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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 or the transaction period
from to
---------------------- ----------------------
PNC BANK CORP.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1435979
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE PNC PLAZA
FIFTH AVENUE AND WOOD STREET
PITTSBURGH, PENNSYLVANIA 15265
(Address of principal executive offices)
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE - (412) 762-3900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, par value $5.00 New York Stock Exchange
$1.60 Cumulative Convertible Preferred Stock - Series C, par value $1.00 New York Stock Exchange
$1.80 Cumulative Convertible Preferred Stock - Series D, par value $1.00 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
$1.80 Cumulative Convertible Preferred Stock - Series A, par value $1.00
$1.80 Cumulative Convertible Preferred Stock - Series B, par value $1.00
8.25 % Convertible Subordinated Debentures Due 2008
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF THE DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AMOUNTED TO APPROXIMATELY $5,468,988,835 AT FEBRUARY 28, 1995.
NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK OUTSTANDING AT February 28, 1995:
230,452,514
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF PNC BANK CORP.'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1994 ("ANNUAL REPORT TO SHAREHOLDERS") ARE INCORPORATED BY
REFERENCE INTO PARTS I AND II AND PORTIONS OF THE DEFINITIVE PROXY STATEMENT OF
PNC BANK CORP. FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 25,
1995 ("PROXY STATEMENT") ARE INCORPORATED BY REFERENCE INTO PART III OF THIS
FORM 10-K. THE INCORPORATION BY REFERENCE HEREIN OF PORTIONS OF THE PROXY
STATEMENT SHALL NOT BE DEEMED TO SPECIFICALLY INCORPORATE BY REFERENCE THE
INFORMATION REFERRED TO IN ITEM 402(a)(8) OF REGULATION S-K.
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INDEX
PART I PAGE
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Item 1 Business 1
Item 2 Properties 17
Item 3 Legal Proceedings 17
Item 4 Submission of Matters to a Vote of Security Holders *
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters 18
Item 6 Selected Financial Data 19
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
Item 8 Financial Statements and Supplementary Data 19
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure *
PART III
Item 10 Directors and Executive Officers of the Registrant 19
Item 11 Executive Compensation 19
Item 12 Security Ownership of Certain Beneficial Owners and
Management 20
Item 13 Certain Relationships and Related Transactions 20
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K 20
SIGNATURES 22
EXHIBIT INDEX 25
* Not Applicable.
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PART I
ITEM 1 - BUSINESS
BUSINESS OVERVIEW
INTRODUCTION
PNC Bank Corp. ("PNC Bank" or "Corporation"), is a bank holding
company registered under the Bank Holding Company Act of 1956, as
amended ("BHC Act"). PNC Bank was incorporated under Pennsylvania law
in 1983 with the consolidation of Pittsburgh National Corporation and
Provident National Corporation. Since 1983, PNC Bank has diversified
its geographical presence and product capabilities through
strategic acquisitions and the formation of various non-banking
subsidiaries. At December 31, 1994, the Corporation operated 10 banking
subsidiaries in Pennsylvania, Delaware, Indiana, Kentucky,
Massachusetts, New Jersey, and Ohio ("primary markets"), and over 80
non-banking subsidiaries. The Corporation's total assets and total
shareholders' equity were $64.1 billion and $4.4 billion, respectively.
Based on year-end 1994 assets, PNC Bank was the 12th largest bank
holding company in the United States. During 1994, the Corporation and
subsidiaries employed approximately 21,000 people on a full-time
equivalent basis.
ACQUISITIONS
On November 30, 1993, the Corporation completed the acquisition
of PNC Mortgage (formerly Sears Mortgage Banking Group). With this
acquisition, the Corporation added mortgage-related assets of $7.6
billion; a mortgage servicing portfolio approximating $27 billion,
including $21 billion serviced for others; and a national residential
mortgage origination network. In 1994, the Corporation purchased a
$10 billion residential mortgage servicing portfolio from the
Associates Corporation of North America.
During 1994, the Corporation completed the acquisitions of United
Federal Bancorp, Inc., State College, Pennsylvania and First Eastern
Corp., Wilkes-Barre, Pennsylvania. The combined assets and deposits
totaled $2.8 billion and $2.4 billion, respectively, and are now part
of PNC Bank, National Association.
On January 13, 1995, the Corporation acquired Indian River
Federal Savings Bank ("Indian River"), Vero Beach, Florida, for
approximately $12 million in cash. Indian River had assets of $79
million and deposits of $62 million at December 31, 1994. In
connection with the acquisition, Indian River was merged with PNC Trust
Company of Florida, National Association and renamed PNC Bank, FSB.
Through this subsidiary, the Corporation offers private banking
services to customers throughout Florida.
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On February 28, 1995, the Corporation completed the acquisition
of BlackRock Financial Management L.P. and related partnerships
("BlackRock") for approximately $240 million in cash and notes.
BlackRock, with approximately $24.3 billion of managed assets, provides
fixed-income asset management services. BlackRock now operates as a
subsidiary of PNC Asset Management Group, Inc. ("Asset Management
Group"), a newly-formed subsidiary of PNC Bank, National Association,
that holds the Corporation's investment management companies.
On March 3, 1995, the Corporation completed the acquisition of
Brentwood Financial Corporation ("Brentwood"), Cincinnati, Ohio, for
approximately $20.9 million in cash. The acquisition added assets and
deposits of approximately $96 million and $78 million, respectively.
The assets and deposits acquired are now part of PNC Bank, Ohio,
National Association.
On March 7, 1995, the Corporation entered into a definitive
agreement with Chemical Banking Corp. ("Chemical") to acquire Chemical
Bank New Jersey. The total purchase price will approximate $504
million, subject to closing adjustments in accordance with the terms of
the agreement. The Chemical Bank New Jersey franchise being acquired
consists of a network of 84 branches, located in 15
counties throughout central and southern New Jersey, adjacent to the
Corporation's existing operations in eastern Pennsylvania and Delaware.
Chemical will retain its northern New Jersey banking operations,
focused on the New York metropolitan region. The transaction includes
assets approximating $3.3 billion and retail core deposits of
approximately $2.9 billion. The Corporation is not acquiring any
nonperforming assets. The Corporation expects the transaction to close
prior to year-end 1995, subject to regulatory approvals.
BUSINESS STRATEGIES
In 1994, the Corporation was faced with interest rates that rose higher
and faster than anticipated. Consequently, the Corporation
focused on reducing interest rate sensitivity and realigning the
balance sheet consistent with its operating strategies. During the
second half of 1994, the Corporation sold $4.5 billion of fixed-rate
securities, entered into $5.0 billion notional value of pay-fixed
interest rate swaps; and purchased $5.5 billion notional value of
interest rate caps. As a result, the Corporation substantially reduced
its liability sensitivity at one year and mitigated the impact of
significantly higher interest rates on net interest income. As part of
the balance sheet realignment, the Corporation intends to reduce
further its securities portfolio. In addition, in connection with this
downsizing, in January 1995 the Corporation's board of directors
authorized the purchase of up to 24 million common shares over a
two-year period.
