ML20239A018

Pnc Financial Corp 1986 Annual Rept

ML20239A018
Person / Time
Site:	Beaver Valley
Issue date:	12/30/1986
From:	Obrien T PNC FINANCIAL CORP.
To:
Shared Package
ML20239A003	List: ML20239A002 ML20239A004 ML20239A006 ML20239A009 ML20239A011 ML20239A018 ML20239A025 ML20239A121 ML20239A129 ML20239A135
References
NUDOCS 8709170022
Download: ML20239A018 (91)

Text

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dombined Consolidated Financial Highlights i he...minnea...n ohd ord h"a"mi n'ol" '"' 3"de 'br d"""" "' C*'""' hd'h" C"rporanon. w tuc h w as mer ged on F bruan 27 1%7 e

Percentaee I" " "'

in tium,nmb. ewpl per 'IHU! AGIU l

for The Year Net iiuesest mcome itaxable. equivalent basis)..

S 859,662 5

760.934 13"L siumhcant and unusual transauions:

.\\dditomal prosision f or (redit losses (44,000)

Gain on sie of mortgage banking subsidiary 59.703

. Net ellect on a pre-tax basis 15,703*

l 286,307 228.831 25 Net income Farnmas per common share:

l'rimarv 4.44*

3.63 22 l'ulh diluted 4.19' 3.44 22 l

\\t December 31 Ibral asset s

$ 26,936,055

$22.760.745 18

.oans net of unearned income 15,602,821 12.687.710 23

)eposits 17,610,572 14.633.907 20 shareholders' equity 1,693,605 1.395.732 21 shareholders' equitt per common share 24.66 21.42 15 selected Ratios-For The Year lased on net income:

Return on as erage assets 1.22'S 1.14 %

Return on aserage shareholders' equity 18.71 17.62 lased on net income excluding the after tax effect of significant and unusual transactions:

1.15 Return on average assets Return on as erage shareholders' equity 17.74

'criod end primary capital iatio 7.41 7.24

'criod end rotal capital ratio 8.70 7.87 s'onperforming loans to period end loans..

1.49 1,48

\\llowance for credit losses to period end loans..

1.61 1,40

'llowance for credit losses to nonperforming loans.

108.06 94.54

' t he aber las eHea t of the ugm6 cant and unusual transactions increased net mcome bs 514.8 milhon or 5.24 per share on a pnman baus and

$ 22 per ihare on a hilh chluted basis.

i Annual Meeting omm

,, Our shareholders 1 The annual meeting of the share-

'NC Fmanual Corp Nianagement holders of PNC Financial Corp will

ommniec 5 be held Tuesday. April 28.1987 at 11 A.. l. in Lincoln Hall. The

\\

'NC hnanaal Corp lioard of Director 5

.o m m aiees 6 Union League Club of Philadelphia.

'nde m rerlormance 8 Broad and Sansom Streets.

orporate Finanaal Reuew Philadelph.ia. Pennsylvam.a.

stanagement's Inicussion and

\\nahus 19sti sersus 1965) 16 Emancial Information-lable ut tontents 27 threuon and f.xecutne Othcen 01 PNG f manual Cor p 77 threuun and F.sc(utne Oth(en of Pnnapal Subudianes 78 shaicholder informanon.

inside back cos er

To Ot a 51: s a i u < >i o f a t It n ms pleasure, as c hief execuine officer of PNC FmancialCorp,io report that PNC achiesed another record eJrmngs performance in 1986. It is aho ms pleasure, speaking on behalf of our entire oigarnianon. to welwme the shareholders and staff of Cituens hdehn Corporanon to PNC. Citir-ns' management and its more than 2,500 emplosees are

< haracterued in the same leure to cuel-the same pride in performance-that motisates PNC's peo-pie and has made us one of the nation s foremost hnanual instn uuons.

Performance in im i

The merger wuh Cai< ens was completed on Febru-an 27.1987. and thn report mcludes the combined I

knanaalinforrnanon for PNC and Citizens. The wmbmed wmpann performame is highlighted on

/ >-o / / o n-,

the preceding page and is discussed in gicater detail m the Corporate Financial Reuew beginmng on page 16.

ifighlights of 1986

)

Cornohdated net mcome totaled a record 5286.3 The major esent of the past sear was our agreement million m 1966. an mcrease of 25 percent oser to merge with Citizens Fidelity Corporanon of Lou-1985. F.arnmgs per wmmon share were $4.19 on a issille Kentucky. Immediately after Penns>lvania's lulb diluted basis. 22 percent higher than the 53.44 interstate banking legislation took effect inJune, we per share carned m 1985. Our improsed earnings signed a definith e agreement with Citizens, one of prinapalh resulted from a higher les el of net inter-the largest bank holding companies in its state.

est inc ome cenerated from suong grow th in loans Citizens. led by Chairman and Chief Executh e Oth-and imestment securities. Additional sigmficant cerJ. David Grissom. who is also a vice chairman mninbutors mclude increased gains from imest.

and director of PNC, had assets of $4.7 billion at ment sewnnes. higher trust income and a gain from sear-end 1986 and a record of excellent finanaal the sale of The Kissell Compam. In recogniuon of results. The merger is consistent with our stated PNC's mntinued earmngs growth. in May the board position of affiliating only 'vith the highest quality of directors mcreased the quarteriv dividend bv 15 institutions in terms of management. fmancial per-peu ent, to an annual dhidend rate of $ 1.52 per formance and market presence.

common share. Citizens' board of directors We also completed ses eral acquisitions w hich fur-l increased the quarteriv dhidend in 1986 by 16 per-ther strengthened our position in the state of Penn-(ent, to an annual dhidend rate of 5.80.

sylvania. In March, we finalized the merger with The The tw o ket performance ration-return on assets Hershey Bank of Dauphin County. It has three and return on equin-both showed improvement offices in the economically attractive area of South mer 1985. PNC's return on assets was 1.15 percent Central Pennsylvania and positions us to expand m 1986 and return on equity was 17.74 percent. Sig-our market presence to the east and northeast mficant and unusual transactions were excluded toward our Provident and Northeastern bank affili-f rom net income in computing these returns. How-ates. Consistent with our policy of enhancmg our eser,if thes wcre included, the returns would hase position in local markets, two of our Pennsshama been 122 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 equitt among the nation's 25 larg-est banking mmpames. The mmbmed companv's total anets of $26.9 bilhon at sear-end 1986 would hase ranked 18th among the nation's bank holding mmpanies, and 1986 net mcome would hase ranked 9th.

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N.uional Bank completed a merger with The Bride.nille Trust Cmupant a 5151 million bank.

wha b will gne us cuellent representation in an

.nea where we had no bram h offices..\\larine Bank, a

our Ene athliate.'also retenth mmpleted a merger

• y with the First Nanonal Bank of Cochranton a bank with anets in eucu of $30 milhon and three 4::

hranch othcet u hu h will mmplement our existing 34 banking olhces m Northwestern Penns>hania.

We now operate 348 community banking facilities throughout Penno hania. Kentuch, and Indiana, and proside our knancial sersices through offices in 19 states and 8 h> reign countries.

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IM us on Core Ilusinesses Sigmficant strides were made in each of our three j

.j major lines of business: retail banking; w holesale bankmg: and trust and moner management. Our km m %

h m M,7' basic strategt is to build on the inherent strengths

o. pm,.o t p.m sp that we has e in these businesses since each has prosed its abilits to produce diversified, protitable grow t h.

In the retail banking area. we increased as erage mately tripling the national aserage. These results installment loan outstanding bs 25 percent abose reflect our success in deseloping additional business 1985 lesels whde the nationalincrease was approxi.

within our established market and the new lending mateh 11 percent. We accomplished this while relationships we are generating from the loan pro-maintaining our high credit standards. This growth duction offices we opened oser the past few sears in reflects a market drisen approach to the retail busi-cities such as Los Angeles. New York. Chicago and ness. he also hat e intensified our sales training and Atlanta. We also had considerable growth in loans are automating our branch support ssstems. In to selected specialized industries such as communi-addition. we are using telemarketing and direct mail cations and real estate.

to supplement the efforts of our branch personnel.

Our Dallas and Tampa offices, which has e been in for example,30 percent of Prosident's consumer placejust os er a tear, also made meaningful contn.

loan mlume n now generated through the butions, and we are optimistic these offices will con-telemarketing process.

tinue to prosper. We plan to continue our new mar-1.ooking ahead to later in 1987. we will pilot a Lat development by opening additional loan offices consumer banking unit tailored to provide upscale in 1N7. and we see opportunities to increase our mstomers with one-stop access to every recad fman.

marke. penetration in New York and Orlando when ual service PNC ollers. mcluding trust, brokerage, we consoJdate Citizens' offices into PNC's offices in un esiments and loans. Following this pilot, we those markets.

anticipate opening similar centers in a number of Non-interest income also rose as a result of selected markets.

increased loan syndication, fees generved froq.

Our extenske branch network has also permitted merchant banking activities-domestically and off-a focused marketing effort toward another rapidiv shore-and the growth of business in the cerporate growing maiket segment: the small business entre.

seivices sector. We hase earned a national reputa-preneur, liing this focused approach. Pittsburgh tion for our pioneering development of electronic National has achies ed the number one market posi-payment technology, and seseral of the largest cor-L I

tion m Southwestern Pennsshania in providmg porations in the world recently began to use our banking sersites to mmpames with annual sales of up to 550 mdlion.

In our w holesale-or corporate banking-area, loan growth aho was up substantially in 1986, increasing bs more than 20 percent and approxi-1 I

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expertise in thk area. We expect that this actiuts will continue to grow in the Sears.9ead.

Our third major bminess is bar.ed upon our

,, 4 umque strengths and market leadership in trust and anet management. Ahogether, our trust actisines comatute one of the most ugmficant contributors s

to PNCN non-interest income;in 1986 prmidmg

$127.6 mdhon-a 2t percent increase mer 1985 h

-in nca-imaest r eu nue.

IV o of our newer ininatnes whu h are generating inneased lesels of trau fee mcome are [ HIC Securi.

ties Inc., a segist(red broker-dealer. and PNC Trmt Compam of New York. PNC origmated BHC 5ecu.

rines and n the largest equn> ow ner among 23 s

hnanciaiinsatutions located throughout the United j

States llHC execules and (lean brokerage orders s:

lor the c ustomers of these and other institutions, g

and its solume of busmess a rnmg rapidh as more j

and more cmtomers turn to their banks f or broker.

N 43 age,en n es. PNC 'I ruu Compam perf ornn admin-hir nise. cmtodial and clearmg seni(es h>r 522 bil'. ion of anets for mutual funds and our athliate b.mks and w di be a platform for the delisen of offer their customers a range of seruces far be3ond mher seruces m the future, what uas presioush asailable. PNCN msestment I he management of personal trust auets (omin.

banking experuse in tax-exempt hnancmg has been oes to pimide a significant and uable source ot fee particulars effectise in helping us grow in the area income, in order to msure f uture grow th in this of underwriung bonds in the health-care held. We are confident that our s arious imestment a(nunes aica ue hase reorganized to expand our products and enhame our senice delisen to the sounger and will produce an increased contnhunon to earnmes grow mg atlluem segments of the market, which tra.

mer the next few sears.

ditionath hase not hun mers of trust senicet On the imtiimional side. our strong. compeutis e Enhancing Shareholder \\*alue imestmem performance and imestment support The past scar has again confirmed the salidus of capabihues base enabled us to cominue as a leader our guiding principle-to enhance shareholder m pension. endow ment and mutual fund manage.

salue bs generating a highh supenor return on ment and as a major prmider of custodial, transfer.

equitt This,in turn, is achiesed bs stressing a securities processing and imestment research ser.

return on assets mentalin m each of our athliates.

u es to the mmual funds industrv.

This focus is fundamental to the success of our At the end of the sear. the market salue of all trust operanon. h ensures that we deliser the highest auets reached 570 bilhon. a 34 percent increase quality financial senices to our customers at com-mer the presious sear. Of this amount. $4 I billion Petitise Pnces.

represents anets eser which discretionary imest.

Unquestionabh. PNC has become an esen more ment powers are exercised, making PNC one ot the f ornudable contender in the hnancia: ma! Letplace largest bank imestment managers in the United J' d 'esult of the Citizens merger. Measured bs mar-4 States. Coninbuting sigmhcantiv to the merall ket (apnalization. PNC now uands first m the.\\ lid.

I I

growth of true assets is the addition of a number of Atlanuc. Mid-Central region and among the top 10 new mutual fund customers, as well as a general rise in the marLet s alue of securines.

Finalh. I want to emphasize that our rapidh growmg imeument banking area is on as was to becommg a fourth major business. Both merchant i

and imestment banking hase been sen saluable i

resources for our athliate banks, whic h mas now I

3

To Ot a %o km M w t

- banking institutions nationwide. We especially salue I want to take this opportunity to recognize the

'this ranking because we recognize that it is based on fme contribu: ions of those directors who left our shareholder conhdence in both the present and the board during the past year: Harold D. Hoopman, future s alue of their ins estment..

John D. Ong andjames S. Pasman Jr. And I want As we look forw ard to 1967 and the longer term. I ta par a special tribute toJ. Richard Boslan,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 base always operated-Proudent National Bankz who died on NIarch 30 at committed to the highest standards of customer ser-the age of 37. Dick was a pioneer in the trust and sice, fmancial performance, and profesuonalism imestment field and PNC was fortunate to hase his among our employees at eser) level. We are not extraordinary :alents. We will miss him as a business interested in sheer size, or indeed in any other crite-associate and,u 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 lesel of our organization. From the company. and is the key to our excellent fmancial executive officers to the tellers on the front line of results.

customer ser ice PNC people arejustifiably proud We know that the coming tear will bring a host of of their company and their contribution to it. PNC new challenges. The national economy stillis bur-has a cohesive, consistent plari for what it wants to dened by a massise federal budget deficit and a accomplish. We have so many people in the mar-heavily negatise 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 base ever>one focused on the same recent sweeping revision of the tax law. In acidition, objectives. The concept of a shared mission is sital uncertainty contmues in the banking industry about to our success, and we make esery 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 effectively meeting these challen-the people who,in their different ways, demonstrate ges, we hate formed a new management committee PNC's pride in performance. Each individual exem-w hich w di work with me on the broad policy and plifies in an outstanding way pride md performance strategic issues affecting PNC. This comnnttee, injob, community, and personal achies ement. Each w hich is pictured on the facing page, inclucies 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 more than 11.000 people work together to sustain 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.

fr rmance because we have attracted, trained, and motivated talented individuals-people with enthusiasm, vitalitv, and creativity-who are dedi-cated to quality, PNC's peopb strength begins with our board of directors, w hose responsive intclvement is essential Sincerely, to our success. We are fortunate to have as new Thomas H. O'Brien directors William E. Swales, president of Starathon President and Chief Executise Ofhcer Oil Company, and Dr. Konrad St. Weis, president and chief executive officer of Bayer USA inc.. who

)

joined the board in August. We also welcomeJ.

David Grissom, and three other directors from l

Citizens: Robert N. Clas, president of Clay Holding Company: T. Ballard $1orton.Jr., executis e-in-residence at the University of Louisville School of Business; and Thomas C. Simons, chairman and chief executis e othcer of Capital Holding Corporation.

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~u 1 t t r to Ricur LtrT To RicnT LtrT To RicnT Ibuglas D Danforth Charles R. Pullin Edwin I. Colodny (standing) john J. \\. tacWilliams.Jr.

Thomas E. Bolger W D w \\tcClelland miliain E. Swales

.\\ferle E. Gilliand Jan.: L Dasis Roderic H. Ross G.J. Tankersley Donald 1..\\f oritz I. ester.\\. llamburg (sitting)

Patricia J. Clifford R.J. Wean,Jr.

lienrs 1.. liillman

.\\lalcolm St. Prine Franklin L. Niorgal

.\\nthum J. A. Brsan F. Eugene Dixon,Jr.

Quentin C. NicKenna Wt Pictured: James E. Lee John L. Ryon.Jr.

Konrad 51. Weis NoT PICTURED)

Howard Gittis Richard P. Simmons Paul R. Staley 1

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The Boards of Directors and i

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Executise Officers of PNC Financial i

Edwin 1. Colodnv. Douglas D. Danforth. F. Eugene Dixon.Jr.,

Corp and its Principal Subsidiaries I

\\lerle E. Gilliand. Lester A. Hamburg. James E. Lee are listed beginning on page 77.

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Lorrame Hamilton s career i3 dominated bs two great torces

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-an unaasering dedicanon to o

ra; banking and a strong commitment j

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to communitt sersice.

fv N Whates er the challenge-completing a complicated loan or or another satellite of fice has finding a home f or the homeles -

established a cuuomer relation-she is willing to take it on.

ship. an attempt is made to extend Dennis K. Johnson, u(e presi-that relationship to other PNC dent and manager of Marme banks bs crossoelling serdces.

Bank's Liberts Plaza office in Erie.

Each satellite of fice de'.ises its also noted that Lorraine is a ou n marketing strategs. "You

" good listener." She has the abilits can't market the same was 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 ollices are gisen During her 14 ears in bankmg.

3 great latitude in approaching their she has worked her was up from mar kets.

teller to administrative assistant Under Bill's leadership, the Chi-trainee and is taking college (ago operation grew at an annual courses m pursuit of her career rate of tio percent m a climate of objectis es.

snif tompention. Growth was Although Lorraine is also qune a(hiesed not for its own sake, but bust at home, she finds time to f or the sake of profitability.

serve on the board of directors of "We base three objectis es: to the Community Drop In Center.

carn at leau one percent on assets.

to serse (ustomers and to ensure aedit quahts." he said. "We are uile umma ap ennieheisyg ' Y_

w'""',,,,'"

PNC 1/ manual Corp operates a successf ul for two reasons. Those ein network of loan producnon offices objectn es are insolled in our peo-gisemmema mmin g m Les tities-New York. Los pie from the sers beginning, and P'8080'Miny wisemenW

\\ngeles. Atlanta. Cleseland.

PNC prosides products that lampa. Dallas and Chicago. Their enable us to achiese them."

tasvaamosemmanum tantoon is to generate loans and deselop new business with For-tone 1.000 compames.

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~ l he obreone is to help PNC atow outside its natural operating s egmn." s.ud Wilham E. Fallon.

who was u(e president and man-g

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.iger of the Chicago office before ialme oser leadership of the Mul-nnanonal group m Philadelphia.

lihmk of us as a premier bank unh a number of high qualits ser-ut es to olfer a multinational (or-potation." he said. Cash manage-C ment, in-onented finanung and nust scruces are the kmds of produu s that hase spenal appeal to muhmanonals ()nc e Chu ago 9

m-6-

cute them. if the customer desires.

Inc.. a United Wat member agencs that shelters people who are tem-Sometimes the pressure is Or. the customer mas want to poraoh hometen h is her way of i...ense for Robert W. Lamberi approve es ery mos e before a showing that h mlers base an ohit-and his mileagues in the Trust "buv" or " sell"is made. In am ganon to the iommumn in uhi(h dnision of Prosident National esent. the portfolio manager has thes lise and a mL Bank in Philadelphia. A sice preti-to be creatne in achiesing the 1.orrame has an allinin for the dent. he manages approximate customer's objectises.

" people ude" of bankmg. whether 230 accounts with a collectise "Imestmem managers base it im ohes arrangmg a car loan or salue of nearlv Si billion, better tools to uoik u nh todas.'

But in his 32 ears at Prmident, he said, but that doesn't mean it n (a hing a i beck lier performance S

aho demomtrates a comprehen-he has a virtuall> unblemished easier to manage a porttoho. Com-she understanding of PNC's profit record of retaining customers for puters base made the securities goals.

the bank. This kind of perform-markets more elliciem. whith n an "We want to serse the customer ance has helped make PNC one of adsantage. But the miume ot to the heu of our abdin and et the largest trust operations in the information is tremendous. com-3 stas within the bank's guidelines.

countrv.

plicating the decnion making Il that happens. profitabilin will Bob likes the challenge of han-process and compressing it into a take care of itself.'

dhng large asset portfolios, and tighter ome trame.

l.orrameN growth in herjob has customers has e a high regard for But in the end. those decisiom been lostered bv che bank's polics his insestment adsice. His greatest have to be made hs people. ThatN of participatise management.

satisfaction is dern ed from tailor-why thejob continues to lascinate Empimees are encouraged to sub-ing a portfolio to the best interests Bob after more than three J

imi sugge nons "Stanagement is of the customer.That takes some decades.

open to ideas because that's how doing because objectises sary the bank gets ahead," she said.

frorn one account to another.

Teamwork Pay s Off One customer may be interested Behind esert merger and aupu-mainly in income w hile another is sition :here's an incredible amount looking strictly for growth. The of paperwork. Stacks oflegal doc-test for portfolio managers, like uments base to be processed to d

Bob, is to achiese the customer's satisfy the regulatory amhorities 4

j goals within the limitations of the and the mergmg parties. Fr e-P s securities markets.

quentiv the work pace is feserish.

PNC's profit target-earning at with tight deadhnes and a wmpel-7 least one percent return on assets ling need for accuracv.

-is " alway s in our sights " he Store than three years ago.

said. "We earn our money from N!arianne S. Dean was the second fees. When we can make an employee tojoin the newh formed

. Junt grow, both the bank and Financial & N!erger/ Acquisition 2

tne customer prosper."

Services department of PNC The bank's arrangements with Financial Corp. Now, l'n e mergers trust customers vary cor:siderablv.

later. the staff numbers 10 and the A portfolio manager may make all pace is as fast as eser.

he the investment decisions and exe-

"Often documents hase to be in.

mo ed quickh from one cin to ih.

another, sometimes in the same o

day." 31arianne said. "But there's a un lot of teamwork in our department and we alwass get thejob done.'

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Activity was brisk during the ih.

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Citizens Fidelity merger PNC's ac j/

biggest transaction since the con-ai solidation of Pittsburgh Nanonal ao Corporation and Prmident A..

National Corporation.

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" liiihon a Das right-ensure producinin and There was a sers good reason qualin-w e will drn e the n'ni-for establishing qualin orcles in mum profit to the bottom line '

the Corporate Services depart-Peter said.

ment in PNC's (orporate banking Creanng new products a sers area.

impnrtant. "We hsten io what the 4

"We has e a ss stem in place to rustomer wants and make esers mose mones-about 58 billion a ef fort to proude it, enher with an da>-through a paper base or existmg produo or one that we elettronicalk." said Peter R. Begg, des elop.'

ute president and manager of the Banks are sen good at moung unit. Productnin and ellicienct mone). electronicalh or bs paper.

ate b>words in Peter's operation

'As long as we can do it better and because thes represent the key more unt effectiseh. we'll base reasons whs customers use cash management sersices.

The qualin arcle teams meet

V regularh and "we listen to what

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best." Peter said. Emplosees are i

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that willincrease productnin and qualin.

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Under his leadership. the T

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department has registered produc-

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initt gains of five percent or more in each of the past tise scars.

"Esen if a suggestion realizes only a small sasings. it adds up." Peter said. " Suppose sou cut sour costs bs 5500 or 5600 a month. That's 56.000 or 57.200 a sear. And once s ou get the sasings. it's there for-J' ever.'

d Corporate Senices handles company to company payments, w hich are usually large transac-tions. Because ofits expertise in electronic transfers. PNC will be

\\!arianne is know n for keeping responsible for 10 \\lidwestern her cool w hen the going gets states in a new bdi pasing network i

tough. Durmg her three sears in established for a major automobile the depattment, she has put in manufacturer. The network is con-some " heroic time" w hile remain-sidered a forerunner of the mg unfadingh pleasant.

checkless society.

"Profitabihn n alwas s a consid-The Corporate Services ofIices eranon." she said. "but we don't in Pittsburgh and Philadelphia also ihmk ofit the same was a loan ofIi-do the balance reporting for PNC (er would. In our department, it's banks and process statements for a matter of hemg as eflinent and all the corporate customers.

cost ef feuise as possible."

What's the kes to profitability in leamwork protens the "buttom this operation) hoe.

"We take the tack that if w e do a it

WW-customers." he said. '\\ls primars later to students at the other acad-tion and efficient sersice are the objectise is to proside sersice at emies. Under the direction of key to the center's success. The the lowest pouihte cost. This is Robert L Corr. sice president and

.\\!ilitary Center has a sers sophisti-the Les to catmng one percent on manager of the Northeastern Bank cated customer base that includes assets and Ix per(ent on share-of Pennsylvania operation, the.\\lil-a number of generals and holder equitC itart Center h evolved into a admirals.

% hen Peter isn't wrestling with highlv specialized banking unit on "We can approse a loan and big numbers he's apt to be " talk-a global scale.

deliser the funds within 15 to 20 ing shop" wah his peers at other The center has 18.000 custom-minutes after we get the request.

banks or of ficiating at high school ers-commissioned officers and whether the borrower is in Korea, football games. He is president of retirees-scattered around the Texas or Germans " Bob said.

the Pittsburgh Chapter of the world. Slost are long-time Bank Admmistration Institute and depositors who established an

..4

,ii a member of the board of the West account relationship during their

" Customers come to us first if Penn Football Of ficials Associa-college davs at the military acade-they hase a problem."

non.

mies or on ROTC campuses.

That's w hat Louise NI. Ford. a "The majority of our depositors senior teller at The Hershev has e neser seen this olTice and Bank's Headquarters Otlice, hkes In mant wass. the Slilitars Cen-probably never will," Bob said, best about herjob. She enjos s ter in Scranton. Pennssivania.

"We hase managed to get mili-dealing with people. especialls marches to a different drumbeat tary officers who has e neser seen when they need help.

than other PNC operations.

us to deposit their money with "Ifit weren't for them. !

Fhis unusual operation began us."

wouldn't base ajob." she said, around 1910. first making auto Because of high interest rates in Lois Pfautz, vice president of the loans to West Point cadets and 1980 there were serious thoughu of closing the military department.

The academy loan business, which 7'-

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was originall'y the primary activity, M-was no longer attrattive because of

• 4 the high cost of money.

Bob was instrumentalin con-s erting the NIilitary Center to full-service banking. Today it is one of PNC's fastest gr 3 wing business units.

"We have many customers who

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are stationed in places where they

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banking matters. Submariners, for w

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needs and matching them with y

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One of Louise's best assets is g

her memon. She calls many cus-y.

E noners bs their names-a skdl she size of the growth, but how it was m

< onstantiv tries to impros e.

achiesed." Ed said. " Relationships

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"When people are lined up at were developed with American the u mdow, I test m> self," she companies abroad and later p k,..

said. "I go down the line and try to expanded to the United States. It k

idenuh each of the custo:ners so I was an effecthe way of winning b>

(an call them by name when they new customers."

get to me.'

In one instance. the Paris ofIice because you cannot afford to lose Louise, a French Canadian who prosided a special senice for an track of being profitable.".The has built a new hfe in the United Amercian fast food chain which best ideas for new products " bub-states has her own profit formula:

led to a bank connection with ble up from the bottom because nothing less than quahty sevice for another PNC ofIice in the firm's nobody knows the market better esen customer.

headquarters city in the United th:tn the person on the scene."

States.

Every emplosee can make a con-The ofTshore philosophy calls tribution. This happened in his m n. me I he international operations of for deseloping a profitable piece ofIice when a member of his staff PNC Financial Corp are conducted of business, and, at the same time, was opening mail and came upon a m Les cities around the world.

trying to cross-sell PNC's services check for a million dollars from a PNC has offices in Paris, \\1 dan, in other locations. Casselle said he company in Canada.

Rome. Ssdnes. Hong Kong, Bue-feels "sery much like an entrepre-

"We found out there was a com-nos Aires. Rio deJaneiro, Sao neur"in carrying out that strategy pany in our own backyard with a Paulo and.\\texico City-strategic at PNC International Bank in Phil-tremendous business across the locanons where many American adelphia, to which he was assigned Canadian border, and we didn't companies do business.

eariv in 1986.

know about them." Ed recalled.

Edw ard J. Casselle, vice presi.

"Esery day there are new prob-

"If we didn't have our emplos ee dent and general manager, PNC lems and new opportunities. No intohed in sharing the informa-International Bank. has partici.

tw o are the same." he said.

tion with management, we would pated in the growth of this global "That's what I like about thejob.

hase lost that opportumtv."

network. While he was manager of We base a constantly evohing set the Paris branc h. the office's busi-of products and an expanding Customers Come 1 ;r-i ness portfolio tripled in three customer base. There are always "When a person tells sou his or s ea rs.

new challenges."

her needs, you know it's sourjob

'The sigmficance of tripiirig the Ed beheses "the bottom line has to help that person."

portfoho m France was not the to drise what you are doing That's how.\\ tan II. Lerch feels i

13

Coatesulle Busmess and Profes-them into a f ormula that s.n s, sional Association. a group that

'This is what sou hase to do in

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- 1 #I promotes chic actnuies in the adnese the desired resuh.' Return downtow n area.

on assets and shareholder eqtnts Mar >'s knowledge of the com-aluass base top prionn.

mumn and her abdity to esaluate "It is ourjob to uork unh man-a m - 38 loan applicants is important to the agers in pricing transauions, w nh bank's profitability. While she tax uinsequemes in nond. to pr o-N 9

doesn't consciously think of earn-teu ihe honom line. Ilos k an

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l7 ing one percent on assets. her job aspeu of ms posuinn that I parin.

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performance is instrumental in vlarb enpn. woikmg on the kom

~ 'd achiesing that goal.

hnes uith lending aint othei l

' #k "I think I'm as disappointed as

>lli< ers in the prn ing ol piodous j

the customer w hen a loan is

" Changes m the in law aie not t

turned down, but a loan has to be

.-hvass a cost. Ficquemh thes icp.

r' good for the bank as well as the

. esent a unique otiportunin to

?

customer. I think if a loan is des elop a new prodv< i. I he < hal-approsed, the sistem ensures that the bank will meet its objectises.'

she explained.

The Entrepreneurial Approach Nowhere within PNC does the entrepreneurial spirit reign more freek than in the office ofjoseph J. Nelson, senior vice president and director of corporate taxes.

about her responsibilities at the Joe, who recentiv mosed to PNC's 7

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Coatesulle of fice of Prosident headquarters in Pittsburgh from Nanonal Bank. where she is Prosident. belieses that PNC's assistant manager and banking management style contributes sig-l~

ollicer.

nificantiv to deseloping emplo)-

N!aris forte is sersing peo-ees' strengths.

1 wdf ple-a quality that is supported by "Our top management not only her credentials: first u mner of permits but encourages creatiusy.

Prosident's annual Florence They take ordinary people and Lautas Award for customer <.er-permit them to produce extraordi-sice. She is aho 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.

" Mars gises eser> thing to each His department serses as PNC's

\\s utstomer." said Romaine R.

" watchdog" on tax developments Dunlap, manager of the and interpreter of changes in the N

Coatessille of fice. "She's not tax code. Quite often existing o

afraid ol'amthing that comes products have to be repriced, and

~

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s across her desk, it would be sometimes new products are cre-unusual for her to pass a problem ated as a consequence of tax along to somebods else.'

changes. "But." Joe sas s. "we have The Coatessille office has been to do more than know what's in a leader among financial institu-the law. We base to be able to tions m efforts to restore the com-explain a in terms managers with munitis prosperav. Maris per-different responsibilities and sonal(contribution to tha project perspectnes can understand.

n her scrut e as trecurer of the "We take the tax law s and blend i4

h oce d"d 'atniaction of this part

,,g on job n hard : > duplicate.

.we ueu ourse.e4 as both i

ggnagei *.Hul t'll PIc U cuII-".j oe ml. u hat I hLe mt about ms p,h n ihai i leet a] a l'm running nn nu n husmess.

h gh,motLs u marr coifens Fidehn Corporanon.

die neuest member of pNC. rein-tones our inans soengths uith the

.nidnuin of 54.7 bdhon in assets

,gnt 2,500 skilled emplos ces. This n unk a merger of smular part-ners ca(h dedicated to the dual

,,b et tis es of at hiesing high protit-i

.duhn and quahts customer service.

I he same Lind of energs that

<h n es pNC's people is also deepit k.

mai.uned in the people of Kentut Ls-based Ciniens Fidelin.

1)uring the past iise 3 ears the com-

/

p.un's icturn on assets has aser-8 aged 1.22 percent. return on c<piin has equated 183 percent

.uul eatmngs base grown at a 17.1 pen ent annual rate.

the tmporate (uhures of the s

nio msinutions are an excellent blend in other nau as well.

Covens' lending policies base iesuked m a credit qualin that is sasth superior to peer group aser-

"^

ages, and the bank's capital base shmu ahose aserage strength.

I he banki management and empim ees h.ne cu elled in two n

speulk anc.n: an abilia to gener-aic f ee m(ome-unluding bank l

4.o d set u(es prm ided to card-g#

holclers. inert harit*. and other W

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's h.mLs nationwide-and a propen-

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sm for (unnothng expenses.

