01—Abstract
Summary
Summary of the 10-K filed March 17, 1994. Cited figures are marked; the original filing is the authoritative source.
PNC Bank Corp. (NYSE: PNC) reported strong 1993 results, with net income of $725.9 milliona, or $3.04 per fully diluted share, up 70% from $426.9 million ($1.89) in 1992.
Return on average assets rose to 1.44% from 0.95%, and return on common equity rose to 18.40% from 12.47%. Excluding cumulative effects of accounting changes, income before those changes was $745.3 millionb ($3.13 per share). Growth was driven by a 9.9% increase in taxable-equivalent net interest income to $1.87 billion, a 37% drop in the provision for credit losses to $204 million, and a 6.6% increase in noninterest income to $945 million.
Noninterest expenses were essentially flat at $1.45 billionc, which helped the overhead ratio improve to 51.66% from 55.76%. The company's balance sheet grew to $62.1 billion in total assets, up 21% largely because of acquisitions, including the November 1993 purchase of the Sears Mortgage Banking Group for $328 million cash. Asset quality continued to improve: nonperforming assets fell to $554 million (0.89% of total assets) from $820 million, and net charge-offs fell to 0.66% of average loans from 1.15%.
Capital remained solid, with a Tier I risk-based ratio of 9.57%d, total risk-based ratio of 12.11%, and leverage ratio of 7.85%, though management expects these ratios to decline somewhat in 1994 as acquired assets are fully included and pending deals close. The Tier I ratio fell from 10.17% in 1992, reflecting the balance sheet expansion. Looking ahead, management expects improved economic conditions in 1994 with modestly higher short-term rates and loan demand, a lower provision for credit losses, and higher pension expense.
The pending First Eastern Corp. acquisition (about $330 million, expected to close in Q2 1994) and the January 1994 United Federal Bancorp acquisition ($156 million) are expected to add to earnings and assets, though the net interest margin is expected to narrow further. Litigation risk is limited: a securities class action was dismissed with prejudice, and a pending credit card fee lawsuit against PNCNB has no assessable impact.
02—Key points
Key Highlights
- Net income rose 70% to $725.9 million ($3.04 fully diluted EPS) in 1993, versus $426.9 million ($1.89) in 1992; ROA improved to 1.44% and ROE to 18.40%.
- Net interest income (taxable-equivalent) increased 9.9% to $1.87 billion, while the net interest margin narrowed to 3.95% from 4.03%.
- Provision for credit losses fell 37% to $204 million, and nonperforming assets declined to $554 million from $820 million (0.89% of total assets).
- Total assets reached $62.1 billion (up 21%), driven largely by the Sears Mortgage acquisition, which added $7.6 billion in consumer assets and a roughly $27 billion mortgage servicing portfolio.
- Noninterest expenses were roughly flat at $1.45 billion, and the overhead ratio improved to 51.66% from 55.76%.
- Capital ratios remained well above minimums (Tier I 9.57%, total risk-based 12.11%, leverage 7.85%), but are expected to decline modestly in 1994 as acquisitions are consolidated.
- Asset/liability and interest-rate risk are managed with swaps; a 250-basis-point rise in fed funds would reduce projected net interest income by only about 1.8%.
03—Questions
Frequently Asked Questions
How profitable was PNC in 1993 and how did that compare with 1992?
Net income was $725.9 million, or $3.04 per fully diluted share, compared with $426.9 million, or $1.89 per share, in 1992. Income before accounting changes was $745.3 million ($3.13 per share) versus $529.4 million ($2.34) in 1992. The 1993 result includes a $9.0 million after-tax cumulative effect charge from adopting SFAS 109 and a $10.4 million charge from changing intangible asset accounting. The 1992 result included a $102.5 million charge from adopting SFAS 106.
What drove the earnings improvement?
Mainly a lower provision for credit losses (down $120 million), higher net interest income (up $169 million, or 9.9%, on a taxable-equivalent basis), and higher noninterest income (up $58 million, or 6.6%). Net securities gains were $187.7 million, versus $193.5 million in 1992, so they were a slight drag on the comparison. Noninterest expenses rose only 0.8%.
How did the Sears Mortgage acquisition affect the company?
PNC completed the $328 million cash purchase of Sears Mortgage Banking Group on November 30, 1993. It added $7.6 billion in consumer assets, a mortgage servicing portfolio of about $27 billion ($21 billion serviced for others), and a network of 117 mortgage production offices in 33 states. Management expects it to boost net interest income, noninterest income, and fee income in 1994, while raising the overhead ratio and narrowing the net interest margin.
Is PNC's credit quality improving, and what are the main legal risks?
Credit quality improved. Nonperforming loans fell to 1.15% of loans from 2.14%, net charge-offs fell to 0.66% of average loans from 1.15%, and the allowance covered nonperforming loans 253% (versus 162% a year earlier). The main disclosed legal matter is a class action filed in 1992 against PNC National Bank in Delaware over credit card fees charged to Pennsylvania residents. Management said the outcome cannot be assessed at this time. A securities class action and related shareholder derivative suit were settled and dismissed with prejudice in December 1993, with costs covered by insurance and reserves.
What are the pending acquisitions and what do they mean for shareholders?
PNC has a pending agreement to acquire First Eastern Corp. of Wilkes-Barre, Pennsylvania, with $2.0 billion in assets, for an indicated value of about $330 million in cash, with closing expected in the second quarter of 1994 subject to regulatory and shareholder approval. It also completed the $156 million cash acquisition of United Federal Bancorp ($900 million in assets) on January 21, 1994. Management expects these deals to add to assets and earnings but to pressure capital ratios and the net interest margin. The filing does not give a pro forma EPS impact for these deals.
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