The financial services industry is currently being challenged by
potential deregulation, excess capital, overcapacity and
increased competition. Loan pricing and credit standards are under
competitive pressure as lenders seek to employ capital and nonbank
competitors make capital markets more accessible to a broader range of
borrowers. Traditional deposit activities are subject to pricing
pressures and customer migration as the competition for consumer
investment dollars intensifies among banks and other financial services
companies. Mortgage banking is being challenged as providers of
residential mortgages and mortgage services attempt to maintain
origination and servicing volumes in an environment characterized by
significantly reduced business volumes. These factors have the
potential to adversely affect the Corporation's financial results for
1995.
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The Corporation's business strategies in this environment are
based on a commitment to be an exceptional marketing company with a
focus on customer satisfaction. The Corporation has begun to realign
its line of business structure with various customer segments, as it
believes this will provide greater opportunities for growth and
business development. The Corporation intends to continue to focus
marketing efforts on customer segments. As part of the marketing focus,
employee training will emphasize identifying and meeting customers'
need and taking advantage of permissible cross-selling opportunities.
Also, because of changes in consumer preferences, the Corporation
intends to continue to make investments in alternative delivery
systems, such as telebanking, and to continue to consolidate
approximately 30 percent of its retail branches over the next
few years. Along with these operating strategies, the Corporation will
further evaluate its existing businesses and markets and their
respective rates of return, and continue to consider and evaluate
opportunities to diversify and complement its business mix, as it did
when it acquired BlackRock.
LINES OF BUSINESS
PNC Bank delivers a broad range of financial services and
products to its customers through four distinct lines of business:
Corporate Banking, Retail Banking, Investment Management and Trust, and
Investment Banking. For the most part, these products and services are
distributed through PNC Bank's retail banking office network or
wholesale banking offices located in certain major metropolitan areas
located in the United States. PNC Bank also originates
residential mortgages through 100 offices in 30 states. Additional
information relating to the lines of business is set forth under the
caption entitled "Line of Business Results" in the "Corporate Financial
Review" included on pages 26-31 of the Annual Report to Shareholders,
which is incorporated herein by reference.
CORPORATE BANKING Corporate Banking provides traditional financing,
liquidity and treasury management, capital markets, and other financial
services to business and government entities. Corporate Banking's
focus is on serving customers by developing and delivering specific
products and services to meet their needs. This line of business has
established one of the largest market shares among middle-market
companies in most of the Corporation's primary markets. In addition,
Corporate Banking maintains banking relationships with many of the
largest companies in the United States and is a major provider of
treasury management products and services to large corporate customers.
Corporate Banking also provides its customers with access to the
capital markets through an array of financing alternatives including
securitization activities.
RETAIL BANKING Retail Banking provides lending, deposit,
investment, payment system access, and other financial services to
consumers and small businesses. Such services are primarily provided
through PNC Bank's 604 banking offices located in the Corporation's
primary markets. The principal focus of Retail Banking is on providing
products and services sought by its customers in a cost-effective
manner. The Corporation's unified operating systems have been designed
to enable Retail Banking to provide common products and services in a
low-cost manner. Alternative delivery systems, such as the
Corporation's consolidated telebanking center in Pittsburgh, are
expected to allow the Corporation to provide products and services more
efficiently than traditional banking delivery systems. Retail Banking
serves approximately 2.5 million households and more than 75,000 small
businesses, with a loan portfolio exceeding $20 billion and more than
$27 billion in deposits. At December 31, 1994, PNC Mortgage was the
nation's 12 largest mortgage banking company, based on its mortgage
servicing portfolio of approximately $41 billion, including $30 billion
serviced for others. Retail Banking is currently
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reorganizing its delivery channels around customer segments, including
development of a "Private Bank" to serve affluent customers, a "Branch
Bank" to serve small-business and traditional customers and a "Direct
Bank" under which the Corporation will provide products and services
to customers in its primary markets and nationwide through alternative
delivery systems.
INVESTMENT MANAGEMENT AND TRUST Investment Management and
Trust provides investment advice, asset management, and administrative
and custodial services to individuals, institutions and mutual funds.
Additionally, economic and investment research services are sold to
more than 245 other financial institutions. At December 31, 1994, the
Corporation was among the largest United States bank trustees for
individuals and was the ninth-largest United States bank investment
manager and 32nd-largest among all investment managers in the country.
The Corporation provided services to more than 400 mutual fund
companies ranking it among the largest providers of such services. In
addition, the Corporation was the second largest bank manager of mutual
funds. The acquisition of BlackRock, completed February 28, 1995, added
$24.3 billion of assets under management. As part of the Corporation's
customer segment alignment, Investment Management and Trust's personal
trust organization will become part of the Private Bank, and its
corporate trust and employee benefits sales and servicing will become
part of Corporate Banking. The Corporation's investment management
and asset servicing functions will be part of the new Asset Management
Group.
INVESTMENT BANKING Investment Banking includes the Asset/Liability
Management function of PNC Bank as well as underwriting,
brokerage, direct investment and liquidity management services. PNC
Brokerage Corp. services Retail Banking customers throughout the branch
system with more than 200 licensed brokers. Through PNC Brokerage Corp,
Investment Banking offers a broad range of financial products including
FDIC-insured money market accounts and certificates of deposits and
non-FDIC insured stocks, bonds and mutual funds. In addition, certain
securities underwriting services are provided by PNC Securities Corp,
which ranks as one of the largest bank underwriters of revenue bonds
for the health care industry and colleges and universities. Private
equity placements for middle market and smaller companies to finance
growth or ownership transition are provided by PNC Equity Management
Corp and related companies. As part of the Corporation's customer
segment alignment, PNC Brokerage Corp will become part of the Private
Bank. Public and corporate finance and liquidity management will be
aligned with Corporate Banking.
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SUBSIDIARY BANKS
Information as of December 31, 1994 for certain of the
Corporation's banks is set forth below.
Dollars in billions APPROXIMATE APPROXIMATE
TOTAL PERCENTAGE OF TOTAL PERCENTAGE OF
SUBSIDIARY BANK/HEADQUARTERS ASSETS TOTAL ASSETS DEPOSITS TOTAL DEPOSITS
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PNC Bank, National Association, Pittsburgh, PA $44.6 70% $24.7 71%
PNC Bank, Kentucky, Inc., Louisville, KY 5.8 9 3.4 10
PNC Bank, Ohio, National Association, 4.4 7 2.7 8
Cincinnati, OH
PNC Mortgage Bank, National Association, 3.1 5 2.2 6
Pittsburgh, PA
PNC Bank, Delaware, Wilmington, DE 2.9 5 1.7 5
PNC Bank, New England, Boston, MA 1.0 2 .5 1
STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES
The "Statistical Information" contained on pages 67-77 of the
Annual Report to Shareholders is incorporated herein by reference.
RISK MANAGEMENT
In the normal course of business, the Corporation is subject to
various risks. Two of the most significant are interest rate risk and
credit risk. Although it cannot eliminate these risks, the Corporation
has risk management processes designed to provide for risk
identification, measurement, monitoring and control. In addition to the
discussion provided below, information related to the Corporation's risk
management activities is set forth under the section entitled "Risk
Management" in the "Corporate Financial Review" included on pages 37
- 42 of the Annual Report to Shareholders, which is incorporated herein
by reference.
INTEREST RATE RISK Interest rate risk is the sensitivity of net
interest income and the market value of financial instruments to the
timing, magnitude and frequency of changes in interest rates. Interest
rate risk results from various repricing frequencies and the maturity
structure of assets, liabilities, and off-balance-sheet positions.
