0 % 100.0 % 100 0 % 100.0 % 100.0 % 100.0 % 100 0 % 100.0 % 100 0% ~
- r. c-51
y Foreign Outstanding The table below proudes unformatson on trus border ontstandtnes to borrowers on each foreign country where such nulstandtngs eured l"b of total assets. Outstandtngs are defined to snclude loans, amounts due from - t usinmers on acceptances, snierest beanng diponts with other banks and other anterest beanng investments Iturluding act rued Interest recen able on the foregotng). Foreign Outstanding Exceeding ifi, of Total Assets
- In thouunds ^
Gm ernments Banks and Commeraal
. Pen ent of and Othaal Other Fmancial and toy
( ounin ~ lotal Twets - Insniutions insinuirons Indusinal Other ilut stand Ikumhn Il IU%' Japan 10% $235.431 $ 2.528
$236]
thumbn 11. IW ppan t.2% - $207.480 $ . 2.53 5 $210.0ii
\tesico . l.1 $77.651 20.773 102.247 $336 201.tg _
* \t Detember 31.19M6 there were no foreign outstandmgs exceedmg 1% of total assets.
Foreign Outstanding Between .75% and 1% of Total Assets: In 19x6 PNC Fmanual had aggregate outsiandings of $232.5 nullion inJapan. In 1985 PNC Finanaa! had aggregate outstandmgs oI
$1810 nullion in .\lexico. In 1984 PNC Financial had aggregate outstanding of $176.8 million in the Umted Kingdom and $152.7 nulhon m Brant.
l Deposits The tables below provude unformatson on the average amount of, and average rates paid on. the deposit talegortes tndicated for each of the last three years and matunties of domestic time deposits of S100,000 or more at December 31.1986. Forergn time deposus in amounts of S100.000 or more represent a majortt. of.. totalforeugn deposal liabiluttes. Average Deposits and Rates Paid in nulhons bor Ihr \ron enried Decembn il 1986 1981 lco u
.4 mount Rate ' .f mount Rate f mount Rw l Depouts m domestic othces:
1 Non.miereu beanng demand and time $ 3,226 $ 2.871 $2.525 Interest beanng demand . 900 5.16% 683 5.49 % 524 5 53 % Saungs . . 840 5.21 808 5.16 688 5.26 Niones market depout accounts . 3,211 6.01 2.713 7.39 1.889 8.98 Negonable <cret6 cates ut depout . 3,151 7.09 2.079 8.31 1.399 10.33 Other time 3.344 8.46 3.275 9.64 2.199 10.71
!)cpouts m foreign offnes 457 8.75 407 9.29 439 10 98 l final deposas $15, lit 9 $ 12.836 $9.963 Maturity of Domestic Time Deposits of $100,000 or More in thouunds Certificates Other Time Dnember 31. 19'16 of Deposa - Depouts Total Three months or less . $ 1,796.274 $23.576 $ 1.819.850 Oser three through six momh5 , 477.445 12.050 489.495 Oser ux through twehe months - 153.381 10.904 164.285 Oser awche months . l.421.227 23.805 1.445.032 Total. $3,848,327 $70,335 $3,918.662 l 52
- - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _a
3 f mo, ,,.,,.
- Short-Term Borrowings The dutnbutmn "I short. term borrowines at the end of each of the last three years. the average amount outstanding durtng emh such year, the maximum amount outstanding at any month end and the weighted '
at vrage interest rate on year-end and average balances in each rategory is presented below. Short. tom honowsngs includefederalfunds punhased, repunhase agreements, commernal paper and other short-term bmrowungs Federal {unds purchaud represent ct ernight horrowtngs, and repurchase agreements represent bmunwmys a hu'h may range from one day to three months un matunty Commernalpaper, which is guaran-teed by PXC frnannal, n nsned in matuntws not to exceed nine months and is stated net of dhcount, Other short inm honowmes pannpolly conmt of term federalfunds purchased and U.S. Treasurs note balances u huh me payable on demand. g, in. nund-
# 19 % I485 t%4 Amount Rate . t mount Harr . f mva R&
hl funds purchaed and repurchae agreemenu: $3.938.527 8.78 % $3.695.499 8M%
$4,706.270 l1.70 %
u December 31 4.243,312 3.644.690 8.11 2M4.492 to 21 werage dunng scar . 6.98 5,078,468 4.023.581 3.695.499 slaumum month.end balante dunng scar . ( onuncroal paper' $ 528,824 7.94 % $ 328.932 $ 43%
$ 391,216 6.86 %
u December 31 470.630 8.10 351.091 10 23 derage dunng scar . 480.124 6.73 staumum momh.end balance dunng sear . 568,347 581.447 409.565 other Owrt term borromngs: S 919.692 8.13 % $ 863.802 9.67 % $ 306.150 9.12 %
.u Detember 3l 408,734 8.65 242.931 10.32 ucrage durmg sear . 613,447 7.12 i
staumum month.end balance dunng sear . 1,020.390 863.802 406.027 l ! 1 Combined Consolidated Management's Discussion and Analysis hjerences to nuets and habdities and changes thereto represent a growth in earning assets and the inclusion of North-
.Inds acerage let els for the penods indicated unless noted other- eastern's net interest income since the date of merger.
i ne. The net interest margin narrowed 5 basis points to 4.30% as the net interest rate spread widened 35 basis points and the impact of non interest bearing sources Annual Review-1985 versus 1984 declined 40 basis points. Total interest income on a taxable-equivalent basis financial Overview increased $293.5 million, or 17.4% in 1985. The increase Consolidated net income of $228.8 million in 1985 resulted from higher loan volume, an increase in the
- increased $51.6 miUion from 1984. Fully diluted earnings investment portfolio and the inclusion of Northeastern s per share was $3.44 in 1985,17.0% higher than the interest income in 1985 results of operations.
52 94 earned in 1984. The earnings for 1985 include the The decline in short term interest rates which began results of Northeastern Bancorp. Inc. (" Northeastern") early in Jae fourth quarter of 1984 continued through the ore the date of merger.Januarv 30,1985. second quarter of 1985, followed by a levelling rates The primary profitability measurements reflect through the end of the year. In this rate environment, imptmed performance in the > ear to year comparison as interest rates were lower on average. The prime rate the return on total aserage assets (ROA) increased from averaged 9.93% compared with 12.04% in 1984. The 1.12% for 1984 to 1.14% for 1985, and the return on yield on total earning assets averaged 11.20% down 116 total aserage equity (ROE) increased from 16.80% for basis points, primarily due to the lower yields on loans, 1984 to 17.62% for 1985 which decreased 144 basis points to 11.64% However. Taxabie equisalent net interest income increased the yield on investment securities declined only slightly 5166s m liion or 28.1% in 1985. The provision for > ear to. year and had the effect of tempering the decrease l credit loss >s increased $25.2 million or 53.4% non. in the overall yield on earning assets. The investment mterest incime increased $63.9 million or 24.6% and portfolio earned 10.77% in 1985 down 38 basis points. non interest expenses rose $106.5 million or 22.0% Interest expense increased $126.7 million or l1.6% in 1985, primarily due to a higher level ofinterest bearing l Net Interest income funds. These factors more than offset the effect of a 151 Taxable.equisa:ent net interest income increased 28.1% basis point decline in the average rate paid on interest-to $760.9 millior in 1985. The improvement was due to bearing liabilities to 8.14% l
\
l 1 53
Growth of mones market deposit accounts (onunued Fees from mternanonal banking services increased $13 strong in 1985 due to shifts out oflower rate interest million, mainly due to higher letter ' of credit fees and . heaiing demand and sasings accounts as well as the commissions related to fmancial advisory senices. influx'of new monies. As interest rates fell in 1985, sig. - d
.\lorigage banking operations generated ser icing fees ~;
mticant runding was prmided by the short-term mone) of $32.4 million,' an increase of $1.5 mdlion or 4 9% ai market, specihcally federal funds purchased and the mortgage servicing portfolio totaled $7.9 billion at repurchase agreements. The aserage rate paid for such year end 1985. p y
- funding was 8.11'% down 210 basis points. Another Trading account profits increased 72.9% to $8.8 mil- g source of meremental funds was negotiable certificates of lion as a decline in rates iri 1985 prosided the opportu.
' deposit 'which were utilized on a selectise basis in 1985. %
nity to realize additional profits from this actisits. ;, The rate paid for such certificates.1023% in 1984 and Net gains from the sale of debt securities .were $694 8.31% in 1985, was higher than other money market thousand for 1985. This compares with net losses of $2A nources and had the effect of reducing the decline in the g million in 1984. The proceeds from sales in 1985 were I overall rate paid on interest bearing liabilities. The reinsested in U.S. Treasury and government agency-inclusion of Northeastern's interest bearing funds securities with an oserall improvement in yields and accounted for approximately 8.5% of the increase in ti . shortened maturities. u. interest expense. Net gains from the sale of equity and other securities n l of $14.7 million were realized in 1985 compared with Provision for Credit Losses a gains of.513.8 million in 1984. ., The provision for credit losses was increased $25.2 mil. . Total non interest expenses were $589.7 million, an ,, lion to $72.4 million in 1985. The prosision exceeded increase of 22.09. However,. excluding the effect of the - net credit losses for the sear by $27.6 million, in 1985. Northeastern merger, this increase was contained to i the prosision was .64% of aserage loans compared with 12.1%. The following discussion of non interest operai-
.53% for 1984. ing expenses is based on a comparison which eliminates i the effect of the Northeastern merger. i Non Interest Income and Non-Interest Expenses Salaries and bonuses increased $26.1 million or 13.3%
Total non interest income increased 24.6% to $323.7 to $221.7 million principally due to merit and promo-million. Excluding the effect of the Northeastern merger, tional raises, and an increase in the number of full-time the increase was a strong 20.4%. The remainder of the employees in response to expanded business volume. resiew of non interest income will discuss the changes Employee benefits decreased $336 thousand in 1985. ( exclusise of the effects of the Northeastern merger. The majority of this decrease was associated with lower ' Trust fees totaled $102.5 million, up 17.6%, as per- pension and health care costs. During 1985 various pen-sonal trust fees were increased i1.7% or $6.2 million and sion and health care plans of subsidiaries were combined < j continued to be the largest component of trust income, into single corporate plans. ' primarily due to growth in the market value of assets Net occupancy expense rose 10.7% to $40.4 million in mder management. Corporate trust fees increased 1985, primarily due to higher rent on leased properties. 17.8%, mainly due to continued growth in bond increased utility costs and depreciation associated with trusteeships under administration. Investment advisory '; building renovations. i ervice fees, earned as an advisor to registered invest. Equipment expense rose 17.2% to $46.6 million. The i
- nent compames. increased $6.5 million or 33.7%, as a increase was primarily due to a general expansion of data direct result of an increase in money market fund assets processing capabilities, increased maintenance on exist-and a resised fee structure. ing automated delisery : Systems and increased computer -
Niortgage origination fees generated from loans made usage related to expanded trust and commercial actisityc 3 for subsequent sale to investors increased $703 thousand Other non interest expenses increased 14.7% to to $8.1 mdlion, an increase of 9.5%. $171.7 million in 1985. A significant factor in the Service charges, fees and commissions from other , increase was a national advertising campaign in major ! domestic banking operations grew 28.6% to $116.4 mil- business publications promoting PNC Financial and its lion. primarily due to higher service charges on deposit affdiated group of companies. Increases in various other l accounts and processing credit card transactions for categories of non interest expense including travel, tele-national retail companies as well as other fmancial insti- phone, printing, postage and consulting sersices were tutions. Also showing a significant increase were check incurred as a result of a general rise in the level of busi-processing fees related to our servicing for brokerage ness activity, price increases and the costs of continually- ) houses and insestment companies. offering new products and services to our customers. , l
im i - ,i w l i 1 gets and Liabilities State and municipal securities mt reased $195 million or ) 38.8% to an aserage of $697 mdlion. U.S. Gosernment gl anets of PNC Financial exceeded $22.7 billion at agencies and corp <> rations were up $58 million or 12.1%. 3.cnd ot 19x5. Earning assets aseraged $17.7 billion, aseragmg $536 million. while other insestment sewnnes ( g o bdhon or 29.5"L higher than 1984. increased $34 million m $70 mdlion. H Idings of interest bearing deposits with banks were pans down $126 million to $819 million on aserage. p.d loans increased $2.6 bdlion or 29.0% to an aserage l
,311.4 bilhon. Euluding the Northeastern merger.
amh auonnted for $946 mdlion of the increase, loans Deposits and Borrowed Funds geard 18.2%. Total deposits increased 28.8% to $12.8 billion m 1985. q Of the increase. $1.3 billion was the result of the North. pomesuc commenial loans. euluding money market eastern merger. Total interest bearing deposits increased wns. mcreased $1.8 billion or 34.0%. Virtuallv all jegones of basic commercial and industrial loans 34.0% to 59.9 billion while demand and other non- ,
,in,ned good growth. In particular, loans to non bank interest bearing deposits increased 13.7% to $2.9 billion. I noanual compames manufacturers of durable goods and The shift in the deposit base from demand deposits and j
,hulesale and retail trade increased. Also, good growth lower rate savings programs into a higher cont entration .
,,gurred in hnance compans loans, construction loans of rate sensitive interest bearing liabilities continued in j and sersite indusu y loans. Offsetting this growth were 1985.
.lght decreases in loans outstanding to the oil and gas The money market deposit accounts continued to grow
.ntor and to brokers and dealers. as customers reacted positisely to such instruments' installment loans showed a strong increase of $615 liquidity and attractise >ields. These accounts aseraged anthon or 47.3% to S t.9 billion. $2.7 billion and were a major source of funding.
stoney market loans decreased $75 million to $270 Negotiable CD's were used on a selectise basis at mid-l nnihon m 1985. and foreign loans decreased 6.3% or $47 > ear to maintain specific interest spreads w hen interest i nulhon to $703 mdlion. rates began to lesel. On average, these CD's increased Residemial mortgage loans increased $158 million to $680 million or 48.6% to $2.1 billion. l 510 bJ.liou. Other time deposits averaged $3.3 billion, up 31.1 %. This increase was dramatically influenced bv Northeast. Nonperforming Loans and Allowance for ern which added $547 million. The remainder of the Credit Losses growth was modest as consumers lengthened maturities sonperforming loans. which include nonaccrual loans in the second half of the year to achieve higher sields on l and restructured loans. totaled $188.4 mdlion at the end their deposits. nl 1985. an mcrease of $55.2 million. The ratio of Sasings accounts increased $120 million to $808 mil-nonperforming loans to sear end loans for 1985 was lion. Howeser, excluding amounts acquired in the North-1.48% at sear end sersus 1.34% m 1984. eastern merger, savings declined by 7.6% Allowances acquired in mergers plus the excess of pro. The 13.7% increase in demand and other non interest uuons oser net credit losses resulted in an increase in bearing deposits was split evenly between increases in l the allowance for credit losses of $41.7 million to $178.1 business balances and the effect of the Northeastern mdlion at sear-end. merger. l rhe rano of the allowance for credit losses to > ear end Short-term borrowings aseraged $4.5 billion, up $1.0 loans was 1.40% for 1985 sersus I.37% for 1984. Net billion or 30.1% Funds purchased and repurchase agree-4redit losses as a percentage of aserage loans was .39% ments increased $760 million to $3.6 billion, commercial l l lor the scar compared with .25% for 1984. paper increased $120 million to $471 million and other l short term borrowings increased $166 million to $409 Insestment Securities and Interest Bearing million. Deposits with Banks Other borrowings with original maturities exceeding ) Imestment securities increased $1.4 billion to an aserage one year averaged $523 million an increase of $95 mil- ! of $1.6 billion. Holdings of U.S. Treasurv securities lion. This increase primarily resuhed from the issuance of I mcreased $l.1 bdlion on aserage to $3.2 billion as $100 million of floating rate subordinated notes during j emphasis was placed on one and two year maturities of the first quarter of 1985. The notes, net of a segregated i such securities due to marketability and the relatively fund of investments, are eligible to be treated as primary high rate of return. capitalin the determination of capital adequacy by the l Corporate stocks increased $27 million to $149 million. Board of Gosernors of the Federal Reserve Ssstem. 1 55
Quarterly Review ' Fourth Quirter 1986 vs'. Fourth Qutrier 1985 .. . Fourth Qu:rtzr 1986 vs. Third Qurrter 1986 s
' Consolidated net income for the fourth quarter of 1986 Consolidated net income of $72.2'million for the founh I was $72.2 millon,199 higher than the 560.6 rm!! ion quarter of 1986 was $2.8 million higherhhan the pre $ious T earned in the fourth quarter of 1985. Earmngs per 'com. quarter. Fully' diluted earnings per common share was ; ;
mon share on a fully diluted basis was $1.04 compared $1.04 in the recent quarter compared with the third quar / with $ 90 earned during the fourth quarter of 1,985. ter's $ 1.02. , l- Taxable equisalent net interest in.come increased 12% to Taxable. equivalent net interest income increased $3.2
$219A 'million, as a higher level of earning assets more - million to $219.4 million, as grow th in Se,letel of earn. s I than oliset a narrower net interest margin, ing assets offset a narrower net interest margm.