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j Nau lion O'llrien. " Citizens J

l Iidelin Chairman Dasid Grissom I

(produced sers strong financial and hn outuanding team hase

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i huik a ucil managed, high.

performance compam that has iesults. The combining of atuens' muhiple strengths with l'NC's will significant enhance our position as one of the leading hankmg unntunoin m our region /

l 15

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increased $1.1 billion on average to alevel of $3.2 billion.while titeir cosch :.2 G

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'7 declined 122 basis points to 7.09')$>. dtitertime deposits incensed $69@ y%%,d jQ million on average to $3.3 billiourwhilithe rate paid fde p:ftinds'jd

" n 'A :-#% J

~

declined 118 basis points to 8.465."'.o.,,

M ~ Mi ~ <;c,~

M,.a*.t..@-.E -

As interest rates continued (5-decline distmgttJse yeast s'~y' 071.fA.%k ing was obtained by access to the short-ternr m6ney markeg;Mca!!F; G.,.fM.

3 D.

' D @j,$..l 2 h [

,W "A-S federal funds purchased and repurchase agreemsnts These'instrume averaged $4.2 billion, an increase of $598 million. The average nre paid [7 y.

for these funding sources was 6.99%.down IL2 basis poinuW$n. 9 g7/

..o qi

w y,e

n

.c.

The provision for creditles;seswas,Prmrision for Credit Emsesa;*f

^

0.tf h.

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.f liorr, including a provisiospoS ~

3'mdhen

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h I

2 int"O dM-1986 largely to allocate exposure, principally Mexic Ks~

=

- ~D n.

for the year by $71.2 millish 2

j age loans, compared with.

quality and theallowanc Non laterest income h

Total non. interest inco gain from the sale of the.,

'ba

.,:i " % Fus&Elisi d,

gain, non-interest income 1gsS387prpill' '

Sissill' I

higher than 1985.

'. s -$

^

..reve i'__

PNC Financial's trust activitiespr.

1980ide

- e an increase of $Prfmillion or 19

,lariiss component of trust inc0sImE ^4asedaffsSiriillioE5r!W.4 j.

'IMincrease was due sa$alugher l'eMohssete'und'st m

--- =.

resulnag frorm new accounts.asiAIEMIVebnark islees id2 '-

g#acetentse Additionally the faltlinpacE'Wae realisord A-J@$

,P ?.3, schedule implemented in March 1985, Corporate trust fees increaseds; o,.. ; mee. 2ieseries.r*yes, ing

$3,1 million or 17.4% due to expanded mutual fund custody service -

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u all of the increase as this methodof extensively.

?,5 Mortgage origination fees wesf 1986 as a result of the sale of the sidiary during the second quarter.

ated servicing fees of $13.1 mdhon earned thrr ugh mortgage banking ary bank te vel.

N' Trading account profits' s

gains on debt securities toimidd$21.0tm from the sale of short terndTreasurr.

ment National Mortgage Association of higher pay out rates on tRa6 from the sale of the GNMA Securitid GNMA Securities. The net gain in 1 previous year.

!Lfg-Net gains from the saleof equity and lion for the 3 ear compared with net game.

view of the strength of bank stocks durins made it advantageous to restructure a portion of portfolio into bank stocks with lower multiples.- :3

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gh Total non. interest expenses were $659.7 j,, y_

,id1986,*altin,,cr

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u _

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increase was due to a combination of'sevesas f!s.sq

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$70.0 million or 11.9%.

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ness volume, net of a reduction in employees related to the sale of'tliet(y.Q 'f

~'.;

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mortgage banking subsidiary. The coss ofincentive compensation ~ based;h. '

7. J.v ~

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on performance increased year to year andimerit and promotionaPT2b : *A,

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.{-j incrv.ases also added to higher. salary expenseW.is

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, Salaries and bonuses,'.y'..y.s:J G.$296.5 % $$$9 6.'.[*

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f{, 7 f.7, Totalstaffexpense..JhgN(g.<

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,. Net occupancy expenseG.4 J Equipmenterpensee.f.T{,

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3+

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employee insurancy 3

h e$16.5 millionsPay ~

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s mployees a'nd

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[n.k ' Utis had the..

Standards Ntid z.h. $22 millies, t

method to 5"pf Net occu increase h, feased f a.

building,

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t.

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increase p

' jig.. increased ~

'y. ' ~ increased co

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. activity.

W W All'other non-i

% $213.1 milliesir V including W~ and credit I

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offering new products. Land servicest40ut

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p A

..j

, ', '.),

,; i 3

...~t h

.r.4*ig.

yh 5W 2l*'J g

.x..

e,

?-

c.,

c. U -

w.w

.-s *.

..m. ~,...D.,$$.u..d&lf,f A

. -... m

~

.7 hh

{T Total assets of PNC Financial approximated $26.9 billiBn as life ~

of 1986. Total average assets increased $3.4 billion to $25.5 billion,

the year, while earning assets averaged $21.1 billibu, alsorincreasing6

,f..

$3.4 billion.

i..

~

~ ~ Qj.;f'

W. 3 7..

.l.>y

",.gg

_ Loans

.gg y :.

.R f' '., 7 q.

Total loans increased $2.2 billion or 19.6% to $13.6 billion on averagf.c..cn Loan growth was well distributed throughout the portfolio wi.th.the ".yA.g w

exception of the money market portfolio which was unchangediand fi "1bk. -

real estate mortgage portfolio which had a modest decline. # M

• I hP#

~

Domestic commercial loans showed a strong increase of $1'6 Y-22.3% to an average level of $8.8 billion. Diversined loan growtin.w experienced, with the largest increases occurringin the muhi.natio

' s., - J and middle market areas and in the communications and real estat industry specializations.

qMM 1

. (,.g -

.'[:f.N

,I na

• "'I. %

Averages. in millions m

f

)

Q As r' nu ' " ioss ~. *" - - " =

j w

Domestic commercial..

S 8.80T" 5J.20W ^

' -~

-H, Foreign.

788'-

703F N,

l@IdK-..,

., _,,., T.

. y 279.h.270*/8 P,1

' ' r.

9.595-7,904 * ' -

Money market Total commercial 9,865 - 8,179+?,r5 IM e

' 1.04S M 'A'M(

1 Real estate mortgage.

1,027 0 1.915M8s y

Installment.

2,404 Lease financing 3135< - ' 246 7 O Totalloans

$13,600- $1138F / $E M i-T _

y

^~

jg

' E.h

.. re-$Y Foreign loans averaged $788 millonsaN M'oIj portion of the increase was due to expanidiPd corporate customers located withirs ~

PNC Financial are located.

9 Installment loans showed solid, b' 25.5%. Purchases by consumers con lower interest rates, automobile reb n !

i confidence.

?

Nonperfonning Loans, Assehr aiad'Allowaneefer Nonperforming loans, whicKincludes no

' ~.

loans, totaled $232.1 millibn at the end c0lg' i

million. The ratio of nonperforming Isanes,yg 1.49% versus 1.48% in the prioryear.,TS: - o

)

Keefe Index of 2.51% for 1986 and 2.62% Idri 1

Nonperforming assets, which includeno real estate owned, totaled $242.4 milliost as yea /edi nonperforming assets to year-end loans,in%,.

decressed to 1.55% at December 31,19Monst54 This compares well with the Keefe Index of 2.78%'and f.

=

.I and 1985, respectively.

' ~ -Mg M '#

s

..:Qen f,,, ;

.< 2 $-

($fm$.t..

$3%.,%'.,

M_

~?Af%p Q

,F.M' R

- ;g.d-,.~.~,e?

V.1 22

.s y

.4

^

~ of}{*', ' {_

.' /{ t'.

J

~

.. vc

c,Q, l N.9 us,'w, _

ug.W!"? :. '.

' ~,

~Y

~

~ ' 6 s,..

~-

7._

g *,,,j

?,Dh*r'.,s

$'.;f,Ts.-

f,;,. - s {$. '*'

• 4

=.y:=y

p s,..'.

g.,, e.m....

R,., 0;'.?-

.

• ip:.97

....y

,was M.#

Ie,

,,i

. ;v'..

w.<

• y,

% Allowance as 5 percer(* *,,1.3 'g )

4.ra y *' ' -

4.,

Of year erld.k'lefK

,y, J-

- M.,, '.

' E PNC F'W

,. ~

A

'j

$N2 Keefe index 120%..

(*c -

t att

. e a

> ;y ~

' E'

^

a too--;'..

"DLJ

+

• jp py t.

p,

,c

.t too.

, A, sq.

7~g,;

vt-e

.g ing

'g;'"gp f

J.

4;1.

i=~

v.

y D.

IM

. n.

1 *Ms..

s.

l$.

J,

%.k.

.h

a.,

/-

4tu MA y

q

^

Q<-

,*y. _

p 1

i

~:

,'d!","

.c iness; ises-}tse{seenpleedj. ~ g',tsg. tseek ines ises.

y

- mj

.h.. W..* -

.Y

.it;.Rh;SQ.h;h5

...;.q,, -

.s q

...: w.:

y

\\

-. gy, (.i 3A;

gig, J

y.,,,,.

<r.

.7%gb jQt Allowanies acquiredidb.J'd

. ione over net -

2 6

credit loss es.resulted in i k--

'#^^^^

ilosses of f

$72.8 mill on'to (55dA

(.ff 8 g,Fln

'~ wance e

for credie lossee ensut. -

W l.40%' f~ orc 1987 alm + C ance for cres "dicitioni '

on

,.h of the. relative a

, T. f7 z".

4 increasedtml

$1'- favorably (

91WMNetd. "

')

credit low hicist.'.',

i

,>. f'_~

pared wit

'I.

pernodus.

,E i'&-;. :<.r.

.J was.805

.~

d..%

A~

k

'h..

a

% s'.

Investment y

i 9'g/..:

, On a comb

.,2 (b.

with banks ave

'Om i

1 i

^

' lovestment securiti j'5 a'veragMw T.

.?

.'6...,irt. thes d. isb.e.

y,..'.

..x

+. fAverage4g b.,

r 77 s exem a

a

',. @f' categorks sh6wed t!Eet i:.

'982

'm

• 4 ines iese

,, Q l The increase in thertfederal a

'p ".

ten) e

• r t.

w, - -

'.Y R.: '

C' k'

,',D U

rc

4 1

y '~:

.**f v.

)

7 ' 4 5,

.?*y s

7,, O,;a-yt.t

=

.(,p?.

,. m. a.

w es

- ~..

,j- " *T:st.

g{g

'p 4*.. * ~ g,t[:, ?, ~,..

.ft s-l m

p 3

g

.J

~tx :',,,

p.

a,g

.r.e.e - - r

.,,,t l

.v.gM. p n l.

)

g

-i...

-1

' ~ y&

6-

+:

b; T'

-s, l

Invesement Securides and Interest Bearing Deposits with Raahng.,.q : *^ " g.4, _,

.j.n Averrges,in rnilhons CAarga'

?,

1986 I983 Annonsa hram l

. U.S. Treasury.

$3.191 33.155' K Skj.h LISEIw _

I$.. e -

U.S. Govern nent agencies and

.7

%  ? VB' : :

905d l29.84...i'M '.'.$ ;~; ;$ :.

W.? f. W 4M Q.~.

s, 7075 131.9 % 4 corporations........

1,243 536'

.Q.

W'<.hr '

• ylr,?c

• r State and municipal.....

1,602 697 Corporate stocks........

133 149' (16F (10.7%.

/*sN,Q.

.. l'Q'fi

"'f/"k _ [,

C+

'~

+7..

Other 111 70 4ft' 58.6e "u. ;. 4~,,.g.

d

!.[G.ky??c.. -

F.-

Q...,

i 4., y e Total investrnent securities.......

6,280 4.607 1.673% 36S<

Interest bearing deposits with banks.

636 819 -

(I8SF (22.Si!

27'.5')Ev-MMSIr;Y

'5

• A[p.- [:[s ", ' I-

-1;

_ Total

$6,916 $5.426 $1.490.

Dym"

.., n

.e-

.ce w.v.-

... wC fi r.

V

, ; ':O f..

~

..$...$,_f'

.., ~

p

. %,.;_ y; uQ d.e..l additions of GNMA pata through securities, all federally insuretf'as(to j'

timely payment of principal and interest. Additions to the tax,ex g;.$, " '

~

portfolio were chiefly in the form of short term high grade,no iA

-3

" ' ~ '

The average maturity of the investment securities portfousat

[/ i3..,. ~ 7i

~

1986 increased to 5 years, I month from 3 years,5 mceshs~o',

k{

s 31,1965U,

.,, N N -

At Exposure to banks in which interest-bearing depos'iuf a&

" 9 T. f.

tinues to be monitored within country and individualbank

,w h

f

?.!.

Depeats and Borrowed Funds

.b

• i t ~i'd Total deposits increased $2.3 billion or 17.97 to $LRJf l

~

i

...n

.^

~

average.

.., g;. ys Money market deposit accounts, upon whicN currest paid and which offer good liquidity,-increased $496 b] [ "

averaged $3.2 billion.

af Negotiable certificates of deposit in

~

of $3.2 billion. Nearly a!! of thein certificates in the two to eight yeite I certificates were-utilized to fund Federal funds purchased'ind r lion, up $598 million<This category funds borrowed principally froaa' both overnight and longer teradepurc Commercial paper and oths%bott.terirr,.

lion, up ; 213 million. In

~. tesco includes borrowings from loan.

Mae) which are collateralizeM's'udene loast t

borrowings fmm the United Statse Treasury account note program. These' sources pro petitive rates

~ ~. p.

Average demand and other non-interesi

$355milBon to $3.2 billion.The in

' ' ' ~ ~ ~

demand balancesi.- ' '

i.b.Q 4

Besvowings wielt original. maturities exc6

-7 milEbdl up $147 million. During 1986 PN6 TuM -

t owned financing subsidiary, issued $200 millions 8%98t nosetiidaiirl

~~

The notes are considered as secondary capital by the Boastof. l '

. E. $q,_.

,e

... ~

Q.},*Q

- Q..*.fL

...D %:Q k.

cc R

m.$ 'm.

• '. ** ":~. ' W~gv w

rs.,.

~~

W

';g.;g,c'"?.,I.,.7P

.,,,.j 7, ;..

31

• .- e d #,.; P.6t%y..,_

? $@A. i'.

'.M 24 a

S,;,gsc.e

.;A **.

..c...

' " *lp.}

a

,a; l., _

2%

,..,.gb. [.,$hd'

. IF b ' I.

3 1. *-

ddr WYM* 6"".2f @ ;, s.~

Y '*

[p, \\

4 ~ mc...

~ ;.

.z

>y~

-t v, b

..X -

a

~

Y.

of the Federal Reserve System in calculating capital ~adequacp $

a, in 1986 $133 million of floating. rate notes, originally issued by PNC7/1.;.,.

,.,,,.,-l^

Funding Corp in 1983 and with final maturities in 1992 and 1995wei

• Obaseen. no.

redeemed at the request of the holders. During 1986, PNC InternalieFina t

4 '.

~

A$60 million of 14% % Australian Dollar Notes due in 1989". The 14%% I E d

rate represents a competitive rate for three year Australian dollar ['. 4, 'Q ' ' '

sam pf borrowings. Long term borrowings from Sallie Mae increased $100 milF 5:.

lion to $173 million at December 31,1986.

..,~ %, r -

saw

' ;.gg%gT'y

. v.t.

y n:

Shareholders' Equs.ty

,y Shareholders' equity totaled $1.7 billion at year-end 1986, an;incnaseoFNc.,,

saae increase was from the retention of earnings less dividends, while tinik[J

$298 million or 21.3% over 1985. Approximately two-thfrds'of thg$%

M%';

[c -

reraainder was the result of the issuance of common stock.upts.

Q:

g

$j cise of conversion rights, sales under dividend reinvestment e-employee benefit plans, and the issuance of common stock.iryL i,

with various mergers. Book value per common shareincreasd74 F

,,, O er."

i w

7 a u. (,Q 4"n::,n,,.

l 6

s p

Selected Data-Shareholders' Equity.

i '.N'4.e' yNM i

19N -

198t' 1987 #i '

$1,693,64b $1.395.73E:.. M 0.% 'T Balance-end of year y

.. 3 Stil25,95440sd I

(in thousands) e

' #1 98

's

$tt64* - ' - $2142N;c $@V','3P. '

Book value per share..

,.%.v.M, #- 4Q,4'6.64

^ ' '

Period end capital ratios &

4.2 f

7.4ITp*y 7.lpi

.65./#

J

^k' E

Pnmary capital..

s.

• l 8."SkM 12.St~ M IF.5th[ plater #v.

Total capital.

Y..

Internal capital generation" 6

I h,,

_Jg4..

I

• Pnmarpapntal and total capual an s pmnt ojp',edad end_ sa56 'R@ ;N ?

' Y. ?_;

y;

" ves womo teu alldmdendsds.edsiid4 n ;,o

r. xP!

Jor credst losses.

t f,.

"W~.. a

~t

. c a,.,

m -

at December 31, I common share ha

~ hY5 ',~,

f Cash dividends

?'. '

f

$1.52 per share. S p:

'x dividends at a five y

,g;,

i the capitalbase nec

~'t-I

.. M

]

,k The capisal positi' J.p.

l

<y -

indicators 5f such strengtfFare;.

m

d.

• l le$els. AtDecember 31.1986."s tively. Thead ratios contimwsq 6( "T7

'@A'Q+.

l

~ W'M "j".,

Federal Reserve Board's y

tively, f;p%

-..9 2

Q Liquidity and Interest R5e:5enas

.A*:.

. :K:

During 1986, manageinenspoliciesW g3 porate liquidity. The tern >P!fqtudnyr)e

".2.i..,,

institution to meet futuredemands f5E

- p-;t depositors. A bank's overaltliquidity posi *

% 9 g.

P capability to rapidly convert assets to cash and ita accessi 7

existing sources of funds.

4' 91K.

.M&..

TQ&s.q.

.4

~...s...

p jl '.

.. &;$ n.

^

m '

T*

6 4NY 9.Mf/U g$

=_n_

a.

.c1, f".

• n

• t.g,

p

%.3 _

,.n.-

4*'

w

q;.

n.

q p* Cp y ?.

c 9

f/4.k,,

Given the tradeoff between liquidity and earningNftIsI[ "

sibility of management :o maximize the interest margin within.

liquidity constraints. Guidelines have been established which inct measurements of the total liquid assets as well as key ratios.in 1 uid assets, total earning assets, and purchased funds. Subsidiait n g.

are required to monitor and report such liquiditr ratios to both theiro 1,

Q, board of directors and to senior corporate management.

., v.i y "Y

~ v.,

j#

FM c

At year end each bank within the company was well within guideline 3 "4

.3:Q,$

tolerance levels, and corporate liquidity as a whole was strong ~ At'sL[

L g%{QVM;p.

c December 31,1986, total liquid assets, including cash, short-temt '

ties, and monev market loans, were 19% of total earning ~assetselaid M84h, O

• above self-imposed liquidity guidelines.

/.. (

N'. Y # pf ps:.H Specific actions were undertaken during the year that hid thea effect of bolstering corporate liquidity. These included issuancfo&

" $37 m.;

term corporate debt, acquisition of intermediate term fixed rash ha

,,s deposits, and substitutions of intermediate-term ffoating-rate bank. '

p,L ties for overnight and other very short-term sources of bank,^..

Wj' addition, new sources of funds were developed and untapped h v.;,

accessed.

t. %..y i

y In conjunction with maintaining a satisfactory level ofliquidisg agement must control the degree of interest rate risk is.the,

sheet. Managing interest rate sensitivity involves carefus' specified time intervals, of any imbalances betweeristit 1

assets and interest sensitive liabilities. Because i4%&

• d

^

potential interest rate risk, internal guidelines have. f tP %.'

defme acceptable risk. PNC Financial's self-imposM also applicable to each affiliate bank, defines.the. ' ~ '

interest sensitive assets or liabilities repricing,wi_thim.oney f centage of total earning assets to be 108)k.' @MQ.'

l

, v.c I

f.,.

i infation and Changing Prices

.. +:

The majority of assets and liabilities of a tary in nature and therefore differgrest4@ikt,., [

industrial companies that have signifsiu l

I inventories. It is the reaction to in the Federal Reserve Board to re haw a greater effect on a financiatiissq effects of higher costs for goods andi 6 positioned to cope with changing interesIr s

may best be detenninedpp as ar lysie of.

bility structure. In particulEiyour attentid "

j net interest income, and liquidity and ' '"

x Freleralincome Taxes y4 If the Financial Accounting Standardr.

the accounting for income taxes is prom

- have a significant impact on the results of-the foreseeable future.

6 b p#

9 The Tax Reform Act of 1986 will not haa4 1

' results of operations of PNC Financialirr thh Financial has adjusted credit, investment, and service strat mg the new tax laws.

(fg

'r e v,

e..;

t r

...e.. ['(A,r

.;;e,,.

,.y 4.

-;' + : s v e-gk.,

oc

f.

, h,;^qc Fjnanci.sl Carp and %hudiariesnancial intornation-1 ible of r

C8 'Irined Consolidated Financial Statements:

Consolidated Financial Statements:

27 Management's Statement on Financial Reporting 61 f[,hort of Ernst & Whinne). Independent Auditors bmed Consohdased Balance Sheet 28 Report of Ernst & Whinnev. Independent Auditors 61 mbined Consolidated Income Statement 29 Consolidated Balance Sheet 62 combmed Consohdated Statement of Changes in Consolidated Statement of income 63 shareholders' Equits 30 Consolidated Statement of Changes m Shareholders combined Consolidated Statement of Changes in Financial Equitt 64 pounon 31 Consolidated Statement of Changes in Fmancial

% es to Combined Comolidated Finan'cial Statements 32 Position 65 co bined Consolidated StatisticalInformation 42 Notes to Consolidated Financial Statements 66 m

combined Consolidated Management's gustesion and Analysis:

Annual Reuew-1985 sersus 1984 53 quarterb Resiew 56

\\

PNC Financial Corp and Subsidiaries Combined Consolidated Financial Statements Report of Ernst & Whinney, Independent Auditors shareholders and Board of Directors PNC Financial Corp Pittsburgh, Pennsylvania 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 changes in financial position for each of the three years in the period ended December 31,1986 (which statements are sup-l piemental to the historical audited consolidated fmancial 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 subsidiary 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 financial statements. 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 combined consolidated financial 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 fmancial poution for each of the three years in the period ended December 31,1986, after giving retroactive effect to the merger of Citizens Fidelity Corporation with and into a whollv-owned subsidiary of PNC Financial Corp as described in the notes to the combined consolidated financial statements, m conformity with generally accepted accounting principles applied on a consistent basis.

b'= 7

+

Pitt sburgh, Pennss h ania Februan 27,1987 27

.PNC f tN ANclit. CORP MD StastDIARir s F.%

Combined Consolidated mdance %ect O

Dollars in thousands -

1986 j9]

December 31 t..r.

Assets lL Cash and due from banks..

$ 2,249,855

$ l.770.073 l

-Interest bearmg deposits with banks....

711.284 601.676 U#

L Federal funds sold and resale agreements.

224,317 239.514 I

Trading account securities.

94,907 642.950 fg7

[.

Alortgages held for sale 10,360 144.666 Insestment securities (market sslue of $7.329.250 and 55.823.562).

7.074,270 5.648.181 I"'

Loans net of unearned income of $356.083 and $314.156 15,602,821 12.687.710 Allowance for credit losses..

(250,854)

(178.091i Net loans 15.351,967 12.509.619 i

Premises, equipment and leasehold impros ements.

252.876 241.845 O

Customers' acceptance liability 474,800 442.259 Other assets.

491,419 519.742 Total assets

$26,936,055

$22.760,745 gn, U#

Liabilities Deposits in domestic offices:

Non. interest bearing.

$ 4,395.623

$ 3.608.459 Interest bearing..

12,712.601 10.550.374 Deposits in foreign offices 502,348 475.074 Total deposits 17.610,572 14.633.907 l _'"_

Short. term borrowings:

Federal funds purchased 1,877,459 1.656.090 Repurchase agreements..

2.828,811 2.282.437 go Commercial paper 391,216 528.824 1n Other 919,692 863.802 se, 6.017,178 5.331.153 Alc Total short term borrowings D(.[

Other borrowings 747,373 544.882 Acceptances out' standing 474,800 442.259 Accrued expenses and other liabilities 392,527 412.812 h,

Totalliabilities 25,242.450 21.365.013 gl Shareholders' Equity Preferred stock-51 par value i

Authorized: 9.739.693 shares in 1986 No >

Issued and outstanding: 3.330.158 shares in 1986 and 3.472.974 shares in 1985 3,330 3.473

.s.d Aggregate liquidation value: $70.663 in 1986 and $73.695 in 1985 Pet Common stock-55 par value Ne

. Authorized: 100.000.000 shares in 1986 Eq-]

lisued: 65.876.165 shares in 1986 and 61.782.982 shares in 1985 329,381 308.915 on Capital surplus 230,858 165.897 Retained earnings..

1,130,262 917.673 Common stock held in treasury at cost-55.523 shares in 1986 and 55.523 shares in 1985 (226)

(226)

Total shareholders' equity.

1,693.605 1.395.732 5

)

Total liabilities and shareholders' equity

$26,936,055

$ 22.760.745

==

1 See naampanyng.utn to Comber.ed Coruohdated Fsnannal Statements.

Ear

'1 P

F I

Ave ;

P l F

~

s N9 23

, i.u y,pcin. CORP AND St BstDianits I

gnibined Consolidated Statement of Income ands.excePt per share data q

b,,u l

~

dvd Dnemb!' II 19 %

j9M pm come

$ 1,324,605

$ 1.237.160

$ 1.090.524

,'gn, and fees on loans 47,401 77.655 103.890 l

,,,gs a uh banks

.ral funds 501(1 and resale agreements 21,089 24.612 27.627

{

10,636 31.140 23.065

/

ding an ont securities.

4,ngages held for sale 8,390 19.740 20.907 gme tment securrues:

g,nable 420.849 398.01I 280.045 ras esempt 99,866 45.262 32.279 9,225 9.737 8.521 pmdends.

2,401 2.298 2.367 piber italinterest income -

1,944.462 1.845.615 l.589.225 I

lot; rest Expense 829,362 806.051 695.183 l

pcposus.

4on.ierm borrowings.

372,485 369.185 355.347 Hher borrowmgs.

55,223 46.215 44.224

~

rotal interest expense 1,255,070 1.221.45I l.094.754

~ Net interest income 689,392 624.164 494.47i Prnuuon for credit losses 143,765 72.419 47.204

} Net interest income after provision for credit losses 545,627 551.745 447.267 Non. Interest income trust income.

127,558 106.382 87.199 senice(harges, fees and commissions.

162,709 144.656 112.206

\\fortgage scrucmg fees 16,021 32.363 30.845 f rading account profits 8.368 8.811 5.095 Net equits and other security gains.

31,383 15.181 13.838

\\ct debt security gains (lossesi 20,961 2.519 (2.801)

G.un on sale of mortgage banking subsidiary.

59,703 4 hher mcome 20.845 13.739 13.371 Total non-interest income.

447,548 323,651 259.753 Non. Interest Expenses salanes and bonuses 266.344 239.088 195.639 Penuon, profit sharing and other emplo>ee benefits 71,647 66.506 61.587 Net onupancy expense 50,629 45.075 36.538 F quipment expense 58,013 51.317 39.754 Other expenses.

213,069 187.758 149.742 Total non-interest expenses 659,702 589.744 483.260 Income before income taxes 333,473 285.652 223,760

\\pphcable mc ome taxes.

47,166 56.821 46.562 Net income

$ 286.307 5 228.831

$ 177.198 Earnings Per Common Share:

Pr.marv

$4.44 53.63 53.05 Fulh diluted 4.19 3.44 2.94 Wrage common shares outstanding:

Pnmarv 63,136 61.248 57.267 Fulh diluted 68,710 67.145 60.988 A'WJ00Fr%mg.\\'oln to Combtned (onwj\\dgyqd [mannal $laftmqnn 29 I

IlNC FisAsctAt. CORP AND St'B5! DIARIES -

- p,M

-i i

Combined Consolidated Stalement of Changes in Shareholders' Equity L.,o Dollars m thousands except per shue data Preferred Common

~

Stock Stock Capstal Retasned Treasurv p,t SI 1%r l' lur $1 thr t' lue Surplus Earmnes Stock n,g s

a a

$ 113 $134.899 $102.014

$ 703.950

$(226) $ 940,750 Firia Balame at Januars I.1984.

177.198 177.198 Net income.....,

OP

.j Cash dnidends declared:

N Preferred stock..

(2.464)

(2.4 64) a P8 Common stock (PNC Financial-$1.ll per share:

Cittrens-5.61 per share)

(59.340)

(59,340)

~

Stoc k issued (preferred-l.411,790; common-1.119.704):

. ' ( :.

Dividend reinvestment and emplosee benefit plans.

9 1,607 9,275 10.891 Consersion of preferred stock,

(11) 107 (96)

~

1.414 3.884 53.958 59.256 im r

- Plan of merger

~ Transfer to reflect three for.two stock split 15,630 4,668 (20,298)

D Net foreign currency translation adjustments.

(335) 13353 Balance at December 31.1984

$ 1.525 $156.127 $169.819

$ 798,711

$i226) $ 1,125,956 Net income '.......

228,831 228,831 Cash dividends declared:

(6.216)

(6.216) l Preferred stock Common stock (PNC Financial-$1.28 per share:

Citizens-5.69 per share)

(73,070)

-(73,070)

Stock issued (preferred-l 948.366; common-

2.273.800):

' Exercise of warrants..

140 741 4.475 5.356 Dividend reimestment and employee benefit plans.

15 2,437 13,730 16.182 51 Comersion of preferred stock (48) 441 (393)

O' Conversion of debentures,,

999 4,427 5.426 O

Plan of mer ger.......,...

l.841

'6,751 80.211 88.803 l*:, ;

Warrants assumed under Plan of merger,,,..

4.243 4.243 C.

, Transfer to reflect two.for.one stock split.

117,701 (117,701) st Transfer to reflect three for.two ste.tk split 23,718 7,086 (30.,804)

C.

Net foreign currency translation adjustments..

221 221 l

Balance at December 31.1985.

$3.473 $308,915 $165,897

$ 917.673

$(226) $1,395.732 Net income....

286,307 286,307 -

'I"!

l Cash dividends declared:

I

(6.086)

(6.086)

Preferred stock...,,,...

E' Common stock (PNC Financial-$1.47 per share:

U.

Citirens-5.80 per share)

(86.997)

(86,997)

Purchase of treasury stock (commo3-14,710)

(669)

(669)

'N-1 l

Stock issued (preferred-142,816; common-b

0 4,093.183):

29 265 825 1.119 Exercise of warrants....

Dnidend reime.tment and en ployee benefit plans.

4 3.895 18,868 669 23.436 Conversien at preferred stoct (176) 873 (697)

Incr l

Comers;on of debentures,

4,902 18.04l 22.943 in 1

Plans of merger.

10.531 27,924 19,361 57,816 y..

4 4

Ts Net fweign curren(9 translation adjgtments.

l hslin*e at December 31.1988

$3330 $32L581 $250,858

$1.130.262

$(226) $ 1,693,605,

\\l-a.,

l

.m ex w-rava..

gn 1

See aumpnpq Grs to timbe ki Coruohdated Em netal Statements.

I.e

)

l.a

}.

i

-s-1 i

iner l

= i 3

he ##

7 4.

'. h,.

k*

4t r )

i u

p g

(

I

,t, N

30 l,,

..J g

g 4 - s

.3

d gg,c st/($ugf o.o M s'4 tot snit.i

;W i jued Co.bolidalUdf N'"0W m,, in H o w nd N *

^

4,.u.a ds n

\\

,4 Dnembn 31-1986 IW

- 1% I l

/

gocial resources were Provided by tapplied to):

U 'i"'(([, ne

$ 296,307

$ 228,831

$ 177.198 l

D,rn,n for enda loues, depreciation. 'amonization and j

.,Aer nemi not reqmring hnancial resources.

201,254 133.852--

83.865

%ul resounes prmided by operations 487,561

'362.683 261.063 l

c,sh dnidends declared (93.083).

(79.286)

(61.804)

Tmaniial resonrces prmided bs operations 394.478 283.397 199.239 4%.ydecre.ne) in depmits and other hnancing actisities:

j pepouts:

. Demand and other non. interest bearing deposits -

768.024 254.513 415.592 1-

-gniciesi bearing demand 201,298 153.696 267.022 60,366 (45.451)

(287.960)

%.nings.

stones market deposits 550,341 502.027 351.378 segotiable certificates of deposit -

1,235,064 679.89fi 357.491 (227,196) 187.766 344.622 Other tune.

. peposts in foreign othces.

27,275 100.789' (282.2493 pepouts acquired in mergers 361,493 1.573.070 755.y increa e m deposits 2,976,665 3.406,306 1,921.876 shi,rt.ierm borrowings 765,253 962.323 908,470 other borrowings.

(227,664)

(l4.84 I)

(l 722) l.

.Other habilities acquired in mergers -

'5,422 3? I15 59.087

~

pnneeds from debt issued.....

