PNC Bank Corp.
PNC Bank Corp.
Incorporated: 1983 as PNC Financial Corporation
Total Assets: $75.8 billion
Stock Exchanges: New York
SICs: 6712 Bank Holding Companies; 6021 National Commercial Banks; 6022 State Commercial Banks; 6091 Nondeposit Trust Facilities
PNC Bank Corp. is the llth largest bank in the United States and one of the premier superregional bank holding companies. PNC has grown rapidly in the 1980s and 1990s mainly through a series of acquisitions, the largest being the 1995 purchase of Midlantic Corp. In an era of heavy bank consolidation brought on by increasing competitive pressures and deregulation, PNC’s aggressive acquisition program has enabled it to stay competitive. Increasingly diversified through 1990s nonbank acquisitions, PNC operates in four core businesses: corporate banking, retail banking, investment and trust management, and investment banking.
PNC Bank Corp.’s immediate forerunner was PNC Financial Corporation, formed in 1983 from the merger of two Pennsylvania banking concerns, the Pittsburgh National Corporation and the Provident National Corporation. The Pittsburgh National Bank was incorporated in 1959, but its roots can be traced back to 1852, when steel magnates James Laughlin and B. F. Jones opened the Pittsburgh Trust and Savings in downtown Pittsburgh. PNC Financial’s other predecessor, the Provident National Bank, headquartered in Philadelphia, can also be traced to the mid-1800s. In 1847, the Tradesmens National Bank of Philadelphia opened its doors. After more than a century of banking and a series of name changes and acquisitions, it became the Provident National Bank in 1964. The Pittsburgh National Bank and the Provident National Bank combined their extensive banking experience in 1983. At that time, the newly formed bank holding company was no more than a mediumsized regional concern, but it rapidly developed into one of the nation’s most powerful superregional banks.
PNC’s first chief executive, Merle E. Gilliand, had already served as CEO at Pittsburgh National Bank for 11 years by the time PNC Financial was formed. Gilliand set the tone of PNC’s management style, which has been described as “bottom-up management.” He surrounded himself with competent senior executives and allowed them to make decisions on their own. This grass roots approach was rare in banking. Gilliand, however, contended that this method provided better service and, over the long run, a better bank. Under Gilliand’s leadership, PNC emphasized quality, not size. Nonetheless, this strategy also proved very conducive to growth in the changing markets of the 1980s.
PNC’s chief rival in the 1980s was the Mellon Bank. For years, Mellon controlled the large corporate accounts of Pittsburgh’s many companies (the city ranked third in the nation in number of corporate headquarters). As a result, PNC was forced to cater to mid-sized companies and to businesses outside of Pittsburgh. But, when Pittsburgh’s big companies experienced difficulties in the late 1970s and 1980s, PNC was not as exposed to the “rust belt” problems as the Mellon Bank. PNC, under Gilliand, was content to operate on a smaller scale than its rival, striving to provide all the same services with greater quality.
Banking deregulation allowed, and to some extent encouraged, mergers between banks. As the 1980s wore on, a number of well-run banks found it in their interest to join forces with the PNC group. PNC’s acquisition strategy focused on purchasing healthy banks which would add to the corporation’s overall strength. In 1984, PNC acquired the Marine Bank of Erie, Pennsylvania. A year later, it acquired the Northeastern Bancorp of Scranton, Pennsylvania. PNC’s criteria for acquisitions were strict by industry standards. Acceptable banks were midsized, with assets of between $2 and $6 billion, had a solid market share in their operating regions, earned excellent return on equity and on assets, and ideally had expertise in a specific area of financial services which would benefit the entire group. Close attention was also paid to whether or not the bank’s management philosophy was compatible with PNC’s.
