<PAGE> 1
THE PNC FINANCIAL SERVICES GROUP, INC.
Quarterly Report on Form 10-Q
For the quarterly period ended March 31, 2000
Page 1 represents a portion of the first quarter 2000 Financial Review which is
not required by the Form 10-Q report and is not "filed" as part of the Form
10-Q.
The Quarterly Report on Form 10-Q and cross reference index is on page ___.
<PAGE> 2
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1999 1999
Three months ended March 31 - dollars in millions, except per share data 2000 Core Reported
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL PERFORMANCE
Revenue
Net interest income (taxable-equivalent basis) $565 $664 $664
Noninterest income 789 583 731
Total revenue 1,354 1,247 1,395
Net income 308 293 325
Cash earnings* 337 312 344
Per common share
Basic earnings 1.04 .95 1.06
Diluted earnings 1.03 .94 1.05
Diluted cash earnings* 1.13 1.01 1.11
Cash dividends declared .45 .41 .41
*Excluding amortization of goodwill
- --------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on
Average common shareholders' equity 21.71% 20.63% 22.94%
Average assets 1.66 1.54 1.71
Net interest margin 3.46 3.86 3.86
Noninterest income to total revenue 58.27 46.75 52.40
Efficiency ** 57.36 52.06 53.45
** Excluding amortization, distributions on capital securities and
residential mortgage banking risk management activities
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
March 31 December 31 March 31
Dollars in millions, except per share data 2000 1999 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PERIOD-END BALANCE SHEET DATA
Assets $74,307 $75,413 $74,868
Earning assets 64,065 64,671 66,710
Loans, net of unearned income 50,653 50,046 52,800
Securities available for sale 7,666 7,611 9,170
Loans held for sale 4,648 5,798 3,599
Deposits 46,701 46,668 45,799
Borrowed funds 18,094 19,347 19,935
Shareholders' equity 6,039 5,946 5,931
Common shareholders' equity 5,726 5,633 5,617
Book value per common share 19.68 19.23 18.78
CAPITAL RATIOS
Leverage 6.67% 6.61% 7.28%
Common shareholders' equity to total assets 7.71 7.47 7.50
ASSET QUALITY RATIOS
Nonperforming assets to total loans, loans held
for sale and foreclosed assets .64% .61% .58%
Allowance for credit losses to total loans 1.33 1.35 1.27
Allowance for credit losses to nonaccrual loans 219.54 225.42 230.93
Net charge-offs to average loans .25 .23 .56
==========================================================================================================================
</TABLE>
THE PNC FINANCIAL SERVICES GROUP, INC.
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1
<PAGE> 3
Financial Review
This Financial Review should be read in conjunction with The PNC Financial
Services Group, Inc. and subsidiaries' ("Corporation" or "PNC") unaudited
Consolidated Financial Statements included herein and the Financial Review and
audited Consolidated Financial Statements included in the Corporation's 1999
Annual Report.
OVERVIEW
THE PNC FINANCIAL SERVICES GROUP, INC.
The Corporation is one of the largest diversified financial services companies
in the United States operating regional banking, corporate banking, secured
finance, asset management and mortgage banking businesses that provide products
and services nationally and in PNC's primary geographic markets in Pennsylvania,
New Jersey, Delaware, Ohio and Kentucky.
Financial services organizations today are challenged to demonstrate that they
can generate sustainable and consistent earnings growth in an increasingly
competitive and volatile environment. PNC has responded to these challenges by
transitioning to a diversified national financial services organization driven
by businesses that are increasingly national in scope and less balance sheet
dependent. Increasing contributions from fee-based businesses including asset
management, processing and private banking have enhanced PNC's revenue and
earnings mix. In addition, the Corporation seeks to enhance consolidated value
by leveraging technology, information, branding, marketing and financial
resources across all businesses.
As part of this transition, the Corporation implemented a number of initiatives
designed to reshape the traditional bank franchise as well as grow
non-traditional, largely fee-based businesses with greater growth potential that
are national in scope. These include the sale of the credit card business,
exiting certain non-strategic wholesale lending businesses and the continued
downsizing of the indirect automobile lending portfolio. PNC also acquired
Investor Services Group ("ISG"). The combination of ISG with PFPC, the
Corporation's investment servicing subsidiary, created one of the nation's
leading full-service processors for pooled investment products.
As a result, PNC's noninterest income increased to 58% of total revenue for the
first quarter of 2000. These actions have also resulted in a reduction in the
loan to deposit ratio to 108% at March 31, 2000 from 121% prior to the
implementation of these initiatives at September 30, 1998.
SUMMARY FINANCIAL RESULTS
Consolidated net income for the first three months of 2000 was $308 million or
$1.03 per diluted share, a 10% increase compared with core earnings per diluted
share for the first quarter of 1999. Return on average common shareholders'
equity was 21.71% and return on average assets was 1.66% for the first quarter
of 2000 compared with core returns of 20.63% and 1.54%, respectively, a year
ago. Cash earnings per diluted share, which exclude goodwill amortization, were
$1.13 for the first quarter of 2000, a 12% increase compared with core cash
earnings per diluted share a year ago.
Reported earnings for the first quarter of 1999 were $325 million or $1.05 per
diluted share. Core earnings per diluted share were $.94 and core cash earnings
per diluted share were $1.01 in the first quarter of 1999. Core earnings exclude
$290 million of gains on the sales of the credit card business and an equity
interest in Electronic Payment Services, Inc. ("EPS") that were partially offset
by $142 million of valuation adjustments associated with exiting certain
non-strategic wholesale lending businesses and $98 million of costs related to
efficiency initiatives in 1999.
Taxable-equivalent net interest income was $565 million for the first quarter of
2000, a $99 million decrease compared with the first quarter of 1999. The net
interest margin was 3.46% for the first quarter of 2000 compared with 3.86% in
the first quarter of 1999. The decreases were primarily due to the downsizing of
certain credit-related businesses in 1999 and funding costs related to the ISG
acquisition.
The provision for credit losses of $31 million in the first quarter of 2000 was
equal to net charge-offs.
Noninterest income was $789 million for the first quarter of 2000, a $206
million or 35% increase in the quarter-to-quarter comparison, excluding noncore
items in 1999. The increase was primarily driven by strong growth in fee-based
businesses, the impact of the ISG acquisition and higher equity management
revenue.
Noninterest expense was $847 million and the efficiency ratio was 57.4% in the
first quarter of 2000 compared with $725 million and 52.1%, respectively, in the
first quarter of 1999, excluding noncore items. The quarter-to-quarter increases
were primarily related to the ISG acquisition and higher expenses commensurate
with fee-based revenue growth.
Total assets were $74.3 billion at March 31, 2000 compared with $75.4 billion at
December 31, 1999. The decrease was primarily due to lower commercial and
residential mortgage loans held for sale.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
2
<PAGE> 4
Financial Review
Shareholders' equity totaled $6.0 billion, the leverage ratio was 6.67% and Tier
I and total risk-based capital ratios were 7.25% and 11.34%, respectively, at
March 31, 2000.
Overall asset quality remained relatively stable during the first quarter of
2000. The ratio of nonperforming assets to total loans, loans held for sale and
foreclosed assets was .64% at March 31, 2000 compared with .61% at December 31,
1999. Nonperforming assets were $355 million at March 31, 2000 compared with
$338 million at December 31, 1999. The allowance for credit losses was $674
million and represented 1.33% of period-end loans and 220% of nonaccrual loans
at March 31, 2000. The comparable amounts were 1.35% and 225%, respectively, at
December 31, 1999. Net charge-offs were $31 million or .25% of average loans in
the first quarter of 2000 compared with $30 million or .23%, respectively, in
the fourth quarter of 1999.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act with respect to financial performance
and other financial and business matters. Forward-looking statements are
typically identified by words or phrases such as "believe," "expect,"
"anticipate," "intend," "estimate," "position" and variations of such words and
similar expressions, or future or conditional verbs such as "will," "would,"
"should," "could," "may" or similar expressions. The Corporation cautions that
these forward-looking statements are subject to numerous assumptions, risks and
uncertainties, all of which change over time, and the Corporation assumes no
duty to update forward-looking statements. Actual results could differ
materially from those anticipated in these forward-looking statements and future
results could differ from historic performance.
In addition to factors previously disclosed by the Corporation and those
identified elsewhere herein, the following factors, among others, could cause
actual results to differ materially from forward-looking statements or historic
performance: increased credit risk; the introduction, withdrawal, success and
timing of business initiatives and strategies; competitive conditions; the
inability to sustain revenue and earnings growth; the inability to realize cost
savings or revenues and implement integration plans associated with acquisitions
and divestitures; economic conditions; changes in interest rates and financial
and capital markets; inflation; investment performance; customer
disintermediation; customer borrowing, repayment, investment and deposit
practices; customer acceptance of PNC products and services; and the impact,
extent and timing of technological changes, capital management activities, and
actions of the Federal Reserve Board and legislative and regulatory actions and
reforms.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
3
<PAGE> 5
REVIEW OF BUSINESSES
PNC operates eight major businesses engaged in regional banking, corporate
banking, secured finance, asset management, and mortgage banking activities:
Regional Banking, Corporate Banking, PNC Real Estate Finance, PNC Business
Credit, PNC Advisors, BlackRock, PFPC and PNC Mortgage.
Business results are based on PNC's management accounting practices and the
Corporation's current management structure. There is no comprehensive,
authoritative body of guidance for management accounting equivalent to generally
accepted accounting principles; therefore, PNC's business results are not
necessarily comparable with similar information for any other financial services
institution. Financial results are presented as if each business operated on a
stand-alone basis.
The presentation of business results was changed during the first quarter of
2000 to reflect the Corporation's current operating strategy and recent
organizational changes. Middle market and equipment leasing activities
(previously included in Regional Banking) are reported in Corporate Banking. In
addition, PNC Real Estate Finance and PNC Business Credit are reported
separately within PNC Secured Finance. Regional real estate lending activities
(previously included in Regional Banking) are reported in PNC Real Estate
Finance. Business financial results for the first quarter of 2000 and 1999 are
presented consistent with this structure.
The management accounting process uses various balance sheet and income
statement assignments and transfers to measure performance of the businesses.
Methodologies change from time to time as management accounting practices are
enhanced and businesses change. Securities or borrowings and related net
interest income are assigned based on the net asset or liability position of
each business. Capital is assigned based on management's assessment of inherent
risks and equity levels at independent companies providing similar products and
services. The allowance for credit losses is allocated to the businesses based
on risk inherent in the loan portfolios. Support areas not directly aligned with
the businesses are allocated primarily based on the utilization of services.
Total business financial results differ from consolidated financial results
primarily due to differences between management accounting practices and
generally accepted accounting principles, divested and exited businesses, equity
management activities, minority interests, residual asset and liability
management activities, eliminations and unassigned items, the impact of which is
reflected in Other.
<TABLE>
<CAPTION>
RESULTS OF BUSINESSES
Return on
Earnings Revenue * Assigned Capital Average Assets
----------------------- --------------------- --------------------- ----------------------
Three months ended March 31 - dollars 2000 1999 2000 1999 2000 1999 2000 1999
in millions
- ----------------------------------------- --------- ------------ ---------- ---------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PNC Bank
Regional Banking $129 $116 $477 473 20% 19% $37,866 $37,525
Corporate Banking 64 54 214 172 22 19 15,950 15,679
- ---------------------------------------- ---------- ------------ ---------- ---------- ----------- ----------
Total PNC Bank 193 170 691 645 21 19 53,816 53,204
PNC Secured Finance
PNC Real Estate Finance 13 15 46 48 14 15 5,382 5,634
PNC Business Credit 13 8 28 18 38 30 2,084 1,597
- ---------------------------------------- ---------- ------------ ---------- ---------- ----------- ----------
Total PNC Secured Finance 26 23 74 66 20 18 7,466 7,231
Asset Management
PNC Advisors 41 36 204 179 30 26 3,598 3,249
BlackRock 19 12 108 88 26 43 388 400
PFPC 6 11 165 54 12 44 1,603 268
- ---------------------------------------- ---------- ------------ ---------- ---------- ----------- ----------
Total Asset Management 66 59 477 321 25 31 5,589 3,917
PNC Mortgage 6 11 76 101 6 10 6,333 7,084
- ---------------------------------------- ---------- ------------ ---------- ---------- ----------- ----------
Total businesses 291 263 1,318 1,133 20 20 73,204 71,436
Other 17 30 36 114 1,473 5,522
- ---------------------------------------- ---------- ------------ ---------- ---------- ----------- ----------
Total consolidated - core 308 293 1,354 1,247 22 21 74,677 76,958
Gain on sale of credit card business 125 193
Gain on sale of equity interest in EPS 63 97
Wholesale lending repositioning (92) (142)
Costs related to efficiency initiatives (64)
- ---------------------------------------- ---------- ------------ ---------- ---------- --------- ----------- ----------- ----------
Total consolidated - reported $308 $ 325 $1,354 $1,395 22 23 $74,677 $76,958
- ---------------------------------------- ---------- ------------ ---------- ---------- --------- ----------- ----------- ----------
</TABLE>
* Taxable-equivalent basis
THE PNC FINANCIAL SERVICES GROUP, INC.
----
4
<PAGE> 6
Financial Review
REGIONAL BANKING
Three months ended March 31 -
dollars in millions 2000 1999
- ------------------------------------------------------------------
INCOME STATEMENT
Net interest income $344 $352
Noninterest income 133 121
- ------------------------------------------------------------------
Total revenue 477 473
Provision for credit losses 12 18
Noninterest expense 264 271
- ------------------------------------------------------------------
Pretax earnings 201 184
Income taxes 72 68
- ------------------------------------------------------------------
Earnings $129 $116
- ------------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Consumer
Home equity $5,252 $5,055
Indirect 1,435 2,287
Education 97 1,348
Other consumer 786 672
- ------------------------------------------------------------------
Total consumer 7,570 9,362
Commercial 3,725 3,771
Residential mortgage 11,603 11,125
Other 1,320 1,188
- ------------------------------------------------------------------
Total loans 24,218 25,446
Securities available for sale 5,676 4,822
Loans held for sale 1,429
Assigned assets and other assets 6,543 7,257
- ------------------------------------------------------------------
Total assets $37,866 $37,525
- ------------------------------------------------------------------
Deposits
Noninterest-bearing demand $4,594 $5,224
Interest-bearing demand 5,274 4,607
Money market 9,482 8,422
Savings 2,077 2,460
Certificates 13,611 13,679
- ------------------------------------------------------------------
Total net deposits 35,038 34,392
Other liabilities 274 601
Assigned capital 2,554 2,532
- ------------------------------------------------------------------
Total funds $37,866 $37,525
- ------------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 20% 19%
Noninterest income to total revenue 28 26
Efficiency 53 55
==================================================================
Regional Banking provides credit, deposit, branch-based brokerage and electronic
banking products and services to retail customers as well as credit, treasury
management and capital markets products and services to small businesses
primarily within PNC's geographic footprint.