368,111 134.!53-l romersion of preferred stock and debentures (23,816)

(5.867)

(107) votL inued in mergers.

57.816 93.046 59.256 rununon stock issued 47,702 27.405 10.998 1,nal financial resources prmided by deposits and other finaming actisities 3,969,489' 4.634.740 2.957.858

.imre.ne) decrease in nonearning assets and liabilities:

..(:.nh and due from banks..

(475,077)

(254.390)

(336.369) l'remnes, equipment and leasehold imprmements, net (38,937)

(44.146)

(32.237)

Oiher. net.

12,354 (5.642)

(13.856)

\\et nonearning assets and liabilities arquired i.7 mergers (15.127)

(161.299)

(81.914)

Iotal financial resources applied to nonearning assets..

(516,787)

(465.477)

(464.376)

.=.

increase in financial resourees invested in earning assets

$3,847,180

$4.452.66G

$2,692.74 I

{

increase (decrease) in earning assets:

)

Interest beanng deposits with banks.

$ 109,412

$(410.492)

$ (379.492, j

lederal funds sold and resale agreements..

(81,772)

(67.180)

(19.258, trading account secunties........

(547,943) 344.751 (166.84 fit

\\lortgages held for sale.....

(131,664)

(31.975)

(56.701)

Imeument securities.

1,302,473 1.378.138 530.163 lnans.

2,805.999 1.668.244

'l.992.466 Larnmg auets acquired in mergers 390.675 1.571.174 792.409 Increase in earning assets.

$3,8U,180 54.452.660

$2.692.74 I

% mamptomnt Notn to Combened Cmnaludated Fenannal Statements i

31 l.

' tes to Combined Consolidated financial Statements

.IlldoIInr amonnu punented on the tabIrs arr vu thousands, evept as otherar twert Combined Consolidated Financial Statements financial rutures and swaps: Interest rate futures and for.

j ward placement contracts purchased or sold for the trad-In j

The combined consolidated fmancial statements gise ret-ing account are valued at market, and any resul ing gains ao t

roactise effect to the merger of Citizens Fidelity Corpora-or losses are included in trading profits.

im tion FCititens") with and into a subsidiar) of PNC Finan-Financial futures are used to hedge asset and liabil.tv Ih L

cial Corp FPNC Financial"L This transaction has been positions. Such transactions are characterized as general sin accounted for on a pooling of-interests basis. and such hedges, are valued at market, and any resulting gains or toi f

hnancial statements are presented as if the merger had losses are included in other income. Financial futures are n

been consummated for all the periods presented. These also used as specific hedges and accordingly. gains and au combined consolidated fmancial statements and related losses are deferred and amoruzed oser the remaining life an notes thereto are presented <3 supplemental information of the hedged asset or liability.

IC.

to the audited histoncal consolidated financial staterr.ents Net amounts receivable or pa>able under interest rate and related notes thereto included on pages 61 through swaps that are specifically designated as hedges are fe

76. As required bv generally accepted accounting princi-recorded as adjustments to the interest income or expen e l' "

ples, the combined consolidated fmancial statements will related to the hedged asset or liabilitv.

M j

become the historical consolidated financial statements it" i

upc,n issuance of consolidated financial statements for the

.Vortgages Heldfor Sale: Stortgages held for sale are carriec period ended Ntarch 3!. i987.

at the lower of aggregate cost or market value. Gains and losses on mortgages held for sale are included in other Accounting Policies income.

tra The accounting and reporting policies of PNC Financial loans: Loan interest income is accrued on the principal and its subsidiaries. including Citizens, conform with gen-amount outstanding, except for interest on installment crallv accepted accounting principles. A description of the loans and lease financing income w hich is recognized on significant accounting policies is presented below, the sum-of the months-digits method which results in lese l

rates of return oser the terms of the loans and leases.

Basis of Presentation: The combined consolidated financial The accrual ofinterest on loans is discontinued when. in "YI statements of PNC Financialinclude the accounts of PNC management'sjudgment,it is determined that the collec-Financial and its subsidiaries (substantially all of which are tion ofinterest, but not necessarily principal. is doubtful.

" P-s whollv-ow;ned).

Accrued and unpaid interest for the current scar is All sigmficant intercompany accounts and transact ons charged against (urrent income and any interest accrued E[

has e been eliminated in the combmed consolidated finan-and unpaid for prior periods is charged against the allow-cial statements.

ance for credit losses.

t'C '

The accrual basis of accounting is used except that cer-tain sources of res enue are recorded on the cash basis, the Allowancefor Credit losses: Slanagement regularly resiews results of which approximate the accrual basis, the loan pc;rtfolio, letters of credit, acceptances, loan corn-ini

~

raitments, and other financial guarantees and prosides for ou 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 potentiallosses.

nu for amortization of premium and accretion of discount to j

maturity. Alarketable equity securities are carried at the Depreciation and Amorti:ation: Depreciation and amortiza-r 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 s alue.

fmancial reporting purposes and by accelerated methods the Gains and losses are computed principally on the specific for federalincome tax purposes.

idenufication method.

Intangible assets, which are includeo in other assets. are amortized using accelerated and straight-line methods oser the estimated usefullises of the respectise assets.

1 1

i l

i I

n

i_

~

Mergers and Acquisitions In""'e Taxes: Certain items ofincome, expense and credit i

i d for financialaccount-at '"'luded in one report ng per o o,es and another for income tax purposes.

Citizens Edelity Corporation On February 27.1987, Citizens, a Kentucky bank hoid-P('h m(ome taxes are provided in recognition of these "4

diderencn, Imestment tax credits are accounted mg company, was merged with and into a w holly-ow ned subsidiary of PNC Financial. Under the terms of the he dow.through method as a reduction of the provi.

merger, each share of Citizens common stock outstanding p,r mtome taxes, except for imestment tax credits on such date was comerted into.77 share of PNC Finan-

1. '"Qante to lease financing actisities w hich are deferred cial corr. mon stock, PNC Fir,ancialissued approximate

""[are bemg amortized to income mer the lives of the 15.8 nullion shares ofits common stock and cash in lieu of fractional shares for all of the outstanding shares of Citizens. The following presents income information of f

g3 ion Plan: In 1986, the prousions of Statement ot the separate comparuee g,ntal Accounting Standards No. 87. Employers' u.,unung for Pensions, was adopted. The plans are 3,,3, 3,ar,ng,d PXC Gm,6,,,nr D"< der 31.19 %

Anamal c,rce,u c,mu,I~lar,a

.nnded on a current basis to the extent deductible underNet mterest mcome

$ 560.696 5128,696

$689.392 i 'ung federal tax regulations, C

Net mtome 237,382 48.925 286.307 l pq g,,ign Currency Translation: The financial statements of Indiana Acquisitions grign subsidiaries, expressed in foreign currencies, are

.onslated into if.S. dollars. Asset and liability accounts are During 1986, Citizens acquired one bank and one bank lvnslated at sear-end exchange rates. Income and expense holding company located in Indiana rindiana Banks").

acins are translated each month at the prevailing month.

Under current Indiana law, Citizens is required to disest the Indiana Banks within two > ears of consummation of the ind rates. Adjustments resulting from such translations are durged or credited directly to retained earnings, net of merger with PNC Financial. As a result. the transactions

' el ihe gains or losses from hedging positions and net of hase been accounted for using the equit) method and the combined consolidated fmancial statements do not reflect

.,pph(able tax eflects. Exchange gains and losses on for.

the accounts of the Indiana Banks. All of the stock of these t,gn currency transactions are reflected in current in institutions was acquired using stock and cash for a total

,,peranons.

recorded investment of approximately $36 million, which is included in other assets. On a combined basis, the Indi-fornings Per Comenon Share: Primary earnings per common ana Banks' total assets were $384 million and sharehold-

. hare is calculated bv dividing net income less preferred

.insk dnidend 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 fully diluted earnings per common share is based on net During 1985, one bank and three one bank holding mcome adjusted for ints. rest expense (net of tax) on companies were acquired with assets aggregating $ 1.8 bil-b nuistandmg comertible debentures and dividends on lion. All such transactions were recorded under the pur-r noncomernble 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 mt rcased by the assumed conversion of outstanding con.

acquired during 1986 with assets aggregating $400 mil-sernble preferred stock and convertible debentures from lion. Three banks were acquired in transactions accounted u

the beenning of the 3 ear or date ofissuance,iflater, and for as purchases. One bank was accounted for as a pooling s

the esumed exercise of stock options and warrants using ofinterests, except that the financial statements were not the treasury stoc k method.

restated since the effect was not material.

There were two acquisitions consummated in February re 1987, with assets aggregating $122 million. These transac-tions will be accounted for as poolings ofinterests except that the financial statements will not be restated since the effect is not material.

33

f Completed Divestiture Loans Allo i

On May 30.1986, PNC Financial completed the sa!e ofits Loans and lease financing are comprised of the following mortgage banking subsidiarv, The Kissell Compz.ay, for categories:

Chd" 5103.2 million in cash.

g,g,, y

,,g g

g Investment Securities

'"'",',,n, n

Commercial

$ 9,148.4

57S2, t ha The carrying and approximate market values of m.iest-Real estate construction 956.I 54lk RE ment securnies were as follows:

Real cuate mongage.

1,378.3 1.107-N

" " " ~

Detember il 1986 1989 Mones market 212.9 302 n Care mg Mareri Car m ng Marke!

1. n,,iam Foreign 826.1 711 l I lue l'aiue lhlus lhlur t.ncarned income (283.6) v2fi;;

m(

Loans. net f unearned mcome.

15.208.8 l'5. Treasurv

$3,501.3 $3,5 10 31070 $3.67.3 l'.S. Gosernment lease fmancmg:

agencies and Lease receivables.

429.7 328g l

< orporanons.

1,966.4 2,031.5 637.8 678 6 Estimated residual value.

36.8 lu g NOHd Sta;c and municipal 1,305.2 1,329.2 1.661.4 l.625 I t'nearned income 172.5) i43 mcon Corporaic stocks:

Lease fmancmg. net of unearned income.

394.0 300 ;

loJH'

)

l Marketable equines 106.6 208.7 107 2 214.5 Total net of unearned mcome.

$ 15.602.8

$12s;T ormu I

0:her.

25.9 24.7 34 5 33.4

=

iesat i

Other 169.8 174.1 100 3 104.7

1. ## # E#I Total

$7,074.3 $7,329.2

$5.648 2 $5.823 6 go each of the years 1987 through 1991 are approximately

$101.8 million, $92.2 million, $77.6 million, $60.1 mil.

the "

Data related to marketable equity securities follows:

lion and $37.2 million, respectively, o,.,,,a orrem6er 91 ses6 1985 Certain directors and executive officers of PNC Fman, sonac Gross unreahred gams.

$107,011 $108.025 cial and its significant subsidiaries as well as certain affili, ge uu

~I Gross unreahred losses (4,927)

(666) ates of these directors and officers were customers of, l

wegate cou 106,580 10t155 and had loans with, subsidiary banks in the ordinarv course of business. All such loans were made on substan-iIo., c, Aggregate market salue

$208.664 $214.514 g-tially the same terms, including interest rates and collat.

Imere,

.The following table presents the composition of net eral, as those prevailing at the time for comparable equity and other security guns:

A' transactions with other persons and did not insche more nw <6r smr ended o,cember li 1986 19ss 19s4

.han a normal risk of collectibility. The aggregate dollar Nei gams on marketable equity amount of these 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 gams (losses) on other secun.

During 1986, new loans of $272.3 million were made and

.i

, g 39, ggg repayments totaled $241.2 million. At December 31,

.roial.

$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 Imps extensions of credit and $1.5 million represents standby letters of credit. In addition, there was $8.5 million of Premi potential problem exposure to an affiliate of Harry at cos LaViers,Jr.,58.0 million of which represents collateral-w cre,

ized extensions of credit and 5.5 million represents g,

standby letters of credit, Mr. LaViers is a director of a subsidiary company.

I,7;h Equipr I.ca w h d'.Ll.".1

\\ ct

=== -:

34

I i,

i Allo"ance for Credit Losses Depreciation and amortization expense on premises.

equipment and leasehold improvements, including amor-in the allowance for credit losses wele:

tization of capitalized leases, amounted to $33.6 million

' "k,,f,s n,,,,,s-,

11 in 1986 $28.3 million in 1985 and $22.1 million in 1984.

19u 1985 tou Certain facilities and equipment are leased under short

.gmmng on scar

$ 178.091 5136.406 $106.876

,mmred m mergers 1.525 14.105 4.032 and long term lease agreements expiring st various dates oL'"" "

(81.350) (60.40h (29.417) to the year 2023. Substantially all such leases are t "'((,

8.823 is 564 7.711 accounted for as operating leases. Rental expense on rge ofh (72.527) (44.839) (21.706) such leases amounted to $30.0 million in 1986. 526.8 n,n for uedit loues.

143.765 72.419 47.204 million in 1985 and $23.1 million in 1984. Required min.

i.nd ahear.

$250.854 $ l TH.091 $ l 36.406 imum annual rentals due on noncancellable leases having

'M terms in excess of one year approximate S153.9 million in the aggregate at December 31.1986. Minimum annual vonaccrual and Restructured Loans and rentals for each of the scars 1987 through 1991 are Other Real Estate approximately $20.9 million, $17.1 million, S14.6 million, rualloans are those loans on which interest

$12.6 million and $10.0 million, respectively.

ne is recorded oniv when received. Restructured represent those debt transactions for which the Repurchase Agreements

,ngmal interest rates, repayment terms, or both, were.

PNC Financial enters into sales of securities under agree-guructured due to a deterioration in the fmancial condi-ments to repurchase which are treated as fmancmgs and non of the borrower.

the obligation to repurchase such securities sold is inial nonaccrual and restructured loan balances and reflected as a liability in the combined consol' dated bal.

me related scarly interest data were as follows:

ance sheet. The doll'ar amount of securities underlying

,,,,s,,, i i 1986 loss 1984 the agreements remains in the respectise asset accounts.

Cnaunial.

$ 185.514 $ 147.478 $ 109.373 Repurchase agreement information, including accrued goirm tured 46,633 40.898 23.783 interest, was as follows:

}u.il

$232,147 $ 188.376 $ 133.156

}Wember 31.1986

.4 mts Sold E+mhmeLmt4ts imercu inmputed at Carmng MarAct interit

,,ngmal terms.

$ 22,443

$ 22.282 $ 19.330 Matuniv/Tspe ol.4urt

.4 mou nt Udur

.bnount Rare imcreo recognued 8.922 9.313 7.090 Next business day:

U.S. Treasurv

.\\t December 31,1986. there were no significant secunties

. $ 940.153 $ 959,402 $ 945.037 12.56 %

oumanding commitments to lend additional funds with U.S. Government tespect to nonaccrual and restructured loans.

agency secunties 79.377 82.274 79.953 9.70 Other real estate, which is included with other assets, is 3 to 30 da*5:

samed at an amount not in excess of estimated fair value U ',3 ']'"

gg g

gg g and amounted to $10.3 million and $18.0 milhon at l'.S. Government December 31,1986 and 1985, respectively.

agency secunnes 120.195 123.106 120.882 7 12 31 to 90 days:

Premises, Equipment and Leasehold E S. Treasury improvements secunties 660.261 665.556 666.436 5 77 U.S. Government Premises, equipment and leasehold improvements, stated agency suunues 1.015 1.056 1.038 6 39 at cost less accumulated depreciation and amortization.

Over 90 days:

U.S. Treasury were as follows:

se unues '

266.379 266,43l 265.362 5.61 i m m6n il 1986 1985 Demand:

1.4nd.

$ 26,392 $ 22.159 U.S. Treasury hmid ngs 166.238 160.616 secunnes 6.384 6.481 7.722 5 87 h utpment.

165,006 149.620 U.S. Governmem i

lyaschold imprmements 49,620 41.7f t agencv secunnes 143.749 146.348 141.735 15 88 407,256 374.116 Totals

. $2.829.812 $2.869.251 $2.845.185 8.96 %

Stumulated deprecianon and amornranon. Il 54.380) (132.271)

{

@ hook salue

$252.876 $241.845 l

1 1

1 35 l

1

e

.I f6.

Other Borrowings The 8% % Convertible Subordinated Debentures I)ut.

2008 ("8% % Debentures") are convertible at amume ll""g I*'

Other borrowings represent obligations with original prior to maturity into PNC Financial common stock at maturities exceeding one 3 ear. Other borrowings were as

$23 per share. The 8% % Debentures are redeemable at

"['.

i I

follou:

the option of PNC Financial at 105.8% of the principal n,,,,,,3,,

3,

1986 loss amount declining in annual increments to 100% on Nias

""[n$

15,1993. The debentures are subordinated in right of Perent Compar.y g.

I n,% Noies Due 19e9. redeemable aber Payment to all senior indebtedness of FNC FinanciJ (yg, sos ember 14. 1987.

S 49,937 5 49.919 Interest on the Floating Rate Subordinated Notn Ne m % Conserable Subordmated 1997 is payable quarterly at a rate of $ of 192 pe

' ; 7,,

Debentures Due 2008 23,677 44.574 annum abose the London interbank offered rate ior three-month Eurodollar deposits and is reset quaru r1.1, I[. h

((i 6 h5 3

e1 at sear end).

100,000 100.000 no event will the rate be less than 5% % per annum. At subswari" maturity, the notes will be redeemed from amounts Ghar sal [e a$ o accumulated from the issuance of common or perpetual L----

gaton r ng matunnes through 1988, at sanable preferred stock or certain other securities of PNC Finan.

At8 l

rates tweighted aserage rate of 6.55%

cial and maintained under a segregated fund ofimest.

hohle and 8 05% ai scar end) and secured ments. The fund will not constitute security for the notes poi.a b5 uudent loans 173,000 73.000 and income on such investments will be paid to PNC ol PN 5

n 35 at r.end) 35,340 99.990 Financial and will not be part of the fund. Subject to cer.

hon-Floanng Rate Notes Due 1995 tain exceptions. PMC Financial must deposit sufficient s i/cd (6 34% and 7.77% at sear-end) 31,800 99.965 amounts into such fund so that the fund balance will, at hon-84 % Notes Due 1996. redeemable the interest payment dates in Starch 1989 and 5! arch PN after Ntarch 14.1993 198,661 1993 and at least 60 days prior to the fmal maturity of iand 14. Austrahan Dollar Notes g

g g,

g gy W% Conseruble Subordmated Debentures two-thirds and the full amount respectively, of the orign Not L due 2005 23,950 26.000 nal amount of the notes. At December 31, 1986 S30.0 leirei Wrellaneous 71,558 51.434 million had been deposited into the segregated fund. The l'NC

' edet

'Im al

$747,373 5544.882 notes, net of the segregated fund t, investments, are eli-M"' k gible to be treated as primary capital in the determma-tion of capital adequacy by the Board of Gmernors of the

.a iht Niiscellaneous borrowings include capital notes, mort-Federal Reser e System.

MW gage notes and various other borrowings, with rates The two series of floating rate notes, Floating Rate 5C""

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

'l" P PM 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 Gmernors of the Federal Reserve System in calculat-series-50 basis points). The spread above the Treasurv k"i ing capital adequacy ratios. Interest on the notes is pay-bill auction rate c,n the Floating Rate Notes Due 1995 h'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 During 1986, PNC International Financial Services April 14,1989 at the option of the holder, and are not

"{

Limited issued AS60 million of 14%% Australian Dollar subject to redemption by PNC Financial. The Floating Notes due in 1989 ("14 % % Notes"). The 14% % Notes Rate Notes Due 1995 are repayable at par on October 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 The 8%% Convertible Subordinated Debentures due D~ ~>

semiannually in arrears commencing on 5tay 17,1987.

December St. 2005 ("8% % Debentures") are comertible l'rch, The foreign subsidiary may redeem all of the outstanding anytime prior to maturity into PNC Financial common

['Ch' notes at face value should such subsidiarv be required to stock, subject to certain adjustments, at $28.57 per share.

p,[

pay additional amounts to note holders with respect to The 8%% Debentures are subordinated in right of pay p, en.,

certam taxes imposed on the semiannual interest ment to all senior indebtedness of PNC Financial. The

]

"=

pasments. The 14% % rate represents a competitive rate 8% % Debentures are redeemable at the option of PNC for 3 sear Australian dollar borrowings.

36

l l

At December 31.1986. there were 82.221 warrants 19" i31 at 104"5 of the principal amount beginning ber 31 '1990 and declining in annual increments outstanding. The warrants are exercisable at a price of 538 L

P'iig on December 31.1993. In addition, the 8%"5 per warrant through August 31,1988 and a price of $40 l

f' homrcs are redeemable at various times and at vari-per warrant through the date of expiration on August 31.

l

?,enentages under certam specthed conditions.

1993.

l hec borrowings, on a combined consolidated basis.

Convertible securit) holders are entitled to the following

. theduled repasments and sinking fund require.

comersion privileges: (i) one share of Preferred Stock-A

. for the > ears 1987 through 1991 of $3.0 million.

or Preferred Stock-B is convertible into four shares of T

common stock:(ii) 2.4 shares of Preferred Stock-C or

?h,7 inillmn. 595.6 million. 52.3 million and 52.3 mil-

,,c,pectisch. Other borrowings. for the Parent Com-Preferred Stock-D are comertible into two shares of com-mon stock;(iii) outstanding warrants represent the right to

[('gn onh. hase wheduled repa>ments and sinking fund

' I,,ements of 553.3 million in 1989.

receive, upon payment of the exercise price.1.8 shares of common stock and one share of Preferred Stock-D: (io shareholders' Equity 8% % Comertible Subordinated Debentures Due 2008 are comertible into common stock at $23 per share: and (O

] the annual meeting held on April 22.1986, the share-the 8% % Convertible Subordinated Debentures Due 2005 g;,, gen approsed an amendment to the Articles ofIncor-. unon which increased the nu There are no conversion prhileges associated with Pre-are convertible into common stock at $28.57 per share.

( psC Fmancial common stock. par value $5. from 60 mil-ferred Stock-E.

a.,n hates to 100 million shares and the number of autho-PNC Financial has a dividend reimestment and stock med shares of preferred stock. par salue $1. from 5 mil-purchase plan. Shareholders of preferred stock and com-9,,n hares to 10 million shares.

mon stock may participate in the plan which provides that l'sC Financial has the series of preferred stock out-additional sha'res of PNC Financial common stock may be

.undmg 51.80 Cumulatise Comertible Preferred Stock-purchased with reimested dividends at a 5 percent dis-

% enc 3 A and Series B (" Preferred Stock-A and Preferred count from market value and with voluntary cash pay ments

%,tk-B") hate a liquidation value of $40 per share. Pre-at market value. Prior to the merger with PNC Financial, mred Stock-A may be redeemed amtime at the option of Citizens had a stock purchase and dividend reim estment psc Financial at $40 per share. Preferred Stock-B is not plan which provided that shareholders of common stock itdeemable. S't.60 Cumulathe Comertible Preferred and checking account customers could acquire shares of wak-Series C (" Preferred Stock-C") has a redemp.

Citizens common stock. On the effecthe date of the non/hquidation value of $20 per share and is redeemable merger, such plan was terminated and any remaining obli-y a the option of PNC Financial amtime after February 1.

gations were assumed by PNC Financial. The follow'ing tw151.oo Cumulathe Comertible Preferred Stock-number of shares of common stock were purchased pur-senes D (" Preferred Stock-D") has a redemption / liqui-suant to both plans: 230.428 shares in 1986.226.610

,lanon salue of $20 and may be redeemed at the option of shares in 1985 and 437,967 shares in 1984.

PNC Financial am time after February 1.1990. $2.60 At December 31,1986. PNC Financial had reserved i umulathe NonNoting Preferred Stock-Series E (" Pre-8.610,433 shares of common stock to be issue-d in connec-terred Stock-E") has a redemption / liquidation value of tion with pending mergers and under the dividend rein-97.75 per share and is redeemable at the option of PNC vestment plan, employee stock purchase plans and upon hnancial amtime after February 1,1990.

the exercise of warrants and the conversion of certain debt iloiders of preferred steck (except Preferred Stock-E) and equity securities.

.ne entuled to a number of votes equal to the number of An analysis of the changes in accumulated foreign inil shares of common stock into which such preferred currency translation adjustments follows:

oot k is com ertible.

I he number of shares of preferred stock outstanding by rn, tar scar ended orrre,v 31 1986 1985 1954 senes was as follows:

Begmnmg of tear

$(1.499) 5(.t.720) $t t.3*t5i Ser 11 1986 198$

Translation adjustment gams dosses),

e Prelerred % n(k-A 52.188 58.499 net of hedges.

77 734 (478p Ptrierred Stoc k-B 19,773 22.258 Applicable incorne taxes (benefits).

73 513 i143) l}eterred Stot k-C 1.340.741 1,416.668 Net change for the scar.

4 221 i335) heterred Sto(L-D 1,579.356 1.637.449 End of car -

$(1.495) $(1.499) 5(1.720) 3 Po*rred Nint L-E 338.100 338.100 local 3.330.158 3.472.974 37

y i

7 i

I Employee Benefit Plans The weighted. average discount rate and rate of increase in future compensation levels used in determin.

=

A qualified profit sharing plan is mamtamed for all.

ing the actuarial present value of the projected benefit emplosees, except C:tizens employees, meeting certam obligation at December 31,1986 were 7.50% and 6.00%

C" age and sersice 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 P

defmed 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 ct>ntributions to the Thrift Plan are based on The actuarial present value of accumulated plan bene.

N 3% of participating employee base pay. In addition, vol.

6ts for the defmed benefit pension plans at December 31' P

untary emplo)ee contributions are matched by the 1985 was $102.8 million based on a discount rate.of

""l emplo>er as set forth in the Plan. Expenses for both 7.50% for PNC Financial and 9.60% for Citizens, includ.

plans were $23.3 million in 1986,$19.1 million in 1985, ing vested benefits of $93.8 million. The plans' net assets and $14.2 million in 1984.

available for benefits were $188.7 million.

PNC Financial and Citizens sponsor defmed benefit During 1986, PNC Financial established an unfunded pension plans cosering substantially all employees. The nonqualified supplemental executise 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 3 ears during the last ten scars of credited service for expensed in 1986.

PNC Financial and the highest average monthly earnings in addition to providing pension benefits PNC Finan.

"I.

in any 60 consecutive months for Citizens, subject t cial and its subsidiaries provide certain health care and ERISA limitations. Pension contnbutions are made to the life insurance benefits for retired employees. Those and

'i.

extent deductible under existing federal tax regulations.

similar benefits for active salaried employees are pro.

1 In 1986 the Statement of Financial Accounung Stan.

vided through an insurance company, the premiums dards No. 87-Employers' Accounting For Pensions was being based on benefits paid. The insurance premium h:-

adopted. This had the effect of reducing 1986 pension expense for providing such benefits for approximately

,,m expense by $5.1 milhon, pnmanly due to a change from 2,300 retirees and 10,300 full time salaried emplo>ees the entry age actuarial cost method to the projected unit was $11.6 million for 1986. The cost was $10.4 million m cost method. Pension expense of $7.3 million and $11.1 1985 for approximately 2,200 retirees and 10,400 full 1,,t million for 1985 and 1984, respectively, and related data, time salaried employees and the cost was $13.7 million in hase not been retroactively restated.

1984 for approximately 1.500 retirees and 8.900 full time The following table sets forth the plans' estimated salaried employees. The cost of providing such benefits h" '.'

for retirees and full time salaried employees cannot be I

funded status:

Derrmber il 198o separated.

t Anuarial present salue of accumulated benefit obliga.

PNC Financial has an employee stock purchase plan E

non. mcludmg sested benc6ts of $113.164.

$123.056 which covers a maximum of 2 million shares of PNC Finan.

t ci.21 common stock. Persons who have been continuousiv Actuanal present value of projected bene 6t obligation employed by PNC Financial or certain ofits subsidiaries'

\\

for serme rendered to date

$182.915 for one year are eligible to participate, Plan assets at fair value-pnmanly listed common Offering periods pursuant to the plan cover 6 month jI sinds, l'.S. Gosernment and agency securities, and Pcriods fromjune I to November 30 and December 1 to s

collerme funds (248.371)

May 31. Common stock is purchased at the lesser of 85%

C 9'" '"'" 'n c u e" f Projected beneht obligation (65,456) lnrecognued net gam from past experience different ofits fair market value on the first or the last day of each l

from that assumed and effects of changes in offering period. During 1986, a total of 115,343 shares M

anumpoons 16,784 were issued to participants at prices of $29.43 and $34.96 y"

l*nrecognued net asset at lanuary I.1987 50,793 per share, a total of 125,130 shares were issued in 1985 at mt Accrued pension cost incladed in other habdities.

$ 2,121 prices of $18.75 and $24.60 per share and a total of pro i

129,308 shares were issued in 1984 at prices of 45.94 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 \\rnr onded (Member 31 1986 ant Serute cost-bene 6ts earned dunng the penod

$ 9,603 Stock Option Plans Interest mst on projected benc6t obliganon.

12.895 Auual return on plan assets (35,256)

PNC Financial has a stock option plan (" Option Plan")

Net amortuatmn and deferral 15.004 which cosers a maximum of 900.000 shares of common Nei penodic pensmn ensi.

$ 2.246 stock that may be granted prior tojanuary 1.1992. The

{

Option Plan provides for the granting ofincentise stock 1

options and nonqualified options. PNC Financial also 38

y-l

'""ned outstanding obligations under stock option plans Income Taxes "nection with merging Marme Bancorp Inc.. North-Bancorp. Inc. and Citizens.

The current and deferred portions of the income tax pro-j

f."h,.r the Option Plan. options are granted at exercise visions, including the tax effect of securities transactions, j

were as follows:

, not less than the fair market value of PNC Financial

?'

non stock on the date of grant. Options may not be for r6, srar ended Durmber 31 1986 19u 19u 1

ned for six months after the ciate of grant. and expire current:

u ars after the date of the grant. Pasment of the option Federal

$60.273

$41.313 534.925 onas be made in cash or shares of PNC Financial com.

Fereign 5,190 3.123 7.347 j

state 4.487 L6 4 1.247 j

n,tock salued at fair market value on the exercise date.

l Total current 69.950 4 ( 030 43.519 gd, appreciation rights ("SARs") may be granted con-m.nih with ans option granted. SARs entitle the holder Deferred:

j Federal (23,465) 7.967 1.728 l

he related Option to surrender the option and,in lieu of I" en 681 m

L315 rcning the option, to recche shares of PNC Financial Total deferred (22.784) at.771 3.043

, anon stock hasing = ' air market salue equal to the Total 547.166 556 m l s46.564

,g.,3 of the fair marw "alue of the shares subject to the

.pnon oser the option price of such shares. PNC Financial Applicable to:

)

,,n, at its discretion, make all or a portion of such pay-Operanons.

528,788 551.585 543.923 secunnes transacnons:

,'.nt in cash SARs were granted concurrently with respect

'"'tod eptions granted in 1986,1985 and 1984.

Equity and other 8.736 4.215 3.929 Debt 9.64 2 1.02i i1.2906 s;o tharges to earnings hase been made with respect to Tot 1 547.166 556 m l m 562 me options granted or exercised under the stock option plans. Compensation expense resulting from the valuation The components of deferred income taxes (benefits)

.,1 s \\Rs was $154 thousand m 1986 and $872 thousand in "N"""E

" ' " " ' ' ' ' " * "' E "I

19M5. No compensation expense was recorded in 1984 as

"#""#' CXPenses and credits for tax and fmancial j

i

.mh saluation was not material.

reporting purposes are as follows:

t he following table presents share data related to stock For the vrar ended Durmber 31 1986 IVu 19 Q opuun plans:

Lease fmancing

.S $,052 $12.014 5 6.420 uarr' OpoonIWe Provision for credit losses (27,249)

(8.645)

(10.363)

IVr Common Share

• Common Prefer *rd Imestment tax credit 2,634 6.631 5.681 bnuan 1.1984.

. $ 9.81520 22 543.833 Other-net.

(3.221) i1.229) 1.305 j

Granted.

17.96 22.38 331.254 Total

$(22.784) $ H.771

$ 3.043 b umed in merger.

17.73 29 09 21.670 19.700 Opnons exercised.

I136 2909 (69.073) m.000)

The provision for income taxes is less than the amount 4

.!8 determined by application of the Federal statutory

, e 2

) 9 h$umed m merger.

23.75 18.710 10.394 income tax rate of 46 percent prmcipally because of tax Opnons exercised.

9 81 29ft9 (148.094) (15.894) exempt interest on loans to and obligations of states, Ierm nated (42.735) municipalities and other public entities. The reconcilia-Dn ember 31.1965 9 Bl. 32 88 836.463 5.200 tion between the statutory and effective tax rate follows.

Granted 31.82 41.40 448,402 for the vrar ended Derrmber Ji 1986 1985 1984

% tRs exercned (1.500)

Opuuns exercned.

9.81 32.88 (282.736)

(3.850)

Statutors tax rate.

46.0 %

46 0 %

46.0 %

lermmated (18.769)

Tax exempt interest.