Interest rate risk also results from, among other factors, changes in
the relationship or spread between interest rates. Asset/liability
management uses a variety of investments, funding sources and
off-balance-sheet instruments in managing the overall interest rate risk
profile of the Corporation. A number of tools are used to measure
interest rate risk including income simulation modeling and interest
sensitivity ("gap") analyses.
A dynamic income simulation model is the primary mechanism used
by management to measure interest rate risk. The primary purpose of the
simulation model is to assess the direction and magnitude of the impact
of most likely (a "base case" which management believes is reasonably
likely to occur) and higher and lower ("alternative") interest rate
scenarios on net interest
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income.
The results of the simulation model are highly dependent on
numerous assumptions.These assumptioins generally fall into two
categories: those relating to the interest rate environment and those
relating to general business and economic factors. Assumptions related
to the interst rate environment include the level of various interest
rates, the shape of the yield curve, and the relationship among these
factors as rates change. Also included are other rate-related factors,
such as prepayment speed on mortgage-related assets and the cash flows
and maturities of financial instruments including index amortizing
interest rate swaps. Assumptions related to general business and
economic factors include changes in market conditions, loan pricing,
deposit sensitivity, customer preferences, competition, and
management's financial and and capital plans. The assumptions are
developed based on current business and asset/liability management
strategies, historical experience, the current economic environment,
forecasted economic conditions and other analyses. These assumptions
are subject to change as time passes. Accordingly, they are updated on
at least a quarterly basis. Because of these and other factors,
including those described in "Business Strategies" above, the results
of the model, as discussed in the section entitled "Asset/Liability
Managment" of the "Corporate Financial Review" at page 38 of the Annual
Report to Shareholders, will not necessarily provide a precise estimate
of net interest income or the impact of higher or lower interest rates.
Using these assumptions, the model simulates net interest
income under a base case scenario that mangement believes is reasonably
likely to occur. Management also evaluates the relative risk of changes
in interest rates by simulating the impact on net interest income of
gradual parallel shifts in interest rates of 100 basis points higher
and lower than the base case scenario. In such alternative scenarios,
certain assumptions that are directly dependent on the interest rate
environment are adjusted for the respective higher or lower interest
rate environment. Other assumptions related to general and economic
factors are held constant with those developed for the base case
scenario. As a result, the alternative interest rate scenarios indicate
what may happen to net interest income if interest rates were to change
to the levels of the higher and lower scenarios but does not predict
what may happen to net interest income if business and economic
assumptions are not realized.
Actual results will differ from the simulated results of the
base case scenario and of each alternative scenario due to various
factors including timing, magnitude and frequency of interest rate
changes, the relationship or spread between various interest rates,
changes in market conditions, loan pricing and deposit sensitivity,
customer preferences, competition, and the actual interaction of the
numerous assumptions. In addition, the actual results will be affected
by the impact of mergers or acquisitions and business and
asset/liability management strategies that differ from those assumed in
the model. While the simulation model measures the relative risk of
changes in interest rates on net interest income, the actual impact on
net interest income could exceed or be less than the amounts projected
in the base case and in each alternative scenario. If interest rates
exceed those assumed in the high alternative scenarios, or if interest
rates are less than those assumed in the low alternative scenario, the
actual impact on net interest income could further differ from the
simulated results.
In addition to the simulation model, management performs an
interest sensitivity (gap) analysis which represents a point-in-time
net position of assets, liabilities and off-balance-sheet instruments
subject to repricing in specified time periods. A cumulative
liability-sensitive gap position indicates the Corporation's
liabilities are expected to reprice more quickly than its assets.
Alternatively, a cumulative asset-sensitive gap position indicates the
Corporation's assets
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are expected to reprice more quickly than its liabilities. The gap
analysis does not accurately measure the magnitude of changes in net
interest income since changes in interest rates over time do not impact
all categories of assets, liabilities and off-balance-sheet instruments
equally or simultaneously.
The Corporate Asset and Liability Committee ("ALCO") has
primary responsibility for monitoring compliance with established
interest rate risk policies and procedures. ALCO policies include
limits on interest rate sensitivity to gradual parallel shifts in
interest rates and the cumulative one-year gap. Management may
initiate various asset/liability actions to remain in compliance with
such limits. Such actions are dependent on existing and expected
economic conditions, the overall interest rate risk profile of the
Corporation, various business strategies, and other factors. Actions
that management may initiate are also subject to costs, competitive
factors and execution risks (that is, the ability to execute a desired
action and to do so at acceptable costs).
CREDIT RISK Credit risk represents the possibility that borrowers may
not perform in accordance with contractual terms. Credit risk results
from extending credit, purchasing securities and entering into certain
off-balance-sheet financial instruments. Risk associated with the
extension of credit includes general risk, which is inherent in the
lending business, and risk specific to individual borrowers. The
Corporation seeks to manage credit risk through portfolio
diversification, underwriting policies and procedures and loan
monitoring practices. Information relating to the distribution of the
loan portfolio by type of loan, loan maturities and interest sensitivity
is set forth under the section entitled "Loans" in the "Corporate
Financial Reviews" and "Loans" in the "Statistical Information"
included on pages 32 and 33 and page 74, respectively, of the Annual
Report to Shareholders, which is incorporated herein by reference.
Credit Policy is responsible for the overall management of
credit risk and the development and application of consistent
policies and procedures across the Corporation. One objective is
diversification by industry concentration, geographic distribution and
the type of borrower. Policies contain limits on amounts that may be
committed for specified categories of loans and individual borrowers.
These limits are specified for both consolidated and individual bank
exposure levels. Specific underwriting policies have been adopted for
many categories of exposure including commercial real estate, cable,
cellular, broadcasting, health care and automobile dealers, as well as
general policies covering standards of documentation, collateral
coverage, guarantee provisions, environmental risk protection and
approval processes.
The Corporation receives collateral to support credit extensions and
commitments when deemed necessary, the amount of which is based on
management's credit evaluation of the borrower. The most significant
categories of collateral include real estate, commercial business
assets, cash on deposit and marketable securities. In addition, for
some loans made on the basis of the general creditworthiness of the
borrower, additional security in the form of real and personal
property may be obtained that may not be directly related to the
purpose of the loan.
In order to assess and monitor the degree of risk in the loan
portfolio, a lender-initiated credit risk grading system is used. A
risk grade is assigned to each loan on origination based on an
assessment of the borrower's financial capacity to service the debt and
the presence and value of collateral for the
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loan. Industry and economic risks are also considered when
assigning such grades. Credit grades are maintained by the loan officer
whose responsibilities include monitoring the risk inherent in such
individual credits. An independent corporate loan review function
assesses the credit granting process and reviews credit grades for
compliance with policies.
Asset/liability management seeks to minimizes the credit risk
associated with its activities, primarily by entering into transactions
with only a select number of high-quality institutions, establishing
credit limits with counterparties and, where applicable, requiring
segregated collateral.
SUPERVISION AND REGULATION
BANK HOLDING COMPANIES
GENERAL As a registered holding company, the Corporation is
regulated under the BHC Act and is subject to supervision and regular
inspection by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). The BHC Act requires, among other things, the
prior approval of the Federal Reserve Board in any case where the
Corporation proposes to (i) acquire all or substantially all of the
assets of any bank, (ii) acquire direct or indirect ownership or
control of more than 5 percent of the voting shares of any bank or
(iii) merge or consolidate with any other bank holding company.