Regional Banking's strategic focus is on driving sustainable revenue growth
while aggressively managing the revenue/expense relationship. Regional Banking
utilizes knowledge-based marketing capabilities to analyze customer demographic
information, transaction histories and delivery preferences to develop
customized banking packages focused on improving customer satisfaction and
profitability.
Regional Banking has also invested heavily in building a sales culture and
infrastructure while improving efficiency. Capital investments have been
redistributed strategically with a greater proportion going towards the
development of alternative delivery capabilities consistent with customer
preferences.
Regional Banking contributed 45% of total business earnings for the first three
months of 2000 compared with 44% for the first three months of 1999. Earnings
increased 11% to $129 million for the first three months of 2000 and performance
ratios improved.
Total revenue was $477 million for the first three months of 2000 compared with
$473 million for the first three months of 1999. The increase was primarily due
to a $12 million or 10% increase in noninterest income that was driven by higher
consumer service and brokerage fees, partially offset by the downsizing of the
indirect automobile lending portfolio and the comparative impact of branch sales
in 1999.
Consumer loans declined primarily due to the continued downsizing of the
indirect automobile lending portfolio as well as the decision to sell education
loans in repayment that were reclassified to held for sale. Interest-bearing
demand and money market deposits increased $1.7 billion or 13% primarily due to
the impact of strategic marketing initiatives, which reflects PNC's focus on
deepening customer relationships.
Regional Banking engages in credit and deposit activities that are affected by,
among other things, economic and financial market conditions. Accordingly,
changes in the economy or financial markets could impact asset quality and
results of operations.
THE PNC FINANCIAL SERVICES GROUP, INC.
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5
<PAGE> 7
CORPORATE BANKING
Three months ended March 31 -
dollars in millions 2000 1999
- -----------------------------------------------------------------
INCOME STATEMENT
Credit-related revenue $99 $88
Noncredit revenue 115 84
- -----------------------------------------------------------------
Total revenue 214 172
Provision for credit losses 15 3
Noninterest expense 101 84
- -----------------------------------------------------------------
Pretax earnings 98 85
Income taxes 34 31
- -----------------------------------------------------------------
Earnings $64 $54
- -----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Middle market $5,545 $5,469
Specialized industries 3,814 4,064
Large corporate 2,684 2,573
Leasing 1,719 1,288
Other 247 430
- -----------------------------------------------------------------
Total loans 14,009 13,824
Other assets 1,941 1,855
- -----------------------------------------------------------------
Total assets $15,950 $15,679
- -----------------------------------------------------------------
Net deposits $4,526 $4,371
Assigned funds and other liabilities 10,228 10,132
Assigned capital 1,196 1,176
- -----------------------------------------------------------------
Total funds $15,950 $15,679
- -----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 22% 19%
Noncredit revenue to total revenue 54 49
Efficiency 47 48
=================================================================
Corporate Banking provides specialized credit, equipment leasing, treasury
management and capital markets products and services to large and mid-sized
corporations, institutions and government entities primarily within PNC's
geographic region.
The strategic focus for Corporate Banking is to emphasize higher-margin
noncredit products and services, especially treasury management and capital
markets, as well as disciplined balance sheet growth primarily driven through
the expansion of equipment leasing.
Corporate Banking made the decision to exit certain non-strategic wholesale
lending businesses during 1999. These activities are excluded from business
results in both periods and reported in Other.
Corporate Banking contributed 22% of total business earnings for the first three
months of 2000 compared with 21% for the first three months of 1999. Earnings
increased $10 million or 19% to $64 million for the first three months of 2000
and performance ratios improved.
Total revenue of $214 million for the first three months of 2000 increased $42
million or 24% compared with the first three months of 1999. Credit-related
revenue increased 13% in the quarter-to-quarter comparison driven by higher
loans in the middle market, large corporate and leasing segments. Noncredit
revenue, which includes noninterest income and the benefit of compensating
balances received in lieu of fees, was $115 million for the first three months
of 2000, a $31 million or 37% increase compared with the first three months of
1999 primarily driven by increases in treasury management and capital markets
fees, as well as revenue associated with equity investments. Noncredit revenue
comprised 54% of total revenue for the first three months of 2000 reflecting the
emphasis on sales of fee-based products.
The provision for credit losses was $15 million for the first three months of
2000, a $12 million increase compared with the prior-year quarter due to a
higher level of net charge-offs.
The increase in noninterest expense in the quarter-to-quarter comparison was
commensurate with revenue growth.
Treasury management and capital markets products offered through Corporate
Banking are sold by several businesses across the Corporation and related
revenue is included in the results of those businesses. Consolidated revenue
from treasury management was $85 million for the first three months of 2000, a
20% increase compared with the first three months of 1999. Consolidated revenue
from capital markets was $34 million for the first three months of 2000, a 34%
increase compared with the first three months of 1999.
Corporate Banking engages in credit and capital markets activities that are
impacted by, among other things, economic and financial market conditions.
Accordingly, changes in the economy or financial markets could impact asset
quality and results of operations.
THE PNC FINANCIAL SERVICES GROUP, INC.
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6
<PAGE> 8
Financial Review
PNC REAL ESTATE FINANCE
Three months ended March 31 -
dollars in millions 2000 1999
- ----------------------------------------------------------------
INCOME STATEMENT
Net interest income $27 $30
Noninterest income
Net commercial mortgage banking 12 9
Other 7 9
- ----------------------------------------------------------------
Total noninterest income 19 18
- ----------------------------------------------------------------
Total revenue 46 48
Provision for credit losses
Noninterest expense 35 29
- ----------------------------------------------------------------
Pretax earnings 11 19
Income taxes (2) 4
- ----------------------------------------------------------------
Earnings $13 $15
- ----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Commercial - real estate related $2,019 $2,390
Commercial real estate 2,438 2,530
- ----------------------------------------------------------------
Total loans 4,457 4,920
Commercial mortgages held for sale 99 62
Other assets 826 652
- ----------------------------------------------------------------
Total assets $5,382 $5,634
- ----------------------------------------------------------------
Deposits $226 $199
Assigned funds and other liabilities 4,770 5,035
Assigned capital 386 400
- ----------------------------------------------------------------
Total funds $5,382 $5,634
- ----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 14% 15%
Noninterest income to total revenue 41 38
Efficiency 61 48
================================================================
PNC Real Estate Finance provides credit, capital markets, treasury management
and loan servicing products and services to private developers, real estate
investment trusts, pension funds and the affordable housing market nationally.
Over the past several years, through customer segmentation and strategic
acquisitions, PNC Real Estate Finance has redeployed capital historically
assigned to lending activities in PNC's primary geographic markets to fee-based
businesses focused on loan servicing and securitization on a national basis.
PNC Real Estate Finance made the decision to exit the cyclical mortgage
warehouse lending business and certain non-strategic commercial real estate
portfolios at the end of 1999. These activities are excluded from business
results in both periods and reported in Other.
PNC Real Estate Finance contributed 4% of total business earnings for the first
three months of 2000 compared with 6% for the first three months of 1999.
Earnings were $13 million for the first three months of 2000 compared with $15
million for the first three months of 1999.
Total revenue was $46 million for the first three months of 2000 compared with
$48 million for the first three months of 1999 as increases in treasury
management, affordable housing and commercial mortgage servicing fees in 2000
were more than offset by the comparative impact of gains from workout activities
in 1999. There were no gains from commercial mortgage-backed securitizations in
the first quarter of 2000 or 1999.
Noninterest expense was $35 million for the first three months of 2000 compared
with $29 million in the same period last year. The increase was primarily due to
passive losses on low income housing equity investments, the comparative impact
of legal expense recoveries from loan workout activities in 1999 and investments
in technology to support the loan servicing platform. The increase in passive
losses on low income housing investments was more than offset by related tax
credits that resulted in an income tax benefit for the first three months of
2000.
COMMERCIAL MORTGAGE SERVICING PORTFOLIO
In billions 2000 1999
- ----------------------------------------------------------------
January 1 $45 $39
Acquisitions/additions 3 4
Repayments/transfers (2) (3)
- ----------------------------------------------------------------
March 31 $46 $40
================================================================
At March 31, 2000, the commercial mortgage servicing portfolio was $46 billion,
a 15% increase compared with March 31, 1999.
PNC Real Estate Finance engages in credit and capital markets activities that
are impacted by, among other things, economic and financial market conditions.
Accordingly, changes in the economy or financial markets could impact asset
quality and results of operations.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
7
<PAGE> 9
PNC BUSINESS CREDIT
Three months ended March 31 -
dollars in millions 2000 1999
- ----------------------------------------------------------------
INCOME STATEMENT
Net interest income $24 $16
Noninterest income 4 2
- ----------------------------------------------------------------
Total revenue 28 18
Provision for credit losses
Noninterest expense 7 6
- ----------------------------------------------------------------
Pretax earnings 21 12
Income taxes 8 4
- ----------------------------------------------------------------
Earnings $13 $8
- ----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans $1,999 $1,565
Other assets 85 32
- ----------------------------------------------------------------
Total assets $2,084 $1,597
- ----------------------------------------------------------------
Deposits $44 $41
Assigned funds and other liabilities 1,902 1,447
Assigned capital 138 109
- ----------------------------------------------------------------
Total funds $2,084 $1,597
- ----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 38% 30%
Noninterest income to total revenue 14 11
Efficiency 21 28
================================================================
PNC Business Credit provides asset-based lending, capital markets and treasury
management products and services to middle market customers on a national basis.
PNC Business Credit's strategic focus is to build scale in this business through
the disciplined expansion of existing offices as well as the addition of new
marketing locations.
PNC Business Credit contributed 4% of total business earnings for the first
three months of 2000 compared with 3% for the first three months of 1999.
Earnings increased $5 million or 63% to $13 million for the first three months
of 2000 compared with the first three months of 1999.
Revenue was $28 million for the first three months of 2000, a $10 million or 56%
increase compared with the first three months of 1999 primarily due to the
impact of higher loan outstandings associated with the strategic expansion of
this business.
Noninterest expense was $7 million and the efficiency ratio improved to 21% for
the first three months of 2000 compared with $6 million and 28%, respectively,
in the same period last year. The return on assigned capital improved to 38% for
the first three months of 2000 due to strong revenue growth and improved
efficiency.
PNC Business Credit engages in credit and capital markets activities that are
impacted by, among other things, economic and financial market conditions.
Accordingly, changes in the economy or financial markets could impact asset
quality and results of operations.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
8
<PAGE> 10
Financial Review
PNC ADVISORS
Three months ended March 31 -
dollars in millions 2000 1999
- ----------------------------------------------------------------
INCOME STATEMENT
Net interest income $35 $33
Noninterest income
Investment management and trust 100 94
Brokerage 50 36
Other 19 16
- ----------------------------------------------------------------
Total noninterest income 169 146
- ----------------------------------------------------------------
Total revenue 204 179
Provision for credit losses 3 1
Noninterest expense 135 120
- ----------------------------------------------------------------
Pretax earnings 66 58
Income taxes 25 22
- ----------------------------------------------------------------
Earnings $41 $36
- ----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Residential mortgage $978 $1,004
Consumer 954 952
Commercial 658 621
Other 552 255
- ----------------------------------------------------------------
Total loans 3,142 2,832
Other assets 456 417
- ----------------------------------------------------------------
Total assets $3,598 $3,249
- ----------------------------------------------------------------
Deposits $2,084 $2,431
Assigned funds and other liabilities 967 262
Assigned capital 547 556
- ----------------------------------------------------------------
Total funds $3,598 $3,249
- ----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 30% 26%
Noninterest income to total revenue 83 82
Efficiency 65 66
================================================================
PNC Advisors offers customized investment management, high-end brokerage,
personal trust, estate planning and traditional banking services to affluent and
wealthy individuals, and investment management, trust and administrative
services to pension funds, 401(k) plans and charitable organizations.
PNC Advisors strives to be the "financial advisor of choice" in the growing
affluent market, providing a full range of high-quality, customized and
predominantly fee-based investment products and services. PNC Advisors continues
to expand Hilliard Lyons, PNC's high-end brokerage company that serves the
affluent, throughout the Corporation's geographic region, which includes some of
the nation's wealthiest metropolitan areas.
PNC Advisors contributed 14% of total business earnings for the first three
months of 2000 and 1999. Earnings of $41 million for the first three months of
2000 increased $5 million or 14% compared with the same period last year.
Revenue increased $25 million or 14% for the first three months of 2000 compared
with the first three months of 1999. The increase was primarily driven by higher
brokerage revenue resulting from the expansion of PNC Advisors' brokerage
distribution network and significant activity in the equity markets. Higher
investment management and trust revenue, primarily resulting from new business,
also contributed to higher noninterest income. Noninterest expense increased in
the quarter-to-quarter comparison commensurate with revenue growth.
ASSETS UNDER MANAGEMENT*
March 31 - in billions 2000 1999
- ----------------------------------------------------------------
Personal investment management and trust $59 $57
Institutional trust 11 9
- ----------------------------------------------------------------
Total $70 $66
================================================================
* Assets under management do not include brokerage assets administered.
At March 31, 2000, PNC Advisors managed $70 billion of assets, a 6% increase
compared with March 31, 1999 primarily due to new business. Brokerage assets
administered by PNC Advisors increased $3 billion in the period-to-period
comparison to $28 billion at March 31, 2000 reflecting increased asset gathering
at Hilliard Lyons.
PNC Advisors revenue and financial results are affected by, among other things,
the relative investment performance of assets under management, the appreciation
or depreciation in the net asset values of assets under management and financial
market conditions. Accordingly, future results could differ materially from
historic performance.
THE PNC FINANCIAL SERVICES GROUP, INC.