(26.8)

(23 3)

(22.0)

On ember 31.1986

. $ 9.81541.40 081,860 1.350 Capual gams.

(4.0)

(1.0)

( 1.2) r Other-net (1.1)

(1.8)

(2 0)

• In anordance wnh the terms of the plans assumed in certam EfTecove tax tate.

14.1%

19.9 %

20 8 %

mergers, option holders m such plans will recene preferred shares m pniportion to the number of common shares issued. The option The tax reform act of 1986 rePcaled certain investment pme per common share under such plans is the price for both the mmmon and related preferred shares tax credits retroactively tojanuary 1,1986. An immate-rial amount was included in income during the first three At December 'll,1986, options for 215.439 common quarters of 1986 and subsequently reversed.

and 1.350 preferred shares were exercisable.

l Regulatory Restrictions The disidends that mas be paid by subsidiary banks to PNC Financial are subject to certam legal limitanons.

Under such limitations. the amount available for pasment of dividends by all subsidiary banks was approximates 39 l

l

I

$476.7 million at December 31,1986.

Statement of Income j

Under current Federal Resene regulations, the bank.

Enr th, smr end,d purmon it 1986 ms T cod i ing subsidiaries of PNC Financial are limited in the operating Revenue lo i amount thes mas loan to their affiliates, including PNC Diudends from:

Fmancial. Such loans must be secured by specified obliga.

Bank holdmg compam and P8 subsidian banks

. $ 93,507 $ 79.827 s 6ang n '"' '

tions. In addition, ans such loans to a single affiliate may i

not exceed 10% and the aggregate ofloans to all affili.

g, l" n ome h

ates may not exceed 20% of each bankmg subsidiary's t' S. Treasury secunties 6.271 3.462 4mog hhe f

capital and surplus.

Subsidian banks 10,425 11.312 ga j

At December 31,1986, the maximum amount available Non-bank subsidianes 2,471 3.238 6.30{

j for transfer from the subsidiary banks to PNC Financialin C3'"

" ' ale f mongage banking o ',,"

i the form ofloans and dividencls approximated 367 of ghrino -

>91

,m consolidated net assets.

p., m Total operating revenue 174,207 los 740 76 46 Federal Resene Board regulations require depository g

institutions to maintain cash reserves with the Federal opersting Expenses i.n.,

Resene Bank. During 1986, subsidian banks maintained Imere5texPense 15.511 17.097 10.5 6 oine Other expenses.

20,194 9.421 4.63i aserage resenes of approximately $453.3 million.

Total operating expenses 35,705 26.518 I5S)?

Unused Lines of Credit income before income taxes and N'

~

equky in undistnbuted net 31,1 At December 31,1986. PNC Financial maintained credit income of subsidianes 138,502 79.222 61.419 gn i

PP cable income taxes (benefits) 13.516 (2.895)

(1.1%

facilities with various fmancialinstitutions totaling $127 A

h million. Fees are paid for unused commitments ranging locome before equity in undistnb.

~

hold at ih from % 7o to % % All such credits were unused at Decem.

uted net income of subsidiaries. 124,936 82.117 62.578 ggg her 31,1986 and are available for support of commercial Eqmtv.in undistributed net paper and for general corporate purposes. Cominercial

'"# ] oldin Ba to p nv and 8" C" paperis issued by PNC Fundmg Corp and Ca,tuens,

,ubudiarv banks.

140.359 139.199 106.586 The

~

wholly oned subsidiaries of PNC Financial, and is guar-Non-bank subsidiaries.

20,962 7.515 1034 man anteed by PNC Financial.

Net inenme

. $286,307 $228.83 t sl77.19i A'

=

to on Puent Company Financial Statements Statement of Changes in Financial Position acco l

C Condensed fmancial statements for PNC Financial Corp for 'Ar $ car ended ocrem6er 31 1986 19n Joo__

lion (Parent Company on19 were as follows:

Sources of Funds g,

From operations:

B:lince Sheet Net income

. $286,307 $228,831 5177.198 dCP D urmher 11 1986 1985 N n. cash credits to 3"d operations

. (158,997) (144.617) (112.804) 198 I

II Cash and due from banks......

170 $

160 Total funds from operations 127,310 84.214 64.394 U. S. 'Irrasun secanties (market salue Common stock issued 105,518 120.451 70.254 cial

$140.639 and $136.607).

139,725 135.840 Proceeds from debt issued 100.000 alfei Im esiments in:

Decreases in:

llank holdmg compam and bank in U. S. Treasurv secunties 9.453 subudianes...

1,611,114 1,324.189 liabe Non. hank subsidianes....

106,748 106.025 Advances to subsidianes 14.443 Adsantes to subudiary 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 5308.247 $ 172.061 Oiher assets 20,597 7.500 Totti asacts

. $1,911,045 51.616.309 Uses of Fueds Fore Cash dividends declared

. $ 95,083 $ 79.286 5 61.804 erni 1.libilities Conversion of preferred ente Diudends pasable.

20,205 $

17."28 stock and debentures 23,816 5.867 107

• 3

• E '

Other borrowmgs...........

173,614 197,493 Reductions m other borrowings 3,000 1.000 500 Accrued expemen and other habihues 23,621 5.856 Increases m:

C'F Totti liabilities 217,440 220.577 U. S. Treasury secunties 4.721 47.256 Unii

]

Shiraholders' Equity.

1,693.605 1.395.732 Net assets acquired m mergers 48,196 100.151

,9.386 p,

Totilliabilities and Other 76,081 56 977 30.184 shareholders' equity.

. $1,911.045 $ 1.616.309 et Advances to subsidianes 17 M 0 m0 Total uses of funds

. $248,897 $309.247 $171061 1

40

)

l

)

.i t

i be directiv attributed. Rates used to determine the interest

]

COMmittnents and Contingent Liabilities expense associated with funds used in foreign operations 4

l I

ormal course of business, there are vanous legal represent the actual external rates paid during the period cedings, claims, commitments and contingent liabili-for selected intenc3t bearing sources of funds. Indirect in J

fh,utstanding w hich are not reflected in the financial expenses are allocated based upon a time element, usage

.ments. Am ng these are commi;r..ents to extend or other factort.

A summan of the corporation's domestic and foreign h" gipeptances outstanding which are participated with r institutions. guarantees and standby letters of credit.

assets at year end 1986 and 1985 and selected foreign pg Financial had outstanding standby letters of credit income data for the las t three y ears follows:

wpport of the following obligations:

g,g,, y y

1 "W' Domestic assets

$25,252,708 521.176 356 tInI rf/

Forsgn assets.

1.683.347 1M4 389 vet

1. n.1936

. t mount Total assets

$26,936,055 522.760.745 5 41.000

$ 41.000 1

y, ancrod Paper,

l

. stmpt scrunnes 889.26.5 $311.45}

577 A08 5

for ihr star ended Durmber 31 1936 los5 tou 960.03,,

33.26.

906.,,, 5 1

Tmal operatmg revenue

$ 143,499 $ 168.902 $201.981 e4

$ 1.890.302 $364,719 $ 1,525.583 3

Piouuon for credit losses 38,659 9.383 5365 g

Income (loss) before income taxes (16,872) 16.768 17.300 Net outstanding standby letters of credit as of December Net income <lonii (8.077) 9.982 9345 it,1985 aggregated S t.6 bilhon.

.in addition, under agreements which provide liquidity to The corporation's foreign activities do not include anv holders, there were outstanding commitments to purchase, geographic area which is significant in relation to consoli-at the option of the holder, certain loans in the amount of dated activities, 3145 million.

PNC International Financial Services Limited. a wholly b of December 31,1986, PNC Financial had commit.

owned Australian subsidiary, issued A560 million of ments outstanding to extend credit totaling $6.1 billion.

14% % Australian Dollar Notes Due 1989. PNC Financial these commitments generally require the customers to unconditionally guaranteed the payment of principal, pre-maintain certain credit standards.

mmm,if any, and interest on such debt securities.

Acceptances outstanding which have been participated Summarized consolidated fmancial information for PNC m other fmancialinstitutions and are not reflected in th.e International Financial Servicrs Limited and subsidiaries, auompanying financial statements amounted to 5955 mil.

denominated in U;S. dollars, follows:

hon and $826 million at December 31,1986 and 1985.

Summarized Consolidated Balance Sheet respectis elv.

Dmon 31 1986 im Secunties and loans pledged to secure public and trust ilepouts, repurchase agreements, Sallie Mae borrowings Investment securities.

$ 48,245

$ 14.028 t.oans 66.037 30.971 and for other purposes were 55.6 billion at December 31.

Other assete 17,984 11.003 gggg in the opinion of management, the consolidated hnan_

_ Total assets.

$132,266

$56.002 ual position of PNC Financial and subsidiaries will not be Deposits

$ 73,298

'550.435 dected materially by the outcome of such legal proceed, Other borrowiogs 39,450 l

mgs, claims or by such commitments and cor tingent

$her'l n

st i

habilities*

Shareholder's equitv 14,125 3.067 Totalliabilities and Foreign Activitie5 shareholder's equity

$132.266

$56.On2 s

Foreign activities include loan and trade senices to gow-Summarized Consolidated Statement Of Income ernments, financial institutions and other commercial

.fo' '6' s'a' '"d'd D'ccm6er 31 1986 1985 lou enterprises and international funding transactions. Assets, deposits held and other liabilities are attributable to for.

Interest mcome.

$10.726 $ 6.871

$ 4.377 eign operations if the customer is domiciled outside the Interest expense.

(9.597) 45.993) 43.4586 l'nited States (including foreign branches of other United p,1*,,,

g$

I g

g3 3373 ates banksh simonte mterest.

(24) 172)

Foreign activities are accounted for by the profit center Net income.

$ 1.238

$ 1.139

$ 973

'nethod under w hich all revenues and most expenses can k

41

4

PNC Financial Corp and Subsidiaries Combined Consolidated Statistical Information ST

'"l-c Combined Consolidated Selected Financial Data t",'A l

i,ie,.

i,nen f.G 7.} pt,y p

(.,>mpmoy s e' 1986 19M 19N 19M 19Y2 Gma th R,u, l

g., ou

~

l Summ:ry of Operations on thmonudo j'

Net mtereu ancome.

$689,392

$624.164

$494.471

$430.686

$401.151 l '> 73 s,,n.

Prnuuan for (redit loues 143,765 72.419 47.204 27,725 37.043 34 9 in

.Non-interest income.

447.548 323.651 259.753 198.136 144.574 2&3 s,.i Non.uiterest espenses 659,702 589.744 483.260 411.297 349.927 17 6 slo

\\pphcable im ome taxes.

47,166 56.821 46.562 43.933 29.1e6 22.0 p.

Net moome.

286,307 228.831 177.198 145.867 129.569 19 4 se se

' Per Common Share Data g,,

Earnmgo pt Pnmary 4.44*

3.63

$ 5 05 2.63 2.35 15.3 m

Fulb diluted.

4.19' 3.44 2.94 2.58 2.33 14 3 shareholders' equits at sear end.

24.66 21.42 18.95 16 88 15.20 12.5

ygn, Cash diudends declared:

%,g PNC finanaal Corp 1.47 1.28 1.1 I l.01 pe, Fredecesic,r corporanons:

se Pittsburgh Nanonal Corporanon.

91 i.y Proudent Nanonal Corporanon

.69 %

i ni Cituens Fidehts Corporanon.

.80

.69

.61

.55 48 B: lutes Sheet Highlights at December 31 tm millumss C

Total assets 5 26.936

$ 22,761

$ 18.076

$ 14.913

$ 14.019 sppb l

Loans, net of une arned income.

15,603 12.688 9.944 7.545 6.812 m

Depouts 17,611 14.634 11.228 9.306 8.986 Other borrowings (origmal matunties oser onc year) 747 545 426 416 172 y,,n, Shareholders' equits 1,694 1.396 1.126 941 843 Pn h:1 Silrctrd Ratios Return on aserage assets 1.15 % "

1.14 7 1.12 %

l 06 %

l.037

.\\"'n 17 62 16.80 16.37 16.20 f".

Return on cerage shareholders' equuv.

47.74 "

Penod.end pnman capual ratio 7.41 7.24 6 94 6.98 6.65 I "-

Penod.end total capaal raua..

8.70 7.87 7.63 7.79 7.17

.berage shareholders' equity to aserage total assets 6.50 6.47 6.65 6.46 6.36

'3"'

ha-

• Includes the after tax effect of sigm6 cant and unusual transactions which increased net income by $14.8 million or 5.24 per share on a pnman basis and $.22 per share on a fully dduted basis.

"llased on net income excludmg the after tax effect of signi6 cant and unusual transactions. Based on net income, return on aserage assets was 1.22 percent and return on aserage shareholders' eqmtv was 18.71 percent.

e Tax

.in t h..

01 hh Inter

- dd A

Inter b

D 42 I

I

. gry of Operations

.50 3nas. cuept per share data Fn r.kr Compound

..,,, rnded Dermbn ll ^

1986 1985 l484 1981 1992 Grmeth Rare 51,944.462 - $1,845.615 $1.589.225 $1.295.160 $1.417J30 7.0 <.

me.

1,255.070 1.221.451 1.094354 864.474 1.016.579 36 y espense.

rest mcome -

689,392 624.164 494.471 430.686 401.151 15 3 143,765 72.419 47.204 27325 37.043 34.9

_ 'h,,,,y,,on for tredit loues :

est mcome after prousson for creda losses m 545.627 551345 447.267 402.961 364.108

' 12J

' y,n.inierest mcome:

127,558 106.382 87.199 73.521 69.091

164, gng mcome..

4

,,. nice charges, fees and commassons 162.709 144.656 112.206 95.921 70.512 21 6 16,021 32.363 30.645 25.685 17,377 8

stortgage serucmg fees.

8,368 8.811 5.095 3318 4.983 -

11.9

' f r,uhng atcount profus 31,383 15.181 13.838 11.545 353 set equits and other security gains ui debt secuntv gams (losses).

20,961 2.519 (2.801)

(18.848)

(24.210)

O.nn on sale of mortgage banking subsidiary.

59,703 20,b45 13J39 13.371 6.594 6.468 30 7 Other mcome Tal non nierest income 447,548 323.651 259.753 198.136 144.574 28 3 s,a.mterest expenses:

yl,,r es and bonuses 266,344 239.088 195.639 176.241 151.921 15.1 rension, proht shanng and other emplosee benents.

71,647 66,506 61.587 49.812

-44.168 133 50,629 45.075 36.538 30.928 27,136 16 0 sci onupancv expense 58,013 ~

51.317 39.754 32.751 27.527 20.9 tquipment expense Other expenses.

213,069 187J58 149J42 121.565 99.175 22.3

~ foial non interest expenses.

659,702 589.744 483.260 411.297 349.927 17 6 17ume before income taxes.,

333,473 285.652 223,760 189.800 158,755 19 3 47,166 56.821 46.562 43.933 29,186 22.0 gppbcable income taxes Net income

$ 286.307 5 228.831 5 177.198 $ 145.867 5 129.569 19 4*'.

mngs per common share:

$4.44'

$3.63

$3.05

$2.63

$2.35 15 3

Pnmarv,,

Fulh diluted 4.19*

3.44 2.94 2.58 2.33 14 3 g crage common shares outstanding:

Pomats.,

63.136 61,248 57.267 55.295 54.962 Fulh diluted 68,710 67,145 60.988 57.058 55.648

'Intludes the after tax effect of sigm6 cant and unusual transactions which increased net income by $14.8 million or $ 24 per share on a pnmart beis and 5 22 per share on a fully diluted basu.

Interest on loans to and obligations of States, municipalities and other public entitle are not subject lofederal income tax. As such, the stated (pre-tax) yteld on these assets is lower than taxable assets of similar risk and maturtty. In order to make the pre tax income and resultant yields comparaNe to taxable loans and snvest.

ments, a taxable-equivalent adjustment is added equally to interest income and to income tax ecpense, with no efect on after tax income. The taxable-equivalent adjustment, based on thefederalincome tax rate of 46%,

is shown in the table below.

Taxtble Equivalent Adjustment h1 thousands l

. br ihr var ended Dnembn 3 I I986 I985 1984 1983 I 9 't2 Interest income-book basis,

$ 1.944,462 $ 1,845.615 $1.589.225 $1,295.160 $1.417J3r 7.0,.,

3dd taxable equnalent adjustment 170.270 136J70 99.635 72.104 757 17.1 Interest income-taxable ecptivalent basis 2,114,732 1.982.385 1 t>88 860 1.367.264 1.493.0 7J Interest expense 1,255.070 1.221.451 1.094.754 s64.474 1.016.579 36 Net mierest mcome-taxable equnalent basis

$ 859,662 $ 760 934 $ 594.106 5 502J90 $ 476.452 16 00.

43

De Werage Combined Consolidated flalance Sheet and Net Interest Analysis utan(c iheet amoimis m smthons. uuerest un thousands

.n 1),e yno mied [)nnnhn 11 19 %

IYd Averagt

. h e,,,

Attrage Yirids/

hemgr

laH, asable.rqim alent bads Balanets interest Rates IWmun In te nt t.*

m ets

. lHelett calmng,ls Cis.

1.45ans, nt t ed LineJf ned liit ome thunesin Commes ual

$ 8 096 $ 804.856 9.94 ".

$ 6.661 $ 759.45M i1 40*,

Real estate c onsu ut non 711 76.680 10.78 340 6ti.923 12.39 5 8.93 Real estate mongage 1.027 108.787 10.59 1.045 113.123 10 M d

Imtallment 2,404 297,648 12.38 1.915 257.646 13 4; l 3"

\\lones ma:Les 270 19,375 7.18.

270 23.352

• M

1. case hnanung 313 25,902 8.28 246 22.902 9.31 9

Formen 788 79.201 10.05 703 M I.195 11.55 h

total huns 13,609 1,412.449 10.38 11.380 1.324.599 11 64~

Intereu hearmg depouts w uh banks 636 47,401 7.45 M19 77.655 9 4M q

lederal funds sold and resale agreements 310 21.089 6.80 316 24.612 7 79 f radmg auoum secunnes 157 13,510 8.61 390 37.101 9 31

\\lorigages held for sale 80 8,390 10.49 164 19.740 12.04 y

Imesiment secunoer l' 1 Irrasurs 3,191 285,892 8.96 3.155 328.555 10 41

.,n, l' S Gmernment agenues and (orporaoons.

1,243 126,203 10.15 536 62.006 11.57

-- g sute and munn spal.

1,602 173,673 10.84 697 82.875 1iE9 o

Corporate uo(Ls 133 14.308 10.76 149 15.493

.l0 40 g,

Other ill 9,416 8.48 70 7.451 10 64 i

rotal imeument scuirnies 6,280 609,492 9.71 4.607 196.380 10 77

.g, g 7 l

Oiher miereu cannng ancis.

29 2,401 8.28 27 2.298 8 51

~~T Total mie:cu rarmng auen/mie cu munne.

21.101 2,114,732 10.02 17.703 1.982.385 I l.20

, yng.

son mierest earnmg ancit Allowame for tredit loues.

(218)

(163)

,g.,

i C,nh and due tr:nn hanks.

1,452 1.299 g, g {..

Other aren 1,191 1.242 g an; Total askets

$23,526

$20.081 g 97

.iabilities end Shareholders' Equity nierest beanne sources:

Interest heatmg deposur Demand

$ 900 $ 46,427 5.16 ".

$ 683 $ 37.523 5 49*.

$ is

'saungs 840 43,725 5.21 808 41.683 5.16 ny

\\lones market depout auounts 3.211 192,944 6.01 2,713 200.624 7.39

l. w Negonable ternhcairs of depout.

3,151 223,454 7.09 2.079 172.845 8.31 lyr Other ome 3,344 282,816 8.46 3.275 315.554 9 64 2,43r Depouts m foreign oth(es 457 39,996 8.75 407 37.822 9 29 13 Tinat intercu bearme depouis.

11,903 829.362 6.97 9.965 806.051 8 09

7. 4 %

short term horrowmgs:

l'ederal funds purchased and repurchase agreements 4,243 296,380 6.98 3.645 295.722 8 11 2 %5 Commerual paper.

480 32,404 6.73

,71 38.108 8.10 ni Other.

613 43,701 7.12 409 35.355 8 65 243 lbtal short.ierm horrowmgs 5.336 372.485 6.98 4.525 369.185 8 16 1479 Other horrowmes 665 53,223 8.00 523 46.215 8 84 428 total mierest heanng sources /mterest expense 17,904 1,235,070 7.01 15.013 1.221,451 8 14 11.345 sondnterest branng sources:

Demand and other non.mtereu beanng depouts.

3,226

'2,871 2.525 Tu rued expenses and other habihues 866 898 948

%har cholders' eqmts I,530 1.299

_ l.0 %

Totolliabilities and shareholders' equity

$23,526

$20.081 Sl5M73

.ci mierest rate spread 3.01 ".

3.0ti".

mpact of non.mtereu branng suurtes 1.06 1.24 _

Net interest income / margin on earning assets.

$ 859.662 4.07 ".

5 760 934 4 30 %

======

set imeteu mt ome/margm Domesur.

$19,718 $ 831,819 4.2 2 ".

$ 16.14 M $ 728.ll5 4 31%

S l 2 014 Forcien 1,383 27.843 2.01 1.555 32319 2 11 M

Combmed.

$ 21.101 $ 859.662 4.07 r.

$17 703 5 760.934 4 30 %

Sl i %7 14

n-__.-

Il l

's l

1 f 14M 19 0 1982

.l.rrner

.irernge

.frrrage lirldu

. l; roner lieldv

.trerner lields/

Inte,n! -

Rntes Bninnres In terns Rntes Balnours Interest Rates 7,,,,,

5 651.805 1.1 17 *,

$ 3.7 40 $ 452.237 12.09 %

$ 3.397 $ 503.267 14.o2 ".

? gq9-t.)

61.160 14 46 405 33.003 13 09 426 68.347 16.04 I

y; 93.756 10.57 834 s4.404 10.12 MM5 M8.517 10.00 448 14 73 814 12I 384 14.91 334'628 i 'mo 190 799 14 08 913 14.

9.75 60 8.194 13.66 q3

,34.337

11. l l 150 1;j 17.109 10.01 156 15.957 10 23 137 15.213 11.10

w 101.065.

13 48 727 91.424 12.58 729 119.246 16.36 G

1.154.031 13.08 6.925 M46.101 12 22 6.448 924.168 14.33

%[>;l 103,890 10 9')

1.761' 176.452 10.02 1.696 241.608 14.25 27.627 10 19

'306 28.127 9.19 409 51.923 12.70 232 2ti.073 11.24 133.

13.163 9.90 117 15.947 13.63

. si 20.907 11.18 309 38,780 12.55 104 16.208 15.58 1 036 220.765 10.84 1.232 133.462 10.83 696 88.332 12.69 478 55.239 11.56 534 62.239 11.66 755 85.932 11.38 3n2 59.487 II 85 472.

55.024 11.66 484 55.409 11.45 122 14.647 12.01 89 9.777 10.99 81 8.971 11.08 M

3.827 10.63 15 1.414 9.43-10 1.084 10.84 Tl;4 353.965 11.15 2.342 261.936 11.18 2.026 239.728 11.83

~

33-2.367

7. I 7 39

• )705 8.45 38 3.449 9.08

'ij o67 1.688.860 12.36 11.808 1.367.264 11.58 10.838 1.493.031 13.78

1. 121)

(105)

(92) l 1.122 1.001 949 J.205 1.078 890-

{lu73

$13.782 512.585

$ 524 $ 28.997 5:53".

$ 425 $ 23.092 5.43 %

$ 378 $ 19.776 5.23 %

080 36.156 5 26 683 34.416 5.04 814 41.308 5.07 199 169.726 8.98 1.453 123.965 8.53 14 1.487 10.62 1.399 144.496-10.33 1,515 137.353 9.07 2.313 285.501 12.34 2.499 267.602 10.71 1.841 197.406 10.72 1.978 248.193 12.55 439 48.206 10 98 373 36.073 9 67 396

.52.368 13.22 l

7.438 695.183 9.35 6.290 552.305 8.78 5.893 648.633 11.01 i

2AN5 294.374 10.21 2.420 219.029 9.05 2.318 279.716 12.07 f

351 35.905 10.23 552 49.279 8.93 364 44.743 l'.29 213 25.068 10.32 173 16.071 9.29 232 28.896 12.46 1479 355.347 10 21 3.145 284.379 9 04 2.914 353.355 12 13_

428 44.224 10.33 281 27.790 9 89 130 14.591 11.22

_11.345 1.094.754 9 65 9.716 864.474 8.90 8.937 1.016.579 11.37 2.525 2.278 2.113 948 897 735 1.055 891 800 igm 73

$ 13.782

$12.585 2.7 I %

2 68 %

2.41 %

l 64 1.58 1.99

$ 594.106 4.35 %

$ 502.790 426%

$ 476.452 4 40 %

112 019 $ 562.005 4 68 %

$ 9 643 $ 468.955 4.86 %

$ 8.669 $ 424.296 4 89 %

JJ48 32.101 1 95 2.165 33 833 1.56 2.169 52.116 2 40 h7 $ 594.l06 4 35 %

$ 11808 $ 502.790 4.26 %

$ 10.838 $ 476.452 4 40 %

i 45

Y Analysis of Year-To Year Changes in Net Interest Income The follotving table presents. on a fulh tarable-equtvalent hasts. an analysis of year to year changes in nel tuterest encome segregated into amounts aHnbutable to both volume and rate vanances. The change m mte. volume os allocated 100 pment to the change m tale vanance. Since the changes in mierest mcome and r\\penses me calculated independently for each (me m the table. the totals for the volume and rate columns me not the sum of the enductdual hnes.

gu,

tw Ill th<nisands 1986/19M 19M/19 4

[ %

( 3 Increasendecrease) in (nonnen drorasri un m'

income / expense due to incomemperne due to On changes m:

chaners un

\\

~

s l

Tasable.rqun alent basis l'oluns r Rate Total (hiume Rate Ty Interest earmng assets 1.oans, net of unearned mcome:

a:

Domesuc Commeraal

$ 163,590 $(118,192) $ 45,398

$225.478

$(117.825) 5107.633 Real esiate construcoon.

21,192 (I1,435) 9.757 16.917 (l1,154) 5.763 518 Real estate mortgage (1,949)

(2,387)

(4,336) 16.701 2.666 19.367 gn installment.

65,791 (25,789) 40,002 90.263 (23.4l6) 66M47 Stones. mar ket (3,977)

(3,977)

(8.334)

< 6.651 )

(14.983, I. case hnanang 6,238 (3,238) 3,000 7.504

( I,71 i) 5.793 Foreign.

9.817 (11,811)

(1,994) t6.333)

(13.537)

(19 M70) total luans.

259,449 (171,599) 87,850 334.113 1163.545) 170.36i O'!-

t' interest beanng deposits wah. banks (17,35 0 (12.9t)4)

(30,255)

(13.852)

(12.383)

(26.233, p3 Federal funds sold and resale agreements (467)

(3,056)

(3,523) 4.588 (7.603)

(3.013i i

trading account secunties.

(22.165)

(1,426)

(23,591) 17,757 (6.729)

I1.028 s i,,

N!ortgages held for sale.

(10,1 I l}

(1,238)

(11,349)

(2,571) 1,404 (1.167) g, Inscument secunties:

, ii g U.S. Tteasurs 3,749 (46,412)

(42,663) 121.334 (13.544) 107.790 U.S. Gmernment agenoes and corporanons 81.788 (17,591) 64,197 6.703 64 6.767

=

State and mumapal 107.607 (16,809) 90,798 23,108 280 23.348 per Corporate sim ks.

(1.664) 479 (1,185) 3.243 (2.397) 846 W

Oiher 4,362 (2.397) 1,965 3.614 10 3.624

,j3 local insestment secunnes 180,257 (67,145) 113,112 159.808 (17.393) 142.415 f

other mierest earnmg auets 170 (67) 103 (430) 361 (69)

Totalinterest earning assets

$380,509 $(248,162)

$132,347

$498.737

$(205.212) $293.525 d'

Interest bearing sources of funds In interest branng deposus.

Demand

$ 11,922

$ (3,018)

$ 8,904 5 8.799 (273) $ 8.526 g

Sasmgi.

1,651 391 2,042 6.306 (779) 5.527 Ntonet market depout accounts 36,827 (44,507)

(7,680) 74.036 (43.138) 30.898

-P" Negonable certshcates of deposit 89,125 (38,516) 50,609 70.234 (41.885) 28.349 R'

Other ome.

6,648 (39,386)

(32,738) 83.097 (35.145) 47.952 Depouts m foreign onces 4.646 (2,472) 2,174 d.514)

(6.870i (10.384)

Total mierest beanng deposits 156,761 (133,450) 23,311 236.183 r125.315) 110.868 Short.ierm born >wmgs:

Federal. funds purchased and repurchase agreements 48,516 (47,858) 658 77.547 (76,199) 1.348 Commernal paper 728 (6,452)

(5,704) 12.275 (10.072) 2.203 i

Other 17,654 (9,288) 8,346 17.299 (7.012) 10 287 i

Total short term borrowmes 66,168 (62,868) 3,300 106.972 (93.134) 13.838 Ra Other horrowmas.

12,548 (5,540) 7,008 9.690 (7.699) 1.991 Total sources on which interest is paid.

235,210 (201,59 0 33,619 353.950 1227.253) 126.697 h

Change in net interest income

$ 146,057

$ (47,329)

$ 98,728

$ 175.445

$ 18.617) $ 166.828 7

4e

Investment Securities The tables below present the canyung value ofinvestment secunties for each of the past fite yars: the relature matunties and yteld charactensttcs of mvestment secunties as of December 31,1986 and the qualsty dustn-button of tax r\\empt Investment secunties for each of the past two yars.

ying Value of Investment Securities boo, ands I

1986 1985 1954 19 0 IM2

'%un

$3,501,251

$3.106.988

$2.697.270

$ 1.945.263

$ 948.725

, Ooscrnment agencies and corporations 1,966,424 637.827 493.123 487.677 590.716 I

ge,ind municipal 1,305,253 1.661,398 519.091 498.499 475.9l1

. c,apurate $m ks:

quetable equities 106,580 107,155 108.652 73.73,

,0.262 24,998 34.494 29.136 22.605 19.104 l

thher 169,764 100.319 52.216 16.458 13 213 rotal imestment secunnes

$7,074,270

$5.648.181

$3.899.488

$3.044.239

$2,117.931 c:5:=-

Maturity Distribution of Investment Securities J

in thousands Book latur Over Orrr One lear Fnr l'ars r

One \\rar Througin Througls Over No Furd

.\\tarket

. tverner 9,,,,,bn 11. I 986 m Leu Fnr \\rars Ten 1'ars Ten irars

.\\latunts Total l' lue

\\tatunty I s a

r I

( T freasury.

$1.249.656 $2.248.254 $ 1,543 $

I,798 $

$3.501,251 $3.560,954 1 3 r. 4 mo.

t.s Gmernment agencies and nirporanons.

22.394 46.712 56.683 1,840,635 1,966.424 2.031.517 12 p, I mo.

j wie and mumcipal,

601.729 215.331 256.106 232.087 1.305.253 1.329.274 5 y, I mo.

Corporate stocks 1,250 130,328 131.578 237.472 other 59.607 49.049 32.842 22.304 5.962 169.764 170.033 5 tr. 3 mo.

i

~ Totalimestment necunues

$1,933,386 $2,559,346 $348,424 $2,096,824 $136,290 $7,074,270 $7,329,250 S yr.. l mo.

~

fercent ol total.

27.3 %

36.3 %

4.9%

29.6 %

1.9%

100.0 %

wnghted aserage yield (2) 9.23 *'a 8.42 %

11.97 %

l0.11 %

9.10 %

9.31%

ili Ascrage matunties are based upon the original matunts dates with the exception of pre-refunded tax exempt bonds for which call dates were used and Gosemment National Mortgage Association obligations for which an estimated matunty of 12 3 ears and 4 months was used.

c The weighted aserage sields are based on book salue and effectise sjelds weighted for the scheduled matunty of each secunn. Tax exempt secunnes are adjusted to a taxable equnalent basis usmg a tax rate of 46%. '

)

Quality Distribution, Tan Exempt Investment Securities in mdleone IWrmber )I 1986 1985 Amount Perernt

.4 mount f>rren t Pubhc Housing Authonn* and escrowed bonds" 5 502.1 38.5 %

$ 537.8 32.4 %

Rated bonds of states and political subdivisions:

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 i

Al 60.5 4.6 61.1 3.7 l

\\

56.6 4.3 88.7 5.3 l

Baal 4.3

.3 1.9

.l

)

Baa 1,1

,1 1.1

.I l

5.9

.5 12.9

.8 Ba.

Rated notes of states and pohucal subdniuons:

SilG l 7.6

.6 387.7 23.3

%n rated bonds oflocal political subdnisions 60.7 4.6 45.4 2.7 l

Total tax exempt mvestment secunnes

$ 1,305.2 100.0 %

$ 1.661.4 100.0 %

l

• Full faith and credit of the I'mted States is pledged for the asment of pnncipal and interest when due.