ACQUISITIONS/PERMISSIBLE BUSINESS ACTIVITIES The BHC Act
prohibits the Federal Reserve Board from approving a bank holding
company's application to acquire a bank or bank holding company located
outside the state in which the operations of its banking subsidiaries
are principally conducted, unless such acquisition is specifically
authorized by statute of the state in which the bank or bank holding
company to be acquired is located. Pennsylvania law permits bank
holding companies located in any state to acquire Pennsylvania banks
and bank holding companies, provided that the home state of the
acquiring company has enacted "reciprocal" legislation. In this
context, reciprocal legislation is generally defined as legislation
that expressly authorizes Pennsylvania bank holding companies to
acquire banks or bank holding companies located in another state on
terms and conditions substantially no more restrictive than those
applicable to such an acquisition in Pennsylvania by a bank holding
company located in the other state.
On September 29, 1994, the President signed into law the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "IBBEA"), which permits adequately capitalized and adequately
managed bank holding companies to acquire banks in any state. The IBBEA
also permits banks in separate states to consolidated into single
entities with branches in multiple states. Consequently, effective
September 29, 1995, the Corporation will have the authority to acquire
any bank or bank holding company, and could be acquired by any bank or
bank holding company, located anywhere in the United States. Further,
effective June 1, 1997, the Corporation's subsidiary banks will have
the authority, subject to certain restrictions, including state opt-out
provisions, to consolidate with one another. States may affirmatively
opt-in earlier. Among other things, the IBBEA provides that interstate
branches of national banks will be subject to host state laws with
respect to intrastate branching, consumer protection, fair lending,
and community reinvestment laws, unless any such law is preempted by
federal law or is discriminatory in effect. The IBBEA provides that
interstate branches of state banks will be
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subject to the laws of the host state. In addition, among other
things, the IBBEA increases the community reinvestment requirements
applicable to multi-state depository institutions. This legislation
may increase competition as banks branch across state lines and enter
new markets.
Under the BHC Act, the Corporation is prohibited, with certain
exceptions, from acquiring direct or indirect ownership or control of
more than 5 percent of any class of voting shares of any non-banking
corporation. Further, the Corporation may not engage in any business
other than managing and controlling banks or furnishing certain
specified services to subsidiaries, and may not acquire voting control
of non-banking corporations except those corporations engaged in
businesses or furnishing services that the Federal Reserve Board deems
to be closely related to banking as "to be proper incident thereto."
The Federal Reserve Board has determined that a number of activities
meet this standard, including, for example, (i) making and servicing
loans, (ii) performing certain fiduciary functions, (iii) leasing real
and personal property, (iv) underwriting and dealing in government
obligations and certain money market instruments, and, to a limited
extent, in certain other securities that banks may not otherwise
underwrite or deal in, (v) providing foreign exchange advisory and
transactional services, (vi) making equity or debt investments in
corporations designed to promote community welfare or rehabilitation,
and (vii) owning, controlling or operating a savings association,
if the savings association engages only in deposit-taking activities
and lending and other activities that are permissible for bank holding
companies. The Federal Reserve Board may revise, and has revised, from
time to time, its list of permitted activities. See "Supervision and
Regulation - Legislative Proposals and Reform" below.
COMMUNITY REINVESTMENT Bank holding companies and their
subsidiary banks are subject to the provisions of the Community
Reinvestment Act of 1977, as amended (the "CRA"). Under the terms of
the CRA, each subsidiary bank's record in meeting the credit needs of
the community served by that bank, including low- and moderate-income
neighborhoods, is generally annually assessed by that bank's primary
regulatory authority. When a bank holding company applies for approval
to acquire a bank or other bank holding company, the Federal Reserve
Board will review the assessment of each subsidiary bank of the
applicant bank holding company, and such records may be the basis for
denying the application. The federal banking agencies have issued a
notice of proposed rulemaking that would replace the current CRA
assessment system with a new evaluation system that would primarily
rate institutions based on their actual lending activity in the
community. Under the current proposal, each institution would be
evaluated based on the degree to which it is providing loans and other
services and investments to low- and moderate-income areas. Such
proposal includes race and gender reporting requirements.
SOURCE OF STRENGTH POLICY Under Federal Reserve Board policy, a
bank holding company is expected to act as a source of financial
strength to each of its subsidiary banks and to commit resources to
support each such bank. In addition, under federal law, a bank
holding company may find it
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necessary to provide capital to an insured depository
institution subsidiary in connection with that subsidiary's capital
restoration plan. Consistent with its "source of strength" policy for
subsidiary banks, the Federal Reserve Board has stated that, as a
matter of prudent banking, a bank holding company generally should not
maintain a rate of cash dividends unless its net income available to
common shareholders has been sufficient to fund fully the dividends,
and the prospective rate of earnings retention appears to be consistent
with the corporation's capital needs, asset quality and overall
financial condition.
SUBSIDIARY BANKS
GENERAL The Corporation's subsidiary banks are subject to
supervision and examination by applicable federal and state banking
agencies, including the Office of the Comptroller of the Currency
("Comptroller") in the case of national banks. In addition, all of the
subsidiary banks are insured by and subject to some or all of the
regulations of the Federal Deposit Insurance Corporation ("FDIC"). The
Corporation's subsidiary banks are also subject to various requirements
and restrictions under federal and state law, including requirements to
maintain reserves against deposits, restrictions on the types, amounts
and terms and conditions of loans that may be granted and limitations
on the types of investments that may be made and the types of services
that may be offered. Various consumer laws and regulations also affect
the operations of the subsidiary banks. In addition to the impact of
regulation, commercial banks are affected significantly by the actions
of the Federal Reserve Board, including actions taken with respect to
interest rates, as it attempts to control the money supply and credit
availability in order to influence the economy.
DIVIDEND RESTRICTIONS Dividends from the Corporation's
subsidiary banks constitute the principal source of income to the
parent company. The Corporation's subsidiary banks are subject to
various statutory and regulatory restrictions on their ability to pay
dividends to the Corporation. Under such restrictions, the amount
available for payment of dividends to the Corporation by all subsidiary
banks was $948 million at December 31, 1994. In addition, the
Comptroller, in the case of national bank subsidiaries, and the FDIC or
the Federal Reserve Board, in the case of state bank subsidiaries, have
authority to prohibit any such bank subsidiary from engaging in an
unsafe or unsound practice in conducting its business. The payment of
dividends, depending upon the financial condition of the bank
subsidiary in question, could be deemed to constitute such an unsafe or
unsound practice, and the Comptroller and the Federal Reserve Board
have indicated their view that it generally would be an unsafe and
unsound practice to pay dividends except out of current operating
earnings. The ability of the subsidiary banks to pay dividends in the
future is presently, and could be further, influenced by bank
regulatory and supervisory policies.