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9
<PAGE> 11
BLACKROCK
Three months ended March 31 -
dollars in millions 2000 1999
- ----------------------------------------------------------------
INCOME STATEMENT
Investment advisory and administrative fees $102 $83
Other income 6 5
- ----------------------------------------------------------------
Total revenue 108 88
Operating expense 54 44
Fund administration
and servicing costs - affiliates 20 18
Goodwill amortization 2 2
- ----------------------------------------------------------------
Total expense 76 64
Operating income 32 24
Nonoperating income (expense) 1 (3)
- ----------------------------------------------------------------
Pretax earnings 33 21
Income taxes 14 9
- ----------------------------------------------------------------
Earnings $19 $12
- ----------------------------------------------------------------
PERIOD-END BALANCE SHEET
Goodwill $192 $201
Other assets 196 199
- ----------------------------------------------------------------
Total assets $388 $400
- ----------------------------------------------------------------
Borrowings $178
Other liabilities $88 104
Shareholders' equity 300 118
- ----------------------------------------------------------------
Total funds $388 $400
- ----------------------------------------------------------------
PERFORMANCE RATIOS
Return on equity 26% 43%
Operating margin* 36 34
Diluted earnings per share $.30 $.22
================================================================
* Excludes the impact of affiliate fund administration and servicing costs.
BlackRock manages assets for institutions and individuals through a variety of
fixed income, liquidity, equity and alternative investment products, including
BlackRock's flagship fund families.
BlackRock contributed 7% of total business earnings for the first three months
of 2000 compared with 4% for the first three months of 1999. Earnings of $19
million for the first three months of 2000 increased 57% compared with the same
period last year. Total revenue for the first three months of 2000 increased $20
million or 23% compared with the first three months of 1999 primarily due to
strong growth in investment advisory and administrative fees resulting from new
asset management mandates, which represented $27 billion of the $32 billion or
23% increase in assets under management. The increase in operating expense in
the quarter-to-quarter comparison supported revenue growth.
At March 31, 2000, BlackRock managed $172 billion of assets for individual and
institutional investors.
ASSETS UNDER MANAGEMENT
March 31 - in billions 2000 1999
- ----------------------------------------------------------------
Separate Accounts
Fixed income* $80 $64
Liquidity 19 14
Equity 6 2
- ----------------------------------------------------------------
Total Separate Accounts 105 80
Mutual Funds
Fixed income 14 14
Liquidity 37 34
Equity 16 12
- ----------------------------------------------------------------
Total Mutual Funds 67 60
- ----------------------------------------------------------------
Total assets under management $172 $140
- ----------------------------------------------------------------
Proprietary mutual funds
BlackRock Funds $29 $25
Provident Institutional Funds 26 23
- ----------------------------------------------------------------
Total proprietary mutual funds $55 $48
================================================================
* Includes alternative investment products.
BlackRock revenue and financial results are impacted by, among other things, the
relative investment performance of BlackRock's sponsored investment products and
separately managed accounts, the appreciation or depreciation in the net asset
values of assets under management and financial market conditions. Accordingly,
future results could differ materially from historic performance.
BlackRock, Inc. is a publicly traded company that is 70% owned by PNC.
BlackRock's common stock is listed on the New York Stock Exchange under the
symbol BLK. Additional information about BlackRock is available in its filings
with the Securities and Exchange Commission ("SEC") and may be obtained
electronically at the SEC's home page at www.sec.gov.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
10
<PAGE> 12
Financial Review
PFPC
Three months ended March 31 -
dollars in millions 2000 1999
- ----------------------------------------------------------------
INCOME STATEMENT
Revenue $165 $54
Operating expense 128 35
- ----------------------------------------------------------------
Operating income 37 19
Debt financing 20
Amortization 7 1
- ----------------------------------------------------------------
Pretax earnings 10 18
Income taxes 4 7
- ----------------------------------------------------------------
Earnings $6 $11
- ----------------------------------------------------------------
AVERAGE BALANCE SHEET
Total assets $1,603 $268
- ----------------------------------------------------------------
Deposits $136 $149
Assigned funds and other liabilities 1,261 18
Assigned capital 206 101
- ----------------------------------------------------------------
Total funds $1,603 $268
- ----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 12% 44%
Operating margin 22 35
================================================================
PFPC, the Corporation's investment servicing subsidiary, provides a wide range
of processing services to the investment management community. PFPC provides
customized services to clients in the United States and to the global funds
marketplace through its Dublin, Ireland operation.
On December 1, 1999, PFPC acquired Investor Services Group ("ISG"), one of the
nation's leading providers of back-office services to mutual funds and
retirement plans. The acquisition added two key related businesses, as well as
retirement plan servicing, to PFPC's expanding operations. The integration of
ISG into PFPC continues as scheduled.
PFPC contributed 2% of total business earnings for the first three months of
2000 compared with 4% for the first three months of 1999. Earnings decreased $5
million in the quarter-to-quarter comparison primarily due to the impact of the
ISG acquisition. Excluding the net impact of ISG, earnings increased 23% in the
quarter-to-quarter comparison.
Revenue increased $111 million to $165 million for the first three months of
2000 compared with the first three months of 1999. The acquisition of ISG
accounted for $97 million of the increase in revenue. The remaining increase was
driven by new business, existing client growth and market appreciation.
Operating expense increased in the quarter-to-quarter comparison and performance
ratios were impacted by the ISG acquisition and infrastructure costs associated
with business expansion.
SERVICING STATISTICS
March 31 2000 1999
- ----------------------------------------------------------------
Accounting/administration ($ in billions) $448 $266
Custody ($ in billions) $425 $338
Transfer agency
shareholder accounts (in millions) 39 3
================================================================
The increases in accounting/administration assets serviced and transfer agency
shareholder accounts were primarily due to the ISG acquisition.
PFPC revenue and financial results are affected by, among other things, the
number and value of customer accounts serviced and financial market conditions.
Accordingly, future results could differ materially from historic performance.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
11
<PAGE> 13
PNC MORTGAGE
Three months ended March 31 -
dollars in millions 2000 1999
- ----------------------------------------------------------------
INCOME STATEMENT
Net mortgage banking revenue
Residential mortgage servicing $99 $75
Origination and securitization 12 58
MSR amortization, net of servicing hedge (40) (57)
- ----------------------------------------------------------------
Net mortgage banking revenue 71 76
Net interest income 5 25
- ----------------------------------------------------------------
Total revenue 76 101
Operating expense 65 83
- ----------------------------------------------------------------
Pretax earnings 11 18
Income taxes 5 7
- ----------------------------------------------------------------
Earnings $6 $11
- ----------------------------------------------------------------
AVERAGE BALANCE SHEET
Residential mortgages held for sale $2,115 $2,948
Securities available for sale 1,883 2,669
Mortgage servicing rights and other assets 2,335 1,467
- ----------------------------------------------------------------
Total assets $6,333 $7,084
- ----------------------------------------------------------------
Escrow deposits $959 $1,220
Assigned funds and other liabilities 4,962 5,404
Assigned capital 412 460
- ----------------------------------------------------------------
Total funds $6,333 $7,084
- ----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital 6% 10%
Net mortgage banking revenue to total revenue 93 75
Efficiency 56 53
================================================================
PNC Mortgage originates, purchases and services residential mortgages and
related products. PNC Mortgage also acquires and securitizes residential
mortgages as private-label, mortgage-backed securities and performs the master
servicing of those securities for investors.
PNC Mortgage's strategic focus is on expanding sales of a broader array of
financial products while leveraging its technology platform and servicing
capabilities to manage the revenue/expense relationship for traditional mortgage
products.
PNC Mortgage contributed 2% of total business earnings for the first three
months of 2000 compared with 4% for the first three months of 1999. Earnings
decreased in the comparison due to lower origination and related securitization
volume resulting from lower refinancing activity. The decrease in origination
and securitization income was partially offset by higher residential mortgage
servicing revenue due to the impact of a larger servicing portfolio.
Operating expense decreased $18 million or 21% in the quarter-to-quarter
comparison due to operating expense reduction initiatives associated with lower
origination volume.
During the first three months of 2000, PNC Mortgage funded $2 billion of
residential mortgages, with 38% consisting of retail originations. The
comparable amounts were $6 billion and 40%, respectively, for the first three
months of 1999. Production volume for the first three months of 2000 consisted
of $1 billion of originated loans and $1 billion of mortgages acquired through
correspondent and contractual flow agreements. The corresponding amounts for the
first three months of 1999 were $2 billion and $4 billion, respectively.
RESIDENTIAL MORTGAGE SERVICING PORTFOLIO
In billions 2000 1999
- ----------------------------------------------------------------
January 1 $75 $62
Production volume 2 6
Acquisitions 3 2
Repayments (2) (4)
- ----------------------------------------------------------------
March 31 $78 $66
================================================================
At March 31, 2000, the residential mortgage servicing portfolio totaled $78
billion. Loans included in this portfolio that were serviced for others totaled
$70 billion and had a weighted-average coupon of 7.61%. Capitalized residential
mortgage servicing rights ("MSR") totaled $1.6 billion at March 31, 2000, and
had an estimated fair value of $1.8 billion. The master servicing portfolio grew
18% in the quarter-to-quarter comparison to $36 billion at March 31, 2000.
The value of MSR and related amortization are affected by changes in interest
rates. If interest rates decline and the rate of prepayments increases, the
underlying servicing fees and related MSR value also would decline. In a period
of rising interest rates, a converse relationship would be expected. PNC
Mortgage seeks to manage this risk by using financial instruments as hedges
designed to move in the opposite direction of expected MSR value changes.
Changes in interest rates also can affect the level of mortgage originations
that generally are expected to decline as interest rates increase, and increase
as interest rates decline.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
12
<PAGE> 14
Financial Review
CONSOLIDATED INCOME STATEMENT REVIEW
<TABLE>
<CAPTION>
NET INTEREST INCOME ANALYSIS
Taxable-equivalent basis Average Balances Interest Income/Expense Average Yields/Rates
Three months ended March 31 - ------------------------------ -------------------------- -----------------------------
dollars in millions 2000 1999 Change 2000 1999 Change 2000 1999 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans held for sale $5,434 $3,383 $2,051 $107 $56 $51 7.86% 6.68% 118bp
Securities available for sale 8,011 7,755 256 118 107 11 5.91 5.55 36
Loans, net of unearned income
Consumer 9,261 10,955 (1,694) 192 222 (30) 8.33 8.21 12
Credit card 2,724 (2,724) 100 (100) 14.91 NM
Residential mortgage 12,947 12,184 763 229 216 13 7.07 7.09 (2)
Commercial 21,793 24,574 (2,781) 447 462 (15) 8.12 7.52 60
Commercial real estate 2,698 3,398 (700) 59 65 (6) 8.60 7.70 90
Lease financing 2,958 2,443 515 54 44 10 7.33 7.17 16
Other 688 417 271 14 8 6 8.09 7.69 40
- ------------------------------------------------------------------------------------------------------
Total loans, net of unearned income 50,345 56,695 (6,350) 995 1,117 (122) 7.87 7.91 (4)
Other 1,173 1,005 168 22 16 6 7.60 6.19 141
- ------------------------------------------------------------------------------------------------------
Total interest-earning assets/
interest income 64,963 68,838 (3,875) 1,242 1,296 (54) 7.62 7.56 6
Noninterest-earning assets 9,714 8,120 1,594
- --------------------------------------------------------------------------
Total assets $74,677 $76,958 $(2,281)
==========================================================================
Interest-bearing liabilities
Deposits
Demand and money market $18,355 $16,825 $1,530 138 113 25 3.03 2.73 30
Savings 2,138 2,535 (397) 9 10 (1) 1.64 1.63 1
Retail certificates of deposit 14,591 14,652 (61) 191 184 7 5.25 5.08 17
Other time 637 2,610 (1,973) 10 35 (25) 6.36 5.35 101
Deposits in foreign offices 1,489 759 730 21 9 12 5.63 4.78 85
- ------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 37,210 37,381 (171) 369 351 18 3.98 3.80 18
Borrowed funds 20,096 21,584 (1,488) 308 281 27 6.08 5.21 87
- ------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities/ interest expense 57,306 58,965 (1,659) 677 632 45 4.72 4.31 41
--------------------------------------------------------
Noninterest-bearing liabilities, capital
securities and shareholders' equity 17,371 17,993 (622)
- --------------------------------------------------------------------------
Total liabilities, capital securities
and shareholders' equity $74,677 $76,958 $(2,281)
==========================================================================
Interest rate spread 2.90 3.25 (35)
Impact of noninterest-bearing sources .56 .61 (5)
-----------------------------
Net interest income/margin $565 $664 $(99) 3.46% 3.86% (40)bp
====================================================================================================================================
</TABLE>
NM - not meaningful
NET INTEREST INCOME Changes in net interest income and margin result from the
interaction between the volume and composition of earning assets, related yields
and associated funding costs. Accordingly, portfolio size, composition and
related yields earned and funding costs can have a significant impact on net
interest income and margin.
Taxable-equivalent net interest income was $565 million for the first quarter of
2000, a $99 million decrease compared with the first quarter of 1999. The net
interest margin was 3.46% for the first quarter of 2000 compared with 3.86% in
the first quarter of 1999. The decreases were primarily due to the sale of the
credit card business in 1999 and the impact of funding cost associated with the
ISG acquisition. As a result of the credit card sale and the exit and downsizing
of certain credit-related businesses in 1999, loans represented 77% of average
earning assets for the first three months of 2000 compared with 82% for the
prior-year period. Average loans held for sale increased $2.1 billion in the
quarter-to-quarter comparison, reflecting the decision to exit certain
non-strategic wholesale lending businesses during 1999. Securities available for
sale represented 10% of average earning assets in the first quarter of 2000
compared with 8% in the first quarter of 1999, excluding securities used to
hedge residential mortgage servicing rights.
Funding cost is affected by the volume and composition of funding sources as
well as related rates paid thereon. Average deposits comprised 61% and 60% of
total sources of funds for the first three months of 2000 and 1999,
respectively, with the remainder primarily comprised of wholesale funding
obtained at prevailing market rates. The average loan to deposit ratio declined
to 111% for the first three months of 2000 compared with 122% for the first
three months of 1999.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
13
<PAGE> 15
Average demand and money market deposits increased $1.5 billion or 9% to $18.4
billion for the first three months of 2000, primarily reflecting the impact of
strategic marketing initiatives to grow more valuable transaction accounts,
while other time deposits decreased in the quarter-to-quarter comparison.