In 1985, Thomas H. O’Brien replaced the retiring Merle Gilliand as CEO at PNC. At 48, O’Brien was the youngest CEO of any major U.S. bank. Ironically, he had started his banking career at PNC’s archrival, the Mellon Bank, before earning his MBA at Harvard. O’Brien had risen quickly through the ranks of the Pittsburgh National Bank, eventually heading PNC’s merchant banking activities, and finally becoming chairman and chief executive. As the top executive at PNC he continued Gilliand’s bottom-up management style. O’Brien would let executives at affiliates implement their own ideas at their own bank without a great deal of interference from the top. As a result of the autonomy PNC gave its affiliated banks, the banking group was an attractive merger partner for exactly the healthy regional banks it wished to acquire. PNC could grow, and the new affiliates could take advantage of the extended services offered by the group. PNC became known for its friendly takeovers of already successful banks.
Under O’Brien’s conservative yet aggressive leadership, PNC grew at a tremendous rate. In 1986, the Hershey Bank joined the group. The following year, with the acquisition of Citizen’s Fidelity Corporation of Louisville, PNC grew larger than its rival, the Mellon Bank. In 1988, PNC acquired the Central Bancorp of Cincinnati and the First Bank and Trust of Mechan-icsburg. While acquisitions normally diluted the value of a corporation’s stock for some time, PNC’s careful planning allowed it to quickly make up for the dilution. By the late 1980s, Wall Street analysts were so confident in PNC’s management that acquisition announcements did not seriously reduce the stock’s price.
The relaxation of interstate banking regulations in the United States during this time created a new kind of bank: the superre-gional. Superregionals operated in a number of states, and began in the late 1980s to compete with the money center banks for a greater share of large corporate business. As mid-sized companies needed more services in the international trade arena, the superregionals became more and more involved there as well. With its network spread throughout Pennsylvania, Kentucky, Ohio, and Delaware, PNC was the premier superregional in the United States by 1987 and had become the nation’s 12thlargest banking group. Its assets had more than doubled since 1983, and its earnings were among the highest in the industry.
Like many banks throughout the world, PNC was forced to set aside huge sums as a provision against bad debt in Third World countries in 1987. Unlike many banks, however, the PNC group still earned a substantial profit that year, despite its $200 million increase in loan loss reserves. While two-thirds of U.S. banks actually showed losses, PNC netted more than $255 million for its shareholders that year.
The banking group was very conservative in its lending throughout the 1980s. It set limits for the number of loans allowed to any particular industry and enforced stringent credit criteria. At the same time, PNC was energetic in its marketing. The corporation went after trust and money management business as well as corporate lending. PNC affiliates also showed higher than average earnings from fee income.
PNC suffered a slight setback in 1989 and 1990 when it was caught with millions in nonperforming commercial real estate loans—part of them inherited through its late 1980s acquisitions—resulting in reduced earnings. The company responded by tightening its loan policies and beginning an effort to reduce its dependence on riskier commercial loans in favor of the more dependable consumer sector. A restructuring in 1991 further reflected PNC’s desire to diversify its holdings by focusing company’s operations on four core businesses: corporate banking, retail banking, investment and trust management, and investment banking. The following year, with assets reaching $45.5 billion, PNC began a program of consolidation in which all its banks and most of its affiliated companies would take on the name PNC Bank. PNC Financial Corporation itself changed its name to PNC Bank Corp. in early 1993.
PNC’s desire to diversify was evident in its nonbank acquisitions of the early 1990s. In 1993 PNC acquired the Massachusetts Company to boost its financial services offerings. That year it also acquired the Sears Mortgage Banking Group, a major home mortgage lender, from Sears Roebuck & Co. for $328 million in cash. The move immediately quadrupled PNC’s mortgage business, pushing it into the top ten nationwide. In 1994 a third major nonbank acquisition bolstered the bank’s asset management area. The purchase of BlackRock Financial Management for $240 million in cash and notes increased PNC’s amount of assets under management to $75 billion, the sixth-largest amount among bank asset managers.