AFFILIATE TRANSACTION RESTRICTIONS The Corporation's
subsidiary banks are subject to affiliate transaction restrictions
under federal law which limit the transactions by subsidiary banks to
or on behalf of their parent company and to or on behalf of any
non-bank subsidiaries, whether in the form of loans, extensions of
credit, issuances of guaranties, acceptances or letters of credits,
investments or asset purchases. Such transactions by a subsidiary bank
to its parent company or to any non-bank subsidiary are limited to
10 percent of a bank subsidiary's capital and surplus
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and, with respect to such parent company and all such non-bank
subsidiaries, to an aggregate of 20% of such bank subsidiary's capital
and surplus. Further, such loans and extensions of credit generally
are required to be secured by eligible collateral in specified
amounts. Federal law also prohibits subsidiary banks from purchasing
"low-quality" assets from affiliates.
FDIC CROSS-GUARANTEE PROVISIONS The Corporation's subsidiary
banks, as FDIC-insured institutions, are subject to the
"cross-guarantee" provisions under federal law that provide that if one
depository institution subsidiary of a multi-bank holding company fails
or requires FDIC assistance, the FDIC may assess a "commonly
controlled" depository institution for the estimated losses suffered by
the FDIC. Such liability could have a material adverse effect on the
financial condition of any assessed bank and the parent company. While
the FDIC's claim is junior to the claims of depositors, holders of
secured liabilities, general creditors and subordinated creditors, it
is superior to the claims of shareholders and affiliates.
FDIC INSURANCE ASSESSMENTS Since the deposits of the
Corporation's subsidiary banks are insured by the FDIC, the subsidiary
banks are subject to FDIC insurance assessments. The amount of FDIC
assessments paid by individual insured depository institutions is based
on their relative risk as measured by regulatory capital ratios and
certain other factors. Under this system, in establishing the
insurance premium assessment for each bank, the FDIC will take into
consideration the probability that the deposit insurance fund will
incur a loss with respect to an institution, and will charge a higher
insurance premium to an institution with perceived higher inherent
risks. The FDIC will also consider the different categories and
concentrations of assets and liabilities of the institution, the
revenue needs of the deposit insurance fund, and any other factors the
FDIC deems relevant. Current regulations provide for a minimum
assessment of 23 cents per $100 of eligible deposits for the best-
rated banks, with a maximum of 31 cents per $100 of eligible deposits
for the weakest-rated institutions. The FDIC's Board of Directors has
proposed to revise the assessment methodology and reduce the current
assessments rates for all but the riskiest banks. Under the proposal,
the best-rated banks would pay 4 cents per $100 of deposits while the
weakest ones would continue to pay 31 cents per $100 of deposits. At
this time, assessment rates for savings associations are not proposed
to be reduced.
The rate assessed for each of the Corporation's subsidiary
banks is currently 23 cents per $100 of eligible deposits. The
assessment rate for the Corporation's savings association deposits is
also currently 23 cents per $100 of eligible deposits.
CAPITAL REQUIREMENTS The federal banking agencies possess broad powers
to take corrective action as deemed appropriate for an insured
depository institution and its holding company. The extent of these
powers depends on whether the institution in question is considered
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized."
Generally, as an institution is deemed to be less than well
capitalized, the scope and severity of the agencies' powers increase.
The agencies' corrective powers can include, among other things,
requiring an insured financial institution to adopt a capital
restoration plan which cannot be approved unless guaranteed by the
institution's parent company; placing limits on asset growth and
restrictions on activities; placing restrictions on transactions with
affiliates; restricting the interest rate the institution may pay
on deposits;
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prohibiting the institution from accepting deposits from
correspondent banks; prohibiting the payment of principal or interest
on subordinated debt; prohibiting the holding company from making
capital distributions without prior regulatory approval; and,
ultimately, appointing a receiver for the institution. Business
activities may also be influenced by an institution's capital
classification. For instance, only a "well capitalized" depository
institution may accept brokered deposits without prior regulatory
approval and only an "adequately capitalized" depository institution
may accept brokered deposits with prior regulatory approval. At
December 31, 1994, all of the Corporation's subsidiary banks exceeded
the required ratios for classification as "well capitalized."
The federal bank regulatory authorities have each adopted
risk-based capital guidelines to which the Corporation's subsidiary
banks are subject. These guidelines are based on an international
agreement developed by the Basle Committee on Banking Regulations and
Supervisory Practices, which consists of representatives of central
banks and supervisory authorities in 12 countries including the United
States. The guidelines establish a systematic analytical framework that
makes regulatory capital requirements more sensitive to differences in
risk profiles among banking organizations, takes off-balance-sheet
exposures into explicit account in assessing capital adequacy and
minimizes disincentives to holding liquid, low-risk assets. The
risk-based capital ratio is determined by allocating assets and
specified off-balance-sheet items into four weighted categories, with
higher levels of capital being required for the categories perceived as
representing greater risk.
Under these guidelines, a bank's capital is divided into two
tiers. The first tier (Tier 1) includes common equity, non-cumulative
perpetual preferred stock (excluding auction rate issues) and minority
interests that are held by others in a bank's consolidated
subsidiaries, less goodwill and any disallowed intangibles.
Supplementary (Tier 2) capital includes, among other items, cumulative
and limited-life preferred stock, hybrid capital instruments, mandatory
convertible securities, qualifying subordinated debt and the allowance
for loan and lease losses, subject to certain limitations, less
required deductions as prescribed by regulation.
All banks are required to maintain a minimum total risk-based
ratio of 8 percent, of which half (4 percent) must be Tier 1 capital.
In addition, the federal bank regulators established leverage ratio
(Tier 1 capital to total adjusted average assets) guidelines providing
for a minimum leverage ratio of 3 percent for banks meeting certain
specified criteria, including excellent asset quality, high liquidity,
low interest rate exposure and the highest regulatory rating.
Institutions not meeting these criteria are expected to maintain a
ratio which exceeds the 3 percent minimum by at least 100 to 200 basis
points. The federal bank regulatory authorities may, however, set
higher capital requirements when a bank's particular circumstances
warrant.
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The following table sets forth the capital and leverage ratios of
certain of the Corporation's subsidiary banks as of December 31, 1994:
--------------------------------------------------------------------
RISK-BASED CAPITAL RATIOS
-------------------------
SUBSIDIARY BANK TOTAL TIER I LEVERAGE
--------------------------------------------------------------------
PNC Bank, National Association 10.62% 8.92% 6.93%
PNC Bank, Kentucky, Inc. 12.61 11.35 8.19
PNC Bank, Ohio, National 10.90 8.88 6.89
Association
PNC Mortgage Bank, National 18.81 17.68 8.69
Association
PNC Bank, Delaware 12.25 11.00 6.72
PNC Bank, New England 12.71 11.79 5.70
--------------------------------------------------------------------
A discussion of the current capital levels of the Corporation,
is set forth under the caption entitled "Capital" of the "Corporate
Financial Review" on pages 36 and 37 of the Annual Report to
Shareholders, which is incorporated herein by reference.
The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") requires each federal banking agency to revise its
risk-based capital standards, among other things, to ensure that those
standards take adequate account of interest rate risk, concentration of
credit risk and the risks of non-traditional activities, as well as
reflect the actual performance and expected risk of loss on
multi-family mortgages. By joint rule on December 15, 1994, effective
January 17, 1995, each of the Federal Reserve Board, the FDIC, the
Comptroller and the Office of Thrift Supervision has amended its
agency's risk-based capital standards by explicitly identifying
concentration of credit risk and the risk arising from non-traditional
activities, as well as an institution's ability to manage those risks,
as important factors to be taken into account by the agency in
assessing an institution's overall capital adequacy. The Federal
Reserve Board, the FDIC and the Comptroller have also issued a joint
notice of proposed rulemaking for implementing the interest rate risk
component of the risk-based capital guidelines. Under the proposal, an
institution's assets, liabilities, and off-balance-sheet positions
would be weighted by risk factors that approximate the instruments'
price sensitivity to a 100 basis point change in interest rates.