Average borrowed funds for the first three months of 2000 decreased $1.5 billion
compared with the first three months of 1999 as lower bank notes and repurchase
agreements more than offset increases in Federal Home Loan Bank borrowings and
subordinated debt. The increase in subordinated debt was related to funding the
ISG acquisition.
PROVISION FOR CREDIT LOSSES The provision for credit losses was $31 million for
the first three months of 2000 compared with $78 million for the first three
months of 1999. Net charge-offs were $31 million or .25% of average loans for
the first three months of 2000 compared with $78 million or .56%, respectively,
for the first three months of 1999. The decreases were primarily due to the sale
of the credit card business in the first quarter of 1999. Excluding credit
cards, net charge-offs were .15% of average loans for the first three months of
1999.
NONINTEREST INCOME Noninterest income was $789 million for the first three
months of 2000 and represented 58% of total revenue. Noninterest income
increased $206 million or 35% in the quarter-to-quarter comparison, excluding
$290 million of gains on the sales of the credit card business and an equity
interest in EPS that were partially offset by $142 million of valuation
adjustments associated with exiting certain non-strategic wholesale lending
businesses in 1999. The increase was primarily driven by strong growth in
fee-based businesses, the impact of the ISG acquisition and equity management
revenue.
Asset management fees of $186 million for the first three months of 2000
increased $25 million or 16% driven by new business and market appreciation.
Assets under management were $220 billion at March 31, 2000, a 21% increase
compared with March 31, 1999. Fund servicing fees were $155 million for the
first quarter of 2000, a $103 million increase compared with the first quarter
of 1999 primarily driven by the ISG acquisition, new business and market
appreciation.
Brokerage fees of $71 million for the first three months of 2000 increased $15
million or 27% reflecting the expansion of Hilliard Lyons' distribution network
and the impact of significant activity in the equity markets. Consumer services
revenue of $51 million for the first three months of 2000 remained consistent in
the quarter-to-quarter comparison, excluding credit card fees in the first three
months of 1999.
Corporate services revenue of $82 million for the first three months of 2000
increased $10 million or 14% in the quarter-to-quarter comparison, excluding
valuation adjustments related to the exit of certain non-strategic wholesale
lending businesses in 1999. The increase included, among other things,
double-digit increases in capital markets and treasury management fees.
Net residential mortgage banking revenue of $54 million for the first three
months of 2000 decreased $6 million compared with the prior-year quarter as an
increase in net servicing revenue was more than offset by the impact of lower
refinancing activity.
Equity management revenue was $87 million for the first three months of 2000
compared with $9 million in the first three months of 1999. The majority of the
revenue in the first three months of 2000 resulted from realized gains.
Other noninterest income of $56 million for the first three months of 2000
increased $7 million in the quarter-to-quarter comparison, excluding non-core
items in the first quarter of 1999.
NONINTEREST EXPENSE Noninterest expense was $847 million in the first three
months of 2000 compared with $725 million in the first three months of 1999,
excluding $98 million of costs related to efficiency initiatives last year. The
efficiency ratio was 57.4% in the first three months of 2000 compared with 52.1%
in the prior-year quarter, excluding non-core items. The quarter-to-quarter
increases were primarily related to the ISG acquisition and higher expenses
commensurate with fee-based revenue growth. Average full-time equivalent
employees totaled approximately 26,100 and 25,500 for the first three months of
2000 and 1999, respectively. The increase was primarily due to the net impact of
the ISG acquisition, partially offset by the impact of efficiency initiatives in
the traditional banking and mortgage banking businesses.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
14
<PAGE> 16
Financial Review
CONSOLIDATED BALANCE SHEET REVIEW
LOANS Loans outstanding of $50.7 billion at March 31, 2000 increased $.6 billion
from year-end 1999 primarily due to an increase in commercial and residential
mortgage loans. Total outstandings and exposure designated for exit during 1999
totaled $3.7 billion and $10.5 billion, respectively. At March 31, 2000, the
remaining outstandings and exposure associated with this initiative totaled $2.1
billion and $6.2 billion, respectively. Loans that were designated for exit in
1999 and reclassified to held for sale are excluded from the following table.
DETAILS OF LOANS
March 31 December 31
In millions 2000 1999
- -----------------------------------------------------------------
Consumer
Home equity $6,126 $6,068
Automobile 1,530 1,691
Other 1,536 1,598
- -----------------------------------------------------------------
Total consumer 9,192 9,357
Residential mortgage 13,085 12,869
Commercial
Manufacturing 5,430 5,355
Retail/wholesale 4,417 4,301
Service providers 3,021 3,208
Real estate related 2,815 2,862
Communications 1,341 1,370
Health care 798 772
Financial services 1,291 1,300
Other 2,920 2,300
- -----------------------------------------------------------------
Total commercial 22,033 21,468
Commercial real estate
Mortgage 717 761
Real estate project 1,948 1,969
- -----------------------------------------------------------------
Total commercial real estate 2,665 2,730
Lease financing 3,701 3,663
Other 701 683
Unearned income (724) (724)
- -----------------------------------------------------------------
Total, net of unearned income $50,653 $50,046
=================================================================
Loan portfolio composition continued to be geographically diversified among
numerous industries and types of businesses.
NET UNFUNDED COMMITMENTS
March 31 December 31
In millions 2000 1999
- ---------------------------------------------------------------------
Consumer $4,672 $4,603
Residential mortgage 1,520 648
Commercial 24,151 23,953
Commercial real estate 397 38
Lease financing 103 136
Other 308 1,513
- ---------------------------------------------------------------------
Total $31,151 $30,891
=====================================================================
Commitments to extend credit represent arrangements to lend funds provided there
is no violation of specified contractual conditions. Commercial commitments are
reported net of participations, assignments and syndications, primarily to
financial institutions, totaling $7.0 billion and $7.2 billion at March 31, 2000
and December 31, 1999, respectively. Unfunded commitments related to loans
designated for exit totaling $4.1 billion at March 31, 2000 and $4.8 billion at
December 31, 1999, are excluded from the above table.
Net outstanding letters of credit totaled $4.2 billion and $4.6 billion at March
31, 2000 and December 31, 1999, respectively, and consisted primarily of standby
letters of credit, which commit the Corporation to make payments on behalf of
customers when certain specified future events occur.
SECURITIES AVAILABLE FOR SALE The fair value of the securities available for
sale portfolio increased $55 million from December 31, 1999 to $7.7 billion at
March 31, 2000. Total securities used to hedge residential MSR were $1.8 billion
at March 31, 2000. Portfolio securities represented 8% of total assets at March
31, 2000. The expected weighted-average life of the portfolio securities
decreased to 4 years and 3 months at March 31, 2000, compared with 4 years and 7
months at year-end 1999. The expected weighted-average life of total securities
available for sale decreased to 5 years and 4 months at March 31, 2000 compared
with 5 years and 7 months at year-end 1999.
DETAILS OF SECURITIES AVAILABLE FOR SALE
Amortized Fair
In millions Cost Value
- ----------------------------------------------------------------
March 31, 2000
PORTFOLIO SECURITIES
Debt securities
U.S. Treasury and government agencies $159 $153
Mortgage-backed 3,777 3,613
Asset-backed 1,320 1,286
State and municipal 135 132
Other debt 39 38
Corporate stocks and other 673 684
- ----------------------------------------------------------------
Total $6,103 $5,906
================================================================
MORTGAGE BANKING RISK MANAGEMENT
Debt securities
U.S. Treasury and government agencies $1,885 $1,698
Mortgage-backed 66 62
- ----------------------------------------------------------------
Total $1,951 $1,760
- ----------------------------------------------------------------
Total securities available for sale $8,054 $7,666
================================================================
December 31, 1999
PORTFOLIO SECURITIES
Debt securities
U.S. Treasury and government agencies $411 $400
Mortgage-backed 3,918 3,769
Asset-backed 1,051 1,027
State and municipal 134 131
Other debt 40 39
Corporate stocks and other 590 594
- ----------------------------------------------------------------
Total $6,144 $5,960
================================================================
MORTGAGE BANKING RISK MANAGEMENT
Debt securities
U.S. Treasury and government agencies $1,791 $1,587
Mortgage-backed 68 64
- ----------------------------------------------------------------
Total $1,859 $1,651
- ----------------------------------------------------------------
Total securities available for sale $8,003 $7,611
================================================================
THE PNC FINANCIAL SERVICES GROUP, INC.
----
15
<PAGE> 17
FUNDING SOURCES Total funding sources were $64.8 billion at March 31, 2000, a
decrease of $1.2 billion compared with December 31, 1999, primarily resulting
from reduced deposits in foreign offices and Federal Home Loan Bank ("FHLB")
borrowings.
DETAILS OF FUNDING SOURCES
March 31 December 31
In millions 2000 1999
- ----------------------------------------------------------------
Deposits
Demand, savings and money market $29,280 $28,689
Retail certificates of deposit 14,552 14,153
Other time 645 633
Deposits in foreign offices 2,224 3,193
- ----------------------------------------------------------------
Total deposits 46,701 46,668
Borrowed funds
Federal funds purchased 909 1,281
Repurchase agreements 770 1,122
Bank notes and senior debt 7,001 6,975
Federal Home Loan Bank borrowings 6,156 6,656
Subordinated debt 2,425 2,327
Other borrowed funds 833 986
- ----------------------------------------------------------------
Total borrowed funds 18,094 19,347
- ----------------------------------------------------------------
Total $64,795 $66,015
================================================================
CAPITAL The access to and cost of funding new business initiatives including
acquisitions, the ability to engage in expanded activities, the ability to pay
dividends, deposit insurance costs, and the level and nature of regulatory
oversight depend, in large part, on a financial institution's capital strength.
At March 31, 2000, the Corporation and each bank subsidiary were considered well
capitalized based on regulatory capital ratio requirements.
RISK-BASED CAPITAL
March 31 - dollars in millions 2000 1999
- ----------------------------------------------------------------
Capital components
Shareholders' equity
Common $5,726 $5,617
Preferred 313 314
Trust preferred capital securities 848 848
Goodwill and other (2,278) (1,348)
Net unrealized securities losses 251 82
- ----------------------------------------------------------------
Tier I risk-based capital 4,860 5,513
Subordinated debt 2,080 1,780
Eligible allowance for credit losses 662 672
- ----------------------------------------------------------------
Total risk-based capital $7,602 $7,965
================================================================
Assets
Risk-weighted assets and
off-balance-sheet instruments $67,049 $67,056
Average tangible assets 72,872 75,770
================================================================
Capital ratios
Tier I risk-based 7.25% 8.22%
Total risk-based 11.34 11.88
Leverage 6.67 7.28
================================================================
The capital position is managed through balance sheet size and composition,
issuance of debt and equity instruments, treasury stock activities, dividend
policies and retention of earnings.
During the first quarter of 2000, PNC repurchased 2.7 million shares of common
stock. On February 17, 2000, the Board of Directors authorized the Corporation
to purchase up to 10 million shares of common stock through February 28, 2001.
Approximately 8.3 million shares remain under this authorization.
RISK MANAGEMENT
In the normal course of business, the Corporation assumes various types of risk,
the most significant of which are credit, liquidity, interest rate and market
risk. To manage these risks, PNC has risk management processes designed to
provide for risk identification, measurement, monitoring and control.
CREDIT RISK Credit risk represents the possibility that a borrower or
counterparty may not perform in accordance with contractual terms. Credit risk
is inherent in the financial services business and results from extending credit
to customers, purchasing securities and entering into off-balance-sheet
financial derivative transactions. The Corporation seeks to manage credit risk
through, among other things, diversification, limiting exposure to any single
industry or customer, requiring collateral or selling participations to third
parties, and purchasing credit-related derivatives.
NONPERFORMING ASSETS
March 31 December 31
Dollars in millions 2000 1999
- ------------------------------------------------------------------
Nonaccrual loans
Commercial $240 $219
Residential mortgage 49 56
Commercial real estate
Real estate project 7 13
Mortgage 6 8
Consumer 3 2
Lease financing 2 1
- ------------------------------------------------------------------
Total nonaccrual loans 307 299
Foreclosed and other assets
Residential mortgage 12 12
Commercial real estate 5 5
Other 31 22
- ------------------------------------------------------------------
Total foreclosed and other assets 48 39
- ------------------------------------------------------------------
Total nonperforming assets $355 $338
==================================================================
Nonaccrual loans to total loans .61% .60%
Nonperforming assets to total loans,
loans held for sale and foreclosed .64 .61
assets
Nonperforming assets to total assets .48 .45
==================================================================
The above table excludes $18 million and $13 million of equity management assets
at March 31, 2000 and December 31, 1999, respectively, carried at fair value.
The amount of nonperforming loans that were current as to principal and interest
was $25 million at March 31, 2000, and $42 million at December 31, 1999. There
were no troubled debt restructured loans outstanding as of either period end.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
16
<PAGE> 18
Financial Review
CHANGE IN NONPERFORMING ASSETS
In millions 2000 1999
- ----------------------------------------------------------------
January 1 $338 $332
Transferred from accrual 117 74
Returned to performing (2) (1)
Principal reductions (46) (53)
Sales (9) (10)
Charge-offs and other (43) (14)
- ----------------------------------------------------------------
March 31 $355 $328
================================================================
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
Amount Percent of Loans
------------------------------------------------
March 31 December 31 March 31 December 31
Dollars in millions 2000 1999 2000 1999
- ---------------------------------------------------------------------
Consumer $20 $25 .22% .27%
Residential mortgage 41 34 .31 .26
Commercial 42 30 .19 .14
Commercial real estate 3 5 .11 .18
Lease financing 4 2 .13 .05
- ---------------------------------------------
Total $110 $96 .22 .19
======================================================================
ALLOWANCE FOR CREDIT LOSSES In determining the adequacy of the allowance for
credit losses, the Corporation makes specific allocations to impaired loans and
to pools of watchlist and nonwatchlist loans for various credit risk factors.
Allocations to loan pools are developed by business segment and risk rating and
are based on historical loss trends and management's judgment concerning those
trends and other relevant factors. Those factors may include, among other
things, actual versus estimated losses, current regional and national economic
conditions, business segment and portfolio concentrations, industry competition
and consolidation, and the impact of government regulations. Consumer and
residential mortgage loan allocations are made at a total portfolio level based
on historical loss experience adjusted for portfolio activity and current
economic conditions.