4' Aserage earning assets increased 21% to $22.7 billion Earning assets increased $l.3 billion, to a lesel of in 1986. Total loans aseraged $14.6 billion, $2.4 billion $22.7 billion. Loan growth was the strongest in domestic higher than the fourth quarter of 1985.' Domestic com. commercial and installment areas, up $517 million and mercial and installment loans increased $1.7 billion and $170 million, respectively. U.S. TreasurQcurities were ,
$543 million. respectively. L*.S. Treasury securities, U,S. . up $290 million and holdings of U.S. Government agen. j l
Gmernment agencies and corporations and tax exempt cies and corporations securities incrrased $257 million. i ! issues were ut lized to a greater extent in 1986, up $227 Interest bearing deposits with banks /ncreased $24.bil.
~
l L million, $1.3 billion and $661 million, respectively, Fed. lion while federal funds sold and resale agreements l eral funds sold and resale agreements and trading decreased $14 million. Trading kcount secprities were I account securities decreased $518 million in the aggre. up $19 million in the comparison. " gate. Interest bearing deposits with banks increased The net interest margin narrowed 17 hasis points to . I
$79 mdlion. 3.86% as the net interest rate spread d5clined 9 basis f The net interest margin narrowed 29 basis points from points to 2.89% and the benefit from non.' interest bear. j 4.15% in 1985 as the net interest rate spread decreased 7 ing funds decreased 8 basis points. .
1 basis points to 2.893 and the benefit from non interest The provision for credit losses was $36.9 million in the j bearing funds decreased 22 basis points. fourth quarter, compared with $19.9 million in the third < The prosision for credit losses was'$36.9 million com.
']
quarter of 1986. The. allowance for credit losses ] pared with $18.3 million in the fourth quarter of 1985. decreased to 1.61% of totalloans at Detember 31,1986
]
The allowance for credit losses was 1.61% of loans at from 1.68% at September 30,1986;Nonaccrual and ] December 31,1986, up from 1.40% at December St. restructured loans increased to 1.49% of total loans at j 1985. The allowance for credit losses as a percentage of December 31,1986 from 1 A3% at' September 30,198ii. 1 nonaccrual and restructured loans increased from 94.5% Non interest income of $102.3 million was $11.9 mil. i at December 31.1985 to 108.1% at December 31,1986. lion or 13% higher than the prior quarter, Net gains Non interest income increased $12.4 million or 14% to from the sale of equity and other securities of $15.5 mil. 1
$102.3 million in 1986. Net gains from the sale of equity lion were $13.6 million higher in the fourth quarter, and other securities were $15.3 million higher for the while net gains from the sale of debt securities were $6.'!
l fourth quarter of 1986, while net gains from the sale of million lower at a level of $1.9 million. Service charges. , l debt securities were $1.9 million in both quarters. Trust fees and commissions increased $3.1 million to $42.3 ) income of $32.1 million was $5.1 million higher in 1986. million. During the fourth quarter /an addhional gain of l Service charges, fees and commissions increased $1.5 $1.0 million was recognized in connection with the sale million to $42.3.million. Alortgage servicing fees were of the mortgage banking subsididy in the second quarter l $8.6 million lower due to the sale of the mortgage bank. of 1986. Trading account profits of $2.8 million increased ; l ing subsidiary during the second quarter of 1986. Trad. $400 thousand. Other non interest income increased l ing account profus of $2.8 million were unchanged while $200 thousand to $5.8 million. I all other non interest income decreased $1.9 million to Non. interest expenses for the fourth quarter were l $5.8 million. $164.7 million. $6.3 million or 4% higher than the third I l Non interest expenses for the fourth quarter of 1986 quarter. Salary expense was $1.5 million higher at $66.6 3 were $164.7 million, $9.8 million or 6% higher than the million, primarily resulting from merit and promotional fourth quarter of 1985. Salary expense was $3.2 million increases. Employee benefit costs of $16.8 million were ! higher at $66.6 million, primarily resulting from merit $100 thousand higher in the comparinn. Equipment- ! and promotional increases which were mitigated by lower expense of $15.4 mi!! ion was $1.3 million higher primar. statilesels due to the sale of the mortgage banking sub. sidiary. Employee benefit costs of $16.8 million were $4.7 ily due to depreciation and the cost of maintaining exist. [y ing equipment Net occupancy expense was $2.5 million ' l million higher in 1986. Equipment expense of $15.4 mil. lower in the comparison. Increases in charitable contri , ; i lion was $1.5 million higher primarily due to depreciation butions, telephone expense and taxes other than income l and the cost of mair.taining existing equipment. liigher were the largest contributors to an increase of $5.9 lesels of charitable contributions, telephone expense and million to $55.4 million in other non interest expenses. taxes other than income contnbuted to the $1.2 million increase in all other non interest expenses to $55.4 mil-tion. 56
)
Ig .~ t. , 1a o 1 a, : , i l
.,Iummiry of Operations ]
. g Mdlions. cuept share data .]
'f 1986 I%4 - -
fourth . Third . Second. Tsrst Fourth Tinrd Snored Fn st . ( Quarter ' Quarter Quarter Quarter Quarter Quarter Quarter quarter ' g$t m<ome $491.6 $483.0 $484.2 $485.7 $ 470.7 $471.8 $459 9 $443 2.' 308.6 321.9 316.0 309.4 304.6 2913 l gn,cre.t espense . 312.5- 312.1 j Tt mtetest 'imome 179.1- 174.4 172.I' 163.8 154.7- 162.4 l>5.3 151.7 I' g,n,siuon f or t redn loues , ' 36.9 19.9 66.2' 20.8 18.3 18.5 IR3 17.3 - 5 mierest inmme aber prouuon for c redit tones 142.2 '154.5 105.9 143.0 136.4 143 9 1370 134 4 gon. interest intoine; trust income . 32.1' 32.4 33.3 29.8 27 0 27.6 27.0 24 8 3 3erute iharges. lees and mmminions ' .42.3 39.2 40.2 41.0: ' 40 8 38.7- 32.9- 32.3 j stortgage scruting lees . .9 .7 6.2 8.2 9.5 8.9 6.9 7.1 l f r.idmg aucunt prohis lionco . 2.8 2.4 ' (.6) 3.8 2.8 .2 5.9 ' t .1) ' j, 'l set equits and other securio gams . 15.5 1.9 9.6 - 4.4 .2 2.2 9.2 '36-set debi secunts gams aloneu 1.9 8.2 8.7 2.2 1.9 .4 11.3) 13
. Gam on ' sale of mortgage banking subsidian 1.0 58.7 .
j Oiher mrome 5.8 5.6 5.4 4.0 7.7 1.9 1.8 ' 2.3 Total non interest mcome . 102.3 90.4 161.5 93.4 89.9 79 9 82.4 71 5 U,n.mterest expenses: salanes and bonuses . . 66.6 65.1 67.5 67.1 63.4 60.5 59.8 55.4 Penuon, proht sharmg and other emplosee , benehts , 16.8 16.7 19.5 18.7 12.1 15 4 19.4 19.6 Net ouupancs expense . 10.5 13.0 13.7 13.4 11.3 I l .2 11.5 11.1 [' tympment expense 15.4 14.1 14.7- 13.8 13.9 13.1 13.1 11.2 Other espenses 55.4 49.5 55.8 52.4 54.2 46.0 44.3 43.3 nstal non-mterest expenses 164.7 158.4 171.2 165.4 154.9 146.2 148.1 140 6 i Imome betore mcome taxes 79.8 86.5 96.2 71.0 71.4 77.6 71.3 65.3-Appliuble inmme taxes . 7.6 17.1 15.7 6.8 10.8 17.9 . 15.1 13 0 Net mcome $ 72.2 $ 69.4 $ 80.5 $ 64.2 $ 60 6 $ 39.7 $ 56.2 $ 52.3 Larnmgs per mmmon share: Poman $ I.10" $ 1.07 $ l.26' $ 1.01 $ .95 $ .94 $ .89 - $ .85 hhh diluted 1.04 " 1.02 1.18' .95 .90 .89 .84 .81 ' berage common shares ountandmg dn thousando: Pnman 64,333 63,370 62,736 62,072 61.893 61.642 61.295 60.067 1 Fulh diluted 69,427 68,657 68,545 68,313 67.923 - 67,703 67.575 64.997 l
- Indwies the aber tax effect of dgmficant and unusual transactions which increased net income by $11.3 million or 5.18 per share on a pri-man pus and $.16 per share on a fulls diluted basis.
"Intlydei the alter tax effect of the adjustment to significant and unusual transactions, directiv related to the sale of the mortgage bankmg subudian dunng the second quarter of 1986 which increased net income by $3.5 million or 5 06 per share on a pnmary basis and $.05 ,
per share on a tulh diluted basis. l ( i Taxeble Equivalent Adjustment ; in mdhons 1986 l%9 Fourth Third ' Second Firn Fourth Third Suond Fmt- b Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ' ^l l l Interest mmme-book basis . $491.6 $483.0 $484.2 $485.7 $470.7 $471.8 $459.9 $443.2
\dd tuable.equhalent adjustment 40.3 41.8 42.7 45.5 40.4 33.3' 31.5 31.6 - ;
interest income-taxable equnalent hans 531.9 524.8 526.9 531.2 511.1 505.1 491.4 474 8 i interest expense . . 312.5 308.6 312.1 321.9 316.0 309.4 304.6 291.5 Net mierest income-taxable.cquhalent basis $219.4 $216.2 $214.8 $209.3 $ 195.1 $ 195.7 $186 8 $ 183.3 - j l 1
/
f J , 4 57 6 ' ,l
-_ _ - _ _ - _ _ _ - - _ - _ _ _ - _ _ _ _ - - ._ - __ - __-- - - - - _ . - _ _ _ _ _ __._____n
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- l Average Combined Conschdat,td Bh.ip \ .italance *hee yl 1 S
, c (. >
_ . . .,~ .f _ - i p e A-,i: s~ . y a 7. m /f 4 t- - Q 3
- ^ ;;
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. im,,p 1 st,,
Tanable.rquitclent bans Balances Intere tt. j , H Rates ' tWe ers ;I;arR . 9 {. Assets M- . Interest earning mets: t 1.oans. net ol unearned miome; #, Domesuc jT -
) A
?
Commercial . , $. b,665 9.06 % $ 8.232 $198.MS- 92 , 519 ? l9 36 {;t 9.46 Real estate construction .i/ ..
)845 20,: 761 , l9,4*6 - '10 13 ')
Real estate mortgage .> .i .'1,008 g6,* 50 '; 10.62 'i1.012 , 26.315 10 40 i installment . , . .. 2,642- 78,529 1 h.89 ' 2,472 ."<.18') 12.17
' - 4,J14 Mones market l... /. ' 264 6.51 303' 3.838 6 73
- t. ease hnanang . %. t $36 4 6,624 7.77 .'l 12 ' 6.531 8.3, .
Foreign ,797 17,696 8.81 - ._b l9 , 20.476 9.92 .i n Total loans , .. ,K.55'd .351,790 9.61 , Ib.91l' ' M I.709 10 06
~
~ n Interest bearing tieposits with banks . , 625 10,316 6.55 j 601 s1,234 7.42- !
Federal funds sold and resale agreements '3,206 6.53 215 's 1.464 6.13 Trading account securities
,[!Jf 'to 103 t 1,963 7.56 84 1,,*13 4.y y
Mortgages hcid for sale - . , , , . 20 504 10.08 15 5i9 13.84 , Imestment securines: . i C.S. Treasurs , ... , , 3,463 69.917 8.01 .;1,173 48.603. 8w I'.S. Gmernment agencies and corporations . .x . ' t ,820 44.530 ~ 9.74 .l.563 30.043 9.97 . State and municipal . . . 1,638, y 42,602 10.40 1l,603 42.899 10.7u . l Corporate uocks
- 12W ' 3,706 11.49 -
!?? 2.949 8.94 Other . If7 2,947 9.28 i Ml 2.083 7.44 Totai imenment secunnes . 7,117 6.583 15M77 R42 1S3,.502_. 9.08 .w.l .
~
4, other interest earmng assets . ... '31 592 7.58- <
'i$ 575 8 j
._15 Tinal interest earning assets /mterest mcome . ... 29 714 ' 531.873 f',32 21. 'S' . 324.6lW 9 74 Non.mtereu carnmg assets: . q Allowance for credo losses , . (246) - 1
- s i244) .
Cash and due from banks , , . . 1,53'l 1,469 , Other assets 1,224 .
< s F.072 .
1 Total assets . 525,224 1 523.734 l _ _ . - e n Liabilities and Shareholders' Equity t ,
, 4 Interen bearmg sources: J Interest bearing deposits: , ,
i Demand , . 3.1,C M F 3 7,371 J 4.89% $ ~925 5 12,14') 3 21% Sasings . . ... . . ) ' 8K ' 10,941 3.01 831 I t ,104 5.30 Monet market depout accounts , 't,4'iJ 46,f,08 L 5.38 . 3.293 47,840 'i 76 j Negotiable cerancates of deposis , 3,705 15MS2 > 6.41 ,3.288 56,984 6M ' j Other time . . . ... . . 3,163 64.249 E.06 ~ 3.356 70.231 8.30 Depouts in foreign othces ..., , 507 10,479 8.20 433 9.523 8.73 linal mterest bearing deposits 4 12,675 20t400 - 140: . 12.126 'JM.825. 6 80 Short. term borrowings: . . Federal funds purchased and repurchase agreements . " 4,866 '78.834 6.43. 4.439 73.900 6.61 Commercial paper . . 438 6,449 5.84 442. 6.918 6.21 Other . . 578 9,254 6.35 415 6:196 6.21 Total short. term borrowmgs , . . 5,882 94,537 6.38 ;S.2Wi 87.3.11 6.54 Other borrowings f 717 . 13.573 7.51 701 13;f 96 7.64 Total interest bearing sources / interest expense .... 19,274 312,510 6.43' 16.[23 308.632 6.76 j Non. interest bearing sources: , ' I < Demand and other non. interest bearing depodts . . / .f 3,401 J 3..'6 4
~ Accrued exper.ses and other liabilities . . . .! 916 3 ,
791 ; 1,633 i Shareholders' equity . . . . . . 1.556 Total liabilities and shareholders' equity . ....d. . W ,224 n $23.{'34 w.m.w.er-- ta ka=.ww x - Net interest rate spread .1 . J 2.3'1% 2.98 %
.i 1 .. .
- y. _ -.._;. _ _ . . -
Impact of non.mteren bearing sources, ...'.....:. .' s' .97 ' .
-1 03 _
Net interest income / margin on earning usets . ~ , . / o
~
,$219.983 3.86 D $2 l6B9 4.03 4 a.m.wwm - e.=r o- , ,m a: m=
'l 9 1 Y 4 4 58 >
.\ V, , i j '
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, (
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'1 i l 7 l o s,, In5
%o,,wlQuotn ft!\lQulrter f0f0f 0t Quart!T
\; ruige . h n tig! . h rrtig!
