PNC Financial Corporation
PNC Financial Corporation
Assets: $36.5 billion
Stock Index: New York
In 1983, two Pennsylvania banking concerns, the Pittsburgh National Corporation and the Provident National Corporation, merged to form the PNC Financial Corporation. PNC’s relatively brief history is one of stunning growth and outstanding management. The Pittsburgh-based holding company doubled its assets in only five years, going from $16.4 billion in 1983 to more than $36 billion by 1988, and boasts the strongest return on assets and return on equity of any of the 15 largest American banking groups. PNC showed remarkable agility in its response to the banking industry’s dramatic changes in the 1980s. As a result it has emerged as one of the nation’s most respected, indeed at times envied, banking groups.
PNC Corporation’s forerunner, 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’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 medium-sized regional concern, but it rapidly developed into one of the nation’s most powerful super-regional banks.
PNC’s first chief executive, Merle Gilliand, had already served as CEO at Pittsburgh National Bank for 11 years by the time PNC was formed in 1983. 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 is the Mellon Bank. For years, Mellon controlled the large corporate accounts of Pittsburgh’s many companies (the city ranks 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, but strove 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 corporations’ 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 are strict by industry standards. Acceptable banks were mid-sized, 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. In 1987, 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 Mechanicsburg. While acquisitions normally dilute 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 U.S. created a new kind of bank, the super-regional. Super-regionals operate in a number of states, and have begun to compete with the money center banks for a greater share of large corporate business. As mid-sized companies have needed more services in the international trade arena, the super-regionals have become more and more involved there as well. With its network spread throughout Pennsylvania, Kentucky, Ohio, and Delaware, by 1987 PNC was the premier super-regional in the United States and had become the nation’s 12th largest 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.
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 Financial Corporation’s history is one of astounding growth. The corporation’s young and aggressive management intend to continue growth while maintaining cautious lending policies, high quality service, and high profitability. As banking in the United States becomes more complex due to deregulation, banks will have to show ingenuity if they hope to remain competitive. PNC has shown great foresight in meeting the changes of the 1980s. If its past success is any indication of its future, PNC has much to look forward to.
Citizen Fidelity Corporation; The Hershey Bank; Marine Bank; Northeastern Bank of Pennsylvania; Pittsburgh National Bank; PNC National Bank; Provident National Bank; The Central Bancorpora-tion, Inc.; The First Bank and Trust Company; PNC Investment Company; PNC Merchant Banking Company PNC Trust Company of Florida, N. A.