While PNC's commercial and consumer pool reserve methodologies strive to reflect
all risk factors, there continues to be a certain element of risk associated
with, but not limited to, potential estimation or judgmental errors. Unallocated
reserves provide coverage for such risks. While allocations are made to specific
loans and pools of loans, the total reserve is available for all credit losses.
Senior management's Reserve Adequacy Committee provides oversight for the
allowance evaluation process including quarterly evaluations, and methodology
and estimation changes. The results of the evaluations are reported to the
Credit Committee of the Board of Directors.
The provision for credit losses for the first quarter of 2000 and the evaluation
of the allowance for credit losses as of March 31, 2000 reflected changes in
loan portfolio composition and changes in asset quality. The unallocated portion
of the allowance for credit losses at March 31, 2000 represented 20% of the
total allowance and .26% of total loans compared with 20% and .27%,
respectively, at December 31, 1999.
ROLLFORWARD OF ALLOWANCE FOR CREDIT LOSSES
In millions 2000 1999
- ----------------------------------------------------------------
January 1 $674 $753
Charge-offs (45) (97)
Recoveries 14 19
- ----------------------------------------------------------------
Net charge-offs (31) (78)
Provision for credit losses 31 78
Divestitures (81)
- ----------------------------------------------------------------
March 31 $674 $672
================================================================
The allowance as a percent of nonaccrual loans and period-end loans was 220% and
1.33%, respectively, at March 31, 2000. The comparable year-end 1999 amounts
were 225% and 1.35%, respectively.
CHARGE-OFFS AND RECOVERIES
Three months ended Percent of
March 31 Net Average
Dollars in millions Charge-offs Recoveries Charge-offs Loans
- ----------------------------------------------------------------------
2000
Consumer $12 $6 $ 6 .26%
Residential mortgage 2 2 .06
Commercial 29 7 22 .41
Lease financing 2 1 1 .14
- ---------------------------------------------------------
Total $45 $14 $31 .25
- ----------------------------------------------------------------------
1999
Consumer $18 $7 $11 .41%
Credit card 60 2 58 8.64
Residential mortgage 4 1 3 .10
Commercial 12 7 5 .08
Commercial real estate 1 1
Lease financing 2 1 1 .17
- ---------------------------------------------------------
Total $97 $19 $78 .56
======================================================================
The actual level of net charge-offs and the provision for credit losses in
future periods can be affected by many business and economic factors and may
differ from current or historical experience.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
17
<PAGE> 19
LIQUIDITY RISK Liquidity represents the Corporation's ability to obtain
cost-effective funding to meet the needs of customers as well as the
Corporation's financial obligations. Liquidity is centrally managed by Asset and
Liability Management, with oversight provided by the Corporate Asset and
Liability Committee and the Finance Committee of the Board of Directors.
Access to capital markets funding sources is a key factor affecting liquidity
management. Access to such markets is in part based on the Corporation's credit
ratings, which are influenced by a number of factors including capital ratios,
credit quality, and earnings. Additional factors that impact liquidity include
the maturity structure of existing assets, liabilities, and off-balance-sheet
positions, the level of liquid investment securities and loans available for
sale, and the Corporation's ability to securitize and sell various types of
loans.
Liquidity can also be provided through the sale of liquid assets, which consist
of short-term investments, loans held for sale and securities available for
sale. At March 31, 2000, such assets totaled $13.3 billion with $4.1 billion
pledged as collateral for borrowing, trust and other commitments. Liquidity can
also be obtained through secured advances from the FHLB, of which PNC is a
member. These borrowings are generally secured by residential mortgages and
mortgage-backed securities. At March 31, 2000, approximately $8.0 billion of
residential mortgages were available as collateral for borrowings from the FHLB.
Funding can also be obtained through alternative forms of borrowing, including
Federal funds purchased, repurchase agreements and short-term and long-term debt
issuances.
Liquidity for the parent company and subsidiaries is also generated through the
issuance of securities in public or private markets and lines of credit. During
the first quarter of 2000, the Corporation issued $100 million of subordinated
debt. At March 31, 2000, the Corporation had unused capacity under effective
shelf registration statements of approximately $1.4 billion of debt and equity
securities and $400 million of trust preferred capital securities. In addition,
the Corporation had an unused line of credit of $500 million.
The principal source of parent company revenue and cash flow is dividends from
subsidiary banks. PNC Bancorp, Inc. is a wholly-owned subsidiary of the parent
company and is the holding company for all bank subsidiaries. There are legal
limitations on the ability of bank subsidiaries to pay dividends and make other
distributions to PNC Bancorp, Inc. and in turn the parent company. Without
regulatory approval, the amount available for dividend payments to PNC Bancorp,
Inc. by all bank subsidiaries was $130 million at March 31, 2000. Dividends may
also be impacted by capital needs, regulatory requirements, corporate policies,
contractual restrictions and other factors.
Management believes the Corporation has sufficient liquidity to meet current
obligations to borrowers, depositors, debt holders and others. The impact of
replacing maturing liabilities is reflected in the income simulation model in
the overall asset and liability management process.
INTEREST RATE RISK Interest rate risk arises primarily through the Corporation's
traditional business activities of extending loans and accepting deposits. Many
factors, including economic and financial conditions, movements in market
interest rates and consumer preferences, affect the spread between interest
earned on assets and interest paid on liabilities. In managing interest rate
risk, the Corporation seeks to minimize its reliance on a particular interest
rate scenario as a source of earnings while maximizing net interest income and
net interest margin. To further these objectives, the Corporation uses
securities purchases and sales, long-term and short-term funding, financial
derivatives and other capital markets instruments.
Interest rate risk is centrally managed by Asset and Liability Management. The
Corporation actively measures and monitors components of interest rate risk
including term structure or repricing risk, yield curve or nonparallel rate
shift risk, basis risk and options risk. Senior management's Corporate Asset and
Liability Committee provides strategic direction to Asset and Liability
Management and, in doing so, reviews capital markets activities and interest
rate risk exposures. The Finance Committee of the Board of Directors is
responsible for overseeing the Corporation's interest rate risk management
process.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
18
<PAGE> 20
Financial Review
The Corporation measures and manages both the short-term and long-term effects
of changing interest rates. An income simulation model is used to measure the
sensitivity of net interest income to changing interest rates over the next
twenty-four month period. An economic value of equity model is used to measure
the sensitivity of the value of existing on-balance-sheet and off-balance-sheet
positions to changing interest rates.
The income simulation model is the primary tool used to measure the direction
and magnitude of changes in net interest income resulting from changes in
interest rates. Forecasting net interest income and its sensitivity to changes
in interest rates requires that the Corporation make assumptions about the
volume and characteristics of new business and the behavior of existing
positions. These business assumptions are based on the Corporation's experience,
business plans and published industry experience. Key assumptions employed in
the model include prepayment speeds on mortgage-related assets and consumer
loans, loan volumes and pricing, deposit volumes and pricing, the expected life
and repricing characteristics of nonmaturity loans and deposits, and
management's financial and capital plans.
Because these assumptions are inherently uncertain, the model cannot precisely
estimate net interest income or precisely predict the effect of higher or lower
interest rates on net interest income. Actual results will differ from simulated
results due to the timing, magnitude and frequency of interest rate changes, the
difference between actual experience and the assumed volume and characteristics
of new business and behavior of existing positions, and changes in market
conditions and management strategies, among other factors.
The Corporation's interest rate risk management policies provide that net
interest income should not decrease by more than 3% if interest rates gradually
increase or decrease from current rates by 100 basis points over a twelve-month
period. At March 31, 2000, if interest rates were to gradually increase by 100
basis points over the next twelve months, the model indicated that net interest
income would decrease by .6%. If interest rates were to gradually decrease by
100 basis points over the next twelve months, the model indicated that net
interest income would increase by .8%.
The Corporation models additional interest rate scenarios covering a wider range
of rate movements to identify yield curve, term structure and basis risk
exposures. These scenarios are developed based on historical rate relationships
or management's expectations regarding the future direction and level of
interest rates. Depending on market conditions and other factors, these
scenarios may be modeled more or less frequently. Such analyses are used in
conjunction with the net interest income simulation model and economic value of
equity model to identify inherent risk and develop appropriate strategies.
An economic value of equity model is used by the Corporation to value all
current on-balance-sheet and off-balance-sheet positions under a range of
instantaneous interest rate changes. The resulting change in the value of equity
is the measure of overall long-term interest rate risk inherent in the
Corporation's existing on-balance-sheet and off-balance-sheet positions. The
Corporation uses the economic value of equity model to complement the net
interest income simulation modeling process.
The Corporation's risk management policies provide that the change in economic
value of equity should not decline by more than 1.5% of the book value of assets
for a 200 basis point instantaneous increase or decrease in interest rates.
Based on the results of the economic value of equity model at March 31, 2000, if
interest rates were to instantaneously increase by 200 basis points, the model
indicated that the economic value of existing on-balance-sheet and
off-balance-sheet positions would decline by 1.0% of assets. If interest rates
were to instantaneously decrease by 200 basis points, the model indicated that
the economic value of existing on-balance-sheet and off-balance-sheet positions
would increase by .2% of assets.
MARKET RISK Most of PNC's trading activities are designed to provide capital
markets services for customers. The performance of PNC's trading operations is
predominantly based on providing services to customers and not on positioning
the Corporation's portfolio for gains from market movements.
Market risk associated with trading, capital markets and foreign exchange
activities is managed using a value-at-risk approach that combines interest rate
risk, foreign exchange rate risk, spread risk and volatility risk. Exposure is
measured as the potential loss due to a two standard deviation, one-day move.
The combined period-end value-at-risk of all trading operations using this
measurement was less than $850 thousand at March 31, 2000.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
19
<PAGE> 21
FINANCIAL DERIVATIVES A variety of off-balance-sheet financial derivatives are
used as part of the overall risk management process to manage the interest rate,
market and credit risk inherent in the Corporation's business activities.
Interest rate swaps and purchased interest rate caps and floors are the primary
instruments used for interest rate risk management. Interest rate swaps are
agreements to exchange fixed and floating interest rate payments calculated on a
notional principal amount. The floating rate is based on a money market index,
primarily short-term LIBOR. Purchased interest rate caps and floors are
agreements where, for a fee, the counterparty agrees to pay the Corporation the
amount, if any, by which a specified market interest rate exceeds or is less
than a defined rate applied to a notional amount, respectively.
Forward contracts provide for the delivery of financial instruments at a
specified future date and at a specified price or yield. Such contracts are
primarily used to manage risk positions associated with certain residential
mortgage banking and student lending activities.
Credit-related derivatives provide, for a fee, an assumption of a portion of the
credit risk associated with the underlying financial instruments. Such contracts
are primarily used to manage credit risk and regulatory capital associated with
commercial lending activities.
Financial derivatives involve, to varying degrees, interest rate, market and
credit risk in excess of the amount on the balance sheet, but less than the
notional amount of the contract. For interest rate swaps, caps and floors, only
periodic cash payments and, with respect to caps and floors, premiums, are
exchanged. Therefore, cash requirements and exposure to credit risk are
significantly less than the notional value.
During the first three months of 2000, financial derivatives used in interest
rate risk management decreased net interest income by $5 million compared with a
$16 million increase in the prior-year period.
The following table sets forth changes in the notional value of
off-balance-sheet financial derivatives used for risk management during the
first three months of 2000.
<TABLE>
<CAPTION>
FINANCIAL DERIVATIVES ACTIVITY Weighted-
Average
2000 - dollars in millions January 1 Additions Maturities Terminations March 31 Maturity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate risk management
Interest rate swaps
Receive fixed $7,413 $350 $(1,050) $6,713 2 yrs. 9 mos.
Pay fixed 5 5 9 mos.
Basis swaps 1,650 23 1,673 3 yrs. 3 mos.
Interest rate caps 474 (43) $(9) 422 4 yrs.
Interest rate floors 3,311 (13) (7) 3,291 2 yrs. 2 mos.
- -------------------------------------------------------------------------------------------------------------------
Total interest rate risk management 12,853 373 (1,106) (16) 12,104
Mortgage banking risk management
Residential
Forward contracts
Commitments to purchase loans 304 6,023 (5,708) 619 2 mos.
Commitments to sell loans 1,194 7,051 (6,628) 1,617 2 mos.
Options 96 132 (122) 106 2 mos.
Options - MSR 7,675 7,675 3 yrs. 5 mos.
- -------------------------------------------------------------------------------------------------------------------
Total residential 9,269 13,206 (12,458) 10,017
Commercial - interest rate swaps 643 693 (85) (445) 806 7 yrs. 1 mo.
- -------------------------------------------------------------------------------------------------------------------
Total mortgage banking risk management 9,912 13,899 (12,543) (445) 10,823
Student lending activities
Forward contracts 681 67 (321) 427 2 yrs. 1 mo.
Credit-related activities
Credit default swaps 4,315 10 4,325 1 yr. 5 mos.
- -------------------------------------------------------------------------------------------------------------------
Total $27,761 $14,349 $(13,649) $(782) $27,679
===================================================================================================================================
</TABLE>
THE PNC FINANCIAL SERVICES GROUP, INC.
----
20
<PAGE> 22
Financial Review
The following table sets forth, by designated assets and liabilities, the
notional value and the estimated fair value of financial derivatives used for
risk management. Weighted-average interest rates presented are those expected to
be in effect based on the implied forward yield curve at March 31, 2000.