I to %. . l. rurgr Vrvld1 ' . b 'rtilgt l'svlth! ( , , ,,p Balarun Internt Ratn g , ,,, n I,an n s Roan H.rl vn n Intnnt Ratn p -- l 10.41 % $ 7.586 $203,854 10 90 % $ 7.170 $ 197,698 10.94 % 4 7.334 5204.590 613 18,133 11.74
' i;13 19.426 12 08 590 17.640 12.13 1.045 29.270 11.20 1.044 28,212 10 81 l ,04 4 26.432 10.13 73.164 12 68 2.186 70.755 12.95 2,099 67.246 12.81 1 g 308 j 4.847 7 42 255 3.096 8.10 280 5,915 8.38 250 '
6 373 8 36 300 6.474 8 63 261 6.029 9.24 303 21 039 10.31 732 19.990 11.08 717 19.772 10.94 ,
%03 Tj 219 333871 10 76 12.694 353.079 11.23 12.184 343.005 11.20 1
~
733 13 182 7.36 565 12.368 8.57 546 11.965 8.69 ti. ll 4 6 63 439 7.985 7.38 300 5.825 7.70 Jn7 t>9 1..i45 0.56 377 8,169 8.79 522 12,151 9.24 141 3."58 10 66 146 3.610 9.89 169 4,964 11.75 1 2.997 70 127 9.13 3.l27 76,946 9.98 3.236 82.513 10.12 ; 605 17.247 11.40 547 16.177 11.83 j 969 23.582 10.36 . 1,377 4'. 490 11.03 1.590 44.682 1l.24 977 27.892 11.42 ! l t36 ' 763 Ii 07 135 3,705 10.98 169 4.314 10.2I i 98 l.808 7.3M 106 2.763 10.43 68 1.594 9.38 i 3.777 145.070 10.0h .>.a 6 3 145.343 10.53 4.997 132.490 10.55 l 8.77 29 622 8.71 32 648 8.03 l 28 bl2 20.386 32ti.852 10 36 l9,833 531 176 10.81 18.750 511.048 10.84 I c196) (185) (173; ; i l.432 1.372 1.372 1.239 1.229 1.215 _
)
522.249 $21.162 5_22.n61 j i i l l l 5 864 $ 11.074 5 14 % $ 803 $ 10.839 5.47 % $ 752 $ 10,271 5.42 % 844 I l .0 49 5.25 819 10.631 5.26 814 10.522 5.13 1112 18.517 6 25 3.001 50.079 6.77 2 931 52.003 7.04 2.913 34.391 7 19 2.687 52.227 7.88 2.244 45,334 8.02 1458 73.354 8.51 3.401 74,982 8.94 3.440 78.780 9.09 449 9.531 M 51 442 10.463 9.60 410 10.135 9.81 1'.6 10 207.916 7 16 I i,153 209.221 7.6I I0.591 207.045 7.76 3.854 69.824 7.27 3.796 73.820 7.89 3.842 77,885 8.04 489 8.465 6 94 553 10.577 7.76 548 10.959 7.93 l 8.68 1 615 11.336 ".39 852 16.615 7.91 383 8.382 4.938 54.625 7.25 5.201 101,012 7.88 4.773 97.226 8.08 677 14.548 8 62 559 11,606 8.42 543 11.691 8.54 17,273 312.089 7.25 16.913 321,839 7.72 15.907 315.962 7.88 3.171 3.062 3.011 914 845 873 1.501 1,429 1.371 522.861 522.249 $21.162 3.1 i % 3.09 % 2.96 %
- 1. l l I.14 1.19 5214.763 4 22 % $209.337 4.23 % $ 195.086 4.15 %
, =
4 59
, Average Combined Consolidated Balance Sheet [
lo milhons L
~
1986 IW1 Fourth Third Second First Four th Thord %rcond G Quarter Quarter Quarter Quarter Quar ter Qwler Q w srr Qvmar , { Assets - Cash ond due trom banks $ 1,532 $ 1,469 $ 1,432 $ 1,372 5 1.372 5 1.319 $ l.270 $ l.231 Interest hearmg depo $ns woh banks . 625 601 735 585 546 949 982 795 Federal funds sold and reule ,igreements 201 215 387 439 300 374 386 203 f radmg auonnt seturines 103 84 69 377 322 293 330 414
%lortgages held har wie 20 15 141 146 169 201 143 142 Insessment secunnes:
U3 f e e. nun 3,463 3.173 2,997 3,127 3.236 3.463 3.037 2.876 U1 Gosernment agenues and (corporations 1,820 1,563 969 605 547 502 M3 343 state and muniopal 1,638 1,603 1,577 1,590 977 632 .599 37; Corporate ,tods 129 132 136 135 169 150 13H 139 Other 127 112 98 106 68 73 75 62 Total msesiment set unnes 7.177 6,583 5,777 5,563 4.997 4.822 4.402 4.19f loans. net of unearned musme: i Domesoc ' Commercial . 8.66'i 8,232 7,884 7,586 7.170 6.792 6.473 6.194 Real estate construction . 84t. 761 645 590 613 567 507 471 Real estate mortgage 1,008 1,012 1,044 1,045 1.044 1.048 1.063 1.02l Installment 2,642 2,472 2,308 2,186 2.099 1.989 1.884 1.64
\lones market 264 303 260 255 280 319 270 210'
- l. case financing . 336 312 305 300 261 251 242 231 i Fo ngn 797 819 803 732 717 702 679 715 L2ial loans . 14.557 13,911 13,249 12,694 12.184 11.668 11.118 10.530~
gance for uedit losses . (246) (244) (196) (185) (175) (167) (160) (1501 Net loans 14.311 13,667 13,053 12,509 12.009 11,501 10.958 10.380 Other assets 1,255 1.100 1,267 1,258 1.247 1.297 1.225 1.311 Total assets . $ 25,224 $23,734 $22,861 $22,249 $21.162 520.756 $ 19.696 $ 18.675 i Liabilities l Depouts m domesoc othces: 1 Demand and other non/imerest hearmg deposits $ 3,401 5 3.264 5 3,171 $ 3.062 53.0 l l $ 2.914 $ 2.799 $ 2.737 ' Interest hearmg demand . 1,003 925 864 803 752 702 663 614
.saungs . 867 831 844 819 814 824 824 772
\lones market depout auounts 3,430 3,293 3,112 3,001 2.931 2.814 2.649 2.452 Negotiable (croticates of deposit 3,705 3,288 2,913 2,687 2,244 2,108 2.139 l.818 Other time . 3,163 3,356 3.458 3,401 3.440 3.348 3.301 3.005 Depouts m foreign otiites 507 433 449 442 410 453 350 415 thtal deposits 16.076 15,390 14,811 14.215 13.602 13.163 12.725 l l .'i33 5hort-term horrommgs:
Federal funds purchased and repurchase agreemen.s 4,866 4,439 3,854 3,796 3.842 3.812 3.318 3.590 Commercial paper 438 442 489 553 548 498 473 360 Other 578 415 615 852 313 494 465 304 Total short. term borrowings . 5,882 5,296 4,958 5,201 4.773 4.804 4.256 4.254 Other borrowmgs . 717 701 677 559 543 544 548 455 Aurued expenses and other liabihnes 916 791 914 845 873 918 881 925 Total liabilities . 23,591 22.178 21,360 20,820 19.701 19.429 18.410 17.467 Shareholders' equity 1,633 1,556 1,501 1,429 1.371 1.327 1.286 1 208 Total liabilities and shareholders' equity $25,224 $23,734 $22.861 $22.249 $21.162 $20.756 $ 19,696 $ 18.675 ti0 i L_____________
! l i PNC Financial Corp and Subsidiaries Consolidated Financial Statements ; ;
l 1 knagement's Statement on Financial Reporting . the management of PNC Financial is responsible for the preparation, content and integrity of the financial statements pluded in this annual report, and all other information in the other sections of the annual report including amounts gat must necessarily be based on management's judgments and estimates. Management believes that the financial otements have been prepared in conformity with generally accepted accounting principles applied on a consistent pis to reflect, in all material respects the substance of events and transactions that should be included, and that the other information in the annual report is consistent with those financial statements, in meeting its responsibility for the reliability of the fmancial statements, management depends upon PNC Finan-gafs accounting system and related internal accounting controls. This system is designed to provide reasonable assur-ance that assets are safeguarded and that transactions are properly recorded and executed in accordance with manage-
,nent's authorization. This system is augmented by written policies and procedures and by examinations performed by an internal audit staff which reports to the board of directors through the board's Audit Committee.
The Audit Committee of the board of directors, composed solely of outside directors, has responsibility for recom- I niending to the board the appointment of the independent certified public accountants for PNC Financial. The Audit I Committee meets on a scheduled basis with the independent certified public accountants and the internal auditors to I discuss and review the scope and findings of their respective audits. The independent certified public accountants and the internal auditors each hase free access to the Audit Committee, without management present, to discuss mternal 1 i accounung control, auditing and financial reporting matters. The consolidated financial statements of PNC Financial have been examined by our independent certified public accountants, Ernst & Whinney, who are engaged to express an opinion as to the fairness of presentation of such linancial staternents. l l l i l 1 l l Report of Ernst Be Whinney, Independent Auditors Shareholders and Board of Directors l PNC Financial Corp l Pittsburgh, Pennsylvama We have examined the consolidated balance sheet of PNC Financial Corp and subsidiaries as of December 31,1986 and 1985, and the related consolidated statements ofincome, changes in shareholders' equity, and changes in financial position for each of the three years in the period ended December 31,1986. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the consolidated financial position of PNC Financial Corp and subsidiaries at December 31,1986 and 1985 and the consolidated results of their operations and changes in their fmancial position for each of the three years in the period ended December 31,1986,in conformity with generally accepted accounting principles applied on a consistent basis. Am at + Y ' Pittsburgh, Pennsylvania February 27,1987 l l l 61
- l P,NC Fisoart.Cour oo Stastotaalf s j l
Consolidated Balance Sheet Dollars in ihousands 1986 i December 31 Assets
$ 1,790,586 ~ $ 1,369.439 Cash and due from banks . .
Interest bearing depouts unh banks , , 450,334 379.665 Federal f unds sold and resale agreements , 78,332 93.770 Iradmg account securities 93,919 641.504 Stor gages held tor sale 139,336 Insestment securines (market salue of $6.564,317 and $5,304,732) 6,331,125 5.132,002 ' I.oans, net of unearned income of $313.086 and $275,406 , 12,602,055 10,074,784 Allowance for credit losses . (204,651) (137.4763 r Net loans 12,397,404 9.937,305 Premises. equipment and leasehold improvements . 209,112 208.105 ) Customers' acceptance liabilitv . 472,811 435.562 ) Other assets . . . 375,307 441.032 I Total assets . $22,198,930 $ 18.777.725 ,
=
thbilities > Deposits m domestic officus: ! Non interest bearing . . $ 3,524,256 $ 2.928.905 i l Interest bearing . , 10,518,688 8.641,718 Deposits in foreign offices . . 273,027 255.670 Total deposits 14,315,971 11.826.293-l 1 Short-term borrowings: Federal funds purchased 1,534,860 1.320,444 l . 1 Repurchase agreements . . 2,355,048 2,037,358 Commercial paper 330,282 410,619 Other 833,087 767,474 ; Total short term borrowings . 5,053,277 4.535.895 l Other borrowmgs . , 691,073 510,629 Acceptances outstanding , . . 472,811 435.562 l Accrued expenses and other liabilities 275,828 302.195 Total liabilities . . 20,808,960 17.610.574 Shareholders' Equity Preferred stock-$1 par value Authorued: 9,739.693 shares in 1986 and 4,915,843 shares in 1985 l Issued and outstanding: 3,330,158 shares in 1986 and 3,472,974 shares in 1985 . . 3,330 3,473 i l Aggregate liquidation value: $70,663 in 1986 and $73,695 in 1985 l l Common sto(L-55 par value j Authorized: 100.000.000 shares in 1986 and 60,000.000 shares in 1985 ; Issued and outstanding: 49,969,706 shares in 1986 and 47,551.563 shares in 1985 249,849 237,758 Capital surplus , , 142,363 110,466 Retained earnings . . , , , 994,428 815.452 i Total shareholders' equity 1,389,970 1,l67,149
'd l
l Total liabilities and shareholders' equity $22,198,930 $ 18,777,723 1 i \ro aaompanung Nom to Conschdated Funannal Statemte l l l l i l l
! 1
)
n2 ! ________________d
p.s C Finscut. Coni > sNo St stoisaits Consolidated Statement of Income in thousands, eu ept per share dau 1986 19M lost 1 5_the Idar Ended Derrmber 11 interest Income Loans and fees on loans , $ 1,048,661 5 981.502 5 850.886, pepouts w nh banks 30,801 60,405 85.544 Federal funds sold and resale agreements , 13,363 15.949 20.692 Tradmg account securines , 10,611 31,118 23,029 ) d sfortgages held for sale 6,673 18.719 0.374 Insestment securitiet Taxable 388,308 374.777 258.758 las exempt 82,814 30,736 20.653 Dnidends . 8,875 9,440 8,521 2,401 2.298 2.367 (}ther Total interest income . , 1,5C 2,507 1.524.937 1.290.824 Interest Expense Deposits . < 668.442 649.095 546,513 Short term borrowings , 315,469 317,296 300.611 Other borrowings 47.900 44.445 44.224 Total interest expense . 1,031.811 1.010,836 891,348 Net interest income . 560,696 514,101 399.476 Prosision for c redit losses 124,765 55,319 32,854 Net interest income after provision for credit losses 435,931 458,782 366.622 { i Non Interest income -l Trust income . . 116,073 96.379 73,bO3 Seruce charges, fees and commissions . I13,287 100,544 73,135 1 stortgage sersicing fees . 13,090 29,771 28,730 i Tradmg account profits . 7,532 7,912 4.281 l Net equits and other security gains . , , 26,964 15,181 13.838 Net debt security gams (losses) . . 20,891 3,645 (1,652) Gain on sale of mortgage bankmg subsidiarv . 59,703 Other income ] 16,958 11,805 I l.621 i Total non interest income . . 374,498 265,237 208,556 Non Interest Expenses I Salaries and bonuses . . 219,918 200,807 162.035 Pension. profit sharing and other employee benefits . . 60,738 57,541 53.224 Net occupancv expense . 44,292 39,283 31,157 Equipment expense , 45,747 41,225 30.097 Other expenses ,165,809 149,085 116.522 Total non interest expenses 536,504 487.941 393.035 income before income taxes . . . 273,925 236,078 182,143 Apphcable income taxes . . 36,543 48,284 38,971 Net income S 237,382 $ 187.794 $ 143.172 Earnings Per Common Share: Primarv $4,76 $3.88 $3.25 Fully diluted 4.49 3.64 3.10 Average common shares outstanding: P. imarv 48,601 46,829 43.24I Fully diluted , 52,980 51,964 46,962 tre nuompanung xnm to conwtulawl F,,,anaial swemenu. M
[ . PNC Fisuct u. Cone aso St'eslutra Es Consolidated Statement of Changes in Shareholders' Equity l l Dollars m thousands cuept per share data
~i 14rlerred Common Stuk Stuk Capntal Retamed Trrasurs
$1 har lhlur $1 har Ihlur Surpina Earnunc Strwk Tarm lialante at Januars 1.1984
$ 113 $ 103.640 $ 59,620 $601,787 $ _765.1r3 i i 143,172 143,172 ; i Net income Cash dnidends dedared; .
l Preferred Stock (2.464) (2.464)- Common stock-$1.ll per share . (48,159) (48,159; 1 Sio(k issued (preferred-1,4 l 1.790; common- , 1.080.256): J Dnidend reirnestment and emplosee benefit plans 9 1,410 8,800 10.219 I Conseruon of preferred uock . (II) 107 (96) l Plan of merger . 1.414 3.884 53,958 59.256 Net foreign turrencs translation adjustments (335) (33h Ece at December 31,1984 . 51,525 $ 109.041 $ 122,282 $694.001 $ 926.849 Net mtome 187,794 187.794 Cash dnidends declared: Preferred stoc k . (6.216) 16.216) Common uock-51.28 per share (60.348) (60.348) ) Stock issued (preterred-1.948,366; common- l j 2.203.2001: Exercise of warrants 140 741 4.475 5.356 - l Disidend reinvestment .nd employee benefit plans 15 2,084 12,922 15.021 Consersion of preferred stock . (48) 441 (393) Consersion of debentures 999 4,427 5.426 Plan of merger . 1,841 6.751 80.211 88.803 Warrants assumed under Plan of merger , 4,243 4.243-Transfer to reHect two-for one stock split i l 7,701 (117,701) Net foreign currenes translation adjustments 221 221 Balance at December 31,1985 $3,473 $237,758 $ 110,466 $815,452 $ 1,167.149 Net income 237,382 237,382 ) l Cash disidends declared: Preferred stock (6,086) (6.086) - Common uock-$1.47 per share , (71,685) (71.685) Purchase of treasurv stock (common-14,710) , $(669) (669) - , Stock nsued (preferred-142,816; common-2,418.143): J Exercne of warrants . . 29 265 825 1,119 i Dnidend remsestment and employee benefn plans 4 2,735 16.444 669 19.852 1 Consersion of preferred stock . (176) 873 (697) l Conseruon of debentures , , 4.543 16,350 20.893 i Plan of merger . . .