Institutions with interest rate exposure in excess of a threshold level
would be required to hold additional capital proportional to that risk.
A final rule is expected to be adopted during the first half of 1995.
The Corporation has been advised that any final rule may differ from
its currently proposed form.
NON-BANK SUBSIDIARIES
The non-bank subsidiaries of the Corporation are subject to
regulatory restrictions imposed by the Federal Reserve Board and other
federal or state regulatory agencies. The Corporation has three
subsidiaries that are registered broker-dealers. The activities of
these companies are
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monitored by the Comptroller in two instances and the Federal
Reserve Board in the other instance, and each company is subject to
rules and regulations promulgated by the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., the
Municipal Securities Rulemaking Board, the Securities Investors
Protection Corporation and various state securities commissions.
Several other non-bank subsidiaries of the Corporation are
registered investment advisors and are subject to the regulations of
the Securities and Exchange Commission and may be subject to
regulations of one or more state securities commissions. Additionally,
those investment advisors, as subsidiaries of a national bank, are
subject to supervision by the Comptroller.
Other non-bank subsidiaries of the Corporation are regulated under
federal and/or state mortgage lending, insurance and consumer laws,
among others.
GOVERNMENTAL POLICIES
The operations of financial institutions may be affected by the
policies of various regulatory authorities. In particular, bank holding
companies and their subsidiaries are affected by the credit and
monetary policies of the Federal Reserve Board. An important function
of the Federal Reserve Board is to regulate the national supply of bank
credit. Among the instruments of monetary policy used by the Federal
Reserve Board to implement its objectives are open market operations
in U.S. Government securities, changes in the discount rate on bank
borrowings and changes in reserve requirements on bank deposits.
These instruments of monetary policy are used in varying
combinations to influence the overall level of bank loans, investments
and deposits, the interest rates charged on loans and paid for
deposits, the price of the dollar in foreign exchange markets and the
level of inflation. The monetary policies of the Federal Reserve Board
have had a significant effect on the operating results of banking
institutions in the past and are expected to continue to do so in the
future. It is not possible to predict the nature or timing of future
changes in monetary and fiscal policies, or the effect that they may
have on the Corporation's business and earnings.
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LEGISLATIVE PROPOSALS AND REFORM
Certain significant legislative proposals and reforms affecting
the financial services industry are currently being discussed and
evaluated by Congress. Such proposals include legislation to revise the
Glass-Steagall Act and the BHC Act to expand permissible activities for
banks, principally to facilitate the convergence of commercial and
investment banking. Other proposals under consideration include the
consolidation and/or jurisdictional realignment of various federal
banking agencies as well as involve a reassessment of community
reinvestment and fair lending laws. At this time, it is unclear whether
any of these proposals, or any form of them, will become law this year
or ever. Consequently, it is difficult to ascertain what effect they
may have on the Corporation and its subsidiaries.
COMPETITION
Bank holding companies and their subsidiaries are subject to
vigorous and intense competition from various financial institutions
and other "non-bank" or non-regulated companies or firms that engage in
similar activities. The Corporation's subsidiary banks compete for
deposits with other commercial banks, savings banks, savings and loan
associations, insurance companies and credit unions, as well as issuers
of commercial paper and other securities, including shares in mutual
funds. In making loans, the Corporation's subsidiary banks compete with
other commercial banks, savings banks, savings and loan associations,
consumer finance companies, credit unions, leasing companies and other
non-bank lenders. In addition, various non-bank subsidiaries engaged in
investment banking and venture capital activities compete with
commercial banks, investment banking firms, insurance companies and
venture capital firms. In providing trust and money management
services, the Corporation's subsidiaries compete with many large
commercial banks, trust companies, brokerage houses, mutual fund
managers, registered investment advisors and insurance companies.
The Corporation and its subsidiaries compete not only with
financial institutions based in the states in which the subsidiary
banks are located, but also with a number of large out-of-state and
foreign banks, bank holding companies and other financial and non-bank
institutions. Some of the financial and other institutions operating in
the same markets are engaged in national and international operations
and have more assets and personnel than the Corporation. Some of the
Corporation's competitors are not subject to the extensive bank
regulatory structure and restrictive policies which apply to the
Corporation and its subsidiaries.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning each executive officer of the
Corporation as of February 28, 1995 is set forth below. Each executive
officer held the position indicated or another senior executive
position with the same entity or one of its affiliates or a predecessor
corporation for the past five years, except as noted on page 16.
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NAME AGE POSITION WITH PNC BANK CORP. YEAR EMPLOYED
- - - ------------------------------------------------------------------------------------------------------------
Thomas H. O'Brien 58 Chairman and Chief Executive Officer 1962
James E. Rohr 46 President 1972
Susan B. Bohn 50 Executive Vice President, Corporate 1986
Development and Communications
Richard C. Caldwell (1) 50 Executive Vice President, Investment 1990
Management and Trust
Walter E. Gregg, Jr. 53 Executive Vice President, Finance and 1974
Administration
Robert L. Haunschild (2) 45 Senior Vice President and Chief Financial Officer 1990
Joe R. Irwin 59 Executive Vice President and Chief Investment 1963
Officer
William J. Johns 47 Senior Vice President and Chief Accounting Officer 1974
Edward P. Junker III 58 Vice Chairman 1964
Thomas E. Paisley III 47 Senior Vice President and Chairman, Corporate 1972
Credit Policy Committee
Helen P. Pudlin 45 Senior Vice President and General Counsel 1989
Bruce E. Robbins 50 Executive Vice President, Corporate Banking 1973
A. William Schenck III 51 Executive Vice President, Retail Banking 1969
Richard L. Smoot 54 President and Chief Executive Officer, PNC Bank, 1987
National Association - Philadelphia
Herbert G. Summerfield, Jr. 54 Executive Vice President, Real Estate 1970
____________________________
(1) Mr. Caldwell's principal occupation prior to 1990 was Executive Vice
President and Manager of the Trust Division of Harris Trust and Savings
Bank, Chicago, Illinois.
(2) Mr. Haunschild's principal occupation prior to 1990 was Partner in the
Pittsburgh Office of Ernst & Young LLP.
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ITEM 2 - PROPERTIES
The executive and administrative offices of the Corporation and
PNC Bank, National Association ("PNC Bank, N.A."), are located in One
PNC Plaza, located at Fifth Avenue and Wood Street, Pittsburgh,
Pennsylvania. The thirty-story structure is owned by PNC Bank, N.A. The
Corporation and PNC Bank, N.A. occupy substantially all of the building.
In addition, PNC Bank, N.A. owns a thirty-four story structure adjacent
to One PNC Plaza, known as Two PNC Plaza, that houses additional office
space. PNC Bank, N.A. also owns a data processing and telecommunications
center located in a suburb of Pittsburgh.