FINANCIAL DERIVATIVES
<TABLE>
<CAPTION>
Weighted-Average Interest Rates
Notional Estimated -------------------------------
March 31, 2000 - dollars in millions Value Fair Value Paid Received
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate risk management
Asset rate conversion
Interest rate swaps (1)
Receive fixed designated to loans $5,000 $(67) 6.96% 5.52%
Basis swaps designated to other earning assets 249 3 6.44 6.95
Interest rate caps designated to loans (2) 422 12 NM NM
Interest rate floors designated to loans (3) 3,291 (1) NM NM
- ----------------------------------------------------------------------------------------------------
Total asset rate conversion 8,962 (53)
Liability rate conversion
Interest rate swaps (1)
Receive fixed designated to:
Interest-bearing deposits 150 (2) 7.01 6.65
Borrowed funds 1,563 (35) 7.02 6.49
Pay fixed designated to borrowed funds 5 2 6.09 7.36
Basis swaps designated to borrowed funds 1,424 6 6.93 7.01
- ----------------------------------------------------------------------------------------------------
Total liability rate conversion 3,142 (29)
- ----------------------------------------------------------------------------------------------------
Total interest rate risk management 12,104 (82)
Mortgage banking risk management
Residential
Forward contracts
Commitments to purchase loans 619 5 NM NM
Commitments to sell loans 1,617 (6) NM NM
Options 106 2 NM NM
Options - MSR (3) 7,675 34 NM NM
- ----------------------------------------------------------------------------------------------------
Total residential 10,017 35
Commercial
Pay fixed interest rate swaps designated to
securities (1) 444 26 6.09 7.13
Pay fixed interest rate swaps designated to loans (1) 362 16 6.51 6.81
- ----------------------------------------------------------------------------------------------------
Total commercial 806 42
- ----------------------------------------------------------------------------------------------------
Total mortgage banking risk management 10,823 77
Student lending activities
Forward contracts 427 NM NM
Credit-related activities
Credit default swaps 4,325 (3) NM NM
- ----------------------------------------------------------------------------------------------------
Total financial derivatives $27,679 $(8)
================================================================================================================================
</TABLE>
(1) The floating rate portion of interest rate contracts is based on
money-market indices. As a percent of notional value, 24% were based on
1-month LIBOR, 72% on 3-month LIBOR and the remainder on other short-term
indices.
(2) Interest rate caps with notional values of $117 million, $120 million and
$183 million require the counterparty to pay the Corporation the excess, if
any, of 3-month LIBOR over a weighted-average strike of 6.14%, 1-month LIBOR
over a weighted-average strike of 5.71% and Prime over a weighted-average
strike of 8.76%, respectively. At March 31, 2000, 3-month LIBOR was 6.29%,
1-month LIBOR was 6.13% and Prime was 9.00%.
(3) Interest rate floors with notional values of $3.0 billion, $3.8 billion and
$3.2 billion require the counterparty to pay the Corporation the excess, if
any, of the weighted-average strike of 4.63% over 3-month LIBOR, the
weighted-average strike of 5.08% over 10-year CMT and the weighted-average
strike of 4.99% over 10-year CMS, respectively. At March 31, 2000, 3-month
LIBOR was 6.29%, 10-year CMT was 6.03% and 10-year CMS was 7.28%.
NM - Not meaningful
THE PNC FINANCIAL SERVICES GROUP, INC.
----
21
<PAGE> 23
OTHER DERIVATIVES To accommodate customer needs, PNC enters into
customer-related financial derivative transactions primarily consisting of
interest rate swaps, caps, floors and foreign exchange contracts. Risk exposure
from customer positions is managed through transactions with other dealers.
Additionally, the Corporation enters into other derivative transactions for risk
management purposes. These positions are recorded at estimated fair value and
changes in value are included in results of operations.
OTHER DERIVATIVES
<TABLE>
<CAPTION>
At March 31, 2000
---------------------------------------------
Positive Negative Average
Notional Fair Fair Net Asset Fair
In millions Value Value Value (Liability) Value*
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Customer-related
Interest rate
Swaps $12,770 $127 $(133) $(6) $(7)
Caps/floors
Sold 4,080 (26) (26) (27)
Purchased 3,926 25 25 25
Foreign exchange 4,242 51 (45) 6 6
Other 1,912 10 (11) (1) 2
- -----------------------------------------------------------------------------------
Total customer-related 26,930 213 (215) (2) (1)
Other 1,421 6 (1) 5 5
===================================================================================
Total other derivatives $28,351 $219 $(216) $3 $4
===================================================================================
</TABLE>
* For the three months ended March 31, 2000
THE PNC FINANCIAL SERVICES GROUP, INC.
----
22
<PAGE> 24
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three months ended March 31 - in millions, except per share data 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans and fees on loans $991 $1,112
Securities available for sale 117 106
Loans held for sale 107 56
Other 22 16
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income 1,237 1,290
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 369 351
Borrowed funds 308 281
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 677 632
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 560 658
Provision for credit losses 31 78
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income less provision for credit losses 529 580
- ------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Asset management 186 161
Fund servicing 155 52
Service charges on deposits 50 50
Brokerage 71 56
Consumer services 51 74
Corporate services 82 (63)
Net residential mortgage banking 54 60
Equity management 87 9
Net securities losses (3)
Other 56 332
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 789 731
- ------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Staff expense 444 412
Net occupancy 57 87
Equipment 60 88
Amortization 28 28
Marketing 15 15
Distributions on capital securities 16 16
Other 227 177
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 847 823
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 471 488
Income taxes 163 163
- ------------------------------------------------------------------------------------------------------------------------------
Net income $308 $325
- ------------------------------------------------------------------------------------------------------------------------------
Net income applicable to diluted earnings $303 $321
EARNINGS PER COMMON SHARE
Basic $1.04 $1.06
Diluted 1.03 1.05
CASH DIVIDENDS DECLARED PER COMMON SHARE .45 .41
AVERAGE COMMON SHARES OUTSTANDING
Basic 291.9 302.3
Diluted 294.1 305.5
==============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
23
<PAGE> 25
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31 December 31
In millions, except par value 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $2,190 $3,097
Short-term investments 1,032 1,148
Loans held for sale 4,648 5,798
Securities available for sale 7,666 7,611
Loans, net of unearned income of $724 50,653 50,046
Allowance for credit losses (674) (674)
- ------------------------------------------------------------------------------------------------------------------------------
Net loans 49,979 49,372
Goodwill and other amortizable assets 4,155 4,123
Other 4,637 4,264
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $74,307 $75,413
==============================================================================================================================
LIABILITIES
Deposits
Noninterest-bearing $8,292 $8,441
Interest-bearing 38,409 38,227
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 46,701 46,668
Borrowed funds
Federal funds purchased 909 1,281
Repurchase agreements 770 1,122
Bank notes and senior debt 7,001 6,975
Federal Home Loan Bank borrowings 6,156 6,656
Subordinated debt 2,425 2,327
Other borrowed funds 833 986
- ------------------------------------------------------------------------------------------------------------------------------
Total borrowed funds 18,094 19,347
Other 2,625 2,604
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 67,420 68,619
- ------------------------------------------------------------------------------------------------------------------------------
Mandatorily redeemable capital securities of subsidiary trusts 848 848
SHAREHOLDERS' EQUITY
Preferred stock 7 7
Common stock - $5 par value
Authorized 450 shares
Issued 353 shares 1,764 1,764
Capital surplus 1,285 1,276
Retained earnings 6,178 6,006
Deferred benefit expense (18) (17)
Accumulated other comprehensive loss (264) (267)
Common stock held in treasury at cost: 62 and 60 shares (2,913) (2,823)
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 6,039 5,946
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities, capital securities and shareholders' equity $74,307 $75,413
==============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
24
<PAGE> 26
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31 - in millions 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $308 $325
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses 31 78
Depreciation, amortization and accretion 131 130
Deferred income taxes 119 43
Net securities losses 3 17
Gain on sale of businesses (290)
Valuation adjustments 17 142
Change in
Loans held for sale 1,133 521
Other (442) (165)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,300 801
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in loans (652) 218
Repayment of securities available for sale 187 403
Sales
Securities available for sale 1,427 1,659
Loans 38
Foreclosed assets 8 10
Purchases
Securities available for sale (1,690) (3,504)
Net cash received for divestitures 3,261
Other (70) 17
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (790) 2,102
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits (149) (873)
Interest-bearing deposits 182 (824)
Federal funds purchased (372) (145)
Sale/issuance
Repurchase agreements 35,099 33,667
Bank notes and senior debt 1,050 820
Federal Home Loan Bank borrowings 1,500 250
Subordinated debt 99 254
Other borrowed funds 10,399 7,786
Common stock 31 16
Repayment/maturity
Repurchase agreements (35,451) (33,020)
Bank notes and senior debt (1,025) (1,305)
Federal Home Loan Bank borrowings (2,000) (1,450)
Subordinated debt (5)
Other borrowed funds (10,528) (7,860)
Acquisition of treasury stock (116) (297)
Cash dividends paid (136) (129)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (1,417) (3,115)
- -----------------------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND DUE FROM BANKS (907) (212)
Cash and due from banks at beginning of year 3,097 2,534
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $2,190 $2,322
===================================================================================================================================
CASH PAID FOR
Interest $705 $667
Income taxes 90 8
NONCASH ITEMS
Transfer from loans to loans held for sale 1,018
Transfer from loans to other assets 9 11
===================================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS The PNC Financial Services Group, Inc. ("Corporation" or "PNC") is one
of the largest diversified financial services companies in the United States
operating regional banking, corporate banking, secured finance, asset management
and mortgage banking businesses that provide products and services nationally
and in PNC's primary geographic markets in Pennsylvania, New Jersey, Delaware,
Ohio and Kentucky. The Corporation is subject to intense competition from other
financial services companies and is subject to the regulations of certain
federal and state agencies and undergoes periodic examinations by those
authorities.
ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION The unaudited consolidated interim
financial statements include the accounts of The PNC Financial Services Group,
Inc. and its subsidiaries, most of which are wholly owned. Such statements have
been prepared in accordance with generally accepted accounting principles. All
significant intercompany accounts and transactions have been eliminated.
In the opinion of management, the financial statements reflect all adjustments
of a normal recurring nature necessary for a fair statement of results for the
interim periods presented. Certain prior-period amounts have been reclassified
to conform to reporting classifications utilized for the current reporting
period. These classifications did not impact the Corporation's financial
condition or results of operations.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the amounts reported. Actual results
will differ from such estimates and the differences may be material to the
consolidated financial statements.
The notes included herein should be read in conjunction with the audited
consolidated financial statements included in The PNC Financial Services Group,
Inc.'s 1999 Annual Report.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133" (an amendment of SFAS No. 133), issued in June 1999,
defers the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," until fiscal years beginning after June 15,
2000. The Corporation expects to adopt SFAS No. 133, as amended by SFAS No. 137,
effective January 1, 2001, the statement's effective date.
The impact of adopting the provisions of this statement on PNC's financial
position and results of operations is currently not estimable and will depend on
the financial position of the Corporation and the nature and purpose of the
derivative instruments in place as of the effective date.
SFAS No. 133 was originally required to be adopted in years beginning after June
15, 1999, although early adoption is permitted. This statement requires the
Corporation to recognize all financial derivatives on the balance sheet at fair
value. Derivatives that do not qualify as hedges must be adjusted to fair value
through results of operations. If the derivative is a hedge as defined by the
statement, changes in the fair value of derivatives will be either offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through results of operations or recognized in other comprehensive
income until the hedged item is recognized in results of operations based on the
nature of the hedge. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings.
CASH FLOWS
The Corporation did not have any acquisition or divestiture activity that
affected cash flows during the first three months of 2000. During the first
three months of 1999, divestiture activity that affected cash flow consisted of
$3.1 billion of divested assets and cash receipts of $3.3 billion in cash and
due from banks.
TRADING ACTIVITIES
PNC engages in trading activities as part of the Corporation's risk management
strategies and for "market making" in equity securities. Additionally, PNC
participates in derivatives and foreign exchange trading as an accommodation to
customers.
Net trading income for the first three months of 2000 totaled $35 million
compared with a net trading loss of $14 million for the prior-year period that
were included in noninterest income as follows:
<TABLE>
<CAPTION>
Three months ended March 31 - in millions 2000 1999
- ----------------------------------------------------------------
<S> <C> <C>
Net residential mortgage banking
Risk management $15 $(28)
Other income
Securities trading 12 8
Derivatives trading 3 2
Foreign exchange 5 4
- ----------------------------------------------------------------
Net trading income (loss) $35 $(14)
================================================================
</TABLE>
THE PNC FINANCIAL SERVICES GROUP, INC.
----
26
<PAGE> 28
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
Unrealized
Amortized --------------------------------- Fair
In millions Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, 2000
PORTFOLIO SECURITIES
Debt securities
U.S. Treasury and government agencies $159 $(6) $153
Mortgage-backed 3,777 $1 (165) 3,613
Asset-backed 1,320 (34) 1,286
State and municipal 135 2 (5) 132
Other debt 39 (1) 38
- ---------------------------------------------------------------------------------------------------------------------------------
Total debt securities 5,430 3 (211) 5,222
Corporate stocks and other 673 12 (1) 684
- ---------------------------------------------------------------------------------------------------------------------------------
Total 6,103 15 (212) 5,906
- ---------------------------------------------------------------------------------------------------------------------------------
MORTGAGE BANKING RISK MANAGEMENT
Debt securities
U.S. Treasury and government agencies 1,885 (187) 1,698
Mortgage-backed 66 (4) 62
- ---------------------------------------------------------------------------------------------------------------------------------
Total 1,951 (191) 1,760
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $8,054 $15 $(403) $7,666
=================================================================================================================================
DECEMBER 31, 1999
PORTFOLIO SECURITIES
Debt securities
U.S. Treasury and government agencies $411 $(11) $400
Mortgage-backed 3,918 $2 (151) 3,769
Asset-backed 1,051 (24) 1,027
State and municipal 134 2 (5) 131
Other debt 40 (1) 39
- ---------------------------------------------------------------------------------------------------------------------------------
Total debt securities 5,554 4 (192) 5,366
Corporate stocks and other 590 9 (5) 594
- ---------------------------------------------------------------------------------------------------------------------------------
Total 6,144 13 (197) 5,960
- ---------------------------------------------------------------------------------------------------------------------------------
MORTGAGE BANKING RISK MANAGEMENT
Debt securities
U.S. Treasury and government agencies 1,791 (204) 1,587
Mortgage-backed 68 (4) 64
- ---------------------------------------------------------------------------------------------------------------------------------
Total 1,859 (208) 1,651
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $8,003 $13 $(405) $7,611
=================================================================================================================================
</TABLE>
The fair value of the securities available for sale portfolio increased $55
million from December 31, 1999 to $7.7 billion at March 31, 2000. Total
securities used to hedge residential mortgage servicing rights were $1.8 billion
at March 31, 2000. Portfolio securities represented 8% of total assets at March
31, 2000. The expected weighted-average life of the portfolio securities
decreased to 4 years and 3 months at March 31, 2000 compared with 4 years and 7
months at year-end 1999. The expected weighted-average life of total securities
available for sale decreased to 5 years and 4 months at March 31, 2000 compared
with 5 years and 7 months at year-end 1999.