, 3,675 (1,025) 19,361 22.011 Net foreign currency traslation adjustments , 4 4 Balance at December St.1986 , , $3.330 $249,849 $142.363 $994,428 $ 1,389.970 ser naampanwg .Votn in Conwindated Fmannal Statemenu.
i 64
i l-PNC f!NANCIAL. CORP AND SUB5IDIARIES Consolidated Statement of Changes in Financial Position jn thouunris { 1986 1985 19 0
& the 1hur f.nded Durmber il Financial resources were provided by (applied to):
Oper ations: $ 237,382 $ 113.172
$ 187.794 Net income l
Prousion for credit losses. deprec:ation, amortization and ' 177.949 106.855 64.340 other items not requirmg hnancial resources 415,331 294.649 207.512 _ Finanaal resources prosided bs operations (66,564) (50.623) (77,771) Cash dnidends declared 337,560 228,085 156.889 _ Net hnancial resources prosided hv operations Increase idecrease) m depouts and other financing acuvities: Depouts: 273,529 Demand and other non mterest bearing deposits . 595,351 368.504 173,999 130,158 258,l90 Interest bearmg demand ,. 44,406 (46,491) (277.002) Sasings . 457,524 459,031 326.290
.\lones market deposits .
1,124,038 550,516 139.085 Negotiable ceruhcates of deposit , (177,776) 111,392 265.387 Other ome . , 44,286 17,357 (297.378) Depouts in lereign ollices . 1,327,623 755,980 Deposits acquired in mergers 254,779 2,489,678 2,850,044 1,539,056 i Increase in deposits 599,180 811,944 795.027 Short term borrowings (1,722) (221,761) (14,841) Other borrowings . 2,852 32,115 59.087 Other liabihties acquired in mergers , ,, 338,111 100,000 Proceeds from debt issued . (21,766) (5,867) (107) Consersion of preferred stock and debentures . 59,256 22,011 93,046 Stock issued in mergers . 42,068 26,244 10,326 Common stock issued Total financial resources prosided by deposits and other 3,250,373 3,892,685 2,460,923 financing actiuties , (increase) decrease in nonearning assets and liabilities: (425,004) (219,128) (303,347) Cash and due from banks . (24,153) (32,458) (27,132) Premises, equipment and leasehold improvements, net . . Other, net . . 33,110 i0,233 (26.606) . (95) (101,24I) (81,914) Net nonearning assets and liabilities acquired in mergers . (414,142) (342,594) (438,999) i Total fmancial resources applied to nonearning assets 1 Increase in financial resources invested in earning assets $3,173,791 $3,778,176 $2,178.813 l 1 Increase (decrease) in earning assets:
$ 70,873 $ (164,316) $ (376,962) j Interest bearing deposits with banks . .
(68,588) 16,451 12,922 1 Federal funds sold and resale agreements . (547,485) 344,522 (167,531) ) Trading account securities , (136,674) (33,848) (55,511) j Niortgages held for sale . 475,959 1,110,464 1,284,359 l insestment securities . .. 1,497,527 2,465,654 1,279,465 Loans . , 792,409 279,547 1.351,543 l Earmng assets acquired in mergers
$3,173,791 '33,778.176 $2.178.813 l Increase in earning assets ,
See accompanung Notn to Coruoludated Finannal Statemona. l 65 , 1
l Notes to Consolidated Financial Staternents j
.tll dol!ar amowm pward in de tan <ve un thmndt mqt anther-umi noted Accounting Policies loans and lease fmancing income w hich is recognized on I the sum-of the months-digits method which results in lewi .
The accountmg and reporting policies of PNC Financial rates of return oser the terms of the loans and leases. ! Corp ("PNC Fmancial") and its subsidiaries conform with l The accrual ofinterest on loans is discontinued w hen. in generally ac cepted accounting principles. A description of management'sjudgment, it is determined that the collec. j the significant accounting policies is presented below. tion ofinterest, but not necessarily principal,is doubtful. Accrued and unpaid interest for the current year is l Basis of Presentation: The (consolidated financial statements charged against current income and ans irnerest accrued of PNC Financialinclude the accounts of PNC Financial and unpaid for prior periods is charged against the allow. and its subudiaries (substannally all of which are wholly- ance for credit losses. ou ned). All signihcant intercompany accounts and transactions Allowancefor Credit Losses: Management regularly resiew I hase been eliminated in the consolidated financial the loan portfolio, letters of credit, acceptances, loan com. I statements. mitments, and other financial guarantees and prmides for i The accrual basis of accounting is used except that cer- credit losses based on experience and management's esti. l tain sources of resenue are recorded on the cash basis, the mate of potential losses. results of which approximate the accrual basis. 1 Depreciation and Amortization: Depreciation and amortiza-Securities:Imestment securities consist of debt. equitv and tion of premises, equipment and leasehold impros ements other securities. Debt securities are carried at cost adjusted are computed principally by the straight line method for for amortization of premium and accretion of discount to financial reporting purposes and by accelerated methods , maturitv. Marketable equity securities are carried at the for federal income tax purposes. l lower of aggregate cost or market value. Trading account Intangible assets, which are included in other assets, are securities include debt securities and other investments amortized using accelerated and straight-line methods held for trading purposes and are carried at market value. over the estimated usefullives of the respective assets. Gams and losses are computed principally on the specific identi6 cation method. Income Taxes: Certain items ofincome, expense and credit are included in one reporting period for fmancial account-financial futures and Swaps: Interest rate futures and for- ing purposes and another for income tax purposes. ward placement contracts purchased or sold for the trad- Deferred income taxes are provided in recognition of these ing account are valued at market, and any resulting gains timing differences. Investment tax credits are accounted l or losses are included in trading profits. for bv the flow-through meu od as a reduction of the provi-Financial futures are used to hedge asset and liability sion for income in:s, except for investment tax credits pmitions Such transactions are characterized as general attributable to tea te financing activities which are deferred hedges, are salued at market, and any resulting gains or and are being amortized to income over the lives of the losses are included in other income. Financial futures are leases, also used as specinc hedges and accordingly, gains and losses are deferred and amot tized oser the remaining life Pension Plan:In 1986, the provnions of Statement of of the hedged asset or liability. Financial Accounting Standards No. 87 Employers' Net amounts receivable or payable under interest rate Accounting for Pensions, were adopted. The plan is swaps that are specihcally designated as hedges are funded on a current basis to the extent deductible under recorded as adjustments to the interest income or expense existing federal tax regulations. related to the hedged asset or liability. Foreign Currency Translation: The financial statements of Mortgages Heldfor Sale: Mortgages held for sale are carried foreign subsidiaries, expressed in foreign currencies, are at the lower of aggregate cost or market value. Gains and translated into U.S. dollars. Asset and liability accounts are losses on mortgages held for sale are included in other translated at year-end exchange rates. Incom'e and expense mcome, items are translated each month at the prevailing month-end rates. Adjustments resulting from such translations are Loans: Loan interest income is accrued on the principal charged or credited directly to retained earnings, net of amount outstanding, except for interest on installment 66
esc F%ciu.cong the gains or losses from hedging positions and net of The following pro forma data summarizes the 1986 con-3pplicable tax effects. Exchange gams and losses on for- solidated results of operations assuming the merger had eign currency transactions are reflected in current opera- been consummated as ofjanuary 1,1986. The pro forma results may not be indicative of the results that actually tions. , would have occurred or which may be attained in the l Earnings Per Common Share: Primary earnings per common future. ' share is calculated bs disiding net income less preferred D,mbn 31 19u
,tock disidend requirements hv the weighted average num- Net mierest mcome . .$689,392 ber of shares of common stock outstanding during each Net income 286,30) period. Earnings per common share:
Fully diluted earnings per common share is based on net Primarv . 4.14 Fully diluted . 4.19 income adjusted for interest expense (net of tax) on outstanding convertible debentures and dividends on l nonconvertible preferred stock. The weighted average Other Mergers and Acquisitions number of shares of common stock outstanding is InJanuary,1985, Northeastern Bancorp, Inc., with total increased by the assumed conversion of outstanding con- assets of $ 1.5 billion, was merged with and into PNC serable preferred stock and convertible debentures from Financial.The merger was accounted for as a purchase. the beginning of the year or date ofissuance, iflater, and During 1986, PNC Financial acquired The Hershey the assumed exercise of stock options and warrants using Bank, with total assets of $ 143 million, and The Bridgesille the treasury stock method. Trust Company, with total assets of $ 151 million, The acquisition of The Hershey Bank was accounted for as a Mergers and Acquisitions purchase and the acquisition of The Bridgeville Trust Company was accounted for as a pooling ofinterests, Citizens fidelity Corporation except that the fmancial statements were not restated since Durmg 1986. PNC Financial signed a defmitise agreement the effect was not material. to merge with Citizens Fidelity Corporation (" Citizens"), In addition to Citizens, there were two acquisitions Louissille, Kentucky. The merger was consummated on consummated in February 1987, with assets aggregating February 27,1987. Under the terms of the merger, each $ 122 million. These transactions will be accounted for as share of Citizens common stock outstanding on such date poolings ofinterests, except that the fmancial statements ! mas conserted into .77 share of PNC Financial common will not be restated since the effect is not material. stock. PNC Financialissued approximately 15.8 million shares ofits common stock and cash in lieu of fractional Completed Divestiture shares for all of the outstanding shares of Citizens. The merger was accounted for as a pooling-of interests and On May 30,1986 PNC Financial completed the sale ofits historical financial data will be restated after the merger to mortgage banking subs; diary, The Kissell Company, for include the accounts of Citizens. The audited combined $103.2 million in cash. consolidated financial statements and related notes thereto gising effect to the merger are included on pages 27 to 41, inclusis e. Such combined consolidated financial statements and related notes thereto are presented as supplemental information to these audited consolidated fmancial state-ments and related notes thereto. l 67
orts to Cououp ua o FluNCtSL Sf utMENTs. Co*m% ED 4 Investrnent Securities The minimum future lease payments receivable for each of the years 1987 through 1991 are approximately The carrsing and approximate market salues of.. invest- $71.5 million, $66.4 mili s n, $55.9 million. $42.4 million ment secunties were as follows: and $23.3 million, respectiCv. , f y, ,,,,h,, 3 i 1986 1995 Certain directors and executu officers of PNC Finan. corrung .tfarket Carning .ilarket cial and its significant subsidiaries well as certain affili. vatu, lhtu, ihlue lhIu' ates of these directors and officers wers customers of, un nulhons) and had loans with, subsidiary banks in the ordinary l's l'reasurs $3.217.5 $3,272.7 $2.903.3 $2.958.5 t' s C,m ernme"' course of business. All such loans were made on substan. agenoes and tially the same terms, including interest rates and collat. corporations 1,734.1 1,793.9 585.5 626.5 eral, as those prevailing at the time for comparable State and mumapal 1,091.8 1,104.0 1.413 2 1.381.4 transactions with other persons and did not involve more Corporate sto(kr than a normal risk of collectibility. The aggregate dollar Ma'ke'able eqmoes 106.6 208.7 99.0 204.2 amount of these loans was $130.7 million and $104.6 ["~ ,$ ,$3 7 3 i[ i$ million at December 31,1986 and 1985, respectively. During 1986, new loans of $256.1 million were made acci Total $6,331.1 $6.564.3 $ 5.132.0 $ 5.304.7 l i repayments totaled $230.0 million. At December 31, l Data related to marketable equity securities follows: 1986, there was $11.9 million cf potential problem expo. l sure to affiliates of R.J. Wean,Jr. a director, $10.4 mil. l onem6 r Ji 1986 1985 lion of which represents collateralized extensions of l Grou unrealued gams $ 107,011 $ 105.853 (4,927) credit and $1.5 million represents standby letters of l Grou unrealued loues - (666)
.\ggregate cost 106.580 credit
- 99.034
.\ggregate market value . $208.664 $204.221 Allowance for Credit Losses l The following table presents the composition of net Changes in the allowance for credit losses were:
l equity .and other secunty gains: ] For the var ended December 31 1986 1981 1994 for the vrar ended Dnember 3l 1986 1985 1984 Balance at beginning of year ,. $137,476 $103.722 $ 82.536 l l Net gams on marketable equits Allowance acquired in mergers $38 10.792 4.032 ) set unues $ 16,456 $ 15,408 $ 13.630 Net gams (lones) on other secun. Charge. offs (64,954) (43.544) (21,162) nes 10,508 Recoveries . 6,826 11.187 5.462 (227) 208 rotal . $26,964 $ 15.181 $ 13.838 Net charge-offs (58,128) (32.357) (15.700) ' Provision for credit losses . 124,765 55.319 32.854 Balance at end of Scar . $204.651 $137.476 $l03.722 l Lorns l l.nai.s and lease financing are comprised of the following Nonaccrual and Restructured Loans and t ategories: Other Real Estate n,r,mb,r 31 1986 1985 Nonaccrual loans are those loans on which interest 1.oant (in nu!!iens) income is rccorded only when received. Restructured ) Domestic loans represent those debt transactions for which the commercial 5 7,115.6 $ 5,712.6 original interest rates, repayment terms, or both, were Real cuate construction 720.0 416.2 Real estate mortgage . 1,220.0 978.2 restructured due to a deterioration in the financial condi. Installment 2.489.1 . 003.7 tion of the borrower. Monev market 212.9 302.0 Total nonaccrual and restructured loan balances and Foreign 821.0 701.8 the related yearly interest data were as follows: l l'nearned income (250.9) (234.8) I.nans net of unearned mcome . 12,327.7 9.879.7
- l. case hnancmg:
Nonaccrual ,, $127,717 $ 110.078 $ 83,773 Restructured . 43,050 36.498 19.883 Lease recenables . 315.2 216.8 Esumated reudual salue . 21.4 18.9 - Total . . $170,767 $ 146.576 $ 103.656 L ncarned income (62.2) (40.6) Imerest computed at
- 1. ease hnancmg. net of unearned mcome . 274.4 195.1 original terms , $ 16,429 $ 17.982 $ 14.230 Total net of unearned mcome . $ 12.602.1 Interest recognized 7,488 8.413 4.390
$ 10.074.8 68
< g J nc %sa u. cow ] *- j l
At December 31,1986. there were no significant Repurchase Agreements , 4 tstanding commitments to lend additional funds with PNC Financial enters into sales of securities under agree- ] spect to nonaccrual and restructured loans. mena to repurchase which are treated as financings and Other real estate, which is included with other assets, is ' 1 the obligation to repurchase such securities sold is 4 orned at an amount not m excess of estimated fair value reflected as a liability in the consolidated balance sheet. and amounted to $6.9 million and $13.6 million at The dollar amount of securities underlying the agree-pecember 31,1986 and 1985 respectively. ments remams m the respectise asset accounts. Repurchase agreement information, including accrued ) Premises, Equipment and Leasehold .nterest, was as follows: Irnprovements December 31. l986 .hwts kid Repurchase Lmbohty l
-Premises, equipment and leasehold improvements, stated co ,_ ,g ,g f y ,3,, f , ,,m ,
at cost less accumulated depreciation and amortization, .\latanty Tip, of. hut .imount laine . i mouni R,ur were as follows: Next bu:iness day: U.S. Treasury p,<rmber 31 1986 1935 secunties . $ 921.886 $ 940.828 $ 927.196 12.60 % Und . $ 21,390 $ 19.147 U.S. Gosernment Buildmg5 15!,409 152.953 agency secunties 10.529 11,175 11.123 8.18 tquipment 126,321 115.641 3 to 30 dass: 1.c.nehold ibprrnements , 41.891 35.343 U.S. Treasury 341,011 323.084 securities 326.005 329.019 328.041 6 87 l Accumulated depreciation and amortuation . (131,899) (114.979) U.S. Gosernment ) agency secunties 22,381 22.881 23.029 5.26 Net hotik value $209,112 $208.105 , 31 to 90 days: ; U.S. Treasury Depreciation and amortization expense on premises, securities ' 660,154 665,444 666.330 5.77 equipment and leasehold improvements, including amor- over 90 days:
- tization of capitalized leases, amounted to $24.4 million U.S. Treasury in 1986, $21.9 million in 1985 and $17.0 million in 1984. securities 266.379 266.431 265.362 5 61 l
De Certain facilities and equipment are leased under short u Treasury and long term lease agreements expiring at various dates securities , 6.384 6.481 7,722 5.87 to the year 2012. Substantially all such leases are U.S. Government . 1 accounted for as operating leases. Rental expense on agency securities 143.749 146.348 141.735 15 88 such leases amounted to $24.7 million in 1986, $21.5 Totals . $2.357,467 $2.388,607 $2.370,538 9.21% l million in 1985 and $17.7 million in 1984. Required min-imum annual rentals due on noncancellable leases having Unused Lines of Credit terms m excess of one year approximate $109.3 milhon in the aggregate at December 31,1986. Minimum annual At December 31,1986, PNC Financial maintained credit rentals for each of the years 1987 through 1991 are facilities with various fmancial institutions totaling $107 , l approximately $18.6 million, $15.0 million, $12.6 million, million. Fees are paid for unused commitments ranging l $10.8 million and $8.3 million, respectively. from % 7o to % 7.. All such credits were unused at Decem-ber 31,1986 and are available for support of commercial paper and for general corporate purposes. Commercial paper is issued by PNC Funding Corp, a wholly-owned subsidiary of PNC Financial, and is quaranteed by PNC j Financial. i i 1 1 1 69
ona to Cossoumno Fmscm Sru tert Cos usi ni Other Borrowings The 8% 9 Convertible Subordinated Debentures Due 2008 (" Debentures") are convertible at anytime prior to Other borrowings represent obligations with original maturity into common stock of PNC Financial at 523 per maturines exceeding one year. Other borrowings were as share. he Debentures are redeemable at the option of i loll * *: PNC Financial at 105.8% of the principal amount and twnan n 19u im decline in annualincrements to 100% on Slav 15.1993. Pzrsnt Company The Debentures are subordinated in right of pasment to 11 % % Notes Due 1989. redeemable aher all senior indebtedness of PNC Financial. Nos ember 14.1987. S 49,937 5 49.919 Interest on the Floating Rate Subordinated Notes Due 8% % Consernble subordmated 1997 is payable quarterly at a rate of S of l% per Debentures Due 2008 23,677 H 574 annum abose the London interbank offered rate for te I eI t 5 at year.end) . 100,000 100.000 three-month Eurodollar deposits and is reset quarterh. In no event will the rate be less than 5% % per annum. At S" d"."" maturity, the notes will be redeemed from amounts ! al e l$e ten $Na'r ng accumulated from the issuance of common or perpetual l mamnues through 1988, at sanable preferred stock or certain other securities of PNC Finan. -l rates omghted aserage rate of 6 55% cial and maintained under a segregated fund ofinsest. and M.05% ai sear.cnd) and secured ments. The fund will not constitute security for the notes b den 173,000 73.000 g s and income on such investments will be paid to PNC di 465% and 7.895% at scar-end) 35,340 99.990 Financial and will not be part of the fund. Subject to cer-Hoanng Rate Notes Due 1995 tain exceptiono PNC Financial must deposit sufficient ; ni34% and 7.77% ai sear end) 31,800 99.965 amounts into such fund so that the fund balance will, at ' M. % Noies Due 1996, redeemable the interest payment dates in Starch 1989 and Ntarch l aber Manh 14.1993 198.661 1993 and at least 60 days prior to the fmal maturity of la % . uurahan Dollar Notes 39A50 the notes in Starch 1997, be equal to at least one-third, !