The Corporation's subsidiaries also own or lease numerous other
premises for use in conducting banking and non-banking activities. The
facilities owned or occupied under lease by the Corporation's
subsidiaries are considered by management to be adequate. Neither the
location of any particular office nor the unexpired term of any lease is
deemed material to the business of the Corporation.
For additional information pertaining to the Corporation's
properties, refer to the information set forth under the caption
entitled "Premises, Equipment and Leasehold Improvements," included on
pages 56 and 57 of the Annual Report to Shareholders, which is
incorporated herein by reference.
ITEM 3 - LEGAL PROCEEDINGS
A consolidated purported class action complaint was filed in March 1995
in the United States District Court for the Western District of
Pennsylvania against the Corporation, its Chairman and Chief Executive
Officer, and its Senior Vice President and Chief Financial Officer, on
behalf of a purported class of persons who purchased the Corporation's
securities between April 18, 1994 and November 15, 1994. The lawsuit
was consolidated from four lawsuits filed in November and December
1994. The consolidated lawsuit alleges violations of federal
securities laws and common law relating to disclosures regarding the
Corporation's net interest income, interest rate risk, future
prospects, and related matters, and seeks, among other things,
unquantified damages. Management believes there are meritorious
defenses to this consolidated lawsuit and intends to defend it
vigorously. Management believes that the final disposition will not be
material to the Corporation's financial position.
In January 1992, a purported class action lawsuit was filed
against PNC National Bank ("PNCNB"), a national bank subsidiary of the
Corporation located in Wilmington, Delaware, alleging that PNCNB
violated Pennsylvania statutes in connection with certain fees charged
on credit cards issued by PNCNB. The lawsuit is brought on behalf of a
purported class of resident individuals of Pennsylvania who have
contracted for, been charged, had reserved, or had paid these fees, and
seeks, among other things, unquantified compensatory and triple damages
and injunctive relief. The lawsuit was filed in the Court of Common
Pleas of Allegheny County and was removed to the United States District
Court for the Western District of Pennsylvania. The district court
denied plaintiff's motion to remand the case to state court and
dismissed the lawsuit, holding that Pennsylvania law is preempted by
federal banking laws. Plaintiff has appealed and PNCNB is vigorously
defending the district court's
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decision. The impact of the final disposition of this lawsuit
cannot be assessed at the present time. In certain cases not involving
PNCNB, a Pennsylvania intermediate state appellate court has held that
the application of Pennsylvania law to certain credit card fees, when
charged to Pennsylvania residents, is not preempted by federal banking
laws. Further appellate review is being sought in those cases.
The Corporation, in the normal course of business, is subject
to various other pending and threatened lawsuits in which claims for
monetary damages are asserted. Management, after consultation with
legal counsel, does not anticipate that the ultimate aggregate
liability, if any, arising out of such other lawsuits will have a
material adverse effect on the Corporation's financial position.
At the present time, management is not in a position to
determine whether any pending or threatened litigation will have a
material adverse effect on the Corporation's results of operations in
any future reporting period.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Corporation's common stock is listed on the New York Stock
Exchange and is traded under the symbol "PNC". At the close of business
on February 28, 1995, there were 43,925 common shareholders of record.
Holders of common stock are entitled to receive dividends when
declared by the Board of Directors out of funds legally available
therefor. The Board of Directors may not pay or set apart dividends on
the common stock until dividends for all past dividend periods on any
series of outstanding preferred stock have been paid or declared and
set apart for payment. The Board presently intends to continue the
policy of paying quarterly cash dividends. However, the amount of any
future dividends will depend on earnings, the financial condition of
the Corporation and other factors including applicable government
regulations and policies (such as those relating to the ability of the
subsidiary banks and non-bank subsidiaries to upstream dividends to the
parent company). The Federal Reserve Board has the power to prohibit
the Corporation from paying dividends without prior regulatory
approval. Further discussion concerning dividend restrictions is set
forth under the caption "Supervision and Regulation" in Part I, Item 1
of this Form 10-K and in "Regulatory Matters" on page 63 of the Annual
Report to Shareholders, which is incorporated herein by reference.
Additional information relating to the common stock is set
forth under the caption "Common Stock Prices/Dividends Declared" on
page 81 of the Annual Report to Shareholders, which is incorporated
herein by reference.
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ITEM 6 - SELECTED FINANCIAL DATA
"Selected Consolidated Financial Data" on page 67 of the Annual
Report to Shareholders is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis of the Corporation's financial
position and its results of operations set forth under the section
entitled "Corporate Financial Review" on pages 20 - 44 of the Annual
Report to Shareholders is incorporated herein by reference.
See also the updated discussion included under the captions
"Business Overview-Business Strategies"and "Risk Management" in Part I,
Item 1-Business of this Form 10-K.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Report of Ernst & Young LLP, Independent Auditors,"
"Consolidated Financial Statements" and "Selected Quarterly Financial
Data" on pages 45, 46-66 and 68, respectively, of the Annual Report to
Shareholders are incorporated herein by reference.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the principal occupations of directors
of the Corporation, their ages, directorships in other companies, and
respective terms of office under the heading "Election of Directors -
Information Concerning Nominees" in the Proxy Statement is incorporated
herein by reference.
Information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 set forth under the heading
"Certain Reports" in the Proxy Statement is incorporated herein by
reference.
Information regarding executive officers of the Corporation is
included in Part I of this Form 10-K under the caption "Executive
Officers of the Registrant."
ITEM 11 - EXECUTIVE COMPENSATION
Information regarding compensation of directors and executive
officers under the captions entitled "Election of Directors -
Compensation of Directors" and "Compensation of Executive Officers",
excluding the "Personnel and Compensation Committee Report on Executive
Compensation," in the Proxy Statement is incorporated herein by
reference.
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ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the beneficial ownership of the equity
securities of the Corporation by all nominees for director, each of the
five highest compensated executive officers and all directors and
executive officers of the Corporation as a group under the heading
"Security Ownership of Directors and Executive Officers and Certain
Beneficial Owners-Security Ownership of Directors and Executive
Officers" in the Proxy Statement is incorporated herein by reference.
Information regarding ownership of the equity securities of the
Corporation by certain beneficial owners under the heading "Security
Ownership of Directors and Executive Officers and Certain Beneficial
Owners-Security Ownership of Certain Beneficial Owners" in the Proxy
Statement is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding transactions and relationships with
certain directors and executive officers of the Corporation and their
associates under the heading "Compensation of Executive
Officers-Compensation Committee Interlocks and Insider Participation"
in the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following report of independent auditors of the Corporation and
consolidated financial statements, included in the Annual Report to
Shareholders, are incorporated herein by reference.
PAGE OF
FINANCIAL STATEMENTS ANNUAL REPORT
-------------
Report of Ernst & Young LLP, Independent Auditors 45
Consolidated Balance Sheet as of December 31, 1994 and 1993 46
Consolidated Statement of Income for the three years ended
December 31, 1994 47
Consolidated Statement of Changes in Shareholders' Equity for
the three years ended December 31, 1994 48
Consolidated Statement of Cash Flows for the three years ended
December 31, 1994 49
Notes to Consolidated Financial Statements 50
Quarterly Selected Financial Data 68
FINANCIAL STATEMENT SCHEDULES
Not applicable.