" All escrowed bonds held bs PNC Financal are secured bs 11 faith and creds obligations of the United States gosernment.

l L_-__-__.__

i

' Loan Portfolio Thefollowing tables present a summary of the loan portfolso by categon for each of the lastfive years and the matunty distnbutton and unterest sensstivnty of selected loan categones (excluding residential mortgages of 14 famnly resndences, installmen* loans and leasefinancing).

Loan Outstanding in thouunds (wrmbn 1I I986 I9M I 9 *4 t9U I

Domesuc Commeraal _

$ 9,148,456

$ 7.522.222 5 5.937.148

$4.228.227

$3.749.779 Real cuate construcuon 956,157 591.340 470.446 338.421 3414 lr>

Real estate mortgage 1.378,260 1.107.707 923.549 823.663 M*9 26c3 5

Inuallment 2,970,557 2.419.575 1.695.110 I J 91.916 rin2.2 n i,

Wnes market 212,907 301.995 206574 189.211 (bo M6 i

Lease (mancmg.

466,424 347.707 265.102 209.030 197.854 Total domenic 15.132,761 12.290.746 9.498.229 6.980.468 R321.055 Foreign Gosernment and othcial mstitutions 170,800 152.034 136.068 133.173 54.4M Banks and other fmancial msutuuons 204,353 175.447 189.619 238.211 222.855 H

Commernal and industrial 431,855 369.105 379.834 387.568 411.955 Other loans.

19.135 14.534 17.222 9.230 1.542 Total foreign 826,143 711.120 722.743 768.202 690.802 Total loans.

15,958,904 13.001.866 10.220.972 7.748.670 7.01 i.8U l.ess unearned mcome.

356,083 314.156 276.867 203.264 200. lie, p

Total loans. net of unearned mcome.

$ 15;602,821

$ 12.687.710

$ 9.944.105

$7.545.406

$6.811.711

~

(

=

Loart Maturities and Interest Sensitivity in thousands Taai One Year One Through Ot er Gmn f

Member 31.1986 or Less Fno Years Fnt Years Loaru Domesuc J

Commercial

$6.434.107

$ 1.865.375

$ 848.974 5 9.148.456

,I Real estate construction.

442.217 476.374 37.566 956 l57 Real estate mortgage 139.904 133,447 124.573 397.924 Ntoner 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 with predetermined rate.

$2.294,112

$ 1.010,783

$ 438.303

$ 3.743.198 Loans with Hoatmg 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 s

I b

it Il u

L I

L t

a i

i l

48

mv

. s. i, e, Nonaccrual'and Restructured Loans, Other Real Estate and

~

'Past Due Loans; The table below presents uninmation contennne nonperfonning assets Including nonaarnal and restuurtured inans..I loan n clasufied as "nnnatnual" u hen, in the openson of management there are senous doubts ntnutt the futuor rollettrhrhts of Intnest 'Ind punapal...it that Isme, the agrual ofintnest u ducontonned.

prerroudy atoned and unpard sninest for the current year ts charged against current encome and any untnest nenned noid unpaid fin puos penods is charged agannst the allowancefor creda loues. Future encome es' rec.

nunned nuly u hen omh n unened.1 loan as categorned as " restructured", Iffor reasons related to the bor-unwn h pnnnnat dificidtors. PNC Finnonal grants a concession that et would not othnune consider.

3onperforming Assets

,, t t986 Inss-tyst tuss von r

gog..tL L illdi-p.unce 4

$ 151,152

$106.155

$ 60.998 5 52.846 5 61.969 L h n ene n.

34,362 41.323 48.375 19.661 27.148-7,aal nouau rual loans.

185.514 147.478 109.373 72.507 89.117 haut tured.

43,304 40.187i 20.976 28,735 11.249 pomestu torenen 3,329 7II 2.807 4.501 214 ligal restruuured loans.

46,633 40.898 23.783-33.236 41.463

" baal nonaurnal and restruuured loans

$232.147

- $188.376 5133.156

$ 105.743 5130.5mo

. n_

-.l,cn ent -ot total loans at s earwnd...

1.49 %

1.48 %

L34%

1.40 %

l.92 %

e

- ~.

(nher real essaic

$ 10.273

$ 18.011

$ 18.667

$ 13.389

$ 10.436 c~

Thefollowene table presents Infonnation concerning loans which are contractually past due 90 days or more

' as to pnnopal or, Interest payments.

Past Due Loans in thousands tw ehn it 1986 198s

,t 9M 1983 1982

_ l'ao Due:

Domesuc

$ 38,973

$ 44.685

$ 23.711

$ 23.844 S 20.065 Invencn.

4.744 1.862 4.178 7.112 1.350 linal past due loans S 43,717 5 46.547 5 27.889 5 30.956 5 21.415 At December 31,1986, PNC Financial had aggregate There were no significant outstanding commitments to outstanding in Argentina of $26.7 million, $19.6 million lend 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, PNC Financial had $94,3 mil-fer risk problems in Argentina.

lion in domestic and foreign loans ($86.3 million and The amount ofinterest income that would have been

$8.0 million, respectively) which are not included in the recorded for the 3 ears 1986 and 1985 with respect to past due, nonaccrual or restructured categories but where nonaccrual 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 follows:

the borrowers to comply with the present loan repayment inammands terms over the next six months. Of this amount, principal

. 9 ra,ma n,s,s onn,,an it tes6 ins and interest payments are current on $81.1 million and unmesuc.

$17,684 516.0i4 in the opinion of management. $74.1 million is ade.

l I"rewn 4.759 6.268 quately secured by accounts receivable, equipment, guar.

antees, letters f credit or other collateral.

The amount ofinterest income that was recorded for h

,t e tears 1986 and 1985 with respect to such loans was

)

as follows.

ln ihnmands

)

l b 4, \\nn nosas tonno,hn II 1986 to%$

Domesuc.

$5,374 56.61i Initivn 3,548 2.702 49 L_._____.________________.

Allowance for Credit Losses

.I uwomary of the changn on the allotentur for ordut lours for each n) the past fwr yars, mcludme loan lou l'l espnience by nmjor loan rategory. n ponented below.

st

1. '

.c Summary of Loan Loss Experience p.

In ib..us. uni, re,, II,r ren,,,,drot two,;ber 11 1986 IVM 10M IW

- -4 15.il Hlle Ji beginlHng 4,1 % ear' Domesnt 94.582 5

70.!K)4

$ 57.067

$ 56.027

$ u s;g F.a ngn.

37.373 32.092 29.476 14.014 3 eism General ti L.

46.136 33.4 t o 20.333 25.525 2 4 leg total 178.091 13ti.406 10ti.876 95 *i64 M

Allowante acqmred m merger 1.525 14.105 4.032 Amounis iharged oti:

Domestic Gommernal 45.792 35.567 14.396 14.566 Imq Real cuate c onstrut tion.

530 247 1.1 I M 1.507 eun il Real estate mortgage 595 475 307 181 1;

.i.

I Installmem.

22,320 16.615 8.709 4.959 3 ye;

l. case fmancing 1.243 1.407 554 959 Foreign.

10,870 6.092 4.333 5.477 2.33 lotal loans charged oil.

81.350 60.403 29.417 27.649 30.39i_

'4 Ret menes on amounts preunusis (harged ott:

j Domesuc i

Commeraal 4.280 10.597 3.650 8.352 2.381 Reaf euate <onstructmn.

115 47 629 Real estate mortgage 194 20 121 19 43 h

Inollment.

4.071 2.792 2.248 2."64 2.014 Lease fmancmg 135 50 308 55 Foreign.

143 1.990 1.384 497 42 f

total recmenes.

8.823 15.564 7.711 11.234 5.613 Net < harge.olk 72.527 44.o39 21.706 16.415 24.783 Allmanon of prouuon charged to operating expenses:

Domesuc 84,186 52.977 30.689 12.475 25.2sti Foreign.

38.659 9.383 5.565 20.442 10.397 Allmatmn to general risk 20.920 10.059 10.950 (5.192) 1.360 Total prouuon 143.765 72.419 47.204 27.725 37.043 i

Iblante at end of sear:

Domestic 118,421 94.582 70.904 57.067 56.027 For eign.

65.305 37.373 32.092 29.476 14.014 General rnL.

67.128 46.136 33.410 20.333 25.525 3

Total

$ 250.854

$ 178.091 5 136.406

$ 106.876 95.5 4 l'oial loans. net of unearned mcome:

As erage

$ 13.609,023

$ 11.380.075

$8.824.703

$6.924.617

$6.44 8.174 I

At De(ember 31 15.602.821 12.687.710 9.944.105 7.54 5.40ti 6.811.711 As a percent of.nerage loans:

Net (harge.otli

.53 %

39 %

25 %

24 %

. 3 M*.

Prosnwn for credit loues I.06 64

.53

.40

.57 Allowance for credit loues 1.84 1.56 I.55 L54

1. 4 h Allowance as a percent of:

l'otal loans at December 31 1.61 1.40 1.37 1 42 1.40 Noneperiornung loans at December 31 kmerage ration 108.06 94.54 102.44 101 07 73 19

\\llowame as a muluple of net charge.oth 3.46 x 3 97x 6 28x 6 Six 3 86s o

50

p'..

1 p

)N I f %

• N8 I il '(. g g.

Ihe dII"wance f r credit losses is established through adequate to coser future credit losses.

ges to earnings in the form of a prmision for credit When it is determined that the prospects of recoser) of the principal of a loan or lease hase significantly h}','e,. Ihe amount charged to earnings is based oneral factors ahich include, but are diminished, all or part of the outstanding balance is 7

(harged against the allowance for credit losses. Subse-

. l,;jouing:

,,g continuing resiew of past duc. nonaccrual. and quent recoseries, if anv. are credited to the allowance ir truuuted loans, and userall portfolio quality; account. PNC Financial follows the policy of charging off

. Ecuutar examinations of the loan portfolio by bank all loans classified as " loss" by management or bank reg-segulatory agencies and independent acconniants; ulatoiy agencies. Installment loans,shich are 90 days past

. Analytical resiew of charge-off experience by specific due on a contractual basis are charged off monthh, utegor) of loans and the total loan portfolio:

except loans that are insured for credit loss and loans on

. \\lanagement's judgment with respect to economic which scheduled payments are being recched. Cretlit conditions and the impact of such conditions on the card loans are charged off when pa>ments become paa existing portfolio.

due between 120 and 150 days. Real estate mortgage.

g he adequacv of the allowance account is determined are charged off upon the completion of foreclosure p o-

,n.gcordance with the foregoing factors on at least a ceedings which are instituted based on the circumstances p n er13 hasis. In the opinion of management the bal-surrounding the mortgage and the borrower's ability to

,nte in the allowance account at December 31.1986 is make payments.

'the tables below wt fmth an allocation of the allowancefor credst losses according to the categones ofloans mdicated and a percentage destnbutoon of the allowance allocation. In making the allocaluon consideration was gwen to suchJacton as management's evaluanon of sisk on each category, current aonomic condutwns and chmge of espenence.

Allocation of Allowance for Credit Losses u,homan6

~

.4flornnon.4 mounts

'n.kkn 11 1986 1985 1984 198I l%1 p.imestic tommerual.

$ 83,310

$ 66.762

$ 50.866 5 39,900

$38.972 Real e* tate t omtruenon.

3.821 4.006 5.518 6.550 5.610 Real essaic motigage 3.547 1.117 607 550 1.010 Imtallment.

24.873 17.923 10.787 7.709 R201 Ime hnanong.

2,870 4.774 3.126 2.358 2.234 bangn.

65.305 37.373 32.092 29.476 14.014 i.tneral nd.

67,128 46.136 33.410 20.333 25.525 l~nial.

$250.854 5178.091 5136.406

$106.876

$95.566 i

I

'J Percentage Distribution of Allowance Allocation and Categories of Loans as Percent of Gross Loans twenan il 1986 1985 1984 1983 1982 Allowance Loans

.illowaner Loans

.4 tiowance Loans

.tllowaner Loans

.illmeance Imns 1

Domesuc Commercial.

33.2%

58.7 %

37.5 %

60.2 %

37.3 %

60.2 %

37 4 %

57.1%

40.8 %

55.7 %

Real estate c omiruttmn I.5 6.0 2.2 4.6 4.0 4.6 6.1 4.4 59 4.9 Heal estate mortgage.

1.4 8.6 0.6 8.5 0.5 9.0 05 10.6 1.0 12.7 Imtallment 9.9 18.6 10.1 18 6 7.9 16 6 7.2 15.4 8.6 14.0

1. case fmaming,

1.2 2.9 2.7 2.6 2.3 2.5 2.2 2.6 2.3 2.8 b reign 26.0 5.2 21 0 5.5 23.5 7.1 27.6 9.9 14.7 9.9 tjencral na 26.8 25.9 24.5 19.0 26.7 Intal.

100.0 % 100.0 %

100 0 % 100 0 %

100.0 % 100.0 %

100.0 % 100 0 %

100.0 % 100 0 %

1 1

Si

Foreign Outstanding The fable below proundes information on noss border ontstandmgs to borrowers un each foreign country u here such outstanding everd I % of total assets. Outstandungs are defined to include loans. amounts duefrom cuslorners on acceptances. Interest beartng depostts wdh other banks and other interest beanng intistments iincluding aarned Interest recen*able on theforegotng1.

Foreign Outstanding Exceeding 1% of Total Assets

• in thouunds Governments Banks and Commernal Percent of and Othaal Other Fmanaal and 10,4 C. untrt lidal Aucts insututions Inuituunns Induunal Other Outstandmc twomher11 I4%1 lapan 1.0%

$235.431

$ 2.528 5237 8

lwomher 1t 1944 J,ipan 1.2%

$207.480

$ 2.535 6210.013 i

l

\\lexuo.

1.1

$77.651 20.773 102.247

$336 20i noj

' At December 31.1986 ihere were no foreign outstandmgs exceedmg 1% of total assets.

' Foreign Outstanding Between.75% and 1% of Total Assets:

in 19N6 PNC Fmancial had aggregate outstanding of $232.5 milhon in Japan. In 1985 PNC Financal had aggregate outstandmg> of i'

$l81.0 milhon m.\\leuco. In 1984 PNC Finanaal had aggregate outstandmgs of $176.8 million in the United Kingdom and $1523 million in Brant.

4 Deposits The tables below prorude information on the average amount of. and average rates paid on, the deposut categones indicated for each of the last three years and matunties of domestic time depostts of S100.000 or mote at December 31. I986. Foreign time deposits un amounts of $100,000 or more represent a majonly of totalforetgn deposd Isabtlates.

Average Deposits and Rates Paid in imlhons (nr the sens orviert tarrember il 1986 I489 10%4 simount Rate

.l mount Rate

. i monsa Rato Deposus in domestic othces:

Non mterest branng demand and time

$ 3.226 5 2.871

$2.525 I

Interest branng demand.

900 5.16 %

683 5.49 %

524

5. 5 3 '*.

I Sasmgs......

840 5.21 808 5.16 688 5 26 Ntones market deposit accounts.

3.211 6.01 2.713 7.39 1.889 8.98 Negonable ceruheates of depout.

3.151 7.09 2.079 8.31 1.399 10.33 Other time 3.344 8.46 3.275 9 64 2.499 10.71 Depouts in foreign othces 457 8.75 407 9 29 439 10.98 i

Fotal depouts

$15,129

$ 12.836

$9.963 i

I Meturity of Domestic Time Deposits of $100,000 or More in thousands Certsfuates Other Tume Durmber 31.14.'ts of Deposal Deponts Total Three months or less

$ 1,796.274

$23.576

$ 1.819.850 Oser three through six months 477.445 12.050 489.495 Oser six through twelve months 153.381 10.904 164.285

. Oser twebe months.

1.421.227 23.805 1.445.032 Total.

$3.848.327

$70.335

$3.918.662 52

ms e i,,,,.

Short-Term Borrowings The datnbutton of short term borrowenes at the end of each of the last three years. the average amount outstanding dunng each such } ear, the maMmum amonni outstanding at any month end and the unghted average Interest rate on yem end and average balances m each categon a presented below. Short tenn horrowings mclude federalfunds purchased. repurchase agreements, commernal paper and other short term borrowsngt federal funds purchased represent overnight bonowings. and repurchase agreements represent bonowmgs whuh may rangefrom one day to three months m malenty. Commernalpaper. which is gnaran-teed by PNC fmancial, u usued in matunt.es not to acred nine months and is stated net of discount. Other shmt-Inm borrowenes pnncapally consist of term federalfunds purchased and U.S. Treasury note balances whuh are payable on demand.

g h.,m.,nds 19 %

l%$

l%4 Amoun t Ratt A mou n t Rate Immmt Rate l

hl t'unds purchased and repurchase agreements:

M December 31

$4,706.270 11.70 %

$3.938.527 8.78 %

$3.695.499 x 36%

werage dunng scar.

4,243,312 6.98 3.644.690 8.11 2.884.492 10 2l gaumum month end balance during scar.

5,078,468 4.023.581 3.695.499 g,mmerual paper:

u December 31

$ 391,216 6.86 %

$ 528.824 7.94 %

$ 328.932 R43%

berage dunng sear.

480,124 6.73 470.630 8.10 351.091 10 23 yaumum month-end balance during scar.

568.347 581.447 409.565 piher short term borrowings:

u December 31

$ 919,692 8.13 %

$ 863.802 9 67 %

$ 306.150 9.12 %

terage durmg scar.

613,447 7.12 408.734 8.65 242.931 10.32 slaumum rr anth.end balance dunne scar.

1,020,390 863.802 406.027 Combined Consolidated Management's Discussion and Analysis RtJnences to anets and habthtles and changes thereto represent a growth in earning assets and the inclusion of North-dady average levelsfor the penods mdtrated unless noted other-eastern's net interest income since the date of merger.

.cne.

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 hasis 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 mcreased $51.6 million 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.

$2.94 earned in 1984. The earnings for 1985 include the The decline in short term interest rates which began results of Northeastern 13ancorp Inc. (" Northeastern")

early in the fourth quarter of 1984 continued through the since the date of merger, January 30,1985.

second quarter of i985, followed by a leselling of rates The primary profitability measurements reflect through the end of the year. In this rate environment, improsed performance in the year to year comparison as interest rates were lower, on average. The prime rate the return on total average 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 average equitv (ROE) increased from 16.80% for basis points, primarily due to the lower yields on loans, 1984 to 1762% for 1985.

which decreased 144 basis points to. l.64%. Howeser, Taxable-equivalent net interest income increased the yield on investment securities declined only slightly

$166.8 million or 28.1"5 in 1985. The provision for year to-year and had the effect of tempering the decrease credit losses increased $25.2 million or 53.4%, non-in the overall yield on earning assets. The investment interest income 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 11.6% in 1985, primarily due to a higher level ofinterest bearing Net Interest Income funds. These factors more than offset the effect of a 151 Taxable-equisalent net interest income increased 28.1%

basis point decline in the aserage rate paid on interest-to $760.9 million in 1985. The improvement was due to bearing liabilities to 8.14%.

53

__,._ _ _ -, - -. - _ -, - - - - - - - - - - ~ - - - - - ~ - - - - - " - ' ' ' ' - ' ' ' ' '

. Growth of money market deposit accounts continued Fees from international banking services increased $1 3 strong in 1985 due to shifts out of lower rate interest mdlion, mainly due to higher letter of credit fees and

}g hearing demand and sasings accounts as well as the commissions related to fmancial advisory sersices.

p influx of new monies. As interest rates fell in 1985, sig-

.\\lortgage banking operations generated serucing fees

~a nihcant lunding uas prouded by the short-term money of $32.4 million, an increase of $1.5 million or 4.9%. as market, specilicalb federal funds purchased and the mortgage servicing portfolio totaled $7.9 hillion at g

repurchase agreements. The aserage rate paid for such sear-end 1985.

go funding was 811%. down 210 hasis points. Another Trading account profits increased 72.9"; to $8.8 mil-gi source ofincremental funds was negotiable certificates of lion as a decline in rates in 1985 provided the opponu-wb deposit which were utilized on a selecthe basis in 1985.

nity to realize additional profits from this actisitv.

The rate paid for such certificates.10.33% in 1984 and Net gains from the sale of debt securines were 5694 g3 g

8.31% in 1985, was higher than other money market thousand for 1985. This compares wah net loues of 524 b is nources and had the effect of reducing the decline in the million in 1984. The proceeds from sales in 1985 were g

merall rate paid on interest bearing liabilities. The reimested in U.S. Treasury and goseinment agen(v 4,

inclusion of Northeastern's interest bearing funds securities with an overallimprmement in sields and im accounted for approximately 8.5% of the increase in shortened maturities.

wn interest expense.

Net gains from the sale of equity and other securities oc.

of $14.7 million were realized in 1985 compared with

,m Provision for Credit Losses gains of $13.8 million in 1984.

,h4 The provision for credit losses was increased $25 2 mil-Total non-interest expenses were $589.7 million, an s e.

lion to $72.4 mdlion in 1985. The provision exceeded increase of 22.0%. Howeser, excluding the effect of the net credit losses for the 3 ear bv $27.6 million. In 1985.

Northeastern merger, this increase was contained to mi the provision was.64% of aserage loans compared with 12.1%. The following discussion of non interest operat-

.53% for 1984, ing expenses is based on a comparison which eliminates mi the effect of the Northeastern merger.

mi 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.

$1 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 solume.

N.

review of non-interest income will discuss the changes Employee benefits decreased $336 thousand in 1985.

Cr exclusise of the effects of the Northeastern merger.

The majority of this decrease was associated with lower Ni Trust fees totaled $102.5 million, up 17.6%, as per.

pension and heahh care costs. During 1985 various pen-

.m sonal trust fees were increased i1.7% or $6.2 million and sion and health care plans of subsidiaries were combined ol (oneinued to be the largest component of trust income, into single corporate plans.

n.

primarily due to growth in the market value of assets Net occupancy expense rose 10.7% to $40.4 million in I

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 u

trusteeships under administration. Investment advisory building renovations.

il

.t rvice fees, earned as an advisor to registered invest.

Equipment expense rose 17.2% to $46.6 million. The n.

nent companies, increased $6.5 million or 33.7%, as a increase was primarily due to a general expansion of data

.tirect result of an increase in money market fund assets processing capabilities, increased maintenance on exist-lo

.md a resised fee structure.

ing automated delisery systems and increased computer tr

.\\lo tgage origination fees generated from loans made usage related to expanded trust and commercial acti itv.

Io nr uhsequent > ale to imestors increased $703 thousand Other non-interest expenses increased 14.7% to o $8.1 mdlion, an increase of 9.5%.

$171.7 million in 1985. A significant factor in the in Service chstges, fees and commissions from other increase was a national advertising campaign in major D.

30mestic hanking operations grew 28.6% to $116.4 mil-business publications promoting PNC Financial and its In ion, primarily due to higher seruce charges on deposit affiliated group of companies. Increases in various other of iccounts and processing credit card transactions for categories of non-interest expense including travel, tele-m iational retail companies as we!! as other fmancial insti-phone, printing, postage and consulting services were er utions. Also showing a significant increase were check incurred as a result of a general rise in the lesel of busi-

• t

>rocessing fees related to our servicing for brokerage ness actisity, price increases and the costs of continually hi iouses and imestment companies, offering new products and services to our customers.

4

.q im i.s s.

a i m,.

g,ets and Liabilities State and municipal securities increased $195 million or put assets of PNC Financial exceeded $22.7 billion at 38.8% to an aserage of $697 million. U.S. Gmernment

'y end of 1985. Earning assets aseraged $17.7 billion, agencies and corporations were up $58 milhon or 12.1"o.

-a o milion or 29.5% higher than 1984.

averaging $536 million, while other imestment secunties increased $34 million to $70 million.

Holdings ofinterest bearing deposits with banks were pans b,glloans mcre sed $2.6 billion or 29.0% to an aserage down $126 million to $819 million on aserage.

,,i 51 L4 billion. Exduding the Northeastern merger.

,lmh accounted for $946 milhon of the increase. loans Deposits and Borrowed Funds greased 18.2%.

Total deposits increased 28.8% to $12.8 billion in 1985.

1)omestic commercial loans. excluding money market Of the increase, $1.3 billion was the result of the North-gins, increased $1.8 billion or 34.0%. Virtually all eastern merger. Total interest bearing deposits increased l

ategories of basic commercial and industrial loans 34.0% to $9.9 billion while demand and other non-3med good growth. In particular, loans to non-bank interest bearing deposits increased 13.7% to $2.9 billion.

nnancial companies, manufacturers of durable goods and The shift in the deposit base from demand deposits and ohulesale and retail trade increased. Also, good growth lower rate savings programs into a higher concentration

, cturred in finance compant loans, construction loans of rate sensitive interest bearing liabilities continued in

.ind sersite industry loans. Offsetting this growth were 1985.

4ht 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 yields. These accounts aseraged nullion or 47.3% to $1.9 billion.

$2.7 billion and were a major source of funding.

11one) market loans decreased $75 million to $270 Negotiable CD's were used on a selectise basis at mid-nulhon in 1985, and foreign loans decreased 6.3% or $47 year to maintain specific interest spreads when interest nullion to $703 million.

rates began to level. On average, these CD's increased

. Residential mortgage loans increased $158 mdlion to

$680 million or 48.6% to $2.1 billion.

510 billion.

Other time deposits averaged $3.3 billion up 31.1%.

This increase was dramatically influenced by Northeast-Nonperforming Loans and Allowance for ern which added $547 million. The remainder of the Credit Losses growth was modest as consumers lengthened maturities unperforming loans, w hich include nonaccrual loans in the second half of the tear to achiese higher sields on and restructured loans, totaled $188.4 million at the end their deposits.

of 1985, an increase of $55.2 million. The ratio of Savings accounts increased $120 million to $808 mil-nonperforming loans to tear end loans for 1985 was lion. However, excluding amounts acquired in the North-1.48% at tear-end sersus 1.34% in 1984, eastern merger, sasings declined by 7.6%.

.\\llowances acquired in mergers plus the excess of pro.

The 13.7% increase in demand and other nna-interest usions over net credit losses resulted in an mcrease in bearing deposits was split evenly between increases in the allowance for credit losses of $41.7 million to $178.1 business balances and the effect of the Northeastern million at sear end.

merger.

The rano of the allowance for credit losses to year-end Short term borrowings averaged $4.5 billion, up $1.0 loans was 1.40% for 1985 versus 1.37% for 1984. Net billion or 30.1%. Funds purchased and repurchase agree-tredit losses as a percentage of aserage loans was.39%

ments increased $760 million to $3.6 billion, commercial for the tear compared with.25% for 1984.

paper increased $120 million to $471 million. and other short term borrowings increased $166 million to $4p9 Investment Securities and Interest Bearing million.

Deposits with Banks Other borrowings with original maturities exceeding imestment securities increased $1.4 billion to an average one year averaged $523 million, an increase of $95 mil-of $4.6 billion. Holdings of U.S. Treasurv securities lion. This increase primarily resulted from the issuance 6/

increased $1.1 billion on aserage to $3.2 billion as

$100 million of floating rate subordinated notes during emphasis was placed on one and two vear maturities of the first quarter of 1985. The notes, net of a segregated such securities due to marketability and the relatisely fund ofimestments, are eligible to be treated as pnmars high rate of return.

capital in the determination of capital adequacs bs the Corporate sto(Ls increased $27 million to $149 million.

Board of Gosernors of the Federal Reserse Sprem.

35 n

rterly Review l

F:urth Quart:r 1986 vs. Fourth Qurrter 1985 Fourth Q,u:rt:r 1986 vs. Third Qu:_rter 1986 y

Consolidated net income for the four h quarter of 1986 Consolidated net income of $72.2 rmilion for the fourth !

I was $72.2 millon,199 higher than the $60.6 million quarter of 1986 was $2.8 million higher than the preuo., i carned in the fourth quarter of 1985. Earnings per com-quarter. Fully diluted earnings per common share was f

non share on a fully diluted basis was $1.04 compared

$1.04 in the recent quarter compared with the third q'iar.

{

with $.90 earned during the fourth quarter of 1985 ter's $1.02.

l Taxable-equnalent net interest income increased 12% to Taxable-equnal-nt net interest income increased 53.2

$219.4 mdhon, as a higher lesel of earning assets more million to $219.4 milhon, as growth in the lesel of earn-than oliset a nanower net imerest margin.

ing assets offset a narrower net interest margin.

.berage earning anets increased 21% to $22.7 bdlion Earning assets increased $ 1.3 billion, to a les el of in 1986. Total loans aseraged $14.6 billion. $2.4 bdlion

$22.7 billion. Loan growth was the strongest m domeuw higher than the fourth quarter of 1985. Domestic com-commercial and installment areas, up $517 rmilion and mercial and mstallment loans increased $1.7 billion and

$170 million, respectively. U.S. Treasurs setunties were

$543 million, respectively. U.S. Treasury securines. U.S.

up $290 mdlion aad holdings ot U.S. Gosernment agen-Gmernment agencies and corporauons and tax exempt cies and corporations secunties increased $257 nullion.

issues were utthred to a greater extent in 1986, up $227 Interest bearing deposits with banks increased $24 md-mdlion. $1.3 bdlion and $661 million. respectively. Fed-tion while federal funds sold and resale agreements eral funds sold and resale agtnmems and trading decreased $14 million. Trading account securities were 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 basis pomis to

$79 million.

3.86% as the net interest rate spread declined 9 basis The net mterest margin narrowed 29 basis points from points to 2.89% and the benef t from non interest bear-4.15% in 1985 as the net interest rate spread decreased 7 ing funds decreased 8 basis points.

basis points to 2.89% and the benefit from non-interest The provision for credit losses was $36.9 million m the bearing funds decreased 22 basis points, fourth quarter, compared with $19.9 million in the third The provision for credit losses was $36.9 million com-quarter of 1986. The allowance for credit losses pared with $18.3 mdlion in the fourth quaner of 1985.

decreased to 1.61% of total loans at December 31.1966 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 31, restructured loans increased to 1.49% of total loans at 1985. The allowance for credit losses as a percentage of December 31,1986 from 1.43% at September 30,1966.

nonaccrual and restructured loans increased from 94.5%

Non interest income of $102.3 million was $11.9 md-at Dec ember 31,1985 to 108.1% at December 31.1986.

lion or 13% higher than the prior quarter. Net gains Non intetest income increased $12.4 million or 14% to from the sale of equity and other securities of $15.5 md-

$102.3 mdlion in 1986. Net gains from the sale of equity lion were $13.6 million higher in the fourth quarter, and other secunties were $15.3 million higher for the while net gains from the sale of debt securities were $6.3 fourth quarter of 1986, while net gains from the sale of million lower at a lesel of $1.9 million. Service charges, debt secunties 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 additional gain of Service charges, fees and commissions increased $1.5

$1.0 million was recognized in connection with the sale mdlion to $42.3 million. Mortgage ser icing fees were of the mortgage banking subsidiary in the second quarter

$8 6 million lower due to the sale of the mortgage bank-of 1986. Trading account profits of $2.8 million increased ing subsidiary during the second quarter of 1986. Trad-

$400 thousand. Other non-interest mcome increased in account profits of $2.8 million were unchanged while

$200 thousand to $5.8 million.

all other non interest income decreased 31.9 taillion to Non-interest expenses for the fourth quarter were

)

$5.8 rmilion.

$164.7 million, $6.3 million or 4% higher than the third Non mterest expenses for the fourth quarter of 1986 quarter. Salary cxpense was $1.5 million higher at $66.6 were $164.7 nullion. $9.8 million or 6% higher than the million, primarily resulting from merit and promotional founh quarter of 1985. Salary expense was $3.2 million increases. Employee benefit costs of $16.8 million were higher at $66.6 nullion, primanly resulting from merit

$100 thousand higher in the companson. Equipment and promononal increases which were mitigated by lower expense of $15.4 mdlion was $1.3 million higher primar-statilesels due to the sale ol the mortgage banking sub-ilv due to depreciation and the cost of mamtaining exist-sidiarv. Employee beneht costs of $16.8 million were $4.7 ing equrpment. Net occupancy expense was $2.5 mdlion million higher in 1986. Equipment expense of $15.4 md-lower in the comparison. Increases in chantable contn.

l lion was $1.5 million higher pnmarily due to depreciation butions, telephone expense and taxes other than income and the cost of maintaining es.ng equipment. Higher were the hugest contnbutors to an increase of $5.9 lesels of chantable (omnbutions, telephone expense and million o.) T 5.4 mdlion m other non interest expemes.

taxes other than income coninbuted to the $1.2 mdlion increase in all other non-interest expenses to $55.4 md-hon.

\\

i

me i

J

' t Summ:ry d Opercti:ns l

g,nithons. except share data 1986

/W9 fourth Thard Second fsnt fourth Thsrd

%nond Fma Qusrter Quarter Quarter Quarter (barin Quarin Quaron Qun rter hi m(ume

$491.6

$483.0

$484.2

$485.7

$470 7 5471.8

$459 9 5443 2 312.5 308.6 312.1 321.9 316 0 309.4 304 6 291.5 pu reat expeme.