\hscellaneous 39,208 43.181 two thirds and the full amount, respectiselv, of the origi. {
Total $691.073 5510.629 nal amount of the notes. At December 31, 1986, 530.0 ; million had been deposited into the segregated fund. The j notes, net of the segregated fund ofinsestments, are eli. J Aliscellaneous borrowings include capital notes, mort- gible to be treated as primary capital in the determina-gage notes and various other borrowings, with rates tion of capital adequacy by the Board of Gosernors of the ranging from 7.759 to 10.11%. Federal Reserve System, 1 Durmg 1986, PNC Funding Corp issued $200 million The two series of floating rate notes, Floating Rate l of 8% % notes due in 1996 ("8% % Notes"). The 8% % Notes Due 1992 and Floating Rate Notes Due 1995, are - j Notes are considered as secondary capital by the Board guaranteed by PNC Financial. Both series bear interest at I of Gosernors of the Federal Reserve System in calculat- a rate which fluctuates above the weekly 91 day Treasury l l ing capital adequacy ratios. Interest on the notes is pay- bill auction rate (1992 series-62.5 basis points; 1995 l able semiannually and the payment of principal and inter- series-50 basis points). The spread above the Treasury l est is unconditionally guaranteed by PNC Financial. bill auction rate on the Floating Rate Notes Due 1995 ) During 1986. PNC International Financial Services may be changed on October 14,1989, and 1992. The Limited issued A$60 million of 14% 9 Australian Dollar Floating Rate Notes Due 1992 are repayable at par on l Notes due in 1989 ("14 % % Notes"). The 14% % Notes April 14,1989 at the option of the holder, and are not ! l are unsecured obligations of a foreign subsidiary and the subject to redemption by PNC Financial. The Floating l pasment of principal and interest is unconditionally guar- Rate Notes Due 1995 are repayable at par on October i anteed by PNC Financial. Interest on the notes is payable 14,1989, and 1992 at either the option of the holder or j semiannually in arrears commencing on Stay 17,1987. PNC Financial. I The foreign subsidiary may redeem all of the outstanding Other borrowings, on a consolidated basis, have sched- l notes at face salue should such subsidiary be required to uled repayments and sinking fund requirements for the j pay a iditional amounts to note holders with respect to years 1987 through 1991 of $2.9 million, $175.7 million. l certain taxes imposed on the semiannual interest $95.6 million, $2.2 million and $2.3 million, respectively. payments. The 14%% rate represents a competitive rate Other borrowings, for the Parent Company only have for 3 year Australian dollar borrowings. scheduled repayments and sinking fund requirements of i
$53.3 million in 1989. !
I 1 1 70 l
.j l l
( ra . hm m t m ) e Shareholders' Equity (is) the 8% "L Convertible Subordinated Debentures Due 2008 are convertible into common stock at $23 per share. At the annual meeting held on Apnl 22.1986. the share- There are no consersion privileges associated with Pre. j holders approsed an amendment to the Articles ofIncor* ferred Stock-E. , poranon which increased the number of authorized shares PNC Financial has a disidend reirnestment and stock of PNC Financial common stock, par salue 55. from 60 mil- purchase plan. Shareholders of preferred stock and com- ] lion shares to 100 mdlion shares and the number of autho- mon stock may participate in the plan which prosides that ] rized shares of preferred uotk. par salue $1, from 5 mil- additional shares of common stock may be purchased with j hon shares to 10 million shaies. reinsested dhidends at a 5 percent discount from market ! PNC Financial has fue series of preferred stock out- value and with soluntary cash pasments at market value. 1 I standing. $ 1.80 Cumulathe Cons erable Preferred Stock- The following number of shares of common stock were I series A and Series B (" Preferred Stock-A and Preferred purchased pursuant to this plan: 215.003 shares in 1986. Stock-B") has e a liquidation value of $40 per share. Pre. 215,419 shares in 1985 and 424.874 shares in 1984. f ferred Stock-A may be redeemed anuime at the option of At December 31,1986, PNC Financial had resersed 1 PNC Financial at $40 per share. Preferred Stock-B is not 22,983,426 shares of common stock to be issued in con-redeemable. $ 1.60 Cumulatise Convertible Preferred nection with pending mergers and under the disidend l Stock-Series C (" Preferred Stock-C") has a redemp- reirnestment plan, employee stock purchase plans and l tion / liquidation olue of $20.00 per share and is redeema- upon the exercise of warrants and the consersion of cer- ) ble at the option of PNC Financial anytime after Februarv . tain debt and equity securities. 1.1989. $ 1.80 Cumulatis e Convertible Preferred Stock- An anahsis of the changes in accumulated foreign Series D (" Preferred Stock-D") has a redemption / liqui- currency translation adjustments follows: dation value of $20 and mas be redeemed at the option of 1986 1985 tW M' """d'd 0"'"an 31 PNC Financial ans time after February 1,1990. $2.60 $(1.499) $t 1,720: Sel M 5) Beginning ohear Cumulatise Non Noting Preferred Stock-Series E (" Pre. Translation adjusiment gains dossesh ferred Stock-E") has a redemption / liquidation value of '
$27.75 per share and is redeemable at the option of PNC "C{f '5; , g ]
linancial anttime after February 1,1990. Net change for the sear . 4 221 13 W Holders of preferred stock (except Preferred Stock-E) $(1,495) $(1.49m st i.72m End of scar . are entitled to a number of sotes equal to the number of l full shares of common stock into which such preferred stock is comerable. Employee Benefit Plans j The number of shares of preferred stock outstanding by series was as follows: A qualified pro 6t sharing plan is maintained for all emPl oyees meeting certain age and service requirements._ tw nao s i 1986 1935 . Contnbutions and cost are determined bv formulas based 52,1 on annual earnings as denned in the plan. Pront sharing [] l Preterred sunk-c 9 1,340,741 l .4 l6.668 expense was $21.1 milhon m 1986, $l7.3 million in 198a, l Preterred Sun k-D 1.579,356 1.637.449 and $12.6 million in 1984. Pretened h k-E 338,100 338.100 PNC Financial also sponsors a de6ned bene 6t pension inial 3.330.158 3.472.974 plan covering substantially all employees. The plan pro-l vides pension benents that are based on the average of At December 31.1986 there were 82.221 warrants the highest base salary for fue consecutive years during outstanding. The w arrants are exercisable at a price of $38 the last ten years of credited service, subject to ERISA per warrant through August 31.1988 and a price of $40 limitations. Pension contributions are made to the extent l per warrant through the date of expiration on August 31, deductible under existing federal tax regulations. 1993. In 1986 the Statement of Financial Accounting Stan-Comerable securitt holders are entitled to the following dards No. 87-Employers' Accounting for Pensions was comersion prisileges: (i) one share of Preferred Stock-A adopted. This had the effect of reducing 1986 pension or Preferred Stock-B is comertible into four shares of expense by $4.8 million primarily due to a change from common nock: (ii) 2.4 shares of Preferred Stock-C or the entry age actuarial cost method to the projected unit Preferred Stock-D are convertible into two shares of com-l mon stock: tiii) outstanding warrants represent the right to receive, upon pasment ot the exercise price.1.8 shares of common stock and one share of Preferred Stock-D: and l 71
3
. I Norts re cossouo4rto Nscia stuntsTs. comst.to cost method. Pension expense of $6.7 million and $10.2 $10.1 million for 1986. The cost was $9.2 million in 1985 million for 1985 and 1984, respectively, and related data, for approximately 2,100 retirees and 8,600 full time tala.
hase not been retroactively restated. ried employees and the cost was $12.5 million in 1984 The following table sets forth the plan's estimated for approximately 1,400 retirees and 7,100 full time sala. funded status: ried employees. The cost of providing such benefits for Dn,mbn 31 1986 retirees and full time 5alaried employees cannot be
]
Actuanal present salue of a(cumulated beneht Separated. l obhgation. m(ludmg sesied benents of $97.415 $105,667 PNC Financial has an employee stock purchase plan Actuanal present value of projected benent obhgation ma um n ae nan. lor seruce rendered to date $157,081 cial common stock, Persons who have been continuously l Plan assets at fair salue-pnmanly listed common employed by PNC Financial or certain ofits subsidiaries stoc ks. U.S. gosernment and agency secunnes. and for one year are eligible to participate. collecme funds admimstered bv a subsidiarv bank (214,665) Offering periods pursuant to the plan cover 6 month Plan assets m excess of projected benefu obhganon . (57,584) periods fromJune I to November 30 and December I to Unrecognued net gam Irom past expenence ddlerent f,ri Niay 31. Common stock is purchased at the lesser of 85% that assumed and effects of changes in ofia % M value on the first or the last day of each t unrecognized net asset at Januarv t.1987 . 43,643 offering period. During 1986, a total of 115,343 shares Accrued pennon cost mcluded m other liabdities $ 301 were issued to participants at prices of $29.43 and $34.96 per share, a total of 125,130 shares were issued in 1985 at Net pension cost included the following components: prices of $ 18.75 and $24.60 per share and a total of Nr ni, mr ,,,due ourmby J i 1986 129,308 shares were issued in 1984 at prices of $15.94 and Seruce cost-benehts earned dunng the period $ 8,215 $1615 er P share. No charges to earnings have been made Interest cost on pnyet ted benefn obhgauon 10,837 with respect to such plan. l Actual return on plan assets . (30,104) Net amortization < and deferral 12,973 Stock Option Plans Net penodic penuun cost $ 1,921 PNC Financial has an incentive stock option plan (" Option The weighted-aserage discount rate and rate ofincrease Plan") which covers a maximum of 900,000 shares of com. in future compensation levels used in determining the mon stock that may be granted prior tojanuary 1,1992. actuarial present value of the projected benefit obligation The Option Plan provides for the granting ofincentive were 7%% and 6%, respectively, at December 31,1986. stock options and nonqualified options. PNC Financial also The expected long term rate of return on plan assets in assumed outstanding obligations under stock option plans 1986 was 7% %. in connection with merging Nfarine Bancorp Inc. and The actuarial present value of accumulated plan bene. Northeastern Bancorp,Inc. fits for the defined benefit pension plan at December 31, Under the Option Plan, options are granted at exercise 1985 was $89.7 million based on a 7.5% discount rate, prices not less than the fair market value of PNC Financial including vested benefits of $82.1 million. The plan's net common stock on the date of grant. Options may not be , assets available for benefits were $164.7 million. exercised for six months after the date of grant and expire During 1986. PNC Financial established an unfunded to years after the date of the grant. Payment of the option nonqualified supplemental executive retirement plan price may be made in cash or, subject to prior approval, cmering certain key officers of PNC Financial and its sub- shares of PNC Financial common stock valued at fair mar-sidiaries, l'nder the plan, approximately $1.7 million was ket value on the exercise date. expensed in 1986. Stock appreciation rights ("SARs") may be granted con-In addition to providing pension benefits, PNC Finan. currently with any option granted. SARs entitle the holder cial and its subsidiaries provide certain heahh care and of the related option to surrender the option and, in lieu of life insurance benefits for retired employees. Those and exercising the option, to receive shares of PNC Financial similar benefits for actise salaried employees pro- common rtock having a fair market value equal to the vided through an insurance company, the pi ee ms excess of the fair market value of the shares subject to the being based on benefits paid. The insurance piemium option over the option price of such shares. PNC Financial expense for providing such benefits for approximately may, at its discretion, make all or a portion of such pav-2,200 retirees and 8,200 full time salaried employees was ment in cash. SARs were granted concurrently with respect to stock options granted in 1986,1985 and 1984. 72
g l i ps.c ssocta. con ' e' No charges to earnings base been made with respect to The components of deferred income taxes (benefits) the options granted or exercised under the stock option which result from timing differences in the recognition of plans. Compensation expense resulting from the valuation revenue, expenses and credits for tax and financial l of SARs was $154 thousand in 1986 and $872 thousand in reporting purposes are as follows: . 1985. No compensation expense was recorded in 1984 as for ihr war ended Durmber Ji 1986 1985 19 9 such valuation was not material. Lease Snancing ' , . $ 10.235 $8,136 53.330 1 The following table presents share data related to stock Prosision for credit losses (27,893) (7.917) (6.811) i option plans: Insestment tax credit 4,315 5.725 5.186 j Other-net . (3,470) (370) 2.156 I Total $(16,813) $5 *)74 $4.06 l Per mon n rr
- Com mort rr/rrrrd December 31.1983 . $ 20.22 57.276 I Granted 22.38 76.576 The provision for income taxes is less than the amount !