Net securities losses were $3 million for the first three months of 2000. In
comparison, net securities losses for the first three months of 1999 were $17
million and were reported in net residential mortgage hedging activities. During
the first three months of 2000, no securities held for mortgage banking risk
management purposes were sold.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NONPERFORMING ASSETS
Nonperforming assets were as follows:
<TABLE>
<CAPTION>
March 31 December 31
In millions 2000 1999
- ------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $307 $299
Foreclosed and other assets 48 39
- ------------------------------------------------------------------
Total nonperforming assets $355 $338
==================================================================
</TABLE>
The above table excludes $18 million and $13 million of equity management assets
at March 31, 2000 and December 31, 1999, respectively, carried at fair value.
ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
In millions 2000 1999
- ------------------------------------------------------------------
<S> <C> <C>
Allowance at January 1 $674 $753
Charge-offs
Consumer (12) (18)
Credit card (60)
Residential mortgage (2) (4)
Commercial (29) (12)
Commercial real estate (1)
Lease financing (2) (2)
- ------------------------------------------------------------------
Total charge-offs (45) (97)
Recoveries
Consumer 6 7
Credit card 2
Residential mortgage 1
Commercial 7 7
Commercial real estate 1
Lease financing 1 1
- ------------------------------------------------------------------
Total recoveries 14 19
- ------------------------------------------------------------------
Net charge-offs
Consumer (6) (11)
Credit card (58)
Residential mortgage (2) (3)
Commercial (22) (5)
Lease financing (1) (1)
- ------------------------------------------------------------------
Total net charge-offs (31) (78)
Provision for credit losses 31 78
Divestitures (81)
- ------------------------------------------------------------------
Allowance at March 31 $674 $672
==================================================================
</TABLE>
FINANCIAL DERIVATIVES
FAIR VALUE OF FINANCIAL DERIVATIVES The notional and fair values of financial
derivatives used for risk management were as follows:
<TABLE>
<CAPTION>
Positive Negative
Notional Fair Notional Fair
In millions Value Value Value Value
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, 2000
Interest rate
Swaps $2,939 $20 $5,452 $(113)
Caps 422 12
Floors 3,000 291 (1)
- ------------------------------------------------------------------
Total interest rate
risk management 6,361 32 5,743 (114)
Mortgage banking risk
management 8,578 86 2,245 (9)
Forward contract 427
Credit default swaps 70 4,255 (3)
- ------------------------------------------------------------------
Total $15,436 $118 $12,243 $(126)
==================================================================
DECEMBER 31, 1999
Interest rate
Swaps $3,666 $46 $5,402 $(108)
Caps 474 12
Floors 3,000 1 311 (1)
- ------------------------------------------------------------------
Total interest rate
risk management 7,140 59 5,713 (109)
Mortgage banking risk
management 8,747 80 1,165 (1)
Forward contract 681
Credit default swaps 60 4,255 (4)
- ------------------------------------------------------------------
Total $16,628 $139 $11,133 $(114)
==================================================================
</TABLE>
THE PNC FINANCIAL SERVICES GROUP, INC.
----
28
<PAGE> 30
OTHER DERIVATIVES The following schedule sets forth information relating to
positions associated with customer-related and other derivatives.
<TABLE>
<CAPTION>
At March 31
----------------------------------------
Positive Negative Average
Notional Fair Fair Net Asset Fair
In millions Value Value Value (Liability) Value*
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
Customer-related
Interest rate
Swaps $12,770 $127 $(133) $(6) $(7)
Caps/floors
Sold 4,080 (26) (26) (27)
Purchased 3,926 25 25 25
Foreign exchange 4,242 51 (45) 6 6
Other 1,912 10 (11) (1) 2
- ----------------------------------------------------------------------
Total
customer-related 26,930 213 (215) (2) (1)
Other 1,421 6 (1) 5 5
- ----------------------------------------------------------------------
Total other
derivatives $28,351 $219 $(216) $3 $4
======================================================================
</TABLE>
<TABLE>
<CAPTION>
At December 31
---------------------------------------- 1999
Positive Negative Average
Notional Fair Fair Net Asset Fair
In millions Value Value Value (Liability) Value
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Customer-related
Interest rate
Swaps $17,103 $110 $(116) $(6) $(13)
Caps/floors
Sold 3,440 (25) (25) (20)
Purchased 3,337 22 22 18
Foreign exchange 3,310 47 (36) 11 7
Other 2,161 22 (9) 13 3
- ----------------------------------------------------------------------
Total customer-related 29,351 201 (186) 15 (5)
Other 1,238 6 6 4
- ----------------------------------------------------------------------
Total other
derivatives $30,589 $207 $(186) $21 $(1)
======================================================================
</TABLE>
* For the three months ended March 31, 2000
LITIGATION
The Corporation and persons to whom the Corporation may have indemnification
obligations, in the normal course of business, are subject to various pending
and threatened lawsuits in which claims for monetary damages are asserted.
Management, after consultation with legal counsel, does not at the present time
anticipate the ultimate aggregate liability, if any, arising out of such
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 such pending or threatened litigation will have a material adverse
effect on the Corporation's results of operations in any future reporting
period.
COMPREHENSIVE INCOME
Total comprehensive income was $311 million and $279 million for the first three
months of 2000 and 1999, respectively.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
29
<PAGE> 31
EARNINGS PER SHARE
The following table sets forth basic and diluted earnings per share
calculations.
<TABLE>
<CAPTION>
Three months ended March 31 - in millions, except share and per share data 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALCULATION OF BASIC EARNINGS PER COMMON SHARE
Net income $308 $325
Less: Preferred dividends declared 5 5
- ---------------------------------------------------------------------------------------------------------------------
Net income applicable to basic earnings per common share $303 $320
- ---------------------------------------------------------------------------------------------------------------------
Basic weighted-average common shares outstanding (in thousands) 291,891 302,303
- ---------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share $1.04 $1.06
=====================================================================================================================
CALCULATION OF DILUTED EARNINGS PER COMMON SHARE
Net income $308 $325
Less: Dividends declared on nonconvertible preferred stock Series F 5 4
- ---------------------------------------------------------------------------------------------------------------------
Net income applicable to diluted earnings per common share $303 $321
- ---------------------------------------------------------------------------------------------------------------------
Basic weighted-average common shares outstanding (in thousands) 291,891 302,303
Weighted-average common shares to be issued using average market price and assuming:
Conversion of preferred stock Series A and B 122 138
Conversion of preferred stock Series C and D 1,028 1,099
Conversion of debentures 22 25
Exercise of stock options 699 1,558
Incentive share awards 368 373
- ---------------------------------------------------------------------------------------------------------------------
Diluted weighted-average common shares outstanding (in thousands) 294,130 305,496
- ---------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Common Share $1.03 $1.05
=====================================================================================================================
</TABLE>
THE PNC FINANCIAL SERVICES GROUP, INC.
----
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT REPORTING
PNC operates eight major businesses engaged in regional banking, corporate
banking, secured finance, asset management and mortgage banking activities:
Regional Banking, Corporate Banking, PNC Real Estate Finance, PNC Business
Credit, PNC Advisors, BlackRock, PFPC and PNC Mortgage.
Business results are based on PNC's management accounting practices and the
Corporation's current management structure. There is no comprehensive,
authoritative body of guidance for management accounting equivalent to generally
accepted accounting principles; therefore, PNC's business results are not
necessarily comparable with similar information for any other financial services
institution. Financial results are presented as if each business operated on a
stand-alone basis.
The presentation of business results was changed during the first quarter of
2000 to reflect the Corporation's current operating strategy and recent
management changes. Middle market and equipment leasing activities (previously
included in Regional Banking) are reported in Corporate Banking. In addition,
PNC Real Estate Finance and PNC Business Credit are reported separately within
PNC Secured Finance. Regional real estate lending activities (previously
included in Regional Banking) are reported in PNC Real Estate Finance. Business
financial results for the first quarter of 2000 and 1999 are presented
consistent with this structure.
The management accounting process uses various balance sheet and income
statement assignments and transfers to measure performance of the businesses.
Methodologies change from time to time as management accounting practices are
enhanced and businesses change. Securities or borrowings and related net
interest income are assigned based on the net asset or liability position of
each business. Capital is assigned based on management's assessment of inherent
risks and equity levels at independent companies providing similar products and
services. The allowance for credit losses is allocated to the businesses based
on risk inherent in the loan portfolios. Support areas not directly aligned with
the businesses are allocated primarily based on the utilization of services.
Total business financial results differ from consolidated financial results
primarily due to differences between management accounting practices and
generally accepted accounting principles, divested and exited businesses, equity
management activities, minority interests, eliminations and unassigned items,
the impact of which is reflected in Other.
BUSINESS SEGMENT PRODUCTS AND SERVICES
Regional Banking provides credit, deposit, branch-based brokerage and electronic
banking products and services to retail customers as well as credit, treasury
management and capital markets products and services to small businesses
primarily within PNC's geographic footprint.
Corporate Banking provides specialized credit, equipment leasing, treasury
management and capital markets products and services to large and mid-sized
corporations, institutions and government entities primarily within PNC's
geographic region.
PNC Real Estate Finance provides credit, capital markets, treasury management
and loan servicing products and services to private developers, real estate
investment trusts, pension funds and the affordable housing market nationally.
PNC Business Credit provides asset-based lending, capital markets and treasury
management products and services to middle market customers on a national basis.
PNC Advisors offers customized investment management, high-end brokerage,
personal trust, estate planning and traditional banking services to affluent and
wealthy individuals, and investment management, trust and administrative
services to pension funds, 401(k) plans and charitable organizations.
BlackRock manages assets for institutions and individuals through a variety of
fixed income, liquidity, equity and alternative investment products, including
BlackRock's flagship fund families.
PFPC, the Corporation's investment servicing subsidiary, provides a wide range
of processing services to the investment management community. PFPC provides
customized services to clients in the United States and to the global funds
marketplace through its Dublin, Ireland operation.
PNC Mortgage originates, purchases and services residential mortgages and
related products. PNC Mortgage also acquires and securitizes residential
mortgages as private-label, mortgage-backed securities and performs the master
servicing of those securities for investors.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
31
<PAGE> 33
RESULTS OF BUSINESSES
<TABLE>
<CAPTION>
PNC PNC
Three months ended March 31 Regional Corporate Real Estate Business PNC Total
In millions Banking Banking Finance Credit Advisors BlackRock PFPC Mortgage Other PNC
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000
INCOME STATEMENT
Net interest income* $344 $134 $27 $24 $35 $1 $(10) $5 $5 $565
Noninterest income 133 80 19 4 169 108 155 71 50 789
- ------------------------------------------------------------------------------------------------------------------------------
Total revenue 477 214 46 28 204 109 145 76 55 1,354
Provision for credit losses 12 15 3 1 31
Depreciation and amortization 21 3 5 1 4 5 13 2 14 68
Other noninterest expense 243 98 30 6 131 71 122 63 15 779
- ------------------------------------------------------------------------------------------------------------------------------
Pretax earnings 201 98 11 21 66 33 10 11 25 476
Income taxes 72 34 (2) 8 25 14 4 5 8 168
- ------------------------------------------------------------------------------------------------------------------------------
Earnings $129 $64 $13 $13 $41 $19 $6 $6 $17 $308
==============================================================================================================================
Inter-segment revenue $(4) $2 $2 $2 $21 $9 $(32)
==============================================================================================================================
Average assets $37,866 $15,950 $5,382 $2,084 $3,598 $388 $1,603 $6,333 $1,473 $74,677
==============================================================================================================================
1999
INCOME STATEMENT
Net interest income * $352 $114 $30 $16 $33 $(3) $3 $25 $94 $664
Noninterest income 121 58 18 2 146 88 51 76 171 731
- ------------------------------------------------------------------------------------------------------------------------------
Total revenue 473 172 48 18 179 85 54 101 265 1,395
Provision for credit losses 18 3 1 56 78
Depreciation and amortization 23 3 5 1 3 5 2 3 88 133
Other noninterest expense 248 81 24 5 117 59 34 80 42 690
- ------------------------------------------------------------------------------------------------------------------------------
Pretax earnings 184 85 19 12 58 21 18 18 79 494
Income taxes 68 31 4 4 22 9 7 7 17 169
- ------------------------------------------------------------------------------------------------------------------------------
Earnings $116 $54 $15 $8 $36 $12 $11 $11 $62 $325
==============================================================================================================================
Inter-segment revenue $1 $(1) $1 $2 $19 $9 $(31)
==============================================================================================================================
Average assets $37,525 $15,679 $5,634 $1,597 $3,249 $400 $268 $7,084 $5,522 $76,958
==============================================================================================================================
</TABLE>
* Taxable-equivalent basis
THE PNC FINANCIAL SERVICES GROUP, INC.