These acquisitions, however, would pale in comparison to those overseen by chairman and CEO O’Brien in the mid-1990s. As a prelude, in 1993 PNC purchased First Eastern Corp. of Wilkes-Barre, Pennsylvania, for $330 million, solidifying its holdings in northeastern Pennsylvania. In keeping with his strategy of expanding only within or adjacent to PNC’s existing retail banking territory, O’Brien then shifted his attention to the Philadelphia area and New Jersey, long a target for PNC growth. Early in 1995, PNC purchased 84 branches in southern and central New Jersey from Chemical Banking Corp. for $504 million. Then in July of that year, the bank announced it would acquire Midlantic Corp. of Edison, New Jersey, through a $2.84 billion stock swap. Midlantic’s $13.7 billion in assets would give PNC a total of $75.8 billion in assets, making it the 11th largest bank in the country. More importantly, PNC had purchased the third largest bank in New Jersey and had achieved a significant presence there.
Through its acquisitions in the early and mid-1990s, PNC Bank Corp. had in many ways created a unique type of bank that could provide a model for others to emulate. It was considered one of the top superregionals in the country with more than 800 branches in the contiguous area of Indiana, Kentucky, New Jersey, Pennsylvania, and Ohio. At the same time, it was building a national and in some cases international presence in the areas of asset management services and investment banking. Its strong regional retail banking operations coupled with its diversified financial services businesses were designed to help it weather banking downturns that have inevitably beset PNC’s and other banks’ earnings in the past. As barriers to interstate banking continued to fall, however, industry analysts were predicting further bank consolidation, even suggesting that only about five large banks would be left by the end of the 1990s. Whether PNC would be among them remained to be seen.
Bank of Delaware Corporation; BHC Holding, Inc.; BHC Securities, Inc.; The Central Bancorpora-tion, Inc.; PINACO; The Central Bank & Trust Company; The Central Trust Co. Central Ohio; PNB Securities Corp.; PNC Bancorp Inc.; PNC Bank (Indiana); PNC Bank (Kentucky); PNC Bank (Pennsylvania); PNC Bank, N.A.; PNC Bank, Northern Kentucky; PNC Bank, South Central; PNC Capital Corp.; PNC Commercial Corporation; PNC Community Development Corp.; PNC Corp.; PNC ESOP Funding Corporation; PNC Financial Services, Inc.; PNC Florida, Inc.; PNC Funding Corp.; PNC International Bank; PNC International Finance, N.V.; PNC Leasing Corp.; PNC Life Insurance Company; PNC National Bank; PNC National Investment Corporation; PNC-NJ N.A.; PNC Realty Corporation; PNC Realty Holding Corporation; PNC Securities Corp.; PNC Trust Company of Florida, N.A.; PNC Venture Corporation; RBS/PNCF Inc.; Sears Mortgage Company.
Crockett, Barton, “Has PNC Picked the Wrong Time to Grow in Investment Management?,” American Banker, October 5, 1994, p. 8.
“Forging a New Bank at PNC,” United States Banker, July 1993, pp. 22-24.
Murray, Matt, and Timothy L. O’Brien, “PNC Bank Corp. Agrees to Purchase Midlantic in a $2.84 Billion Stock Swap,” Wall Street Journal, July 11, 1995, p. A3.
_____, “PNC Is Acquiring Chemical Branches for $504 Million,” Wall Street Journal, March 9, 1995, p. A6.
O’Brien, Timothy L., and Steven Lipin, “In Latest Round of Banking Mergers, Even Big Institutions Become Targets,” Wall Street Journal, pp. A3, A4.
Olson, Thomas, “PNC Ensures New Market by Selling Insurance Products,” Pittsburgh Business Journal, July 25-31, 1994, p. 15.
_____, “PNC’s Purchase of Sears Mortgage Offers Market Clout,” Pittsburgh Business Times, May 17-23, 1993, p. 5.
“PNC Bank to Buy First Eastern Corp. in $330 Million Deal,” Wall Street Journal, p. B4.
Schroeder, Michael, “Maybe This Bank Should Have Cried Wolf,” Business Week, September 17, 1990, p. 140.
_____, “A Pittsburgh Bank That’s Dazzling the Street,” Business Week, February 29, 1988, p. 84.
Stern, Gabriella, and Robert McGough, “PNC Agrees to Acquisition of BlackRock,” Wall Street Journal, p. A4.
—updated by David E. Salamie