Assumed in merger . 17.73-$29 09 21.670 19,700 determined by application of the Federal statutory -{ Opuons exercned . 17.73- 29.09 (9.900) i9.000) income tax rate of 46 percent principally because of tax ] December 31.1984 17.73- 29.09 145.622 10.700 exempt interest on loans to and obligations of states, l Granied 32.88 72.328 municipalities and other public entities. The reconcilia- ) Assumed m merger . 23.75 18,710 10.394 tion between the statutory and effective tax rate follows' Opuons exerosed . 17 73- 29.09 (42.290i (15.894) 17.73- 32.88 194.370 5.200 for tar war ended Durmber 31 1986 19u 19u December 31.1985 Granted 41.25 200.000 Statutory tax rate , 46.0 % 46.0% 46.0 % S AR'S exercised (1.500) Tax exempt interest . . (27.2) (22.7) (21.7) Opuons esercned . 17.73- 32.88 i30.703) (3.850) Capital gains . . ( 4.6) (1.2) (l.4) Drcember 31,1986 . $20.22-$41.25 342,167 1,350 Other-net ( .9) (1.6) (1.5) Effectise tax rate . 13.3 % 20.5% 21.4 %
*ln accordance uth the terms of the plans assumed in certain mergers. opuon holders m such plans will recen e preferred shares in The tax reform act of 1986 repealed certain investment Propornon to the number of common shares issued. The opuon tax t.redits retroactively toJanuary 1,1986. An immate.
pnce per common share under such plans is the pnce for both the common and related preferred shares. rial amount was included in income durinE the first three quarters of 1986 and subsequently reversed. At December 31,1986, options for 142,167 common and 1,350 preferred shares were exercisable. Regulatory Restrictions Income Taxes The dividends that may be paid by subsidiary banks to PNC Financial are subject to certain legal limitations. The current and deferred portions of the income tax pro. Under such limitations, the amount available for payment sisions, including the tax effect of securities transactions, of dividends by all subsidiary banks was approximately were as follows: $371,7 million at December 31,1986. For the mr ended De<rmber 31 1986 1985 1981 Under current Federal Reserve regulations, the bank-g, , ing subsidiaries of PNC Financial are limited in the Federal $43,679 $35.973 $26.316 amount they may loan to their affiliates, including PNC Foi cig n 5,190 5.123 7,347 Financial. Such loans must be secured by specified obliga. State 4.487 1.614 1.247 tions. In addition, any such loans to a single affiliate may Total gent 53,356 42,710 34.910 not exceed 10%, and the aggregate ofloans to all affili. Deferr, d: ates may not exceed 20%, of each banking subsidiary's Federal (17,494) 4.770 2,746 capital and surplus. Foreign 681 804 1.315 At December 31,1986, the maximum amount available Total deferred (16,813) 5.574 4.061 for transfer from the subsidiary banks to PNC Financialin Total $36,543 $48.284 $38.971 the form ofloans and dividends approximated 34% of Applicable to: consolidated net assets. Operations . $19,434 $42.530 $35.803 Federal Reserve Board regulations require depositorv secunnes transactions: institutions to maintain cash reserves with the Federal Equin and other 7,499 4.215 3.929 Reserve Bank. During 1986, subsidiary banks maintained Debt 9,610 1.539 (761) average reserves of approximately $396.7 million. Total $36,543 $48.234 $38.971 73
No n 3 m t ossot m sn o hs su s u s r u no s r'.. Cas ns,t e n Parent Company Financial Statements Statement of Changes in Financial Position F'" d" '"" '"d"' D"'",bn 31 1986 19e ig (londensed fmancial statements for PNC Financial Corp Sources of Funds (Parent Compam onhl were as follows: f. rom operanons: Bilance Sheet Net mcome . $237,382 $ 187.79 4 $ 143.172 l n< ash credits to operations (125,384) f 116.302) i s9.9 s9, i Dn n,an 11 1946 ivo , Total funds from operations 111,998 71.492 33.213 1 l 3 ,,,,, l60 Common uo< k nsued 64,079 119.290 69.582 l Cash and due from banks . . .$ 170 $ i L . 5. Ireasur, sec unnes (market salue Proceeds from debt inued 100.000
$110.639 and $136.607) . 139,725 135.840 Decreases in:
Imestments in: t . S. Treasurv secunties 9.453 l Ilank holdmg tompam and bank Advances to subudianes 14,443 subudianes . . . 1,307,479 1.093.606 All other net 1,626 3 ' S M "*
"7'960 i Non-hank subudianes . . . 106,748 106.025 Adsances to subudian banks 3.519 17.962 Total sources of funds . . $ 192,146 $294.364 $ 160.20 l
Goodwill . 29,172 24.633 (hher anets . 20,597 7.500 Uses of Funds l Cash diyidends declared . $ 77,771 5 6ti 564 5 50.623 j Total assets . $1.607,410 $ 1.387.726 Camersion of preferred stock and debentures 21.766 5.867 107 / I Liabilities 3,000 Dmdends p,nable . .$ 20,205 $ 17.228 Reducuons in other borrowings 1.000 500 l 1
- Other borrowings . . ...... 173,614 197.493 Increases in
Act rued expemes and other habihines 23.621 5.856 U. S. Treasurv securities 4,721 47.286 l Total liabilities 217,440 220.577 Imestments m subsidianes: } Net assets acquired in } Shareholders' Equity 1,389,970 1.167.149 mergers . 12,196 100.151 79.386 Total liabihues and Other 72,692 55.816 29.512 shareholders' equity . . $ 1,607,410 $ 1.387.726 Adsances to subsidiaries 17.680 A0 Total uses of funds . $ 192,146 $294.364 $ 160.208 , Statement of Income r.,, n,n,,n 1986 ioc
,,a,a Du,,,an s i 19 "
Commitments and Contingent Liabilities Operating Revenue thudends f rom: In the normal course of business, there are various legal Subudian hanks . $ 78.195 $ 67105 $ 48.905 proceedings, claims, commitments and contingent liabili-Non. hank subudianes 5,275 ,,a90 a.320 . . Imeteu mmme. ties outstanding which are not reflected in the fmancial L1 S. Ireasun secunnes 6,271 3,462 4.806 statements. Among these are commitments to extend subudian hanks 10,425 Il.312 3 credit, acceptances outstanding which are participated ' l Non. hank unbudiaries 2,471 3.258 6.301 with other institutions, guarantees and standby letters of Gain on sale of mortgage bankmg credit. subudian 55,159 . Other mtome 1.099 291 (90) PNC Financial had outstanding standby letters of credit 158,895 in support of the following obligations: Total operating revenue 93.018 65.445 I
. h tmgr l l Operating Expenses Num. Airnim Durmber 31.1986 .f mount p<uion Net s lharo 1 Intereu expeme 15,511 17.097 10,576 Other espemes 20,194 9.421 4.631 Commercial Paper . $ 41,000 $ 41.000 I l Total operating expenses 35,705 26.518 15.207 Tax exempt securities 847,470 $3 t l.457 536.013 5 l Other 876.448 42.326 834.122 1 Income before mtome f ases and l
$ 1,764,918 $353,783 $ 1,411,135 l eque m undninbuted net Total 3 i mcome of subudiaries 123,190 66.500 50.238 Applaabte mcome taxes Ibenents) 13.516 (2.895) (l.159) Net outstanding standby letters of credit as of Decem- g
, income before equits m undntnb. ber 31,1985, aggregated $1.5 billion. y l uted net encome of subudianes . 109,674 69.395 51.397 in addition, under agreements which proside liquidity m Equin m undninbuted net to holders, there were outstanding commitments to pur-l income of subudiaries: chase, at the option of the holder, certain loans in the f< u Subudian banks 106.746 110.884 83.741 mount of.$138 milh,on. Non. bank subsidiaries . 20,962 7.315 8.034 j l As of December 31,1986, PNC Financial had com- d i Net income . $237,382 $ 187.794 $ 143.172 . . 1 _ mitments outstanding to extend credit totaling $5.1 bil-l l l l l 74
I k PNC hs ou a Coap lion. These commitments generally require the customers PNC International Financial Services Limited, a w holl> to maintain certain credit standards. owned Australian subsidiary, issued A$60 million of { .\cceptances outstanding wnich hase been participated 14% % Australian Dollar Notes Due 1989. PNC Financial i to other financial institutions and are not reflected in the unconditionally guaranteed the payment of principal, pre-accompanying finantial statements amounted to $955 mium, if any, and interest on such debt securities.
' million and $826 million at December 31- 1986 and
. Summarized consolidated fmancialinformation for PNC 1985. respectis el). International Financial Services Limited and subsidiaries, j Securities and loans pledged to secure public and trust denominated in U.S. dollars, follows:
deposits, repurchase agreements, Sallie .\tae borrowings Summarized Consolidated Balance Sheet and for other purposes were S4.9 billion at December 31, ! Dumber 31 1986 luf w }986. In the opinion 01 management, the consolidated fman. In estment secunties . $ 48,245 s l 4.023 l L. ans 66.037 30.971
! cial position of PNC Financial and subsidiaries will not be 17.984 Other assets l 1.003 affected materialh hv the outcome of such legal proceed-ings, claims, or by sEch commitments and contingent T I * * * ' . $132.266 smoo2 l Deposits $ 73.298 $50.435 I liabilities. ,
l Other borrowings 39,450 ) Foreign Activities Other liabilities 5,393 1.385 Wnontv interest , 1,115 Foreign actisities include loan and trade services to gog. Shareholder's equitv 14.125 3.067 crnments, financial institutions and other commercial Totalliabilities and shareholder's equity $132,266 S36.002 enterprises and internauonal funding transactions. Assets, I deposits held and other liabillies are attributable to for- I eign operations if the customer is domiciled outside the Summarhed Consolidated Statement Of Income (~nited States (including foreign branches of other United for th, year ended oereniber JI 1986 19 'i s 19u States banks). Interest income . . $10,726 5 6.871 $ 4.377 l Foreign actisities are accounted for by the profit center Interest expense . . . (9,597) (5.993) 13.458) , method under which all revenues and most expenses can Other non-interest income 3,470 2.115 1.350 Other non. interest expenses . (3,337) (1.782) 11.496) l be diracth attributed. Rates used to determine the interest l' w n m W nt m u . (2o (721 expense a4sociated with funds used in foreign operations Net lne me . $ 1,238 $ l.139 $ 973 j represent the actual external rates paid during the period l for selected interest bearing sources of funds. Indirect I expenses are allocated based upon a time element, usage i or other factors. l A summary of the corporation's domestic and foreign I assets at scar end 1986 and 1985 and selected foreign j income data for the last three years follows: Dn mher il 1986 1985 l Domesoc awets $20,820,716 $ 17,495,596 l Fore.ign auets 1,378,214 1.282.127 Total aucts $22,198,930 $ 18.777.723 m.~ ,- Fnr tho trAr ended Dnemb r 1I I986 I985 I9 84 rotal operaung res enue $121,236 $ 146,709 $ 182.,664 Prouuon l'or credit loues 36,159 9.383 5.56$ Income (lom before mcome tnes (17.727) 15.042 16,554 Net income tlom ( 8,539) 9.050 9.442 The corporation's foreign activities do not include any geographic area which is significant in relation to consoli. dated actisities. l l l n
.,. P-Noin io Cowaann a hwnt. % u nirvro Cosrm io 8
]
QLI:rterly Results of Operations .<unaudited) ,a in milliont eveni per share data ,
~
19 4 19H Fourth . Thurd second . First Fmurth Thrut Senmd 5: ' Quarter Quarter Quarter Quarter Quarter - Qrmrtn Qumorn Qumnar
' Interest intome $402.9 $396.7 $396.5 . $396.4 . 1386.9 $392.1 . $380.2 $3ti33 Interest expense 256.8 254.0 257.0 264.0 259.9 257.7 251.7 241.3 Net mieresi uuome 146.1 142.7 139.5 132.4 127.0 134.4 128.5 1242- ;
30.9 15.9 62.2 15.8 15.2 13.0 14.5 12 6 i Prousion tor t redu losses . Net mierest income aher prousmn for (reda losses 115.1 126.8 77.3 116.6' I i 1.8 121.4 114.0 t il 6 Non mtereu m(ome: Iruu in(ome . 29.2 29.6 30.3 27.0 24.4 25.1 24.4 22.5 Scruce charget lees and commissions 28.3 26.8 28.4 29.7 28.7 27.3 22.4 22.1 Ntortgage seruung fees . 5.5 7.6 8.7 8.2 ti.3 65 f radmg account piohts (lowen . 2.5 2.2 (.8) 3.6 2.6 5.7 L3 l Net equns and other securus gains . 13.8 .2 8.6 4.4 .2 2.3 9.2 35 l Net debt securas gams (losseu 1.9 7.9 8.7 2.4 2.1 .7 (1.0) 1.8 Gain on ule ol' mortgage banking subudian 1.0 58.7 Other mcome 4.2 4.6 4.7 3.5 7.2 1.3 1.4 1.9 Total non mtereu income 80.9 71.3 144.1 78.2 73.9 64 9 ti8 4 58 0 Non mteren expenses: Salaries and bonuses 54.3 53.1 56.3 56.3 53.2 50.9 50.5 46.2 Pension, proht shanng and other emplotee benehts 13.8 14.0 16.8 16.1 9.8 13.2 17 2 . 17.3 Net occupano expense . 8.8 11.4 12.1 12.0 9.7 9.8 10.1 9.7 Equipment expense 12.2 10.9 11.8 10.8 11.0 10 6 10.7 89 Other expenses 42.4 38.5 43.1 41.8 43.3 37.2 35.5 33.1 Total non.mterest expenses 13 1.5 127.9 140.1 137.0 127.0 121.7 124 0 115.2 Income betore m(ome taxes 64.6 70.2 81.3 57.8 58.7 64.6 58.4 54.4 Apphcable income taxes 5.8 13.2 12.8 4.7 9.0 15.4 12.4 11.5 Net income $ 56.8 $ 57.0 $ 68.5 $ 53.1 $ 49.7 $ 49.2 $ 16.0 $ 42.9 Earnmgs per (ommon share: Pnman $1.17" $ 1.13 $ 1.38* $ 1.08 $ l.02 $ l.01 $ .95 $ .90 Fulh diluted 1.11 " 1.07 1.30* 1.01 .95 .95 .88 .86 l Aserage common shares outstanding im thousandsk Pnman 49,169 48,962 48,394 47,860 47.419 47,221 46.919 45.733 Fulh rhluted 53,139 53,059 52,959 52,804 52.530 52.372 32.239 50.542
- Includes the aher tax effect of the significant and unusual transactions which increased net income by $11.3 million or 5.23 per share on a pnman basis and 5 22 per share on a fully diluted basis.
" Includes the after tas etfeu of the adjustment to significant and unusual transactions. directly related to the sale of the mortgage banking subsirlian durmg the second quarter of 1986. which increased net mcome by $3.5 million or $.07 per share on a primart basis and $.06 per share on . tulh diluted basis.
l l l l l l l l A i I
. _ . . _ ____._______.m o
y3
'm . .r ,
s o i- ,u, i. , t n i n i n oi 1% C l t'. W t s t. Co R P Directors Franklin L. \lorgal Executive Officers l Fmmer Pastdent Vhomas E. Bolger Thomas H. O'Brien*
\Yest Penn Pouer L.ampany Chao man and Chw/ E.venen e Ofur Preudent and Chw) Eurntn e Ofw BrH.itlanter Co,p Donald I. .\foritz Roger S. Hulas * '
Pseudent and Chwf Eucutn e Ofar Chm rmn
.\nthans J. .\. Bt %m Equitable Rnonoces. Inc.
Chan man arul Chuf Evcuin e Ofun l. Dasid Grissom* Coppon rld Cmpmatmn .F. Ballard .\1orton.Jr. Fire Chair inan Ev<ntn e un Reudena Robert N. Clas School of Buuness Puudent Edward P. Junker. Ill Untenuty of Lounvdle ruce Chau man ('lar fluiding L.nmparn Thomas H. O'Brien Robert C. Stilsom' 4 ratricia J. C1itford Preudent and Chwf Eucutive Officer Iice Chau man IMunteer Cn u 1. ender i Nialcolm N1. Prine Dasid L. Tressler. Sr. Eduin f. Colodnv Preudent and Iia Chaurman ; Chav man and Preudent Chuef Eucuta e Ofcer US In Gunup. Inc. Patsbmgh Baseball. Inc. \I3(\\" Douglas D. Danforth SenwrsceI.E. Carle Preudent and Contm'In i Charles R. Pullin ! Chanman and Chief Eucutn'e Ofcer Daniel V. Gillis Chmrman and Chwf Eucutn e Ofcer 1 (Vntosghonte Electnc Cmporatoon Koppers Company. Inc. Snuar I <<e Pres: dent. Iluman Rnmom James L. Dasis Roderic H. Ross Walter E. Gregg.Jr. Fmmo Preudent and Chwf Ev<nture Ofcer Chairman and Chnef Eucutive Ofcer Sonor s tu Pavdrnt li. Il Robnt,on Company Keystone State Life insura nce Company and Chief Regulaton C,ounvl
! F. Eugene Dann.Jr. John L. Rson, Jr. W. Lee Hoskms 1 Tu nan Snnor I,sce Presudent and Chief Economat 1 Prendent and Cinef Eucutn.e ofcer Nierte E. Gilliand sninnatu>nal Salt Company WilliamJ. Johns Chavman of the Evcutive Comnntree Richard P. Simmons Senu>r lice Preudent, .\lanagement infonnatu>n and Repmtmg Howard Gittis Chmrman and Chwf Eucutni ofcer Ii< e Chanman and Chief.ldnunntsatn e Ofar AHefeny Ludlum Corporation David J. King Revlon. Inc Thomas C. Simons Snuor Vice Prendent and
}. Dawl Grnssom Chairman and Chief Eucutn e Ofcer Chtef Financtal Ofcer Fu e Chan man Capaal Holding Corporation Allan C. Nickman Paul R. Stalev Senior lice Preudent and Lester A. Ilamburg Senwr Lhauman Preudent and ChieI Executn10fcer CI"!f PIG"'""R 0b"'
llamburg Brothen. Inc_ The PQCorporat on Joseph J. Nelson , William E. Swales Senwr Iice Preudent and Dwector of T,aus Roger S. Hillas. Chauman Pasudent game,y,o pay
.\tarathon Otl Compa 'y 's,,nwr Iice Proudent. Governmental .ifairs llents L. Hillman Chapman of the Board Q J. Tankerslev Joseph A. Richardson.Jr.