T nuerent imome 179.1 174.4 172.1 163.8 154.7 162.4 155 3 151.7 pnnnn.o for t redit loues.

36.9 19.9 66.2 20.8 18.3 18 5 18.3 17 3 Tmterest mt ome.af ter prmwun for t redit lours 142.2 154.5 105.9 143.0 136.4 143.9 1370 134.4 Cuetest imome:

32.1 32.4 33.3 29.8 27.0 27 6 27 0 21 8 Irust m(ome.

vnue s hargen. lees and somminnms 42.3 39.2 40.2 41.0 40 8 3M 7 32 9 32.3 l

wrigage senicmg iers.

.9

.7 6.2 8.2 9.5 89 69 7.1 l

tradmg atcount prohts ilouest.

2.8 2.4

(.6) 3.8 2.8 2

59 1.11 l

Net equus and other accunn gams.

15.5 1.9 9.6 4.4

.2 2.2 9.2 36 l

set debt securus gains llowen 1.9 8.2 8.7 -

2.2 1.9

.4 (1.3) 1.5 l

Gam on sale of mangage bankmg subudian 1.0 58,7 other mcome.

5.8 5.6 5.4 4.0 7.7 1.9 1.8 23 l

Total non.mterest mcome.

102.3 90.4 161.5 93.4 N9.9 79 9 82 4 71 5 l

Un.mterest expenics:

s.alancs and bonuses 66.6 65.1 67.5 67.1 63.4 60.5 59.8 55 4 Pension proht thanng and other empimer benehts.

16.8 16.7 19.5 18.7 12.1 15.4 19 4 19 6 set mcupano expense.

10.5 13.0 13.7 13.4 11.3 11.2 11.5 11.1 l

Equipment expense 15.4 14.1 14.7 13.8 13 9 13.1 13.1 11.2 Other expenses 55.4 49.5 55.8 52.4 54 2 46 0 44.3 43.3 Total non.mterest expenses IG4.7 158 4 171.2 165.4 154 9 146 2 148.1 140 6

[nmme before mcome taxes 79.8 86.5 96.2 71.0 71.4 77 6 71.3 65.3 Apphrable income 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 5 597

$ 56.2 5 52.3 Larnmgs per tommon share:

Pnm2n

$ 1.10" $ l.07

$ l.26*

$ 1.01

$.95

$.94

$.89

$.85 Fulh dduled 1.04 "

1.02 1.18*

.95

.90

.89

.84 81 herage common shares outstandmg (m thousando:

Pnmarv 64,333 63.370 62,736 62,072 61.893 61.642 61,295 60.067 Fulh dduted 69,427 68,657 68,545 68,313 67.923 67,703 67.575 64.997 l

'* IncludesIhr after tax effect of signihcant and unusual transactions which increased net income by $11.3 million or 5.18 per share on a pri-mars basi.t and $.16 per share on a fullv diluted basis.

• • Includes the alter tax ellect ef the adjustment to signi6 cant and unusual transactmns directly related to the sale of the mortgage bankmg subsidiarv during the second quaner of 1986, which increased net income by $3.5 milhon or 5.06 per share on a pnmarv basis and 5 05 l

per share on a fully dduted basis.

1 1

Tcx:ble Equivalent Adjustment in tmflions l

1986 1989 fourth Third

$rrond forst Tourth Third Snond foru Quarter Quarter Quarter Quarter Quartn Quarrn Quartn Quarrn lmerest mcome-book basin

$491.6

$483.0

$484.2

$485.7

$470.7

$471.8

$459.9

$443.2

%dd taxable.cqmvalent adpustment 40.3 41.8 42.7 45.5 40 4 33.3 31.5 31 6 imerest mcome-. taxable.cqunalent basis

$31.9 524.8 526.9 531.2 511.1 505.1 491.4 474 8 Interest expense.

312.5 308.6 312.1 321.9 316.0 309 4 304 6 291 5 Net mierest mcome-ianabic.cqmvalent basis

$219.4

$216.2

$214.8

$209.3

$195 I 5195.7

$186 8 5183 3 57 l

7--.

"I

]

(I s

1

- r AverpddComS@d Consoliifated Balar~ e Sheet and nt intere st Analysis Balan(e Aheve smounts tr'.rd.ons; mtai?,.:*p m thousands

-w-e-

3

. 9%

for r k Quarter Tin ? Qman. ^

r j'.

,. ' ~ ~ ~

.Att!G?*

a r,1,y

~~

i

?

o l

l

. At eray

- 1% elds f kr ner y,,w

~,

Ba!ans '

jar.vst Ratu _

Halam n to, ve.

q,,,,

T,au ble.rqune.trnt hann Assets

.,f 3,

'(,

1 Interest earnmg aucts:

j e

l.oans. net of tinearned mcome:

)

Domestic i

$ 8,665

$197,8 9 9.06 ".

S 8.232 5198.393 A7s Commercial

/

845 70,138 9.46 761 19.476 to 15 Real estate construcuon 4

' Real r* tate mortgage.

(,'

y,

.1408 h6.750 10.62 1d?

26.315 loan.

1 Innallment.

f 2,642 78,529 ' I f.89 2.47" 73.150 12,17 6.51 303 5.138 6 73

.J t

NIones market 264 14,334 1

.e.

4 l.c.ne hnancing 2

336

, 4.5? 9, ; 7.77 312 6.531 d s; j

797 87,696._-.

8.111

- 819 - 20.476 9.92

/ Foreign

._ ^1kd1nans X.

14,557 351,790" 9.61 13.911 331JO9 10 e6

~

1mer?st bearvia deposits enh hav ss 625 10.516 6.35 g

601 11.234 7.42-

+

201 S,206 6.35 "15 3a84 N3-Yu'eral funds s4J arid resale agreements i,

Tradmg av,'c y Securities _

103 I,963 7.56 84 lJ33

( 19 m

Slengatps 6'ehler sale

' }.

20 504 10.08 15 519 13 84 r-Imestmens e,cu.wes:

3,46.1 69,917 8.01 3.173 68.60$

't M N

L.S. Trc orv 1.'.S. Gognnment agencies and corporations.

1.F'f 0 '

44,330 9.74 1.563 39.043

9. 3

.f

'f A

S' ate and rnimicipal.

1,b58 4f.602 10.40 1.603 42.899 9J0 129

.3,706, i1.49 I.32 2.9 0 8 94

?c.

_ Corporate stocks ).

1 5 i Other 127 Y,947 9.28 lla 2.083 7 44 i.

Ibtal smestment secu'ities.

7.171 163,502 9.08 6.583

.55.577 92.2

,f i 'Other in n re..s.t,earmng asms t 28 575

8. l i

~

31 fm 7.58

%m.

2 t.4.4 7 524.8 i f.., _.._B,i.4

)

i 9.32 i

_v.-.nte:e' t earnmr asset.finterest mccm.a.c 22,714 531,113

', g (246)

(1441 Non inert tt eartjeg auct,t Ulowant e to. treds losses Cash and due f rom banks

' i.

1,5? 2

.l.469

,.. O.ther assets,

1,224 1.072 l

?.

$2

$23.734 i

l

- =,5,224 Total assets

.....A.-

w-s.

, a==..s r.= t. _._

_ _. =

y-

=.

y=.

. t bbilities and Shareholders' Equity Stirest bearing sources

g

1. - Interest bearing deposits:

s i

3 1,003

"$ IL37L 4 89".

5 925

$ 4 143 3 21'.

Demand W

9341' 5 01 831 IlJO

'5.30 Sasings stonev market deposa a counts 3A30 Au,5 bt '

'538 3.293 47.00 536

,\\

Negonable ceru6 cates of d4 posit 3,705 59,852 fi.41 3.288 56.984 6 88 Other ume..

.i.

3,163 64,249 B.t,6 3.356 70.231 8.30 f

507 10,479 8.20 433 9.523 833 Deposits in foreien bfficed.

f, Total mierest $eantg depcsits 12,675 204,400 6.40 12.126 fU25 6.8J s

4, i 9 ort. term borrow ogs:

Federal funds persased and repurchare greements 4,866 78#34 6.45 4.4 $s 73.902 i 6 66 Commercial papt '

438

.6,419 5.t 1 442 6.914 6 21 i

l Other.

.J.

578 9.04 6.35 415 6.496

..u 21 J'

Total shosterm borrowings

6...

5,382 t'4.537 6.38 5.29f.

87.311 6.54 Other horrowings 717 13.573 1.51 701 _

13.496 7.M T.hl mierest bearma sourus/ interest expem..t.

19,274 312,'510 6.43 18.113

08.632 b36 Non-mterest bearing wuras:

Demand and other non4uerest bbr:ng deposits.

3,401 3.264 ten ued.dpemes and o her liabihdes 916 791 WecF..tideri equitv I 633 1.556 fotal liabilities s ed shareholt.ers' equity.

$15.224

$23.7M 5

=

=

5

.a= --

2.-._.

-.=n._._.-

z_-_

. it mterest rate aptcad t.

2.8 9 ".

2.W".

A m of non mterest bearme s3urces.. ;

.97 1.05 Y

i I Net interest income / margin on ear. ting s' vts.

$219,363 3.86". ;

$;16199

+ 03 *".

ra.wm w-

_.___m

==

58 N

- r

,u r

1 % i, 1985 snand ({uarrn Font Qmvler fourth Quarter

. h rvrgt

. hf rrtge

.h rrrtgr

!, cars 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 j

auditing procedures as w e considered necessary in the circumstances.

In our opmion, the hnancial statements referred to above pre <ent fairly the consolidated fmancial position of PNC Financial Corp and subsidiaries at December 31,1986 and 1985 and the consolidated results of their operations and thanges m their fmancial position for each of the three tears in the penod ended December 31,1986, in conformity with ger erally accepted accounting pnnciples applied on a consistent basis, p5uad -

Putsbur gh, Per:nssivania Februan 27,1987 61

yNC l~INANCIAL. CORP AND bl'BS!DI ARIES Consolidated Balance Sheet Dollars m thousands 1966

g]

(Iecember 31 Assets Cash and due from banks.

$ 1,190,586

$ 1.369.439 Interest bearing depouts with banks..

450,334 379.665 Aderal funds sold and resale agreernents 78,332 93,770 93,919 641.504 Tradmg auount securities.

139.336 ilortgages held for sale fraestment securities (market salue of $6.564.317 and 55.304.732).

6,331.125 5.132.002 Loans net of unearned income of $313.086 and $275.4C'6 12,602,055 10.074.784 Allow ance for credit losses.

(204,651) f 137.476) :

Net loans 12.397.404 9.937.303 I

Premises, equipment and leasehold improvements.

209,112 208.105 Customers' acceptance liability 472,811 435.562 l

Other assets.

375,307 441.032 Total assets

$22,198,930

$ 18.777.723 i

IJabili'les Deposits in domestic offices:

Non interest bearing.

$ 3,524,256

$ 2.928,905 Interest bearing,

10,518,688 8.64l.718 Deposits in foreign offices 273,027 255.670 Total deposits 14.315,971 11.826.293 Short term borrowings:

Federal funds purchased 1,534,860 1,320A44 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 4.335.895 Other borrowings (91,073 510.629 Acceptances outstanding 472,811 435.562 Accrued expenses and other liabilities 275,828 30.195 Totalliabilities 20,808,960 17.6? 1.574 Shareholders' Equity Prefet red stock-51 par value Authorized: 9,739.693 shares in 1986 and 4,915.843 shares in 1985

!ssued and outstanding: 3.330,158 shares in 1986 and 3,472,974 shares in 1985 3,330 3,473 Aggregate liquidation value: $70.663 in 1986 and $73.695 in 1985 Common stock-55 par value Authorized: 100.000.000 shares in 1986 and 60,000.000 shares in 1985 issued and outstanding: 49.969,I06 shares in 1986 and 47,551.563 shares in 1985 249,849 237,758 142,363 110.466 Capital surplus Retained earnings.

994,428 815.452 Total shareholders' equity 1.389,970 1,167.149 Total liabilities end shareholders' equity

$22,198.930

$18.777.723 Ser nuompanmg Nows to Conwhdated Fnnannal Statemenu.

fd

a.

\\

, pNC FruscsAL. CORP 4ND St astogARIE.%

Consolidated Statement of Income in thousands.euept per share data 5 the %r Dded Drambn H 1986 I985 t9u intIrest income L.oans and fees on loans

$1,048,661

$ 981.502

$ 850.886 pepouts with banks 30,801 60.405 85.544 Federal funds sold and resale agreements 13.363 15.949 20.692 Trading account securities.

10,611 31.118 23.029 slortgages held for sale 6,673 18.712 20.374 investment securities:

Taxable 388,308 374,777 258.758 Tax exempt 82,814 30.736 20.653 Dividends.

8,875 9,14 0 6.50i Other 2,401 2.298 2.367 Total interest income.

1,592,507 1.524.937 1.290.824 Intirest 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 Totalinterest expense.

1,031,811 1.010.836 891.348 Net interest income 560,696 514.'

399.476 Prosision for credit losses 124,765 55.3.s 32.854 Net interest income after provision for credit losses 435,931 458.782 366.622 Non Interest income Trust income.

I16,073 96.379 78.603 Service charges, fees and commissions.

113,287 100,544 73.135 Stortgage servicing fees 13,090 29.771 28,730 Trading account profits 7,532 7.912 4.281 Net equity and other security gains.

26,964 15,181 13.838 Net debt security gains (losses) 20,891 3.645 (1,652)

Gain on sale of mortgage banking subsidiary.

59,703 Other income 16,958 11.805 11.621 Total non interest income.

374,498 265.237 208.556 N n-interest Expenses Salanes 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 I16.522 Total non. interest expenses 536,504 487.941 393,035 Income before income taxes 273,925 236,078 182.143 Applicable income taxes.

36,543 48.284 38.971 Net income

$ 237,382

$ 187.794

$ 143.172 Errnings Per Common Share:

Primarv

$4.76

$3.88

$3.25 Fully diluted 4.49 3.64 3.10 Average common shares outstanding:

Primarv 48,601 46.829 43.241 Fullv diluted 52,980 51.964 46.962

%>r aaompanung Notes to Conwhdated Frnannal Statements j

M

i PNC FisAscru. Cone ANo Sl'B51 DIARIES f

.l Consolidated Statement of Chenges in Shareholders' Equity j

L l

l Dollars m thousands. euePt Per share data

~

l Projened Common l

Stock Stock Capaul Retawd Tvrasurs

$l hr lhlur $ $ Nr t'alue Surplus Earmnes

%k Tntnl l

lialance at lanuan 1.1984

$ 113 $ 103.640 $ 59.620 $601,787 5 765.166 143,172 143,172 Net mcome I

Cash dnidends declared Preferreo Stock (2.465)

(2.464)

Common stock-51.ll per share (48.159)

(48.159)

Sto(k issued (preferred-1.411.790; commm-1.080.236);

j Dnidend reimestmem and employee benefit plans 9

t,410 8.800 10.219 Comeruon of preferred stock.

(11) 107 (96) 1.414 3.884 5Y.958 59.256 Plan of merger.

Net foreign currencs translation adjustments (335)

(335)

Balance at December 31.1984.

$ 1,525 $ 109.041 $ 122,282 $694.001

$ 926.849 Net income 187,794 187,794 Cash dnidends declared Preferred sto(k.

(6,216)

(6.216i I

Common stock-$1.28 per share (60.343)

(60,34 e >

Stock issued (preferred-1.948.366; common-2.203.200):

Exercise of warrants I40 741 4.475 5,356 I

Disidend reimestment and employee benefit plans 15 2,084 12.922 15,02 f Comersion of preferred stock.

(43) 441 (393)

Comersion of debentures 999 4.427 5,426 Plan of merger.

l.841 6.751 80.211 8b,803 Warrants assumed under Plan of merger.

4.243 4.243 Transfer to reflect tuo-for-one stock split 117,701 (117,701)

Net foreign currency 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 Cash disidends declared:

Preferred stock (6.086) 16.086)

Common stock-$1.47 per share (71,685)

(71,685n

$(669)

(669)

Purchase of treasury stock kommon-14.710)

Stock issued (preferred-142,816; common-2,418,143P EA *rcise of warrants 29 265 825 1.119 l

Dividend reimestment and employee benefit plans 4

2.735 16.444 669 19.852 l

Comersion of preferred stock.

(176) 873 (697)

Comersion of debentures 4,543 16.350 20,893 Plan of merger.

3,675 (1.025) 19.361 22.011 Net foreign currency translation adjustments 4

4 Bal: nee at Decembee St.1986

$3,330 $249,849 5142,363 $994,428

$1.389,970 Sir ncrampanung Notes to Consolidated funannal Statemenu.

1 I

1 l

64

l c.

g p.NC FINAsctAt. GRP AND Sesstotaatts Consolidated Statement of Changes in Financial Position In thousands r the Ymt bded l>nember 11 1986 1985 tw fin:ncial re.$ources were provided by (applied to):

Operations:

Net income

$ 237,382 5 187.794 5 143.172 Provision for credit losses depreciation, amortization and other items not requiring financial resources 177,949 106.855 64.340

_ Finarxial resources prosided by operations 415.331 294.649 207.512 Cash disidends declared (77,771)

(66.5641 (50.623)

_ Net financial resources prosided by operations 337,560 228.085 156.889 12rease (decrease) in deposits and other financing activities:

Deposits:

Demand and other non-interest bearing deposits.

595,351 273.529 368.504 Interest bearmg demand 173,999 130.158 258.190 Sasings.

44,406 (46.491)

(277.002)

Nloney market depouts 457,524 459.031 326.290 Negotiable certificates of deposit 1,124,038 550.516 139.085 Other time.

(177,776) i11.392 265.387 Deposits in foreign offices.

17,357 44.286 (297.378)

Deposits acquired in mergers 254.779 1.327.623 755.980 Increase in deposits 2,489,678 2.850,044 1.539.056 Short-term borrowings 599,180 811.944 795.027 Other borrowings.

(221,761)

(14.841)

(1.722)

Other liabilities acquired in mergers.

2,852 32.115 59.087 Proceeds from debt issued 338,111 100.000 Comersion of preferred stock and debentures (21,766)

(5.867)

(107)

Stock issued in mergers.

22,011 93.046 59.256 Common stock issued 42,068 26.244 10.326 Total financial resources provided by deposits and other financing actisities 3,250,373 3.892.685 2.460.923 (Increase) decrease in nonearning assets and liabilities:

Cash and due from banks.

(423,004)

(219.128)

(303.347)

Premises, equipment and leasehold improvements, net (24.153)

(32.458)

(27.132)

Other, net 33,110 10,233 (26.606)

Net nonearning assets and liabilities acquired in mergers (95)

(101.241)

(81.914)

Total financial resources applied to nonearning assets (414,142)

(342.594)

(438.999)

Increaae in financial resources invested in earning assets

$3.173,791

$3.778.176

$2.178.813 Increase (decrease) in earning assets:

Interest bearmg deposits with banks

$ 70,873

$ (464.316)

$ (376.962)

(68,588) 16,451 12.922 Federal funds sold and resale agreements Trading account securities (547,485) 344.522 (167.531)

Slortgages held for sale.

(136,674)

(33.848)

(55,511)

Imestment securities 1,110,464 1.284.359 475,959 1.oans.

2,465,654 1.279,465 1.497.527 Earning assets acquired in mergers 279,547 1.351.543 792.409 Increase in earning assets.

$3.173,791

$3.778.176

$2.178.813 See accompansmg Notes to Coruolsdated Fmannat Statements.

I I

1 1

65

~

Notes to Consolidated Financi:1 Staternents

• ill dollar amonn prwntrol on the sabin are un thoruands. eurpt m other-

. war noud.

Acc:unting Policies loans and lease financing income which is recognized on the sum of the-months digits method which results in ley The accounting and reporting policies of PNC Financial rates of return over the terms of the loans and leases.

Corp ("PNC Financial") and its subsidiaries conform with The accrual ofinterest on loans is discontinued w henJn generallt auepted accounting principles. A description of management'sjudgment,it is determined that the collec.

the significant accounting policies is presented below-tion ofinterest, but not necessarily principal, is doubtful.

Accrued and unpaid interest for the current sear is Basis of Presentation: The consolidated financial statements charged against current income and any interest accrued of PNC Financialinclude the accounts (>f PNC Financial and unpaid for prior periods is charged against the allow-c and its subsidiaries (substantially all of w hich are wholly-ance for credit losses.

ow nedL All significant intercompany accounts and transactions Allowancefor Credit losses: Management regularlv reviews hase been eliminated in the consolidated financial the loan portfolio, letters of credit, acceptances, loan com.

statements.

mitments, and other fmancial guarantees and provides for The accrual basis of accounting is used except that cer.

credit losses based on experience and management's esti-tain sources of resenue are recorded on the cash basis, the mate of potential losses, results of which approximate the accrual basis.

Depreciation and Amortization: Depreciation and amortiza.

Securities: Investment securities consist of debt. equity and tion of premises, equipment and leasehold improvements 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 fmancial reporting purposes and by accelerated methods maturity. Marketable equity securities are carr ed at the for federalincome tax purposes.

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.

Gains and losses are computed principally on the specific identification 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 salued at market, and any resulting gains timing differences. Insestment tax credits are accounted or losses are included in trading profits.

for by the flow-through method as a reduction of the provi.

Financial futures are used to hedge asset and liability sion for income taxes, except for investment tax credits positions. Such transactions are characterized as genemt attnbutable to lease 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 specific hedges and accordingly, gains and losses are deferred and amortized os er the remaining life Pension Plan:In 1986, the provisions of Statement of of the hedged asset or liability.

Financial Accounting Standards No. 87, Emplovers' Net amounts receivable or payable under interest rate Accounting for Pensions, were adopted. The plan is swaps that are specifically 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 Mortgage: 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. Income and expense

mcome, items are translated each month at the prevailing month-l end rates. Adjustments resulting from such translations are l

Lo:ns: Loan interest income is accrued on the principal charged or credited directly to retained earnings, net of l

l amount outstanding, except for interest on installment

)

I I

I L_ _ _

PNC Fimcat. Cow the gains or losses from hedging positions and net of The following pro forma data summarizes the 1986 con-

,pplicable tax effects. Exchange gains and losses on for-solidated results of operations assuming the merger had cign 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 actuallv tions.

would have occurred or which may be attained in the

future, garnings Per Common Share: Primary earnings per common share is calculated by dividing net income less preferred py,,3,7 3 f

,,g6 stock dividend requirements bs the weighted average num-Net interest mcome.

.5689,392 ber of shares of common stock outstanding during each Net income 286.307 period.

Earnings per common share:

Fully diluted earnings per common shar:is based on net Primarv.

4.44 Fullv diluted.

4.19 income adjusted for interest expense (net of tax) on outstanding convertible debentures and dividends on 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 vertible preferred stock and convertible debentures from Financial.The merger was accounted for as a purchase.

the beginning of the > ear 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 Bridgeville the treasury stock method.

Trust Company, with total assets of $151 million. The acquisition of The Hershey Bank was accounted for as a Wrgers and Acquisitions purchase and the acquisition of The Bridgeville Trust Company was accounted for as a pooling ofinterests.

Citizens fidelity Corporation except that the financial statements were not restated since During 1986. PNC Financial signed a defmitive 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. L'nder 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 was converted 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 fmancial data will be restated after the merger to mortgage banking subsidiary, The Kissell Company, for include the accounts of Citizens. The audited combined

$103.2 million in cash.

consolidated financial statements and related notes thereto giving effect to the merger are included on pages 27 to 41, inclusive. 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.

67 b

0

'O f

Nrnes ro Cossouostm hsAsctrL Startut.sts. CovnNt.ro l

/

i Inv;strnent Securities The minimum future lease payments receivable for each of the years 1987 through 1991 are approximately Ihe carrying and approximate market values of..ms es t-

$71.5 million, $66.4 million. $55.9 million, $42.4 million i

)

ment securities were as follow 4:

and $23.3 million, respectively.

I Du,m rr si

[986 19e Certain directors and executive officers of PNC l'inan,

]

a carrymg varari carmng MarArt cial and its significant subsidiaries as well as certain aHili.

j value ratur l'alue ratu' ages of these directors and officers were customers of, i

I un millions) and had loans with, subsidiary banks in the ordinary (1s l'reasurs

$3,217.5 $3.272.7

$2.903.3 $2.958.5 course of business. All such loans were made on substan.

tially the same terms, including interest rates and collat.

d wrporanons.

1,734.1 I,793.9 585.5 626.5 eral, as those prevailing at the time for comparable State and mumcipal 1,091.8 1,104.0 1,413.2 1.381.4 transactions with other persons and did not insolve more corporate stocks:

than a normal risk of collectibility. The aggregate dollar starketable equines 106.6 208.7 99.0 204.2 amount of these loans was $130.7 million and $104.6 Other.

21.1 24.7 30.9 33 4 million at December 31,1986 and 1985 respectively.

I Other 160.0 160.3 100.1 100.7 During 1986, new loans of $256.1 million were made and l

Total

$6,331.1 $6,564.3

$5.132.0 $5.304.7 repayments totaled $230.0 million. At December 31

=-

Data related to marketable equity secunties follows:

1986, there was $11.9 million of potential pr9blem expo, sure to affiliates of R.J. Wean,Jr., a director, $10.4 mil.

Durmber 31 1986 1965 lion of which represents collateralized extensions of Gron unrealized gams

$107,011

$105.853 credit and $1.5 million represents standby letters of Gross unreahzed loues.

(4.927)

(666)

C Aggregate cost 106,580 99.034 Aggregate market salue.

$208.664

$204.221 Allowance for Credit Losses The following table presents the composition of net Changes in the allowance for credit losses were:

equity and other security gains:

For the war ended December 31 1986 I985 I994 for ihr trar ended Durmber 31 1986 1985 19 R Balance at begmning of year

$137,476 $103.722 $ 82.536 Net gams on marketable equit?

Allowance acquired in mergers 538 10.792 4.032

• ,cc unnes

$16.456 $ 15.408 $ 13.630 Charge. offs (64,954) (43.544) (21.162)

Net gams (losses) on other securi.

Recoveries.

6.826 11.187 5.462 nes 10,508 (227) 208

E' I '

Total.

$26,964 $ 15.181

$15.838 Provision for credit losses.

124,765 55.319 32.854 Balance at end of year.

$204.651 $137.476 $103.722 Lenns Nonaccrual and Restructured Loans and 1.oans and lease financing are comprised of the following Other Real Estate categories:

Durmher 31 1986 1985 Nonaccrual loans are those loans on which interest 1.oans:

(in miuions) income is recorded only when received. Restructured Domestic loans represent those debt transactions for which the Commeraal

$ 7.115.6

$ 5.712.6 original interest rates, repayment terms, or both, were Real estate construction 720.0 416.2 restructured due to a deterioration in the fmancial condi.

Real estate mortgage.

1,220.0 978.2 tion of the borrower.

Installment 2,489.1 2.003.7 Total nonaccrual and restructured loan balances and stonev market 212.9 302.0 Foreign 821.0 701.8 the related yearly interest data were as follows:

Unearned income (250.9)

(234,8)

December 3 8 1986 1985 1984 Imans net of unearned income.

12,327.7 9.879.7 Nonaccrual

$127.717 $110.078 $ 83.773 Lease hnanong:

Restructured.

43,050 36.498 19.883 Lease receivables.

315.2 216.8 Total.

$ 170,767 $ 146.576 $ 103.656 Esumated residual value.

21.4 18.9 Uncarned income (62.2)

(40 6)

Interest computed at

l. case hnanong. net of unearned mcome.

274.4 195.1 onginal terms

$ 16,429 $ 17.982 $ 14.230 l

Interest recognized 7.488 8.413 4.390

(

Total. net ni unearned mcome.

$ 12,602.1

$10.074 8 l

l 68 i

1-PNC fn nct u.Come At December 31,1986, there were no significant Repurchase Agreements I outstanding commitments to lend additional funds with PNC Financial enters into sales of securities under agree-respect to nonaccrual and restructured loans.

Other real estate, which is included with other assets, is ments to repurchase which are treated as financings and gried at an' amount not in excess of estimated fair value the obligation to repurchase such securities sold is reflected as a liability in the consolidated balance sheet.

nd amounted to $6.9 million and $13.6 million at pecember 31,1986 and 1985. respectively.

The dollar amount of securities underlying the agree-ments remains in the respectise asset accounts.

Premises, Equipment and Leasehold Repurchase agreement information, including accrued interest, was as follows:

improvements Derrmber 31.1986

.inets %Id Repunhas Lmbuhrs Premises, equipment and leasehold improvements, stated c,,,,,

.g fy,,,,

f,,,,,

at cost less accumulated depreciation and amortization,

.tlatunWhpr af.hrt

.f mount Udue

.imnunt

Rat, were as follow 5:

Next business day:

1. 8 Ji.,rembrr J J 1986 1985 secunnes

. $ 921.886 $ 940.828 $ 927.196 12.60 %

Und.

$ 21,390 $ 19.147 U.S. Government Buildings.

151,409 152.953 agency securities 10.529 11.175 11.123 8.18 Equipment.

126,321 115.641 3 to 30 davs:

t.easchold improvements.

41.891 35.343 U.S. Treasury 341,011 323.084 secunties 326.005 329.019 328.041 6.87 grumulated deprecianon and amortuation. (131.899) (114.979)

U.S. Gosernment agency securities 22.381 22.881 23.029 5.26 j

Nes book salue

$209,112 $208.105 31 to 90 days:

U.S. Treasurv Depreciation and amortization expense on premises, secunties '

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 securities 266.379 266.431 065.362 5.61 in 1986, $21.9 mill.on in 1985 and $17.0 million in 1984.

De "

Certain facilities and equipment are leased under short I

U sury and long term lease agreements expiring at various dates secunties 6.384 6.481 7.722 5.87 i

to the 3 ear 2012. Substantially all such leases are U.S. Government 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%

million in 1985 and $17.7 million in 1984. Required min.

imutn annual rentals due on noncancellable leases having Unused Lines of Credit terms in excess of one year approximate $109.3 milhon in the aggregate at December 31,1986. Minimum annual At December S t.1986, PNC Financial maintained credit rentals for each of the tears 1987 through 1991 are facilities with various financialinstitutions totaling $107 approximately $18.6 million, $15.0 million, $12.6 million, million. Fees are paid for unused commitments ranging

$10.8 million and $8.3 million, respectively.

from % 7. to % 7. All such credits were unused at Decem-ber 31,1986 and are available for support of commercial paper and for gen, I corporate purposes. Commercial paper is issued by PNC Funding Corp. a wholly-owned subsidiary of PNC Financial, and is guaranteed by PNC Financial.

69

I gom m comunmo F immi. s r m mm. comi r o Oth:r Borrowings The 8% % Convertible Subordinated Debentures Due 2008 (" Debentures") are convertible at anytime prior to Other bo. rowings represent obligations with original maturity into common stock of PNC Financial at $23 per maturities exceeding one Sear. Other borrowm, gs were as share. The Debentures are redeemable at the option of follWs:

PNC Financial at 105.8% of the principal amount and twr,,am it 1986 tm decline in annual increments to 100% on May 15.1993.

The Debentures are subordinated in right of pasment to Par:nt Company 11 W% Noirs Due 19s9. redeemable aber all senior indebtedness of PNC Financial.

Nmember 14.1947.

$ 49,937 5 49.919 Interest on the Floating Rate Subordinated Notes Due 8% % Con ertible Subordmated 1997 is payable quarterly at a rate of S of 1% per Debentures Due 2008 23,677 44.574 annum above the London interbank offered rate for three-month Eurodollar deposits and is reset quarteriv. In te I e IJ b 5 at sear.end).

100,000 100.000 no event will the rate be less than 5% % per annum. At sub:ifi: ries maturity, the notes will be redeemed from amounts ig$t on brOng accumulated from the issuance of common or perpetual al e e

maturnies through 1988, at sanable Preferred stock or certain other securities of PNC Finan-rates O.cighted aserage rate of 6 55%

cial and maintained under a segregated fund of insest-and H.05% at sear.end) and scrured ments. The fund will not constitute security for the notes bs student loans 173,000 73.000 and income on such investments will be paid to PNC tb5.Ynd Financial and will not be part of the fund. Subject to cer-5% at r.end) 35.340 99.990 Floaung Rate Notes Due 1995 tain exceptions, PNC Financial must deposit sufficient (6.54% and 737% at sear.end) 30800 99.965 amounts into such fund so that the fund balance will, at 8% % Notes Due 1996, redeemable the interest payment dates in March 1989 and March after. iarch 14.1993 198,661 1993 and at least 60 days prior to the fmal maturity of N

14%% ustrahan Dollar Notes the notes in March 1997, be equal to at least one third, 39,450

\\liscelFancous 39.208 43.l81 two-thirds and the full amount, respectively, of the origi-nal amount of the notes. At December 31,1986. $30.0 Total -

$691,073 $510.629 million had been deposited into the segregated fund. The notes, net of the segregated fund of investments, are eli-Miscellaneous borrowings include capital notes, mort-gible to be treated as primarv capital in the determina-gage notes and various other borrowings, with rates tion of capital adequacy by the Board of Governors of the ranging from 7.75% to 10.11%.