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REPORTS ON FORM 8-K
A Form 8-K dated as of October 19, 1994, was filed on October 21, 1994,
pursuant to Item 5 to report the Corporation's consolidated financial
results for the three months and nine months ended September 30, 1994.
A Form 8-K dated as of November 23, 1994, was filed on December 7, 1994,
pursuant to Item 5 to report two purported class action
lawsuits commenced against the Corporation, its Chairman and Chief
Executive Officer, and, in one case, its Senior Vice President and Chief
Financial Officer, alleging purported violations of federal securities
laws relating to disclosures regarding the Corporation's net interest
income, interest rate risk, and future prospects and related matters.
A Form 8-K was filed on, and dated as of, January 6, 1995,
pursuant to Item 5 to report (i) certain actions taken by the
Corporation to reduce its interest rate sensitivity; (ii) to announce a
charge to earnings related to the cost of consolidating existing
telephone banking centers and continued rationalization of the branch
network; and (iii) the authorization by the Corporation's Board of
Directors to purchase up to 24 million shares of the Corporation's
common stock over the next two years.
A Form 8-K dated as of January 13, 1995, was filed on January 23, 1995,
pursuant to Item 5 to report (i) the Corporation's consolidated
financial results for the three months and twelve months ended December
31, 1994; and (ii) the completion of the acquisition of Indian River.
A Form 8-K dated as of February 28, 1995, was filed on March
14, 1995, pursuant to Item 5 to report (i) the completion of the
acquisition of BlackRock; (ii) the completion of the acquisition of
Brentwood; and (iii) the entering into a definitive agreement to
acquire Chemical Bank New Jersey.
No financial statements were filed with such reports.
EXHIBITS
The exhibits listed on the Exhibit Index on pages 25-26 of this Form
10-K are filed herewith or are incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, PNC Bank Corp. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PNC BANK CORP.
(Registrant)
By: /s/ THOMAS H. O'BRIEN
--------------------------
Thomas H. O'Brien
Chairman and Chief
Executive Officer
Dated: March 31, 1995
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Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of PNC Bank Corp. and in the capacity and on the dates
indicated.
SIGNATURE TITLE DATE
- - - --------------------------- ------------------------------ ----------------
/s/ THOMAS H. O'BRIEN
- - - --------------------------- Chairman, Chief Executive March 31, 1995
Thomas H. O'Brien Officer and Director
(Principal Executive Officer)
/s/ ROBERT L. HAUNSCHILD
- - - --------------------------- Senior Vice President and March 31, 1995
Robert L. Haunschild Chief Financial Officer
(Principal Financial Officer)
/s/ WILLIAM J. JOHNS
- - - --------------------------- Senior Vice President and March 31, 1995
William J. Johns Chief Accounting Officer
(Principal Accounting Officer)
*
- - - --------------------------- Director March 31, 1995
Robert N. Clay
*
- - - --------------------------- Director March 31, 1995
William G. Copeland
*
- - - --------------------------- Director March 31, 1995
George A. Davidson, Jr.
*
- - - --------------------------- Director March 31, 1995
Dianna L. Green
*
- - - --------------------------- Director March 31, 1995
C. G. Grefenstette
*
- - - --------------------------- Director March 31, 1995
Thomas Marshall
*
- - - --------------------------- Director March 31, 1995
W. Craig McClelland
*
- - - --------------------------- Director March 31, 1995
Donald I. Moritz
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*
- - - --------------------------- Director March 31, 1995
Jackson H. Randolph
/s/ JAMES E. ROHR
- - - --------------------------- President and Director March 31, 1995
James E. Rohr
*
- - - --------------------------- Director March 31, 1995
Roderic H. Ross
*
- - - --------------------------- Director March 31, 1995
Vincent A. Sarni
*
- - - --------------------------- Director March 31, 1995
Richard P. Simmons
*
- - - --------------------------- Director March 31, 1995
Thomas J. Usher
*
- - - --------------------------- Director March 31, 1995
Milton A. Washington
*
- - - --------------------------- Director March 31, 1995
Helge H. Wehmeier
* By /s/ MELANIE S. CIBIK March 31, 1995
----------------------
Melanie S. Cibik
Attorney-in-fact, pursuant
to Powers of Attorney
filed herewith
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EXHIBIT INDEX
3.1 Articles of Incorporation of the Corporation, as amended, incorporated
herein by reference to Exhibit 3.1 of the Annual Report on Form 10-K
for the year ended December 31, 1993.
3.2 By-Laws of the Corporation, as amended, filed herewith.
4.1 Instruments defining the rights of holders of long-term debt of the
Corporation and its subsidiaries are not filed as Exhibits because the
amount of debt under each instrument is less than 10 percent of the
consolidated assets of the Corporation. The Corporation undertakes to
file these instruments with the Commission on request.
4.2 Designation of Series: $1.80 Cumulative Convertible Preferred Stock --
Series A, incorporated herein as part of Exhibit 3.1.
4.3 Designation of Series: $1.80 Cumulative Convertible Preferred Stock --
Series B, incorporated herein as part of Exhibit 3.1.
4.4 Designation of Series: $1.60 Cumulative Convertible Preferred Stock --
Series C, incorporated herein as part of Exhibit 3.1.
4.5 Designation of Series: $1.80 Cumulative Convertible Preferred Stock --
Series D, incorporated herein as part of Exhibit 3.1.
10.1 Supplemental Executive Retirement Income and Disability Plan of the
Corporation, incorporated herein by reference to Exhibit 10.2 of the
Annual Report on Form 10-K for the year ended December 31, 1990 ("1990
Form 10-K"). *
10.2 Supplemental Executive Life Insurance and Spouse's Benefit Plan of the
Corporation, incorporated herein by reference to Exhibit 10.3 of the
1990 Form 10-K. *
10.3 Description of the Corporation's Senior Executive Compensation Plan,
incorporated herein by reference to Exhibit 10.4 of the Annual Report
on Form 10-K for the year ended December 31, 1992 ("1992 Form 10-K"). *
10.4 1992 Long-Term Incentive Award Plan of the Corporation, incorporated
herein by reference to Exhibit 4.3 of the Registration Statement on
Form S-8 at File No. 33-54960. *
10.5 1992 Director Share Incentive Plan, incorporated herein by reference to
Exhibit 10.6 of the 1992 Form 10-K. *
10.6 PNC Bank Corp. 1994 Annual Incentive Award Plan, filed herewith. *
10.7 PNC Bank Corp. Directors Retirement Plan, filed herewith. *
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11 Calculation of Primary and Fully Diluted Earnings Per Share, filed
herewith.
12.1 Computation of Ratio of Earnings to Fixed Charges, filed herewith.
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Dividends, filed herewith.
13 Annual Report to Shareholders for the year ended December 31, 1994,
filed herewith. Such Annual Report, except for those portions thereof
that are expressly incorporated by reference herein, is furnished for
information of the Securities and Exchange Commission only and is not
deemed to be "filed" as part of this Form 10-K.
21 Schedule of Certain Subsidiaries of the Corporation, filed
herewith.
23 Consent of Ernst & Young LLP, independent auditors for the Corporation,
filed herewith.
24 Powers of Attorney of certain directors of the Corporation, filed
herewith.
27 Financial Data Schedule, filed herewith.
____________________
* Management contract or compensatory plan.
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