The Ildiman Compans Qhatnnan and Chief Eucutni Ofcer 'Snnor Vice Preudent. General Counsel Consolidated .Valural Gas Company and Secretary Edward P. junker,111 i lia Channian Dau.d L.Tressler. Sr. Starlin W. StumpW l oce Chasrman Snuor Iice Preudent and Gennal .luditor . James E. I.ee I Former Fur Chanman R. J . M.ean. J r. Charles J. Thas er j Chevron Cmporatwn Clnairman and Chief Eucutni Ofcer Senwr nce Preddent and Treasurer il,ean L ntted. Inc. John J. .\lacWilliams.Jr. Patncia D. Yoder - Former Chauman k.*"(30 b1 We.'5 Snuor I ce Preudent. Corporate.lfans Colomal Penn Group. Inc. Pandent and Chnef Eucutive Ofcer l Bayer L S.4 Inc. . no,,,,,,,,,a a,,, ,,, , u,, i W. Craig \lcClelland Preudent and Chwf Eucutni Ofcer 1 Hammnmdl Paper Company Ouentin C. .\1cKenna Danman. Preudent and Chtef Eucutn e Ofar Ken na metal Inc. Robert C. Niilsom lice Chan man 77 l
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- D a n t <. t o n s n o E s i <. t i n L ( h t it t a s o f Patu mi N nsio \ntis !
l e i Dir ctors of William E. Swales Lewis E. Orr Pittsburgh National Bank Preudent Sensor l'oce President l Marathon Oil Company
.I'homas E. Bolger James .\l. Patton Chavman and Chuf Evcutni Ofcer G.J. Tankerslev ' Sensor l*tce President Bell.Illantu Corp. Chanman and Chief Eucutn e Ofcer Consolidated Natural Gas Compan, Dau.d .\f. Pay ne Struor I ore Prendent Anthans J. A. Brran Chairman and Chu( Evrutn e ofcer R. J. Wean.Jr. Joseph A. Rithardson.]r.
Coppenceld Corporation Ch'atrman and Churf Eucutn e ofier S'""" I us Puudent. General Gnun,q
\\*ean Umted. Inc.
Edw m 1. Colodnv and S.ecretars Chanman and Freudent Konrad N!. Weis US.lur Group. Inc. Bruce E. Robbins President and Cluef Executne Ofcer Suor i ne Pmulent Bener US.I inc' Douglas D. Danforth Chairman and Chief Eucatn e Ofcer IIerbert G. Summerfield.Jr. IVntinghouse Electnc Corporation Snuar I tre Presu!rnt Executive Officers Robert James L. Davis of Pittsburgh National Bank l Former Preudent and Chief Executtve ofcer SnuarsceI.S' Tarland Prestdent ' CaJner II. II. Robertson Company Robert C. N!ilsom Robert C. Todd. [r.
.\ferle E. Gilliand
"'"""""" "' "'"' $"' Senior l'nce Preudeint Chairman of the Execuin e Committee George J. .\lcClaran Walter L. West
"""' Senior l' ice President Lester A. Hamburg Senior Chauman Joe R. Irwin Patricia D. Yoder llamburg Brothers. Inc. Evcutave I nce Pressdent Sernor l*nce Prnsdent
[ i Henry L. Hillman Edward N'. Randall Jr. Chasrman of the Board Eucutive l'uce Preudent The lisliman Company
'g,me,g gogr James E. Lee Executut l'uce Preudent
( former lice Chairman 1 W 11 am Schenck, III l Chevron Corporation Executni l' ice Prendent GeorgeJ. NicClaran L Preudent h.ee D. Cutrone,Jr. ennor I. ice Pressdent Ouentin Danrman.C. Ramon E Dodson Preudent.\lc and Kenna C.hur).E.xecutn e Ofcer Sensor i ice Prendent ken nametal Inc. Robert C. N!ilsom Walter E. Gregg,Jr. 3,mor lia Prendent ' Chasrman and Chief Eucutn e Ofcer Gere E. Grimm , Franklin L .\lorgal Semor lice President and Controller l Former Prendent
\Vnt Penn Pouer Company George C. Hendrickson Sentor l' ice President Donald I. .\toritz President and Chnef Evcutn e ofcer Wilbur E. Hines .
Equstable Rnources. Inc. Sensor I ce Preudent Thomas H. O'Brien W. Lee Hoskins Preudent and Chsef Eucutsee ofcer Semor iice Preudent and Chtef Economist PNC Ftnancial Corp Dau.d J. Is.ing Ntalcolm NI. Prine Senior lice Preudent Preudent and Chief Eucutne Opcer John W; Logan Pittsburgh Baseball. Inc. Semor I tre Pressdent Charles R. Pullin Jam-s F. O' Day Semor ? a President Chaurman and Chuef Eucutn e Ofcer 14oppen Company. Inc. Richard P. Simmons Chanrman and Chnef Eucutive Ofcer
.lllegheny Ludlum Corporation
- 4. ,
j c.- pinic tors no Extit its t Ort:( tRn or'PRINCIPil.%t BSIDIARILi
.0. '
Directors of - i . Roderi'c H.~ Ross . Directors of Provident National Bank - , Chairman and Chief Executiet Ofcer ' Marine Bank .
; Keystone State Life Insurance Company Walter G. Arader .
Donald Nf. Alstadt . Chanman L.J. R well.Jr. Chatrman of the Boardand <
.irader lier:te and.lunoates. Inc. Pressdent and Chief Operating Ofcer Chief Executwe Ofcer Frederic L Ballard. Esq.- Provodent .\lutual Life Lord Corporatwn .
Insurance Company : ' Ballard. Spahr. .Indreu s U Ingersoll AlanJ. Blair William .\l. Batteiger Frank P. Slatterv Jr. Executtre lice Preudent - President New Process Compans ' Pwudent Lease Financing Corporation l R L Batterger Co. Charles H. Bracken . Paul R. Stalev Chairman of the Executwe Committee Richard L Boje Chairman . President and Chirf Executwe Ofcer The PQ Corporation J hn C. Haller , 1 L John lYanamaker. Philadelphia Senior Executwe I au Prestdent
- l. Robert E. Chappell Karl E. Wenk.Jr. i L. Jones Retired lice Chairman Dav.d President Pressderst Jones Brothers, Inc. l PatriciaJ. Clifford Executive OfHeers j f blunteer Civic Leader of Provident National Bank Edward P. Junker, !!!
)
Chairman. President and F. Eugene Dixon.Jr. Roger S. Hillas 8 Truner Chanrman Chief Executive Ofcer I Edward C. Driscoll B.J. Lechner Robert E. Chappell President ' Chairman of the Board Presodent . Lyons Transportation Lines. Inc.
)
L. F Dnscoll Co. ; Robert T. Arnold James C. Levm. son i Ralph Earle ll. Esq. Executwe l' ice Pressdent Chairman of the Board. President i Senwr and .\tanagung Partner Baker a Dannels c Carnall and Chie Executwe Ofcer yx,cu,tr, g. ice Pressdent *"'*'I" l"b"" I" Jack Farber W. Craig SicClelland l Chasrman and President G. Robert Hoffman I
)
Philadelphia industnes. Inc. Executwe l' ice President _ President and Churf Executwe Ofcer Hammermall Paper Combany \ Walter L. Foulke Thomas S7 Stewart Executwe I sce President Rav L NicGarvey Preudent Pardee .\lanagement Compan? p,, sadent and Chief Executive Ofcer AnthonyJ. Cacciatore .\leadow Brook Darry Co. Howard Gittis S'"'or lice President . Edmundj. Mehl I ce Chairman and Chnef.Idmunestratwr Ofcer Morton B. Comer Chairman Rerlon, inc-Senior Iin Pressdent Dupatch Pnnting, Inc. John B. Hannum.Jr., Esq. P. Graham Contin George R. Nietcalf.111 Chwf Coumet Senior lice President Chainnan and President Commonwealth of Pennnivania E.\ll Company State Racing Commuston %.asne R, Evans - Senior l' ice Prestdent Alfred Rau Roger S. Hilla5 Chainnan l' ice Chairman William J. Friel National Forge Company Senwr Iice President - William G. Kay.Jr. Preudent Philip R. Goldsma. h William C. Schulz President } IVentworth .\tanagement Group Sensor lice President flouse of Edinboro Arnold A. Kramer Harold C. Herman Sensor Iice Pressdent Edward 1. Stanlev.Jr. Prestdent and Chief Executwe Ofcer Tnnifit. Inc. President and Chuf Executwe Ofcer Richard C. Krauss Robinson's. Inc. JohnJ. 51acWilliams,Jr. Senwr lice President Former Chairman Herbert S. Sweny Colonial Penn Group. Inc. John W. AtcLaughlin President Senior I ce President .\lodern Industries. Inc. Atarv Patterson SicPherson Robert B. Trempe r I wt College b'"*' " " O'"'
. Thomas B. Morris.Jr., Esq. Malcolm C. Wilson 3,ruar l'ia President Dechert. Pna d Rhoads i
Robert C. Robb.Jr. President Lewss. Eikert. Robb & Company f 79
- T
, [)igtctons 60 Euu a n i. .fhi tu a3 os Paiu scit. st asioi sais.(
J 4 James C. Torrance Directors of ~LJohn L. Rson.Jr. 4 Former l' ice Chatrman Northeastern Bank of Pennsylvania Presidenl and Chsef Executive Ofcer
" '""# U "" ' "N "*E""I' Thomas L. Venable - Raymond A. Bartolacci Chanrman President and Chairman and -J. Harvey 5proul,Jr.' ,
'j Chief Executive Ofcer Prestdent Chief Executsee Ofcer Spectrum Control. Inc. Laneco. Inc. 11. B.- Sproul Construction Co.. Inc. j
' James F. Walker, St.D. .' Larry D. Stetter .
Dorrance R. Belin, Eskhodes Physicsan thrtner. Oliver. Pnce & I President and Chief. administrative Ofcer
'I" '"'}# ## David L'. Tressler, Sr.
George H. Wells ,. l Prestdent and Chtef Operating Ofcer Justin Bergman,Jr. Chairman and Chief Executive Ofcer - National Forge Company Retired ihrtner. Bergman 's l David E. Zuern C. L Cramer Sensor Execunve l' ice Pressdent Retired. Former Pres > dent Executive Officers of I Cramer's Cashwas Inc. Northeastern Bank of Pennsylvania' Edgar L. Dessen,51.D. David L. Tressler, Sr. Executive officers Phisictan Chairman and Chief Executste OJ)icer of Manne Bank E. Ruth Dunning,51.D. William A. Lees Jr Edward P. Junker,111 Renred Physician I' ace Chairman and Chanrman. Pressdent end Chief Executtve Ofcer Chief 0peratnng Opcer l Gerardj Ferrario John C. Haller Owner Larry D. Stetter l Senior Executive l'ece President Ferrano .4genci--insurance President and Chsef , and Real Estate .4dmunutrative Ofcer j I David E. Zuern ' Senior Executive l' ice President . Robert A.Gordon Dennis G. Dunn Executive l' ice President Ronald G. Imboden Certified Public .4ccountant Henry Hood, St.D. I Executive l' ice President RobertJ. Williams Pressdent Executive l' ice President George P. Smith Geisinger Foundation Joseph P. Durkin ! l Executnvr l'uce President and Secretary S1ichaelJ. Hudacek Esq. Senior l' ice President
.inornyat Law Peter F. N!ovlan r
Senior l' ice P'esident John F. Johns Presndent Society .\lills. Ltd. l?5ePh E. Quinnan Senior i ice President RobertJ. Johnson, Esq. Kenneth Robinson Partner, Stevens d.But:, Hudders, Tallman, Senior l' ice President Johnson Robert P. Sheils,Jr. B. CarlJones Sennor l' ice President Chasrman, President and Chief Execuuve O Haddon Crafumen,fcer Inc. Joseph C. Kreder, Esq. 1 Partner, Henkelman. Kreder, O'Connell
& Brooks
.4ttorneys at Law William A. Lees,Jr.
l' ice Chairman and Chief Operating Ofcer EdwardJ. Lynett.Jr. Editor and Co Pubissher The Scranton Times and The Sunday Times W. Russell Preston President and Chief Executsve Ofcer The Globe Store 1 80
l' s ( - [)! R ECTO R 5 tSD EucC m t OrrictRs or PRINCIP\L SUBSIDl4RIE5 Directors of Executive Officers of - Directors of - l. PNC Trust Company of Florida, N.A. PNC Trust Company of Florida N.A. PNC Funding Corp - l Robert R. Bardett Thomas H. O'Brien Robert T. Arnold Retured Former Preudent. Treasurer Chatrman Pressdent and Chee) Finanaal Ofcer ,
" Walter E. Greg .Jr.
['"p. 'fff "$ Asa W. Smith - Senior l' ice Pressdent and President and Chief Execatwe Ofcer Chief Regulaton Counsel
^
James L. Bauchat. ^t.homas S. Stewart PNC Finanaal Corp I Retsred. Former Senior t he Preudent Ihe Chairman and Treaswer, The Kusell Company - Joe R. Irwin h.enneth F. Dornbush Kenneth F. Dornbush Executite l' ice Prestdent Chairman and Chief Executwe Ofcer
, Executwe Ike Presudent .
Dau,d J, h,ing :
.\lerie E. Gilliand Treasurer Chairman of the Executwe Committer Directors of John W. Logan PXC Ftnannal Corp PNC National Bank l' ice President '
PorterJ. Goss Robert T. Arnold Robert C. Stilsom Elected Publuc Ofcial Ihe President l' ice Chairman Donald St. Houpt """ 'I investment .idnsor J. Richard Carnall Executwe the President Thomas H. O'Brien hnanaal Resources Group Provident National Bank President and Chtef Executwe Ofcer Ronald J.Jaffe, .\l.D. PNC Finanaal Corp ' Robert E.Cha pell ( Pundent Chairman. Presbent and . Joseph A. Richardson.Jr. l l Professional.1denort Services. Inc. Chief Executwe Ofcer Secretary I f William J. .\lcCormack.Jr.. D.P.NI. Storton B. Comer ( Podnatnst Executwe Ihe President Ann .\tarie NicCrystal . **#"I * ##" R S PNC Funding Corp President . Cha nnar; Hill l*ssutong .\ ur se .Issonation PNC Financial Corp Joe R. Irwin i ofIndtan Rwer County G. Robert Hoffman Chairman and Chuef Executwe Ofcer
.Fhomas H. O'Bn.en Executive l' ice President Robert T. Arnold -
Chanrman Provident National Bank President and Chief Finanaal Ofcer
\yalterJ. Short Atlan C. Kirkman I ou Chaurman of the Board Sennor l' ice President US br. Inc- and Chief Planning Oficer Asa W. Smith .