Federal Reserve System.

During 1986, PNC Funding Corp issued $200 million The two series of floating rate notes, Floating Rate of 8% % notes due in 1996 ("8% % Notes"). The 8% %

Notes Due 1992 and Floating Rate Notes Due 1995, are Notes are considered as secondary capital by the Board guaranteed by PNC Financial. Both series bear interest at of Gosernors of the Federal Reserve System in calculat.

a rate which fluctuates above the weekly 91-day Treasury j

ing capital adequacy ratios. Interest on the notes is pay-bill auction rate (1992 series--62.5 basis points: 1995 4

able semiannually and the payment of principal and inter-series-50 basis points). The spread abose the Treasurv 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 14,19fs9, and 1992. The Limited issued A$60 million of 14%% Australian Dollar Floating Rate Notes Due 1992 are repayable at par on j

Notes due in 1989 ("l4%% Notes"). The 14%% Notes April 14,1989 at the option of the holder, and are not

]

are unsecured obligations of a foreign subsidiary and the subject to redemption by PNC Financial. The Floating j

payment of principal and interest is unconditionally guar-Rate Notes Due 1995 are repayable at par on October l

anteed by PNC Financial. Interest on the notes is payable 14,1989, and 1992 at either the option of the holder or I

semiannually in arrears commencing on May 17,1987.

PNC Financial.

The foreign subsidiary may redeem all of the outstanding Other borrowings, on a consolidated basis, have sched-notes at face value should such subsidiarv be required to uled repayments and sinking fund requirements for the pay additional amounts to note holders with respect to years 1987 through 1991 of $2.9 million, $175.7 million, certain taxes imposed on the semiannual interest

$95.6 million, $2.2 million and $2.3 mdlion, respectively.

payments. The 14% % rate represents a competitive rate Other borrowings, for the Parent Company oniv, have j

for 3 sear Australian dollar borrowings, scheduled repayments and sinking fund requirements of i

$53.3 million in 1989.

i l

l l

70 l

l

~

i e

PM ' l n nu u (3.HP 1

Sh:reholders' Equity ab) the 8% '"o Comertible 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 conversion privileges associated with Pre-holders apprmed an amendment to the Articles ofincor*

ferred Stock-E.

poranon which increased the number of authorized shares PNC Financial has a dividend reinvestment and stock of PNC Financial common stock. par value 55, from 60 mil.

purchase plan. Shareho.iders of preferred stock and com-tion shares to 100 million shares and the number of autho-mon stock may participate in the plan which pro ides that nied shares of pref erred ito(k. par salue $1, from 5 mil-additional shares of common stock may be purchased with lion shares to 10 million shares.

retmested cividends at a 5 percent discount from matket PNC Financial has fhe series of preferred stock out-value and with voluntarv cash pasments at market value.

standing. S t.80 Cumulative Comertible Preferred Stock-The following number of shares of common stoc k were Series A and Series B (" Preferred Stock-A and Preferred purchased pursuant to this plan,215.003 shares in 1986.

Stock-B") hate a liquidation salue of $40 per share. Pre-215.419 shares in 1985 and 424.874 shares in 1984, ferred Stock-A may be redeemed anytime at the option of At December 31,1986, PNC Financial had resened PNC Financial at 540 per share. Preferred Stock-B is not 22.983,426 shares of common stock to be issued in con-redeemable. 51.60 Cumulath e Com ertible Preferred nection with pending mergers and under the disidend Stock-Series C (" Preferred Stock-C") has a redemp-reimestment plan, employ ee uock purchase plans and tion / liquidation value of $20 00 per share and is redeema-upon the exercise of warrann and the comersion of cer-ble at the option of PNC Financial anytime after February tain debt and equity securities.

1,1989. $1.80 Cumulatis e Comertible Preferred Stock-An analvsis of the changes in accumulated foreign Series D (" Preferred Stock-D") has a redemption / liqui-currencv translation adjustments follows:

dation value of $20 and ma> be redeemed at the option of M"'mned oumon n M86 m

im PNC Financial am time after Februarv 1,1990. $2.60 Cumulatise Non Moting Preferred Stock-Series E (" Pre-neonmng of sear

$(1A 99) W 20) $r 1.3%

ferred Stock-E") has a redemption / liquidation value of Translauon adjustment gains dossesi.

$27.75 per share and is redeemable at the option of PNC

"','j c$me taxes ibenefusi.

3 4i Financial anytime after February 1,1990.

Net change for the scar.

4 221 d3M Holders of preferred stock (except Preferred Stock-E)

End of scar.

$(I A95) 5H.499) Sil.7201 are entitled to a number of sotes equal to the number of full shares of common stock into w hich such preferred stoc k is comertible.

Employee Benefit Plans The number of shares of preferred stock outstanding by senes was as follows:

A qualified profit sharing plan is maintained for all employees meeting certain age and service requirements.

%,,,w, n 1986 im Contnbutions and cost are determined by formulas based Preierred snx k-4 52,188 58A99 on annual earnings as defmed in the plan. Profit sharing Pref erred Stot k-B 19,773 22.258 Pretened sioc k-c t,340.741 1.416,668 expense was $21.1 milh.on m 1986,517.3 million in 198a.

Preferrei stm k--D -

1.579,356 1.637A49 and $12.6 million in 1984.

{

Preterred Snx k-E 338,100 338. t 00 PNC Financial also sponsors a defmed benefit pension j

toiat 3.330,158 3 A 72.974 plan covering substantially all emplosees. The plan pro-sides pension benefits that are based on the average of At December 31.1986 there were 82,221 warrants the highest base salarv for five consecuthe years during outstanding. The warrants are exercisable at a price of 538 the last ten years of credited service, subject to ERISA per warrant through August 31.1988 and a price of 540 limitations. Pension contributions are made to the extent 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-Comertible securitt holders are entitled to the following dards No. 87-Employers' Accounting for Pensions was comersion privileges: (i) one share of Preferred Stock-A adopted. This had the effect of reducing 1986 pension or Preferred Stock-B is com ertible into four shares of expense by $4.8 million, primarily due to a change from

)

common stock:(ii) 2.4 shares of Preferred Stock-C or the entry age actuarial cost method to the projected unit I

Preferred Stock-D are convertible into tw o shares of com-mon stock;(iii) outstanding warrants represent the right to recch e, upon pavment of the exercise price.1.8 shares of common stock and one share of Preferred Stock-D: and I

i 71 lL-- -

1

)

+

Notts ro CoNsouoArto Fmctu snrtuvts, Covn%t to e

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 sala-have 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-funced status:

ried employees. The cost of providing such benefits for retirees and full time salaried employees cannot be p,,,g,r 11 1986 separated.

Actuanal present value of accumulated benefit ohhganon. includmg sested benefits of $97.415

$105.667 PNC Financial has an employee stock purchase plan Actuanal present value of projected benefit obligauon

".hich covers a maximum of 2 million shares of PNC Finan-for seruce rendered to date

$157,081 ctal common stock. Persons who have been continuously j

Plan assets at fair salue-pnmanly listed common employed by PNC Financial or certain ofits subsidiaries i

stocks. U.S. gosernment and agency secuatics, and for one year are eligible to participate.

collectne funds admmistered bv a subsidiarv bank (214,665)

Offering periods pursuant to the plan cover 6 month Plan assets in excess of projected benefit obligation.

(57,584) periods fromjune 1 to November 30 and December 1 to l

linrecognued net gain from past expenence different May 31. Common stock is purchased at the lesser of 85%

)

from that a sumed and effects of changes in ofits fair market value on the first or the last day of each l

242 Unrecognued net asset at January 1.1987.

43.643 offering period. During 1986, a total of 115,343 shares 1

Accrued pension cost included in other liabilities 301 were issued to participants at prices of $29.43 and $34.96 j

per share, a total of 125,130 shares were issued in 1985 at d

Net pension cost included the following components:

prices of $18.75 and $24.60 per share and a total of f

/wr ihr genr ended December 31 1986 129,308 shares were issued in 1984 at prices of $ 15.94 and 1

Serme cost-benehts earned during the penod S 8.215

$16.15 per share. No charges to earnings have been made

{

Interest cost on projected benefit obhgation 10,837 with respect to such plan.

Actual return on plan assets.

(30,104)

Net amortuation and deferral 12,973 Stock Option Plans Net periodic pension 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 ofincentise i

were 7%% and 6%, respectively, at December S t.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 Marine 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 10 years after the date of the grant. Payment of the option nonquahfied supplemental executive retirement plan price may be made in cash or, subject to prior approval, covering certain key officers of PNC Financial and its sub-shares of PNC Financial common stock valued at fair mar-sidiaries. Under the plan, approximately $1.7 million was ket value on the exercise date.

l 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 1

cial and its subsidiaries provide certain health 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 are pro.

common stock having a fair market value equal to the vided through an insurance company, the premiums excess of the fair market value of the shares subject to the being based on benefits paid. The insurance premium option over the option price of such shares. PNC Financial l

expense for providing such benefits for approximately may, at its discretion, make all or a portion of such pay-2,200 retirees and 8.200 full time salaried employees was ment in cash. SARs were granted concurrently with respect l

f to stock options granted in 1986,1985 and 1984.

72

f PNC F%,r.nt, comp e

No charges to earnings have been made with respect to The components of deferred income taxes (benents) 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 Snancial ofSARs was $154 thousand in 1986 and $872 thousand in reporting purposes are as follows:

1 1985. No compensation expense was recorded in 1984 as for,Ar year ended Duember 3i 1986 1995 le4 such valuation was not material.

base fmancing

$ 10,235

$8.136

$3.530 The following table presents share data related to stock Provision for credit losses (27.893)

(7.917) 16.811) option plans:

Investment tax credit 4,315 5.725 5.186 Other-net.

(3,470)

(370) 2.156 Total

$(16,813)

$5.574

$4.06 l Per Co mon harr

• Commm ferred December 31.1983 520.22 57.276 Granted 22.38 76.576 The provision for income taxes is less than the amount Assumed in merger.

17.73-529.09 21.670 19.700 determined by application of the Federal statutory Opnons exercised.

17.73-29 09 49.900) t9.000) 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, Granted 32.88 72.328 municipalities and other public entities. The reconcilia-Assumed in merger.

23.75 18,710 10.394 tion between the statutory and effective tax rate follows.

Options exerrised.

I7.73-29 09 (42.290)

(l5.894)

December S t.1985 17.73-32.88 194.370 5.200 for 'A' T'ar ended December 31 1986 1985 19sJ Granted 41.25 200.000 Statutory tax rate 46.07 40.0To 46.0 %

SAR'S exercised (1.500)

Tax exempt interest.

(27.2)

(22.7)

(21.7)

Options exercised.

17.73-32.88 150.703)

(3.850)

Capi:al gains.

( 4.6)

(1.21

( 1.4)

D;c;mber 31,1986

. $20.22-$41.25 342,167 I,350 Other-net

(

.9) t1.6)

(1.5)

Effective tax rate.

13.3 %

20.5 %

21.4 %

• In accordance with the terms of the plans assumed in certain mergers, opuon holders m such plans will receive preferred shares in The tax reform act of 1986 repealed certain investment proportion to the number of common shares issued. The option tax credits retroactively toJanuary 1,1986. An immate-pnce per common share under such plans is the price for both the rial amount was included in income during the 6rst three I

common and related preferred shares, j

quarters of 1986 and subsequently reversed.

j At December 31,1986. options for 142,167 common

]

and 1.350 preferred shares were exercisable.

Regulatory Restrictions Incame 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 i

I visions, 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.

Under current Federal Reserve regulations, the bank-For iA,3rar ended Durmber 31 i986 1955 1984 ing subsidiaries of PNC Financial are limited in the current-Federal

$43,679 $35.973 $26.316 amount they may loan to their affiliates, including PNC Foreign 5,190 5,123 7,347 Financial. Such loans must be secured by speci6ed obliga.

State 4,487 1.614 1.247 tions. In addition, any such loans to a single affiliate may Total current 53,356 42.710 34.910 not exceed 10%, and the aggregate ofloans to all affili-Deferred:

ates may not exceed 20%, of each banking subsidiary's i

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 Financial in Total

$36.543 $48.284 $38.971 the form ofloans and dividends approximated 34% of c ns lidated net assets.

Applicable to:

Operations

$19,434 $42.530 $35.803 Federal Reserve Board regulations require depository Secunties transactions:

institutions to maintain cash reserves with the Federal Equitv ud 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 $48.284 $38.971 l

l i

73 I

J

l l

Wire s ro Countroin o im mi st si ste su m. Cosint r o l_

l Par:nt Company Financial Statements Statement of Changes in Financial Position

1. "' ' *""d'd U"'",6n 31 1986 19e iR Condensed financial statements for PNC Financial Corp Sources of Funds (Parent Compant onh) were as follows:

I; rom operanons:

Elince Sheet Net mcome

. $237,382 $ 187.794 $ 143.172 N n< ash credits to operations (125,384) (116.302)

M9.959i tw mbn H 1986 10 0 Total funds from operations 111,998 71.492

• 3.213 i

Ass ts Cash and due trom banks 170 $

160 Common stock issued 64,079 119.290 69.582 11 s. Ircasun secunnes (market salue Proceeds from debt issued 100.000

$140.639 and $l36.607).

139,725 135.840 Decreases in:

Imestmen s m:

C. S. Treasurv securities 9153 liank holding compam and bank Adsances to subsidiaries 14,443 subudianes...

1,307,479 1.095.606 All other net 1,626 3.5*2 "7'960 Non. bank subudianes...

106,748 106.025 I

Adsances to subudian banks 3,519 17.962 Total sources of funds.

. $192,146 $294.364 $ 160.208 Goodwill.

29,172 24.633

=

Uses of Funds l

Other anets.

20,597 7.500 Cash disidends declared

. $ 77,771 5 66.564 $ 50.623 Total assets

. $1.607,410 $ 1.387.726 Comersion of preferred stock and debentures 21,766 5.867 107 libilities Disidends pasable.

20,205 $ 17.22g Reductions in other borrowings 3,000 1.000 500 Other horrowings............

173,614 197.493 Increases m:

Actrued expenses and other liah.luies 23,621 5.856 U. S. Treasurv secunties 4,721 47.286 Total liabilities 217.440 220.577 Imestments m subsidiaries:

Net assets acquired in Sh'rihriders' Equity.

1,389.970 _ l.167.149 mergers.

12,196 100.151 79.386 Totalliabilities and Other 72,692 55.816 29.512 shareholders' equitL.

. $1,607.410 $ 1.387.726 Advances to subsidiaries 17.680 NO Total uses of funds

, $192,146 $294.364 $ 160.2d St:tzment of Income

'4" ' "" '"d'd D'"'"' 6" "

'"6 Commitments and Contingent Liabilities Operuing Revenue Dmdends from:

In the normal course of business, there are various legal subudian hanks

. $ 78,195 $ 67,105 5 48.905 proceedings, claims, commitments and contingent liabili-5,275 L5m 5.520

.*'[,"[juhudianes ties outstanding which are not reflected in the financial l'. S. Ireasun secunties 6,271 3.462 4.306 statements. Among these are commitments to extend Subudun banks 10,425 11,312 3

credit, acceptances outstanding which are participated Non hank subsidiaries 2,471 3.258 6.301 with other institutions, guarantees and standby letters of Gain on sale of mortgage bankmg credit Ot$i r [ Erne PNC Financial had outstanding standby letters of credit 9

291 (90) in support of the following obligations:

Total operating revenue 158,895 93.0l8 65.445

.h nage bun-

\\'d '""

OpIrating Expenses Durnibn H. IM6 J niount panon W

%u Internt expeme 15,511 17.097 10.576 Other expenses 20,194 9.421 4.631 Commercial Paper.

$ 4l.000

$ 41.000 1

Total operating espenses 35,705 26.518 15.207 Tax exempt securities 847,470 $3 t l.457 536.013 5

Other 876.448 42.326 834.122 I

~

Income before income taxes and Total

$ 1.764,918 $353,783 $ 1,411,135 3

equut n undistnbuted net i

mcome of subsidiaries 123,190 66.500 50.238 Appbcable mcome taxes thenefits) 13.516 (2.895)

(1,159)

Net outstanding standby letters of credit as of Decem-ber 31,1985, aggregated $1.5 billion, Income before equits m undistnb.

uicd net income of subsidianes. 109,674 69,395 31.397 In addition, under agreements which provide liquidity Equnt in undistnbuted net to holders, there were outstanding commitments to pur-mcome of subudianes:

chase, at the option of the holder, certain loans in the Subudian banks 106,746 I10.884 M3.741 amount of $1% mMon.

Non hank subsidianes.

20,962 7.515 8.034 As of December 31,1986, PNC Financial had com.

Nzt income

. $237,382 $187.794 $143.172 rnitments outstanding to extend credit totaling $5.1 bil-l 4

Lll 1

PNC hmu u. CORP l

l lion. These commitments generally require the customers PNC International Financial Services Limited, a whollv to maintain certain credit standards.

owned Australian subsidiary, issued A$60 million of Acceptances outstanding which have been participated 14% 7. Australian Dollar Notes Due 1989. PNC Financial to other hnancial institutions and are not reflected in the unconditionally guaranteed the payment of principal. pre-accompanying hnancial statements amounted to $955 mium,if any, and interest on such debt securities.

8 million and $826 million at December 31,1986 and Summarized consolidated 6nancialinformation for PNC 1985, respectively.

Imernational Financial Services Limited and subsidiaries.

Securities and loans pledged to secure public and trust denominatect m U.S. dollars, follows:

I deposits, repurchase agreements. Sallie Mae borrowings Summarized Consolidated Balance Sheet and for other purposes were $4.9 billion at December 31, 1986.

Derrmber 31 1986 im l

In the opinion of management, the consolidated finan.

In estment securities.

$ 48,245 s14.028 Loans 66,037 30.971 l

cial position of PNC Financial and subsidiaries will not be Othn anen 17384 iLOO3 affected materially by the outcome of such legal proceed.

Total assas.

$132.266 55&oo2 ings, claims, or by such commitments and contingent liabilities.

Deposits S 73,298

$50.435 Other borrowings 39,450 Foreign Activities Other liabilities 5,393 1.3M 5 Mmority interest t. l 15

=

Foreign actisities include loan and trade services to gov-Shareholder's equity 14.125 3.067 ernments, financial institutions and other commercial Totalliabilities and shareholder's equW

$ 132.266 556 002 enterprises and international funding transactions. Assets, deposits held and uther liabilities are attributable to for-Summarized Consolidated Statement Of Income eign operations if the customer is domiciled outside the l'nited States (including foreign branches of other United for (A, y,ar ended December 31 1986 19s5 19ts States banks)-

Interest income.

$10,726 5 6.871 5 4.377 Fo' reign actisities are accounted for by the profit center Interestexpense.

19,597) t5.993) i3.458) method under w hich all revenues and most expenses can Other non-interest income 3,470 2.115 1.550 be directiv attributed. Rates used to determine the interest Other non-interest expenses.

(3,337)

< 1.782 i t.496)

Min ntWntnest.

(2o a2 expense associated with funds used in foreign operations Net income.

$ 1,238

$ l.139

$ 973 represent the actual external rates paid during the period for selected interest bearing sources of funds. Indirect expenses are allocated based upon a time element, usage or other factors.

A summary of the corporation's domestic and foreign assets at 3 ear end 1986 and 1985 and selected foreign income data for the last three years follows:

Derrmher 31 1986 1985 Domesuc auets

$20,820,716 $ 17.495.596 Foreign auets.

I,378,214 1.282.127 Tot al asseis

$22,198,930 $ 18.777.723 For Ihr svar ended Dnember 3 8 1986 1985 1984 Total operaung resenue

$121,236 $146.709 $182.664 Prosision for credit losses 36,159 9.383 5.565 income tlou) before income taxes (17,727) 15.042 16,554 Net income (lose

( 8,539) 9.050 9.442 The corporation's foreign activities do not include any geographic area w hich is signi6 cant in relation to consoli-dated actisities.

I i

i 1

1 z

i l

1

.4 Nort.s ru Cossut.lp srt D II% sNf 1 st. %i srl Wi3Ts. Co d rl%t FD e

q w

Qurrterly Results of Operations (unaudited)

. In milhons. except pe'r share data a

1986 1939 Fourt h Thord Second.

First Fourtin Thord Snond Font Quarter Quarter Quarter Quarter Quarter Quarter Quann Quang

$402.9

$396.7

$396.5

$396.4

$386.9

$392.1

$380 2

$365 7 Imercu mmme 256.8 254.0 257.0 264.0 259.9 257.?

251.7 241.5 Imereu expense.

Net mieren mmme.

146.1 142.7 139.5 132.4 127.0 134.4 129.5 1243 Prmiuon for credit iones.

30.9 15.9 62.2 15.8 15.2 13 0 14.5 12 6 Net intereu inmme alier prousion for credit lones 115.2 126.8 77.3 116.6 i11.8 121.4 114 0 til 6 Non-interest income:

t ruu income.

29.2 29.6

- 30.3 27.0 24.4 25.1 24.4 22.5 Senice charges. fees and mmrmsuons 28.3 26.8 28.4 29.7 28.7 27.3 22.4 22.1 5.5 7.6 8.7 8.2 6.3 6.5 Niortgage senicing fees.

Trading account prohts (losses).

2.5 2.2

(.8) 3.6 2.6 5.7 a.3) 13.8

.2 8.6 4.4

.2 21 9.2 3.5 Net equin and other security gams.

Net debt securn) gams (lossesi 1.9 7.9 8.7 2.4 2.1

.7

. ( l.0) 1.8 Gain on sale of mortgage banking subudiary 1.0 58.7 Other mcome 4.2 4.6 4.7 3.5 7.2 1.3 1.4 1.9 Total non.mterest mcome.

80.9 71.3 144.1 78.2 73.9 64.9 68 4 58 0 Non. interest expenses:

Salaries and bonuses 54.3 53.1 56.3 56.3 53.2 50.9 50.5 46.2 Pension, profu sharing and other emplosee

. benehts 13.8 14.0 16.8 16.1 9.8 13.2 17.2 17.3 Net ouupano 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

[0.7 8.9 Other expenses 42.4 38.5 43.1 41.8 43.3 37.2 35.5 33.1 Total non-intereu expenses 131.5 127.9 140.1 137.0 127.0 121.7 124 0 115.2 income before mcome taxes 64.6 70.2 81.3 57.8 58.7 64.6 58.4 54 4 Applicable income taxes 5.8 13.2 12.8 4.7 9.0 15.4 12.4 11.5 Net mcome

$ 58.8

$ 57.0

$ 68.5

$ 53.1

$ 49.7

$ 49.2

$ 46 0

$ 42.9 Earnmgs per common share:

Pnman

$ 1.17" $ 1.13

$ 1.38*

$ l.08

$ l.02

$ l.01

$ 95

$ 90 Fulh diluted 1.11 "

1.07 1.30*

1,01

.95

.95

.88

.86 Ascrage common shares outstanding (in thousands):

Primarv 49,169 48,962 48,394 47,860 47.419 47.221 46.919 45.733 Fulb diluted 53,139 53,059 52,959 52,804 52.530 52.372 52.239 50.542

• Includes the after tax effect of the signincant and unusual transactions which increased net income by $11.3 million or $.23 per share on a priman basis and 5.22 per share on a fully diluted basis.

" Includes the after. tax eticci of the adjustment to signihcant and unusual transactions. directly related to the sale of the mortgage banking subudian durmg the sewnd quarter of 1986, which increased net ncome by $3.5 million or 5.07 per share on a primary basis and $.06 i

per share on a luth diluted basis.

i

-A j

% g.,o oo I Wi i r 1,. i H i u i nieu PsC Fn ou u Cone

'4 I

Directors Franklin L N!orgal '

Executive Officers Furnier Prestdent Thomas H. O.Brien.

. Thomas E. Bolger west Penn Power Company Prendent and Churf Executett Ofcer

. Chairmari aird Chsef Executnr Ofcer Bell Atlantic Corpf Donald I. N!oritz Prestdent and Chief Executa e Ofcer R*% S Hillas*

Chamnan AnthonyJ. A. Brsan Equttable Resources. Inc.

[

. Chanman and Chief Execiutni Offico Coppenield Corporatwn

, T. Ballard %forton.Jr.

l',Daiid Grissom*

l m g;,(g,,,,,,

Executnt in Rnodeme l;

Robert N. Clay School of Bustn' Edward P. Junker. Ill

. Psrude nt

( *nnrrsity of L > tan die lice Chairman

. Clay lloiding Companv

Thomas H. O'Brien Robert C. Stilsom'

.PatrscsaJ.1ClitTord p,nident and Choef Executit e Ofcer l' ice Chan man Ihiunteer Gn tc Leader

.\\talcolm.\\l. Prine Dasid L Tressler. Sr.

Edu m. L Colodn? '

' President and I ce Chairman Chairman and Puntdent Chief Executut O l'SAtr Group. Inc.

Puttsburgh Baseball.fcer Inc.

51arlsn E. Carle Senior l' ice President and Controller

. Douglas D, Danforth Charles R.' Pullin Chatrman and Chief Executni Ofcer Chatrman and Chief Executne Ofcer Daniel F. Gillis Wntunghouse Electrsc Corporatwn Koppers Company. Inc.

Senwr lice Prn<dern. Human Rnonan.

James L Dasis Roderic H. Ross Walter E. Gregg.Jr.

' For mer Prnadent and Chsef Executni Ofcer Chatrman and Churf Executnr Officer Senior iico President i

H. H. Rohntion Company Keystone State Life Insurance Company

,and Chief Regulatory L,ounwl F. Eugene Dixon.Jr.

- John L Rvon.Jr W. Lee Hoskins Trust" Presndent arnd Chief Executni Ofcer Sensor iice Purudent and Chuf Economat Sterte E. Gilliand International Salt Company Williamj. Johns Chairman of the Executwe Commtller Richard P. Simmons Senwr lice Preudent..\\lanagement Howard Gittis Chairman and Chtef Executni Ofcer information and Reporting

'All!K eny Ludlum Corporatwn David. King h

l'ite Chaurman and Chief.idministralit e Officer Ret lon, inc-Thomas C.: Simons Sen'0'

• ice President and

'] David Grissom.

Chairman and Chief Executn e Ofcer Chief Financual Ofcer lice Chatrman.

Capital Holding Corporation Allan C. Kirkman Lester A. Hamburg Paul R. Staley Senior lire President and hernor Chairman Prnudent and Chief Executwe Ofcer Chir] Planning Ofcer Hamburg Brothers. Inc.

The PQ Corporatwn Joseph). Nelson Roger S. Hillas William E. Swales Senior i sce President and Director of Taxes Chairman President James F. O'Dav

.\\larathon Oil Company Senior lice President, Got ernmental Afairs Henry L Hillman Chanman of the Board G.J. Tankersley Joseph A. Richardson.Jr.

The Udiman Company Chasrman and Chief Executwe Ofcer Senior l' ice President. General Counsel.

Consolidated Natural Gas Company and Secretary Edward P. Junker,111

= lire Chatrmait David L. Tressler. Sr.

Starlin W. Stumpff I'ia Chatrman Senwr I ce Prnident and General Andstor kmes E. Lee

'Fonner lice Chairman R. J. M.ean.Jr.

CharlesJ. Thaver

. Chet ron Corporatwn -

Chatrman and Chief Executitt Ofcer Senior lice Presuient and Treasurer i\\ean l nited. Inc.

. JohnJ. StacWilliams.Jr.

Patricia D. Yoder Former Chatrman _

Konrad 51. Wets Senwr l' ice Presndent, Corporate Afairs Colonml Penn Group. Inc.

President and Churf Executne Ofcer

' W. Craig NicClelland President and Chief Executwe Ofcer -

Hammermdl thper Company Quentin C. SicKenna Chairman. Presodent and Chief Executwe Ofcer Kennametal Inc.

Robert C. Stilsom l' ice Chairman 77

. D, IR f110 R N 3 % D f..Nilt l'It k Ol l l(. l R4 Ol I'R iu lP t t. it Ihlu t v Ri f % -

Directsrs of '

William E. Swales Lewis E. Orr

' Pittsburgh National Bank '

President.

Senior lice President.

famthon Od Company

. James N!. Patton

. Thomas E, Bolger G.J. Tankerslev Senior Iin Pressdent Chairman and Chuef Encutive Offiar Bell.itlantic Corp.

' Chatrman and Chief Eucntive Ofur Consobdated Natural Gas Compant Dayid.\\1. Pay ne

~

Senior lice President

';AnthonyJ A. Bryan R.

Wean,Jr.

. Chasrman and Chuef Eucuttre Ofcer.

Ch] airman and Chief Executure Ofcer Joseph A. Richardson.]r.

' Copperweld Corporation It'enn United. Inc, Senoor iice Presodent. General Conn,,\\

Edwin 1. Colodny arid Surerarv

.3

! Chairman and President Konrad Af. Weis

?

Bruce E. Robbins "

US.br Gooup. Inc.

President and Chief Executsve Ofcer Senior Iice Preudent Bayer US'l Int' Douglas D. Danforth Hsrbert G. Summerfield.Jr..

? Chairman and Chief Eucutive Ofur

' Senior l'ue Prendent Il'stinghouse Elatnc Corporation e

Executive Officers S.Tas tor R. obert. ice Pressdent and Cash James L. Dau.. -

of Pittsburgh National Bank s

Sennori

Former President and Chief Executsve Ofcer H. Hc Robertson Company Rob,ert C. hiilsom -

Robert C. Todd.Jr. '

Chaumn and Cluef Exnutan Ofur Senior iice Pressdent

hierie E. Gilliand

Chairman of the Eucutive Committee GeorgeJ. $1cClaran Walter L. West Pwudent Sensor lice Prestdent

' Lester A. Hamburg.

Senior Chairman Joe R. Irwin Patricia D. Yoder

' Hamburg Brothers. Inc..

Lucutive iice Pressdent Sennor l' ice Prestdent Henry L. Hillman Edward V. Randall.Jr.

Exnutive lice President Chairman of the Board

~

The Hdiman Company g, g0g7 3,,,,ive Iice President Eucut

. Jame's E. Lee Former l' ice Chairman A William Schenck, III Chevron Corporation Eucut e lice President GeorgeJ. NicClaran Lee D. Cutrone.Jr.

Pasudent

' Sensor iice President

.Quentin C. AlcKenna Ramon E. Dodson C,hairman. President and Chief Executive Ofcer Senior lia President KennametalInc.

fen Robert C. Niilsom l'

s Chairman and Chief Executste Ofcer Gere E. Grimm Franklin L. Niorgal-Senior iice President and Controller

Former President West Penn Power Company -

George C. Hendrickson Donald I. Storitz Pressdent and Chuf Eucutwe Ofcer Wilbur E. Hines Equstable Resources, Inc.

Senior l' ice Pressdent Thomas H. O'Brien W. Lee Hoskins President and Chief Executive Ofur Senior iice Pres 1 dent and Chief Economist PXC Financial Corp David J. King

. N1alcolm N1. Prine Senior Iice President President and Chief Exnutive Ofcer John %,. Logan Senior iice President JPtttsburgh Baseball. Inc.

Charles R. Pullin James F. O' Day g'"i*' U" P"'IN'"'

Chairman and Chue[Encutwe Ofcer Koppers Company. Inc.

Richard P. Simmons Chatrman and Chsef Executure Ofcer Alleghens Ludium Corporation

4{

~

~

~

]

J pistlc roR4 en Ekttt m r. Orricras or PRINCIPAL SI'BSIDIARir.S e

- Directors of.

Roderic H. Ross Directors of -

Provident National Bank Chairman and Chief Executive Ofcer Marine Bank Keystone State Life insurance Company Walter G. Arader Donald 51. Alstadt -

Chair man --

L.). Rowell.]r.

Chatrman of the Board and

',Irader, fler:sg nnd.lunciates.' inc.

Presudent and Chief Operatung Ofcer Chnef Executive ofcer Provident 31utual Life Lord Corporation

- Frederic L. Ballard b.q

- Ballard. Spah r..indrews n: ingersoll '

Insurance Company J

Alan). Blatr..

]

Frank P. Slattery.Jr.

Executive l' ice President j

, w,illiam M. Batteiger President President New Process Company Lease Financung Corporation

~

R L. Battetger Co.

Charles H. Bracken Paul R. Stalev Chairman of the Executn e Committee

..ichard L. Boje Presndent and Chief Executive Ofcer Chausn.an The PQCorporation

. John C. Haller John IVanamaker, Phdadelphia Sensor Executive l'ia Pressdent.

Karl E. Wenk,Jr.

Robert E. Chappell Retired l' ice Chairman Das.id L. Jones

- Pres: dent Pressdent Jones Brothers. Inc.

PatriciaJ. Clifford -

Executive Olheers

. I'olunteer Civic Leader of Provident National Bank Edward P. Junker,111

. F. Eugene Dixon.Jr.

