Incorporated: 1983 as PNC Financial Corporation
NAIC: 551111 Offices of Bank Holding Companies; 52211 Commercial Banking; 523991 Trust, Fiduciary, and Custody Activities
The PNC Financial Services Group Inc. is the 13th largest bank in the United States and a leading diversified financial services firm operating in Delaware, Kentucky, New Jersey, Ohio, and Pennsylvania. PNC grew rapidly in the 1980s and 1990s mainly through a series of acquisitions, the largest being the 1995 purchase of Midlantic Corp. and the 1999 purchase of First Data Investment Services Group. In an era of heavy bank consolidation brought on by increasing competitive pressures and deregulation, PNC's aggressive acquisition program enabled it to stay a leading force in the banking industry. PNC's main businesses include community banking, corporate banking, real estate finance, asset-based lending, wealth and asset management, and global fund services.
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 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 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 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. 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 Mechanicsburg. 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 super-regional. Super-regionals 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 super-regionals became more and more involved there as well. With its network spread throughout Pennsylvania, Kentucky, Ohio, and Delaware, PNC was the premier super-regional in the United States by 1987 and had become the nation's twelfth 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 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 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 eleventh 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 super-regionals 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 inevitably beset PNC's and other banks' earnings in the past. And as barriers to interstate banking continued to fall and bank consolidation continued, PNC was forced to look for ways to remain competitive among its peers.
As such, PNC eyed the expansion of its consumer mortgage business as a potentially lucrative avenue. Through this unit, PNC put plans in motion in 1997 to expand its product offerings. During 1996, its customers had purchased $5.6 billion in mortgages. By cross-selling home equity loans, credit cards, and investment services to these customers, PNC hoped to tap into a niche market that most banks had failed in. A 1997 American Banker article reported that "banks have failed at cross-selling in the past because they embraced mass marketing, instead of a targeted approach, and did not follow up." PNC however, felt that its mortgage business was well positioned to excel at this new approach. Its efforts proved fruitless, however, and PNC sold its consumer mortgage business in 2000 to Washington Mutual Home Loans Inc.
The company also began a restructuring effort during the late 1990s in order to pare back less profitable operations. In 1997, it closed nine branches and the following year sold 16 Western Pennsylvania-based branches to First Western Bancorp Inc. It also announced that it would sell off its credit card business--3.3 million accounts--to MBNA Corp. in order to focus on its investment services and other product lines. The company then made a $1.1 billion purchase of First Data Investor Services Group, a mutual funds and retirement plans services provider. The deal strengthened PNC's investment services subsidiary PFPC Worldwide, making it the leading full-service mutual fund transfer agent and the second largest full-service mutual fund accounting services provider. PNC also spun off 30 percent of its BlackRock subsidiary in 1999 at $14 per share. Its restructuring efforts appeared to pay off, and in 1999 the company secured $1.3 billion in profits, a 13 percent increase over the previous year. Revenue also increased by six percent to $52 billion.
Signaling the firm's commitment to its diversified services, PNC adopted a new brand image and changed its name to The PNC Financial Services Group in 2000. That year, O'Brien retired leaving James E. Rohr at the helm. While under new leadership, the company forged ahead in its plans to invest in high-growth business ventures as it maintained a strong hold on its consumer banking activities. Automated Business Development Corp. was acquired and became part of PFPC's operations. The company also teamed up with Perot Systems to create BillingZone, an electronic bill payment platform.
By this time however, PNC not only faced increased competition as the industry continued to consolidate but rough economic times as well. A January 2002 Institutional Investor article claimed that both Rohr and PNC were "suffering in a generally difficult climate for banks; the recession has crimped loan growth, pushed credit losses higher and hurt the valuations in securities and venture capital portfolios." Indeed, as PNC continually restructured and streamlined operations to battle the challenging economic climate, it was forced to post a $615 million fourth-quarter charge in 2001 in order to write down loans, restructure its venture capital business, and exit the auto leasing market. PNC also came under fire during 2002 as the Federal Reserve Board and the Securities Exchange Commission announced that it was investigating PNC's accounting practices. To top it off, the company was named in a shareholder class action lawsuit that claimed that PNC and its auditor Ernst & Young LLP had violated the Securities Exchange Act of 1934 by misrepresenting PNC's financial results from July 19, 2001 to January 29, 2002. The claim also stated that both parties had not used proper accounting standards and therefore had misled investors about the financial condition of the firm.
As PNC battled litigation and turbulent economic times, management remained confident that the restructuring of its banking operations would lead to future earnings and profit growth. With a new corporate tagline-"The Thinking Behind the Money"--PNC was focused on remaining a leader among its peers. Whether or not it would succumb to industry consolidation or partner in a merger of equals, however, remained to be seen.
Principal Subsidiaries
PNC Bank, N.A.; PNC Bancorp, Inc.; PNC Advisors, N.A.; PNC Bank Capital Securities, LLC; PNC Commercial Management, Inc.; BlackRock, Inc.; PNC Leasing, LLC; PNC Capital Leasing, LLC; PNC Holding, LLC; PFPC Worldwide Inc.; PNC Funding Corp.; PNC Investment Corp.
Principal Competitors
Citigroup Inc.; Mellon Financial Corp.; Wachovia Corporation.
Further Reading
Chase, Brett, "Protégé Succeeds Mentor at PNC's Flagship Bank," American Banker, June 2, 1997, p. 5.
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. 22-4.
Gold, Jacqueline S., "Bank to Basics," Institutional Investor, January 2002, p. 91.
"Hail to the Chief," US Banker, March 2000, p. 14.
"In Brief: PNC Bank Selling Card Business to MBNA," American Banker, December 28, 1998.
Lombaerde, Geert De, "PNC Bank Beat Goals to Boost 1999 Profits," Business Courier Serving Cincinnati, February 11, 2000, p. 4.
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. A3-4.
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, 1993, p. 5.
"PNC Bank to Buy First Eastern Corp. in $330 Million Deal," Wall Street Journal, p. B4.
"PNC Chairman: We Won't Be Forced to Merge," American Banker, August 7, 1998, p. 24.
Rieker, Matthais, "PNC 'Repositions' Itself, Taking $615M Charge," American Banker, January 4, 2002, p. 20.
Schroeder, Michael, "A Pittsburgh Bank That's Dazzling the Street," Business Week, February 29, 1988, p. 84.
------, "Maybe This Bank Should Have Cried Wolf," Business Week, September 17, 1990, p. 140.
Stern, Gabriella, and Robert McGough, "PNC Agrees to Acquisition of BlackRock," Wall Street Journal, p. A4.
Talley, Karen, "PNC Unit's Expansion Plan Includes Cross-Selling Push," American Banker, January 30, 1997, p. 81.
Tascarella, Patty, "PNC Trims Branches and Workers As Part of Major Restructuring Plan," Pittsburgh Business Times, February 27, 1998, p. 4.
Winokur, Cheryl, "PNC Unveils $1.1B Deal for First Data Subsidiary," American Banker, July 21, 1999, p. 1.
— Updates: David E. Salamie and Christina M. Stansell