PNC Finanaal Corp President and Chief Executwe Ofcer Edward V. Randall.Jr. Larry D. Stetler Executwe l' ice President Presnhent and Chief.idmunistratwe Ofcer Pittsburgh Nattonal Bank Northeastern Bank of Pennsylvania I Thomas S. Stewart . t he Chairman Executive Officers of PNC National Bank David L. Tressler. Sr. g sce Chairman Robert E. Chappell Chairman, Pressdent and PNC Finannal Corp Chtef Executive Ofcer , David S. Watson. Esq. Partner, Thorp. Reed is.Irmstrong Do n al(f p , 1 i 81
..---m . Din'ic tons sst[Fstit m E.Orriuas m Patsr.mt. si suot sairs 4
Directors of. Directors of ~ .. Directors of l PNC Commercial Corp Provident National Investment - The Hershey Bank : Corporation Robert C. Allen Richard S. Larimer Eurntn e l'ue Preudent Robert E. Chappell ' 'l' ice Chmrman , l President The Hersher Bank . ; George I. NicClaran Poovulent Natoonal Bank and Pseude'nt and Chtef Eur riture Ogre,, 1 neudent Henhey Tuna Compaan ntisbrugh Natwnni Bank Roger S. Hillas - Chau man and President jetferson C. Barnhart. Esq. David 51. Pas ne geguegya,rn,, Eucutn e l' ire Preudent Allan C,. Kirkman y(y,,,, gatta,, y gu,a p Senwr i sce Prendent and James E. Rohr Chief PInnning Ogicer Dennis P. Bren(Lle - neudent PNC Fnnancial Corp Preudent and Herbert G. Summerfield.Jr. Thomas H. O'Brien - #I ^"" '" * '" Eucutnr l'oce Preudent ue Un ey Ban President and Chief Eucutive Oficer PNC Financual Corp SamuelJ. DeAngelis '} President i Executive Omcers of cox De.ingehs Rntaurant Cmporntwn {.lhnp,D;, , g ,, PNC Commercial Corp Joseph S. G,umpher ; Gary . Zentner Retned President James E. Rohr 't t endent Hashey Toun Company
.\,,rchant Banking Company 1 Richard S. Larimer Robert N1. Niiller l Executn e l' ire Preudent Retured l'oce Pseudent )
~
Executive Omcers of . Serromatwn Corp, David M. Pasne Execulire l',ce President Provident National Investment Harold S. Stohler Corporation Chairman flerbert G. Summerfield.Jr. The Hershey Bank Executtee l' ire Preudent Roger S. Hillas Chairman and Pres dent - Vincent A Pronia l Former Owner Executive Omcers of Pronio's Market. Inc.. PNC Investment Company Ashie L Santangelo 4 Walter L. West Ownn Prendent .hhne 's of Cocoa .illey Daniel S. Seiverling Retired Treasurer Executive OMcers of Dauphnn County l PNC Merchant Banking Company Louis C. Smith Gars J. Zentner Retired l' ice Presndent neudent Hershey Foods Corporation Executive Omcers of The Hershey Bank Harold S. Mohler Chasrman of the Board Dennis P. Brenckle President and Chief Executive Oficer Robert C. Allen : l' ice Chairman Deanna L. Horchler Senior l' ice President and Corporate Secretart Thomas W. Lennox < Senior l' ice Presudent Jerry A. Rice l* ce Presudent. Chief Fsnancial Oficer and Corporate Treasurer 82
s; a +- DinntronWo Enci rn t OrricrRs or PRINCIPit WBSIDl4 RIES -a
. Directors of ~ Daniel C. Ulmer.Jr.. . Directors of -
Citizens Fidelity Corporation Preudent . . . . . Citizens Fidelity Bank and
..Cituens Fideltty Bank'and Trust Company _
Trust Company Pwodent- R. Richard Van Hornei .. F James H. Dasis . Clas tiedding Compans . Retoed. Former Senior l' ice Prendent Owner Chatrman and Chief Eucntnv Ofcer
.Illantot Ruchfeld ~ Porter Iaint Company ..
Three Chemney Farm 3, 9,,;g 97;,,nm
- J. Dasid Grissom Chan man
'Chao man - Executive Officers of Citizens Fidelity Corporation .stason H. Lampton
' \lakon H. Lamplan President and Chnef Exerutny Offich
- Pseudent and Chre) Eucritn e Ofcer J. Dasid Grissom .
The liardawns Compans , The liardaway Compans ~ Chairman, President and Chief . Exnutin Ofcer .F. Ballard .\1orton.J r. Harrs 1.aViers. r. Execurnt en Rendence Puudent and Chielf Ein uta e Snnth Ecot Coal Company ofcerThas er CharlesJ. Executu e l'oce Presodent and The School of Businen. Unntrsity of Louisville
\lichael .\. \ lites Chief Financsal Ofcer Joe .\1. Rodes .
nesident -hlichael N. Harreld Ernutn e l' ice President Pressdent and Chief Executive 0@cer Noaft. Inc. James Graham Brown Fouindatwn. Inc. T. Ballard .\lorton,Jr. E. Frederick Zopp Robert W. Rounsavalifill . Eucular un Rendence Sectelary President Schoolof Buuness Unnersnts of Louisedle ' Duxie \\hrehouse U Cartage Company
' Joe .\l. Rodes Robert L Roser Preudent and Chief Evcutits ofcer ' Prendent and Chief Executive Ofcer James Graham Brown Foundatnon. Inc. Louisedle Gas and Electnc Company Robert W. Rounsasall. I!! John C. Seiler
.Preudent Chairman Dnie \\'rnehome & Cartage Company T.1BI of Kentucky. Inc.
Robert L. Rmer Thomas C.Sinions ~ 1 Eucutive Ofcer neudent Luuut tile Gasand anc Chur{Electnc Company Chairman and Chief Executive Officer Capital Holding Corporation Rme Lenihan Rubel Lawrence L. Smith Chmtman and Choef Eucutn e Ofcer Pressdent and Chief Executive Ofcer Rubel Lenihan Corparatton Rodes Rapier Company Roger W. Schipke ' Douglas D.~Stegner i Seninr nce neudent and Group Executni l' ice Chanrman General Electnc Company l
\\*illiam .\l. .\lercer..\lendinger, incorporated John C. Seiler James Thompson Chatrman Chairman TIBI of Kentucky. Inc. Glenmore Distilleries Company l Thomas C. Simons Daniel C. Ulmer.Jr.
Presidn,it Chaorman and Choef Eucutn e Ofcer Capotal floidung Corporation R. Richard Van Horne Lawrence L. Smith Retired. Former Senior l' ice President: niudent and Chtef Executne Ofcer .itlanttc Richfeld Rodes Rapier Company Richard D. Spence Pnnetpal
\\oodude Consulting Group Douglas D. Stegner l' ice Chmrman
\\'dliam .\l. .\lercer .\leidtnger, Incorporated '
James Thompson Chan man 4 Glenmore Dutdlertes Company __ ._._________E_E.__.__m________ _ _ _ _ _ _ _ _ . _ _ _ . . . _ - _ . . . _ _ _ _ _ . ._E.- ...___m .__ ._ m___._ _m.._. ._..
i IRECTORs 60 Exrct:TH E On ctns or Paiscarrt St'asio'anits i e e , ; Directors of Directors of I' Executive Officers : of Citizens Fidelity Bank CFC Financial Services, Inc. Citizens Fidelity Florida,Inc. , and Trust Company Niichael N. Harreld CharlesJ.' Thayer I V.
- j. Dasid Grissom Execulate l' ice Presudent Executwe l' ice President anda Cutaens Fidebty Corporation Chief Financial Ofcer ,i ~l Chan man and Chne) Executit e Ofcer Graens ehty Corporation l Daniel C. Ulmer.Jr. Charles J. Thayer )'
Prendent Executwe l' ice President and Daniel C. Ulmer.Jr. I Chief Financsal Officer President . acen elay rPoration Canens Me% Bank a6 Twt Cornpany ctt i e es ent E. Frederick Zopp E. Frederick 7. opp r I
\.lichael N. Harreld Secretary Secretary J Lxecutet e l'u.e President Cituens'Fidehty Corporation Citueru'Fidebty Corpyratnon ,
S. Terry Irsin -y t Executwe l' ice President Frank O. Keener Executive Officers of Executive Officers of j Executwe l' ace President CFC Financial Services, Inc. Citizens Fidelity Florida, Inc. Frank \. f. Knego Daniel C. Ulmer.Jr. Charles J. Thas er President Eucutwe l'oce Pressdent Pressdent l Francis H. Calvert Robert R. Robinson Senior l'sce Presndent Sennor l' ice Pnestdent D,i rectors of Felix J. Dent Citizens Fidelity Leasing Corporation j I i Sensor l' ice President E>ectors of A. . Desposito ' i l E. Jose h Hughes Citizens Fidelity Capital Markets,Inc. Pr ident l Sennor I ce Pressdent RonaldJ. N!urphy ' David Grissom Chester A.'.\tisbach.Jr. President hairman. President and Sensor l' ice Pressdent . Chief Executwe cer CharlesJ. Thayer Cituens Fidehty rporation - .$
%. Barrett Nichols
. Executwe l' ice President and Semor l' ice President Chief Financial Oficer Daniel C. Ulmer.Jr.
Citurns Fadehty Corporation President Robert E. O'Connor.Jr. Senior l' ice President
""'"' ' I "" " " #"'#""I N! artha A. Ziskind l' ice President E. Frederick Zopp Donald Rilev Secretary Senior l*tce Pr'esident Citi: ens Fidelay Bank and Trust Company p Cnturns Fidelity Corporation Thomas R. Runnels l Semor l' ice Pressdent Executive Officers of .
William T. Simpson Citizens Fidelity Capital Markets, Inc. Executive Officers of Senior l' ace President ten 8 eHty e8 ing Corporation 1 -J Ronaldj. Murphy I William T. Tyrrell President A. . Desposito , Sennor l'uce Pre.udent Pr tdent i-Charles A. Walter.Jr. Ted K. Stirgwolt - / Senior l'oce Pressdent Senior l' ice President E. Frederick Zopp Sennor l'oce President I n o
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Directors of Directors of . Directors of ; Citizens Fidelity (Ohio), N.A. Citizens Fidelity Bank and Citizens Fidelity Bank and , Trust Company Hardin County - Trust Company Lexington Sdinor 1. Das is Ihrtn/r James Collier Robert N. Clay ' l Taft, Sternnous & llollater Senior Ihrtner . Preudent .? J. Dasid Grissom h$e'r Chasiman. Prendent and Lamonte Hornback Three Chimness Farm Churf Executnr Ofcer Prendent and Catt: ens Fideltty Corpmation Chief Executsve Ofcer W. Harvey Coggin . .. JamesJ. Ryan Gerald W. Howarri - " " ' " ' " " ^ I *"" '" ' M '" thrann Executste l' ice Pressdent J. David Grissom Taft. Strutntus U Hollister "'"""" Herbert N.Jenkins CharlesJ. Thas er President Stichael N. Harreld Executtre l'oce Preudent and Jenkuns Essex Co. Execulit e l' ice Pressdent ' ; Chtef Financtal Ofcer Cth: ens Fidelity Corposatton "1 Cott: ens Fidelay Corporation '50 :1 g,77, g,y;e7,. 7-E, Frederick Zopp Ketth .\lonument Co. Preudent and Chtef Exerntni Officer i Secretan South East Coal Company Cati: ens'Fedeltti Corporation Robert af. Layman i hce President W. Terry AlcBraver ; 1 Kundervater & Laxman, Inc. Sentor Ehrtner .
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Citizens Fidelity (Ohio), N.A. l' ice President ' John E. Tobe o
.4ustin E%wder Co. President and Chief Executni Ofcer J. David Grissom fernco. Inc.
Chairman, Prestdent and Chuef T.J. Patterson Encutuve Ofcer Rettred. Civil Eng,neer . D. G. Van Clief.jr. T). Ihtterson U.lssociates Executive Director CharlesJ. Thas er Breeders ' Cup Limited Chte[Ftnancial Ofcer Clem Tharp Retired R. Dudlev Webb E. Frederick Zopp Nolin Rural Electnc Co-op Corp. National IMrtner Secretan Robert C. Wade ""I#"# Partner Wade Farms Executive Officers of Citizens Fidelity Bank and Executive Officers of Trust Company Lexington Citizens Fidelity Bank and W. Harvey Coggin Trust Company Hardkn County President and Chtef Executter Ofcer Lamonte Hornback Forrest L. Cook President and Chief Executive Ofcer Sensor l' ice Prendent i Gerald W, Howard John SicClure ( Executtve l' ice President Senior l' ice President George L. Cave Douglas K. Steele Senior l' ice Preudent Senior l' ice President Herbert H. Pence Senior l' ice President a t I e
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.\ludunn Gonens Crq lur, \.
lid,trjtt l;oy i ted31ntor Company i f
'f,~ 'Battarjf Farm .\
John W. Brandenburg 5' ' l.indsev W. Ingram.j r. . a f e Janies A. Hall . . . l.andawnro Parts t ! titMnn nt Law and . t
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..\. R. Burnam Ill 4
't , ? ;ReiNd. Cteni Fodebtr Bank and ihnt
_ Partnn James G. Ingram 1
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Hnunam U Thompson ' Chan man, Preudent and Cinef , O \ ' shasles D. Nellev ~ f ' q
. James Caperton Burnham c r
; (etutwe ofcer . !J Pn4 dent and Clarfihn ett; e ofa.- i Chuninnu Tebbs S. Moore (/, ' M Fred J. Kilgus. Jr.- ' <
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, Qjn.prthldjunk Counth Cor Ford Mutor Company i' ';/ Dan W. Robinson .
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hniner l' ^ Fun t' itte yu Preuk i J,ames H. Hmyard ' Davenps>ot. Rohtnson & IVhtteoAa j. . b I reudent and Chor) Eucntter Offirer r - (a pM. !' M c k. .mne _ 7 -
. .l Dr. Russell I. Todd ! W ene ota f $d. Gunt FFnfety Hank nW Tnot .
'i ur Paudent Retned , .
};mpny hdhjnn Lou.nty n Dentut Ronnie D. Youwt Thomai F. % ib. lr V^
i J- Chauman ; L :] h , l'u ~
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Executive Officers of Citizens Fidelity Bank and 3 jy ' i
- l. Williara Manning a-
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f ,__ i Trust Company Madison County Citizeris Fidelity Bank atad / MannWg E<prip' ment Compant ~" 1 I i Trust Company Mer'cer County *- James Caperton Burnham Chanman
.,! Jades Q ingram g .-
Hatehl R. 5mith Ihrtnh Y l Pseudent and Chief Empth e Ofcer Siath lQ(hamson. ,Sumpwn. lames H. Howard
'Preudent and Chuf Erecnta e ofcn i\ y %"f"$dd Them
'i. Jean D >Taslor D t g ih l Pursuderit and Cashoer i
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by{. - q * ') . n,,orn,w w,4 u - 9 si r. m n : a - m o u - --e e Directors of. Directors of J Directors of . Indiana Southern Hank Citizens Fidelity Bank and First Midwest Bank and Trust Trust Company Winchester ' W. Eugene Clas ton Dasid W. Ehringer Preudent and Chief Execuin e ofrer Investo'r Wtiliam B. .\ dams R,crned. Connn Evn<tn:e Dnector ~ lames E. Croft John W. Garrett [ t.S D .I,.l.S.C.S Reined Forriter the Channean Preudent ) Fnst \lidwest Bancorp Garrett l\inehouse laa W. Btuhanan
. James C. Curry W. Fred Hale
' lIn [: iiI n Preudent Chair unan. Preudent and Chrej B L. Curry and Sons. Inc. ' Evrutn e 0][trer
' lames C. Codell.Jr.
Presulent Herbert R.Gohmann ~ John Hislop ' l Cvdell Countiw tron C.ompany Chan unan lin estor Gohnrann .hphalt & Countruction. Inc. 9 James C. Codell. tll 9 Lvcutn e I ne Pseudent Phsuaan :1 Codell C;onstructuon Lun,paan lames F. Graf - g,g,,,g,p,,ug,ng R ljugeles l'. DeVan 111 Graf.luto Contpany. Inc. erl
, h,. Lanurn Sttles. Harbnon. Fafn, Lannur U Blan l
. Il etu : norte U Supphes l y ',' '[eth L. Huber il r j Eugene E. Freeman.Jr. Budget Rent. t-Car of Louise:IIe
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- Hun n in sana Southun Bank re ($t The Freenran Corpmatron y g",",
But R. Hunalinan and Son Inc. bames . OKeal George Gaw throp p g, Real Estate Developn g;cy,7g c,9.Connor Jirn OWeal Ford. Inc. Charles B. Pember Partner Retned. Emma Pseudent of \\)att. Tarrant. Combs and Orbison Cuto:entFulelity B,ank and g;, t. Pry.Jr. Executive Officers of Tunot Lornpany \\ onchnter President Indiana Southern Bank ' Lewis Pg. Inc. W. Fred Hale Robert .\l. l'ow e.Jr. Prrudent and Chie) Lucuta e ofcer M*olford E. Sprigler President and Chuef Eucutn e Ofcer Retured thrtner Spngler Brothers Construction b h* Y' 'd S'nior I sce Pres # dent Executive Officers of Citizens Fidelity Bank and I fj*** ,,. .fhornton gg- g Trust Company Winchester Senior l' ice President Susan Miller Robert .\l. Pow e.Jr. Executive Officers og Senior l' ice Presodent Preudent and Chre) Eucutn e Ofcer Stephen M. Norton First Midwest Bank and Trust John Pendergrass Encutn e l'ue Presuln>I Snoor Via Puudent W. Eugene Clay ton lohn F. Nunan Pressdent and Chief Eucutive ofcer Robert D. Haben Senwr nre Preudent ggwa7g 3,gae7 Exantn'e Vice Prendent}}