Roger S. Hillas

~ Chairman Pres > dent and Chief E.vcutive Ofrer

- Trustee Chatrman B.J. Lechner Edward C. Driscoll '

Robert E. Chappell President

Chauman of the Board President L F. Drucoll Co.

Lyons Transportation Lines, Inc.

Robert T. Arnold James C. Levinson Ralph Earle iI, Esq.

Executive l' ice President Chairman the Board, President Semor and 31anaging Phriner and Chi Executive Ofcer Baker & Daniels l

]

'd, "fe

^"'*'I**' "I'"""'I"

ent Jack Farber Chairman and Presudent G. Robert Hoffman W. Craig McClelland Philadelphia industnes,-Inc.

Eucutive l' ire President President and Chief Executive Ofcer Hammermill Phper Company Walter L, Foulke -.

Thomas S. Stewart Pressdent Exeutsve hu Presulent Ray L McGarvev President and Chief Executste Ofcer Pardee blanagement Company AnthonyJ. Cacciatore Sleadow Brook Danry Co.

Howard Gittis Senior Mce President Edmundj. Alehl

. l' ice Chairman and ChiefAdministrative Ofcer Morton B. Comer Chairman Revlon. Inc.

Senior l' ice President Dupatch Pnnting, Inc.

John B. Hannum.Jr., Esq-P. Graham Contin George R. Metcalf. til -

ChnefCounsel Senior l' ice Presudent Chairman and President Commonuralth of Pennsylvania State Racing Commissnon

%,avne R. Evans ESIlCompany Sennor l' ice President Alfred Rau Roger S. Hillas l' ice Chairman i

Chainnan.

WilliamJ. Friel Senior i ice Pressdent National forge Company l

1 William G. Kay.Jr.

William C. Schulz President Philip R Goldsmith President lYentworth 3lanagement Group Sensor.l'sce Pressdent House of Edinboro

. Arnold A. Kramer Harold C. Herman Pressdent and Chief Executnve Ofcer Sensor l' ice President Edward I, Staniev Jr.

Tnmjit. Inc.

President and Chief Executive Ofcer

)

Richard C. Krauss Robinson's. Inc.

. Johnj. MacWilliams.Jr.

Semor l' ice President Herbert S. Sweny Former Chairman

' Colonnal Penn Group. Inc.

John W. McLaughlin President i

Sensor l' ice President Stodern industries. Inc.

Marv Patterson McPherson President Robert B. Trempe

~

Sensor l' ice Pressdent

' Bryn Slawr College Malcolm C. Wilson Thomas B. Morris,Jr., Esq.

3,nior l'rce President Dechert. Pnce w Rhoads

__ Robert C. Robb Jr.

Pressdent Le,cis, Eckert, Robb & Company 79 l

e LDinEcTons no ENEtt IIt E ( h FICE R' 01 PRi%CIP4L il B%iDI ARIES a

f I

' James C.Torrance Directors of J ihn L. Rvon.Jr.

L ' former l' ice Chairman.

Northeastern Bank of Pennsylvania President and Chief Execntn e Ofcer niernational a f mpany '

i Thomas L. Venable Raimond A. Bartolacci i

' Chasrman. Pressdent arid.

Chairman and J. Harvey Sproul.Jr.

[

Chtef Executtve Oficer '

Churf Executive Ofcer Prostdent Spectnam Control, Inc.

Laneco. Inc.

H. B Sproul Construction Co.. Inc.

, = James F. Walker, N!.D.

Dorrance R. Belin, Esq.

Larry D. Stetter Physsaan Partner. Oliver. Price & Rhodes President and Churf Admuntstratsve Oficer.

^# '"#?##

David L. Tressler, Sr.

Geor e H. Wells

' Presid$nt and Chief Operating Ofcn Justin Bergman,Jr.

^ Chairman and Chief Executn'e Ofcer

. National Forge Company Retsred Pdrtner. Bergman's David E. Zuern C. L. Cramer Senior Executive l' ice President Retsred. Former President Executive Officers of Cramer's Cashway. Inc.

Northeastern Bank of Pennsylvania David L. Tressler, Sr.

Edgar L. Dessen, N!.D.

Ex:cutive Officers Phy'sscsan Chairman and Chief Execurite Ofcer of Mtrine Bank E. Ruth Dunning,51.D,

%,illiam A. Lees.Jr.

Edward P. Junker.111 Rettred Phssicsan l' ice Chairman and

. Chairman. President and Chief Executsve Ofcer Chief Operating Ofcer GerardJ. Ferrario John C. Haller Owner Larry D. Stetter

' Senior Executive l' ice President Ferrario Agencs-Insurance President and Charf and Real Estate Admini.strative Ofcer David E. 2uern Senior Executive l' ice President.

Robert A.Gordon Dennis G. Dunn Executsve l' ice President Certified Public Accountant Ronald G.' Imboden

~ Executive l' ice President Henrv Hood,51.Dl RobertJ. Williams President Executive l' ice President George P. Smith Geisinger Foundation Joseph P. Durkin Executsve l' ice President and Secretary Senior l' ice President

%fichaelJ, Hudacek, Esq.

Atrorney-at-Law Peter F. 51oylan Senior l' ice President John F. Johns S

y fills, Ltd.

f'or

• P 1 dent RobertJ. Johnson, Esq.

Kenneth Robinson Stevera d,But:, Hudders, Tallman,

Ehrtner, Senior l' ice President Johnson l

Robert P. Sheils Jr.

B. CarlJones Senior l' ice President Chasrman, President and.

Chief Executsve Ofcer Haddon Craftsmen. Inc.

Joseph C, Kreder, Esq.

. Pbrtner, Henkelman, Kreder, O'Connell

& Brooks Attorneys-at Law William A. Lees,Jr.

l' ice Chairman and Chief Operating Ofcer EdwardJ. Lynett.Jr.

Editor and Co-Publuher The Scranton Times and The Sunday Times W. Russell Preston President and Chief Executsve Ofcer The Globe Store 80

y j)iittcront no ExtctTivt Orrictas or' Pa:NCIPAL Sl*B%IDI ARIES l

a r

i

)

Dirators of Executive Officers of -

Directors of PNC Trust Company of Florida, N.A.

PNC Trust Company of Florida N.A.

PNC Funding Corp Robert R. Bartlett Thomas H. O'Brien Robert T. Arnold Rettred. Former Presodent. Treasurer Chatrman Presndent and Chtef Finanaal ofcer.

l and Chief Exenstwe Ofcer Asa W. Smith Walter E. Gre Jr.

-)

President and Chief Executive Ofcer Senior l' ice Presb,nt and L P.\\luller w Co.

^

Chief Regulatory Counsel

~ James L Bauchat -

Thomas S. Stewart

. PNC Financial Corp 1

Retsred Former Sensor nce President

. I ice Chairman and Treasurer, The Kissell Company I

Kenneth F. Dornbush Chairman and Chief Execurrve ofcer Kenneth F. Dornbush -

Executste l' ice Pressdent Executwe nce President Dasid J. King.

. Sterle E. Gilliand Treasurer I

Chasrman of the Executive Committee Directors of John W. Logan i

P.\\ C Finanaal Corp PNC National Bank I' ice President

.f bert T. Arnold Robert C. Stiisom l

u Ic 05' cial

- et l'ite President l' ice Chanrman PNC Finanaal Corp Donald $1. Houpt J. Richard Carnall i

investtnmf Adv*sor Executwe l' ice President Thomas H. O'Brien Finanaal Resources Group Provident National Bank President and Chief Executive Ofcer PNC Enanaal Corp RonaldJ.Jaffe, St.D.

Robert E. Cha pell Chatnnan, Resthent and Joseph A. Richardson Jr.

e5 nal Advtsory Seruces, Inc.

Chief Executwe Ofcer -

Secretary

WilliamJ. 5!cCormack Jr., D.P.51.

N!orton B. Comer

.a N'* ' * *

• Executive l' ice President Executive Officers of J

Ann Starie 51cCrystal

.H II

- President.

ha af PNC Funding Corp l

l'isiting.\\ urse Association PNC Finanaal Corp Joe R. Irwin N

ofIndian Rwer County Onairman and Chief Executwe Ofcer

[

9,g9g g9

. Thomas H. O Bnen Executive l' ice President Robert T. Arnold Chairman Provident National Bank President and Chief Finanaal ofcer i

WalterJ. Short Allan C. Kirkman

_l' ice Chasrman of the Board Senior l' ice Pressdent L SAsr. Inc and Chief Planning Ofcer Asa W. Smith.

PNC Financial Corp

)

Pressdenl and Chiej Executive Ofcer Edward V. Randall,Jr.

. Larry D. Stetler Executwe l' ice President Presdient and ChiefAdministratwe Ofcer Pittsburgh National Bank Northeastern Bank of Pennsylvania j

Thomas S. Stewart Executive Officers l' ice Chairman of PNC National Bank David L. Tressler. Sr.

l' ice Chairman Robert E. Chappell Chairman. Pressdent and PNC Finanaal Corp Chief Executive Ofcer David S. Watson, Esq.

Patrick S. Doran Pdrtner, Thorp, Reed tt Armstrong Senior iice President l

l l

81 l

~ Ding crons Asb I' NEtt' Tis i. ()F Fit i Rs of PatsctPtL 5L B%IDI tRIES j

Dirretors of Directors of Directors of 1

PNC Commercial Corp Provident NationalInvestment The Hershey Bank Corporation Robert C. Allen -

. Richard S. La'rimer.

-Eucutnr l' ice Prendent Robert E. Chappell l' ice Chaurman President The Hershes Bank GeurgeJ. \\\\cClaran Prot ident.Vatronal Bank and President and Chuef Eucutn> ofirer

"" 'T

""*N""3

' s tsb r h.Vatsonal Bank Roger S. Hillas Chatiman and President Jefferson C. Barnhart. Esq.

David M. Pas ne

,g[,,"f,d Pr((!" face &.Vntn k R'

Eucatur l' ice President Allan C. Kirkman Sernor l'ite Pressdent and James E. Rohr -

Chief Plannung O/ftcer Dennis P. Brentkle President P.VC Financtal Corp President and

. Herbert G: Summerfield.Jr.

Thomas H. O'Brien Chief Evcutar Opcer The Hashey Ban Eucurits l' ice Prestdent President and Chtef Executtte Oficer P.VC Financial Corp SamuelJ. DeAngelis -

- Presudent

{.jf,*p S o r:

Dr.ingelis Restaurant Corporation Extcutive Officers of g

PNC Commercial Corp Joseph S. Gumpher

. Gar.Zentner Rettred President Ja'mes E. Rohr f(f.\\

Hashey Trust Conipany Prestdent rchant Banking Company Richard S. Larimer Robert M. Miller Eucutite l'oce Presodent Retired l' ice President David M. Pasne Executive Officers of Semmation Corp.

Exuutit e l' ice President Provident National Investment Harold S. Mohler Corporation Chatrman

- Herbert G. Summerfield, Jr.

The Hershey Bank Eucntn e l' ice President Roger S. Hillas Chatrman and President Vincent A. Pronio Former Owner Proiuo 's.\\larket, Inc.

Executive Officers of PNC Investment Company Ashie L. Santangelo

. j),',,,',,'h' W

. h e s of Cocoa.1lley

• I' Daniel S. Seiverling Retsred Treasurer Exscutive Officers of Dauphin County PNC Merchant Banking Company Louis C. Smith Retired l' ice President Garv J. Zentner President Hershey Foods Corporation Executive Officers of The Hershey Bank -

Harold S. Mohler Chairman of the Board Dennis P. Brenckle President and Chief 1

Exocutts e Oficer

]

Robert C. Allen l

l' ice Chairman Deanna L. Horchler Sennor l' ice Pressdent i

and Corporare Secretary Thomas W. Lennox

(

Sensor l'oce President l

i Jerry A. Rice l*>ce Preudent.

Chtef Financual Ofcer l

and Corporate Treasnrer l

l W

1 i

~ ' ~ - q7 D bctonviso Euc t rii r Orricras or'PRI.%CIP4Lil'BslDI ARIES gt.

i

,. -l'

' Dirzctors of.

Daniel C. Ulmer.Jr.

Directors of.

~

W : Citizens Fidelity Corporation President Citizens Fidelity Bank and F

. Ibbert N. Clan Cercens Futehty Bank and Trust Company +

Trust Company Psident R. Richard Van Horne James H. Dasis

.. Gn linident Campans Retne4, Former Senror l' ice Presodent Chatnnan and Chief Eucutive Ofcer

' Oiner

.itlantic R>chfield Pbrter Patnt Company

'Thon Chintney Farm J. Dasid Grissom.f A J. Daid Grissom

. Chairman.

A

'Chapinan -

Executive Officers "g r of Citizens Fidelity Corporation Slason H. Lampton J/' '

'3 Niason H. Lampton Pseudent and Chief Evarnv 0/)irer P+tdent and Choef Eucutn e Ofcer J. David Grissom The liardaway Compans[ ? ' '

)'

' The llardaway Compans' Chatrman, Pressdent and Chief Executive Ofcer

.F. Ballard NIorton,Jr.L Harrt LaViers. Jr.

Executn e in Residence Preudent and Chief Eucutn e Ofcer CharlesJ. Thayer

. The School of Business.

.Santh East Coal Compans Eucutter l' ire President and l'nnersity of Louuvolle lStichael A. '.\\liles Chuef Financial Ofcer Joe St. Rodes Porddent' 51ichael N. Harreld L President and fikf Eucutive Officer

'Kra)I;lnn Eucutive l' ice Pressdent James Graharn%u n Foundation. IN, T. Ilallard Niorton.Jr.

E. Frederith Zopp

_. Robert W. Rounsav;dl. III

' Eucutn e in Rcstdence Secretary President.

Schoolof Bustnns,_l'nn ersnty of Louisville Dixie (l'arehouse & Cartage Company Joe N!. Rodes

,. Robert L. Rover Pueddent and Chief Eucutive Ofcer

- President and Chief Executive Ofcer James Graham Brown Foundatton. Inc.

Louisvulle Gas and Electnc. Company Robert W. Roun' avail. !!!

John C. Seile'r s

- Preudent Chatrman Duxue (Varehouse & Cartage Company

• E4 BI of Kentucky. Inc.

Robert L. Roser Thomas C. Simons President and Churf Eucutive Ofcer Chasrman and Chnef Eucupre Ofcer I.ouistdle Gas and Electric Company Capital Holding Corporatun Rose Lenihan Rdbel Lawrence L. Smith Chartman and Chief Executive Ofcer President and Chief Executn e Ofcer Rubel Lenihan Corparatnon Rodes Rapier Company

. Roger W. Schipke Douglas D. Stegner Senior l'oce Pressdent and Group Executive l' ice Chairman

' General Electric Company IVilliam 31. Alercer.Stridinger. Incorporaird John C. Seiler James Thompson Chastman Chairman liBI of Kentucky, Inc.

Glenmore Distilleries Company

/)

Thomas C. Simons Danipi,C. Ulmer,Jr.

W Chairman and Chief Encutn e Ofcer.

Presifent

, Capet.d lloiding Corporation R. RNhard Van Horne

- Lawrence L. Smith Retired, Former Sennor l' ice Prestdent Presudent and Chsef Eucutive Ofcer

.itlantic Richfield

}

Rodes. Rapier Company

\\

Richard D. Spence Prtncupal.

Il' odssde Consulting Group o

\\

Douglas D. Stegner l' ice Chaurman y

-LYdbam 31. Atercer..\\leidinger. Incorporated James Thompson Chair man Glenmore Dustdienes Company I

f

________i.____________.__

^f.

q;

<a.

DI:tMons Mtl ExtctTivt Osrictas or'Passc.irst Stasmirants g

N{[h 6

h

/

I k

(

Directors of

' Directors el

'I Extcutive dIscers of Citizen, Fit.clity Br,nk CFC Financial Services. Inc.

Citizens Fidelity Florida, Inc.

and Trust Company i

.e Michael N. Harreld Charles J. Thaser i

b'

&cutste Vice President Eucuttze Vice President and

' l, David Grissom.

Y Caaens Endehty Corporation v Chief Financialofcer L

'Chan unan and Ch:e) Executiz e 0][icer cm elay Corpomtion Daniel C. Ulmer.Jr CharlesJ. Thaver

Preudent i?

Executwe l' ice Pressdent and..

Daniel C. Clmer.Jr.

\\

P:rudent Chuef Financtal Oficer.

anm e ay orpom

,e Caam Bank and Tmt Cornpany

' $s At J

e tot e cr b

E. Frederick Zopp E. Frederick Zopp t ph,!ichael N: Harreld hecretary Suretary

+

e<utste i ne Prestdent i

CitarniFideht: Corporation Cit.:. ens Ehehty Corporataan i

LTerrv irvik

,e 4%utwe l'ur Pressdent l,

Fradk O. Keener Executive Officers of Executive CWicers of

{

[' Executwe l'ur President CFC Financial Services,Inc.

Citizens Fidelity Florida. Inc.

f Charles J.Thaser Frank M. Knego Daniel C. Ul:rdr.Jr.

Executwe Vice President Pressdent Pressdent 3,

Francis H. Calvert Robert R. Robucon.

Sentor l' ice Pressdent Sensor Iite Frendent Directors N,f FelixJ. Dent Citizens Fidelity Leasing Corporation Sensor l' ice President Directors of.

A.J. Desposito

' E. Joseph Hughes Citizens Fidelity Capital Markets, Inc.

President

' Sennor I ur Prestdent Cheuer A. Misbach.]r.

Pressdent J. David Gpucev' RonaldJ. Murphy i

Chasrman.Tresnder.t and Chief Executive O ser Senwr Vice Pressdent ChasEsJ.Thayer Cai: ens Fidehty rporatton

%,. Barrett Nichols Euctwe Vice Presid*nt and Seraor l' ice Pressdent CKvffiniactalOfcer Daniel C. Ulmer.]r.

Citi en Fidelay Corporation Presxdent

\\

Manha A. Ziskind

. en or l's Pre n

l' ice Pr sident E. Frederick Zopp l

Donald Rilev

' Senior Vice Pr'essdent Citurns Fidehty Bank and Trust Company Secretary r

Csturns Fidehty Corporation t

l Thomas R. Runnels Senior l' ice President Executive Officers of Executive Officers of j

son Citizens Fidelity Capital Markets. Inc.

I i

William T. Simfent Sevaar Vue Presi

. Citizen Fidelity Leasing Corporation RonaldJ. Murphy

(

)

Wilham T. Tyrrell Presiden A.j Desposito Sensor Vice Presndent.

Prenderd,

/.

Ted $. Sn.irgwolt Charles A. Walter.Jr.

Senior Vite chesident Sennor l'ue Pressdent E. Frederick Zopp i Sensor Vue President i

l u

f-(

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)

!t 1

I j

4 j

-v

. y It' d

f i

i h

i 7/

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s 4.

f.

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1

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______m.__

w l DIRI CTORS Asir Exa ci tn tf orsict.as or PRi%CIPil St!B%IDi tRIE%-

Directors of -

Directors of Citizens Fidelity (Ohio), N.A.

Citizens Fidelity Bank and.

Directors of Citizens Fidelity Bank and Ss dnor L Dasis Trust Company Hardin County Trust Company Lexington Ihrtner.

James Collier Robert N. Clay Taft. Stettunnus & Holluter Sensor Partner Pressdent J. David Grissom Colbn. Arnen & Colunan Clay Holdung Conupany fs)",l Chimneys Farm

' Chairman. Prnident and Lamonte Hornback Chief Execuan e Officer President and Cuts: ens Fedehty Corporatwn Chnef Eucutive Ofcer W. Har ey Cogse#xuutn.e Ofcn gin

.JamesJ. Rsan Gerald W. Howard ni ent an fartner Executtve l'we Pressdent J. David Grissom.

Taft. Stensnius & Holkster Herbert N.Jenkins CharlesJ. Thaser President stichael N. Harreld Eucutn e l*sce Prendent and.

Jenkuns.Essex Co.

Executtre l' ice Preudent Chsef Finanva! Ofcer Cai: ens Ftdelity Corporatmn Citi: ens Fedehty Corporation o} Neith E. Frederick Zopp Kruth Alonument Co.

Preudent and Choef Executn e 0]Juer Secretary Citurns Fidelity Corporation.

Robert \\l. Layman Seuth East Coal Company l'ke President W. Terry $1cBrayer Kundenater & Layman. Inc.

Senior ihrtner Exe< utive OfHeers of W. L. Osborne,Jr.

3#'0'"3"' ##'U""I U"b' O Citizens Fidelity (Ohio), N.A.

I'kr President John E. Tobe Austin Powder Co.

President and Chief Executn.e Ofcer

.J. David Grissom Jernco, Inc.

Chasrman. Prnident and Chuf T.J. Panserson Eucutsve Ofcer Retsred. Civil Engsneer D. G. Van Clief,Jr.

T.J. lktterson & Associates Executsve Darector Chasles J. Thavet Breeders' Cup Limited Charf Financtal Ofcer Clem Tharp Retired R. Dudlev Webb E. Frederick Zopp Xohn Rural Electnc Co-op Corp.

National Purtner Secretary The li' ebb Companies y

(

Partner lYade Farms Executive OfEcers of Citizens Fidelity Bank and Executive Officers of Trust Company Lexington Citizens Fidelity Bank and W. Harvey Coggin Trust Company Hardin County Preudent and Chief Executive Ofcer Lamonte Hornback Forrest L. Cook d

Preudent and ChiefExecutsve Ofcer Senior l'kr Prestdent k

Gerald W. Howard John SicClure Executwe l' ice Pressdent Senior l'kr President George L. Case Douglas K. Steele Senwr l'we President Sensor l'we Presndent

]i Herbert H. Pence Senior l' ice Pressdent l

1

)

i 85 l

3 q

u

.t

. [Natd,ni no Eu c t ris t puidaUnr Paiuseu st ninisnu s i

5 t -

,/.,

i 1

r, 3

I c

(

1

t

,x

<0

,y

>3, Directons of i

birectors of Directors of 6

3

' 1. Citizen: Fidelity Bank and Citizens Fidriky Bank and Citizens Fidelity flank and iTrust Cornariy Stercer County, '

Trust Company Oldt:am County Trust Coraparr ' Madison Coumy -

.q ' Je:han P ttahr.

Uharles E. Bonord lames \\l. Baker. fr. _

• Y Retned. henetan swl Toernwer Retard. Ownrs owner Itat< helt ( *noted 3Ir trv (nmpany Battorf Fana Alndown Genern Cu, Im.

John W. Brandenb.irg

.-/,,

' $ Lindse.' W. Ingram. I, James A. Hall Inudownn Pactjer.' %Ioll. Kernon i.i1%>k inornrsat Law sd i.

+~.

nnd lagrain Brothe, t' ental & Farm Pnd. Cott:ern Ivhhts Hani ord Toot i

R. Butnam IU y,,pu,, oggga, cuang3 h.'tuer lames G_. Ingram 4

nwnam & Thom, bon Deatur. 4n. Vieudewind Churf Charles D, Nelles l

Ew;ta e Ofcer Preuden'. wt'Chw/ Esnnnu OS%

jatnes L.aperton Burnhain i

Chnoman Tebbs S. %Ioore '

Fred J. Nihr,us. Jr.

(%rtner Retired. Oswun Fr.4h.'s IMnk nm: D ust E. Slot ris L.ox Phillips & 3/oc..e Cm=pdi Oldha un ('A >. ',

Retned. Owner CovFmd 3fntor Cmupany Don W. Ctab:o so?

Kenneth !' Leet Partner Euorh. e '?ue P rudev James fI. Iimyard _

pay,,p y s yn,,, y ;n,,,,nagg Preudent and Chief E.ucutive Ofo r' James S Tid,a.nn 8

Gene C. Rodlev Retoed ha.nn Fudrh.*: bank <nid Tomt

'f','"'U L.W l*rce % dent Cmnp n !]ldf arn Coun ty Wentnt Ronn c D. Young Thonw E Manbs.fr -

l'ue Preadent Charren i

'i

.ittorne mt Law Executive Offiev's of J. Wihm N!anning Citizens Fidelf.y Bank tid LExecutive 0 ficers of Owi>,,1 Trust Company Madisoit County Cititens. Eidelity Bank and 3/ar.ngng Equipment Cmnpan3

< l' rust Company Mercer County liarold R. Smith bmes C, aperton Burnham '

Chanmnn James C, Ingram Partrier hend.ht arid Chuef Executore Oficer Snuth, IYilhanaan, Sunpir n.

]ames l1. Iinsat d

,u co,nbs and Thein

- neudentei Churf Ewntn e Officer i'

llan D. Ta.lcr i

i

'l :r beskyt nuti Cenhaer Executive Offkern of Ci< ire ns Fidelity 'dar.k and Trust Company Oldham County 5

Charles D. Kellev President and Chief Erreiany Oficer Kenneth T. Leet Executwe l' ice Presodent V

6 l

l

.. M6 l

3

____1R.

e..

.W

u n < i <,n imix;-

' i ' n i n ; in... N fu tusi y amo,an-

- Directors of Directors of Directors of Citizens Fidelity Bank and First Midwest Bank and Trust Indiana Southern Bank Trust Company Winchester W. Eugene Claston Dasid W. Ehringer heudent and Chief Emnta e ofrer Invertor William B..\\ dams Ret red Corn r3 L erutive Dnerto

, James E. Croft,

John W. Garrett Retoed. Former i ur C,havman heudent Jad W. Buchanan Fnst.\\ludwest Bancorp Gnnett \\\\<nehnone l'ur Preudent und Sn utan.Ticquner James C. Curry W. Fred flate Sphnr Lampanx g,,,

p James C. Code ll.]r.

B. L. Curry and Sons. Inc Exernoneoffuer HC'f,',"",,R. Gohmann jo Hislop lI[h: nste n< twn Lampany

(

q James C. Codell, in Gohrnar n.hphalt & Construt tron. Inc.

U'*.0 0 ' b ""

Ere<nttre l'ae nende t Jamn F. Graf.

I hyucuan CndellConsteuttoon Cn *rpany Retved. Pseudent Robert W. Lanum Rugeles P. DeVan. II:

Graf.luto Company. Inc.

lhroner Kenneth L. Huber States. Harbuson, Fofer. Lanoun J Blan d

. Ie : ncrete d sui >I es heudent

~

Badget-Rent.1 Car of Louardle John E. shiler E,ugene E. Freeman. 'r.

Retned. Former Chan man

. L\\ nn Huncdman Indtana Southens Bank e

r t. The Freeman LouPoratuon neudent Gearge Gau throp Bert R. linncdman and Son. Inc.

James L. O'Neal

.N al Ford. Inc.

Real Estate Det eloper g;cga7g g 9.Connor Jr Charles B. Pember Partner Retued. Fonner Prendent of

\\\\)att, Tarrant. Combs and Orbison Citnens Fedehn Bank and 1.ewis U. Prv.Jr.

Executive Officers of Tunst Company \\\\ nuthester Preudent Indiana Southern Bank Robert N1. Powe Jr.

Lewis Pn. Inc.

,,,,(g','rf a d Chief Exerntn e offic k

neudent and Cinef Errentuve Ofcer go;(o7g 7 Sp7ig e7 g

Retned thrtner l"h" I.(****'d Spngler Brothers Corutructwn Senior i ere brudent Executive Officers of Citizens Fidelity Bank and hmes N1. Thornton gg 7

Senwr lice Preudent Trust Company Winchester Susan Stiller Robert M. Powe Jr.

Sernor l' ice hendent brudent and Chief E\\ecutive Ofcer Executive Otlicers of First Midwest Bank and Trust John Pendergrass Stephen it. Norton Senwr lice President Ewuwe l'n e hendent W. Eugene Clavton John F. Nunan Prendent and Cinef Executere Ofcer Robert D. Hohen Emutn e lice Preudent Senior l'ue hendent gdward T,gaer Emutste i ce Preudent James E. Nett Sent r lire Pseudent Robert D. Hoben Emuture lice Pressdent James E. Nett Senwr I ce President l

l l

l l

1

{

__ f I

h.DiktcioRs on Enct;rivt OrrictRs or PRISCIPAL St.ssipI ARIES g

1

,a

(~

l Directors of Executive Officers of Indiana Southern Bank,

Citizens Fidelity Mortgage Company Daiid W. Ehringer P. Keliv Downard Pressdeht and Chief Executwe Ofcer

{

j,gg,97 Robert Walker j

• John W. Garrett -

p,essdent Senior l' ice President l

Garrett (threhouse W. Fred Hale Executive Officers of f

Chair enan. President and Chief Citizens Fidelity Equine Company Esecutwe Oficer Frank O. Keener John Hislop President

' James F. Fahv

David H. Jones Senior lhe President Physcuan Robert W. Lanurn Executive Officers of Citizens Fidelity Energy Company S ile. Harbison Fifer. Lanum !! Blae.

Michael Vairin John E. Miller Sensor l' ice President Retired, Former Chatrman indsana Southern Bank C. Tabb Hazelrigg Senior l' ice President b

s L O'N'(al President Jsm O'Xral Ford. Inc.

Executive Officers of Indiana Southern Bank W. Fred Hale 14rssdent and Chief Executwe Ofcer

' John Frossard

' Senior ikr 14esident Alichael Kempf Sensor ihr 14esident Susan Miller Senior l'ict thesident John Pendergrass.

. Sensor Ihe 14rsadent f-L

)

u 1

1 i

7 p

SuaRtuotDER INroRMArroN c

Stock Information mon stock for each quarter of 1985 and 1986. as The common stock of PNC Financialis traded in the reported by NASDAQ. The respectise disidends declared natior.al oser-the-(ounter market under the umbol per common share are also set forth for the penods indi-

"PNCF." Prior in Cintens mereer u nh and into a subsidi-c ated.

an of PNC Emaniial on Februan 27.1987. Citizens Holders of common stock are entitled to receise traded in the national mer the-cni,'

iuarket under the dividends when declared bv the board of directors out of u mbol "CFDY.

funds legally available therefor. The board of directors At the tiose of businco on januan 31.1987. there presentiv intends to continue the policy of pasing quar.

were 24.750 shareholders of record of PNC Financial terlv cash dividends. Howeser, futt." dhidends wdl i

tommon stot k and 4.446 shareholders of record of depend upon earnings, financial conu.. ion of PNC Finan-l Citizens common siot k.

cial and other factors including applicable gosernment i

The table sets forth the range of high and low closing regulations and policies. See regulatory restnctions in the pnces of PNC Financial common stock and Citizens com-Notes to Combined Consolidated Financial Statements.

Cloune Pnres Cnd ()n ndends DerInord ranren PNC PXC bpn nient Fwn wnl Canens Funnnont

_Ca_nem P,o h,,nw s, i

li,gh L,s..

li eh luw 1986 First quarter.

$464 535 %

$31

$24%

$.33

$.20

$.2541 Second quarter...

45's 415 33 30 38

.20

.2926 Third quarter 50 %

42 37 29 4

.38

.20

.2926 Fourth quaract 44 %

41 32%

29 %

.38 20

.2926 Tot *1

$ 1.47 5.80 51.1319 19 4 Fint quaner 525 %

522 %

$ 19%

$17%

$ 29

$.1725 5 2233 setand quaner 30 %

24 %

23 %

18

.33

.1725 2541 i

i

I had quaner 32 %

26 %

23 %

20 %

.33 1725 2541 Fourth quarter.

.15 %

26%

24 %

21 %

.33

.1725 254I lotal 51 28 5 69 59556 m the equn alent pro forma cash dnidends declared represent the hmoncal data for PNC Financial multiplied bs the PNC Financial.Cituens merger exchange ratio ol.77 shares of PNC Tmancial common stock for each share of Cauens common stock.

Registrar and Transfer Agens:

Dividend Reinvestment and Stock Purchase Plan 1

Pittsburgh Nanonal Bank Shareholders of PNC Financial's preferred stock and Stock Transfer Department-982 common stock may participate in the Dividend Rein-10th Street and Fort Duquesne Boulevard sestment and Stock Purchase Plan. The plan provides l

Patsburgh, Pennsshama 15265 that additional shares of common stoct may be pur-chased with reinvested dividends at a 5% discount frorn Form 10 K market value and with voluntary cash payments at market Copies of the Annual Report on Form 10-K of PNC salue. A prospectr.n and an enrollment card may be j

Financial wdl be asailable in April. It will be provided obtained by writing to: Pitt.sburgh National Bank, without charge to shareholders on written request to:

Stock Transfer Department-982,10th Street and Fort The Chief Financial Officer, PNC Financial Corp, Duquesne Boulevard, Pittsburgh, Pennsylvania 15265.

Putsburgh, Penns>hania 15265.

Securities Ratings:

standard Trust Proxy Voting

.slaodis i.1 1%or 's Reports of 1986 non-routine proxy voting by the trust senior long term deb l

dhisions of the subsidiary banks of PNC Financial are obhpoons of PNC Finannal l

asailable on written request to: The Secretarv. PNC CMerc"al per s db Financial Corp. Pittsburgh, Pennsyhania 15265, PNC fundmg Corp.

PnmeI Al+

1 I

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