----
32
<PAGE> 34
Statistical Information
CONSOLIDATED AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
First Quarter 2000 Fourth Quarter 1999
-----------------------------------------------------------------------------
Dollars in millions Average Average Average Average
Taxable-equivalent basis Balances Interest Yields/Rates Balances Interest Yields/Rates
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Loans held for sale $5,434 $107 7.86% $4,427 $86 7.79%
Securities available for sale
U.S. Treasury and government agencies and
corporations 3,819 50 5.24 3,844 51 5.28
Other debt 3,578 58 6.45 3,676 59 6.44
Other 614 10 6.92 691 11 6.45
- ---------------------------------------------------------------------------------- -------------------------
Total securities available for sale 8,011 118 5.91 8,211 121 5.90
Loans, net of unearned income
Consumer 9,261 192 8.33 9,421 197 8.28
Credit card
Residential mortgage 12,947 229 7.07 12,667 222 7.00
Commercial 21,793 447 8.12 22,318 448 7.85
Commercial real estate 2,698 59 8.60 3,265 66 7.98
Lease financing 2,958 54 7.33 2,786 50 7.17
Other 688 14 8.09 613 13 7.80
- ---------------------------------------------------------------------------------- -------------------------
Total loans, net of unearned income 50,345 995 7.87 51,070 996 7.69
Other 1,173 22 7.60 1,132 18 6.41
- ---------------------------------------------------------------------------------- -------------------------
Total interest-earning assets/interest income 64,963 1,242 7.62 64,840 1,221 7.45
Noninterest-earning assets
Allowance for credit losses (683) (681)
Cash and due from banks 2,324 2,347
Other assets 8,073 7,042
- ----------------------------------------------------------------- ------------
Total assets $74,677 $73,548
- ----------------------------------------------------------------- ------------
LIABILITIES, CAPITAL SECURITIES
AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand and money market $18,355 138 3.03 $18,226 136 2.95
Savings 2,138 9 1.64 2,212 9 1.63
Retail certificates of deposit 14,591 191 5.25 14,007 177 5.03
Other time 637 10 6.36 621 10 6.47
Deposits in foreign offices 1,489 21 5.63 976 13 5.11
- ---------------------------------------------------------------------------------- -------------------------
Total interest-bearing deposits 37,210 369 3.98 36,042 345 3.80
Borrowed funds
Bank notes and senior debt 6,976 107 6.10 7,253 108 5.83
Federal funds purchased 2,279 33 5.67 1,922 26 5.26
Repurchase agreements 1,272 16 5.04 1,207 14 4.54
Federal Home Loan Bank borrowings 6,417 96 5.89 6,724 96 5.61
Other borrowed funds 775 12 6.31 668 10 5.83
Subordinated debt 2,377 44 7.43 2,255 42 7.48
- ---------------------------------------------------------------------------------- -------------------------
Total borrowed funds 20,096 308 6.08 20,029 296 5.81
- ---------------------------------------------------------------------------------- -------------------------
Total interest-bearing
liabilities/interest expense 57,306 677 4.72 56,071 641 4.52
Noninterest-bearing liabilities and
shareholders' equity
Demand and other noninterest-bearing deposits 8,004 8,413
Accrued expenses and other liabilities 2,592 2,312
Mandatorily redeemable capital securities
of subsidiary trusts 848 848
Shareholders' equity 5,927 5,904
- ----------------------------------------------------------------- ------------
Total liabilities, capital securities and
shareholders' equity $74,677 $73,548
- ----------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 2.90 2.93
Impact of noninterest-bearing sources .56 .61
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin $565 3.46% $580 3.54%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Nonaccrual loans are included in loans, net of unearned income. The impact of
financial derivatives used in interest rate risk management is included in the
interest income/expense and average yields/rates of the related assets and
liabilities. Average balances of securities available for sale are based on
amortized historical cost (excluding SFAS No. 115 adjustments to fair value).
Loan fees for each of the three months ended March 31, 2000, December 31, 1999,
September 30, 1999, June 30, 1999 and March 31, 1999 were $29 million, $29
million, $30 million, $30 million, and $30 million, respectively.
THE PNC FINANCIAL SERVICES GROUP, INC.
----
33
<PAGE> 35
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Third Quarter 1999 Second Quarter 1999 First Quarter 1999
- --------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balances Interest Yields/Rates Balances Interest Yields/Rates Balances Interest Yields/Rates
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$4,385 $82 7.51% $3,727 $67 7.07% $3,383 $56 6.68%
4,484 58 5.20 5,187 66 5.12 4,248 54 5.10
3,705 59 6.33 3,521 55 6.19 2,848 43 6.11
614 11 6.89 729 10 5.70 659 10 5.98
- --------------------------- -------------------------- -------------------------
8,803 128 5.79 9,437 131 5.56 7,755 107 5.55
10,171 207 8.08 10,729 218 8.16 10,955 222 8.21
2,724 100 14.91
12,451 216 6.94 12,496 218 6.97 12,184 216 7.09
22,631 444 7.68 22,846 438 7.58 24,574 462 7.52
3,389 67 7.67 3,396 66 7.66 3,398 65 7.70
2,543 44 7.02 2,478 43 6.98 2,443 44 7.17
561 11 7.57 534 9 6.99 417 8 7.69
- --------------------------- -------------------------- -------------------------
51,746 989 7.55 52,479 992 7.53 56,695 1,117 7.91
1,102 18 6.26 1,236 19 6.37 1,005 16 6.19
- --------------------------- -------------------------- -------------------------
66,036 1,217 7.29 66,879 1,209 7.20 68,838 1,296 7.56
(677) (678) (744)
1,959 2,038 2,066
6,445 6,821 6,798
- ------------- ------------ ------------
$73,763 $75,060 $76,958
- ------------- ------------ ------------
$18,034 127 2.80 $17,686 118 2.66 $16,825 113 2.73
2,345 10 1.59 2,472 10 1.60 2,535 10 1.63
14,114 174 4.89 14,114 172 4.91 14,652 184 5.08
1,022 15 5.99 1,832 25 5.47 2,610 35 5.35
1,066 14 5.16 682 8 4.83 759 9 4.78
- --------------------------- -------------------------- -------------------------
36,581 340 3.69 36,786 333 3.63 37,381 351 3.80
7,823 103 5.28 9,214 117 5.03 9,814 125 5.10
1,828 24 5.07 1,230 15 4.77 1,663 20 4.81
1,892 20 4.17 2,629 25 3.62 1,841 16 3.57
5,876 78 5.21 4,727 59 4.92 5,810 73 5.05
792 12 5.66 714 10 5.92 570 11 7.13
2,031 41 7.48 2,030 38 7.50 1,886 36 7.58
- --------------------------- -------------------------- -------------------------
20,242 278 5.40 20,544 264 5.08 21,584 281 5.21
- --------------------------- -------------------------- -------------------------
56,823 618 4.30 57,330 597 4.15 58,965 632 4.31
8,318 8,684 9,035
2,042 2,325 2,135
848 848 848
5,732 5,873 5,975
- ------------- ------------ ------------
$73,763 $75,060 $76,958
- ---------------------------------------------------------------------------------------------------------------------------------
2.99 3.05 3.25
.60 .59 .61
- ---------------------------------------------------------------------------------------------------------------------------------
$599 3.59% $612 3.64% $664 3.86%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE PNC FINANCIAL SERVICES GROUP, INC.
----
34
<PAGE> 36
Quarterly Report on Form 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 2000.
Commission File Number 1-9718
THE PNC FINANCIAL SERVICES GROUP, INC.
Incorporated in the Commonwealth of Pennsylvania
IRS Employer Identification No. 25-1435979
Address: One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Telephone: (412) 762-2000
As of April 28, 2000, The PNC Financial Services Group, Inc. had 290,402,857
shares of common stock ($5 par value) outstanding.
The PNC Financial Services Group, Inc. (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 and (2) has been subject to such filing requirements for the
past 90 days.
The following sections of the Financial Review set forth in the cross-reference
index are incorporated in the Quarterly Report on Form 10-Q.
Cross-Reference Page(s)
-----------------------------------------------------
PART I FINANCIAL INFORMATION
Item 1 Consolidated Statement of Income for the
three months ended March 31, 2000 and
1999 23
Consolidated Balance Sheet as of March
31, 2000 and December 31, 1999 24
Consolidated Statement of Cash Flows for
the three months ended March 31, 2000
and 1999 25
Notes to Consolidated Financial
Statements 26 - 32
Consolidated Average Balance Sheet and
Net Interest Analysis 33 - 34
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 2 - 22
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 18 - 19
- ----------------------------------------------------------------
PART II OTHER FINANCIAL INFORMATION
Item 4. Submission of Matters for a Vote of Security Holders
An annual meeting of shareholders of the Corporation was held on April 25, 2000
for the purpose of electing 17 directors.
All 17 nominees were elected and the votes cast for and against/withheld were as
follows:
<TABLE>
<CAPTION>
Aggregate Votes
-------------------------------
Nominee For Against/Withheld
- ----------------------------------------------------------------
<S> <C> <C>
Paul W. Chellgren 253,246,931 2,448,330
Robert N. Clay 253,217,580 2,477,681
Thomas A. Corcoran 252,741,135 2,954,127
George A. Davidson, Jr. 253,274,134 2,421,129
David F. Girard-diCarlo 250,936,628 4,758,635
Walter E. Gregg, Jr. 253,172,069 2,523,192
William R. Johnson 252,886,173 2,809,089
Bruce C. Lindsay 253,237,435 2,457,826
W. Craig McClelland 253,167,366 2,527,895
Thomas H. O'Brien 252,970,736 2,724,526
Jane G. Pepper 252,767,909 2,927,354
Jackson H. Randolph 253,176,721 2,518,541
James E. Rohr 253,071,352 2,623,909
Roderic H. Ross 253,161,697 2,533,565
Thomas J. Usher 253,216,014 2,479,247
Milton A. Washington 253,170,453 2,524,808
Helge H. Wehmeier 253,246,008 2,449,253
===============================================================
</TABLE>
THE PNC FINANCIAL SERVICES GROUP, INC.
----
35
<PAGE> 37
With respect to the preceding matter, holders of the Corporation's common and
preferred stock voted together as a single class. The following table sets forth
as of the February 28, 2000 record date the number of shares of each class or
series of stock that were issued and outstanding and entitled to vote, the
voting power per share and the aggregate voting power of each class or series:
<TABLE>
<CAPTION>
Number of
Voting Shares
Rights Entitled Aggregate
Title of Class or Series Per Share to Vote Voting Power
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock 1 292,548,003 292,548,003
$1.80 Cumulative
Convertible
Preferred Stock -
Series A 8 11,901 95,208
$1.80 Cumulative
Convertible
Preferred Stock -
Series B 8 3,348 26,784
$1.60 Cumulative
Convertible
Preferred Stock -
Series C 4/2.4 252,206 420,343*
$1.80 Cumulative
Convertible
Preferred Stock -
Series D 4/2.4 363,467 605,778*
-------------
Total possible votes 293,696,116*
============================================================================
</TABLE>
* Represents greatest number of votes possible. Actual aggregate voting power
was less since each holder of such preferred stock was entitled to a number of
votes equal to the number of full shares of common stock into which such
holder's preferred stock was convertible.
Holders of the Corporation's 6,000,000 issued and outstanding shares of
Fixed/Adjustable Rate Noncumulative Preferred Stock-Series F were not entitled
to vote with respect to the matters presented at the meeting.
ITEM 5. OTHER INFORMATION
The Board of Directors adopted a shareholder rights plan effective as of May 15,
2000 providing for the distribution of one right for each share of common stock
outstanding on May 25, 2000. The rights become exercisable only in the event,
with certain exceptions, that an acquiring party accumulates 10% or more of the
Corporation's voting stock or a party announces an offer to acquire 10% or more
of the voting stock. The rights have an exercise price of $180 per right and
expire on May 25, 2010. Upon the occurrence of certain events, holders of the
rights will be entitled to purchase either PNC common or common equivalent
preferred shares or shares in an acquiring entity at half of market value. The
Corporation is entitled to redeem the rights at a value of $0.01 per right at
any time until the acquisition of a 10% position in its voting stock. A copy of
the Rights Agreement providing for the issuance of the rights is filed as an
exhibit to this Quarterly Report on Form 10-Q. This description should be read
together with the Rights Agreement and is qualified in its entirety by reference
to that agreement.
Item 6. Exhibits and Reports on Form 8-K
The following exhibit index lists Exhibits filed with this Quarterly Report on
Form 10-Q:
3.1 Articles of Incorporation of the Corporation, as
amended and restated as of May 15, 2000
3.2 By-laws of The PNC Financial Services Group, Inc., as amended
4.7 Terms of Series G Junior Participating Preferred Stock
(included as part of exhibit 3.1)
4.8 Rights Agreement between the Corporation and The Chase
Manhattan Bank dated May 15, 2000
10.5 The PNC Financial Services Group, Inc. 1997 Long-Term
Incentive Award Plan, as amended
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
27 Financial Data Schedule
==================================================================
Copies of these Exhibits may be obtained electronically at the Securities and
Exchange Commission's home page at www.sec.gov. Copies may also be obtained
without charge by writing to Lynn Fox Evans, Director of Financial Reporting, at
corporate headquarters, by calling (412) 762-1553 or via e-mail at
[email protected].
The following Reports on Form 8-K were filed by the Corporation during the
quarter ended March 31, 2000:
Form 8-K dated January 13, 2000, filing an earnings release reporting the
Corporation's consolidated financial results for the three months and year ended
December 31, 1999, and financial information on the Corporation's businesses for
the years ended December 31, 1999 and 1998.
Form 8-K dated February 15, 2000, reporting on entering into an underwriting
agreement with respect to the public offering of $100,000,000 of 7.50%
Subordinated Notes due 2009, and on the form of the Notes and related guarantee.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on May 15, 2000, on its
behalf by the undersigned thereunto duly authorized.
The PNC Financial Services Group, Inc.
Robert L. Haunschild
Senior Vice President and
Chief Financial Officer
THE PNC FINANCIAL SERVICES GROUP, INC.
----
36
<PAGE> 38
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
The PNC Financial Services Group, Inc.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
(412) 762-2000
STOCK LISTING
The PNC Financial Services Group, Inc. common stock is listed on the New York
Stock Exchange under the symbol PNC.
INTERNET INFORMATION
Information about The PNC Financial Services Group, Inc.'s financial results and
its products and services is available on the Internet at www.pnc.com.
FINANCIAL INFORMATION
The Annual Report on Form 10-K is filed with the Securities and Exchange
Commission ("SEC"). Copies of this document and other filings, including
Exhibits thereto, may be obtained electronically at the SEC's home page at
www.sec.gov. Copies may also be obtained without charge by writing to Lynn Fox
Evans, Director of Financial Reporting, at corporate headquarters, by calling
(412) 762-1553 or via e-mail at [email protected].
INQUIRIES
For financial services call 1-888-PNC-2265. Individual shareholders should
contact Shareholder Relations at (800) 982-7652.
Analysts and institutional investors should contact William H. Callihan, Vice
President, Investor Relations, at (412) 762-8257 or via e-mail at
[email protected].
News media representatives and others seeking general information should contact
R. Jeep Bryant, Director of Corporate Communications, at (412) 762-8221 or via
e-mail at [email protected].
COMMON STOCK PRICES/DIVIDENDS DECLARED
The table below sets forth by quarter the range of high and low sale and
quarter-end closing prices for The PNC Financial Services Group, Inc. common
stock and the cash dividends declared per common share.
<TABLE>
<CAPTION>
Cash
Dividends
High Low Close Declared
=====================================================================
<S> <C> <C> <C> <C>
2000 QUARTER
- ---------------------------------------------------------------------
First $48.500 $36.000 $45.063 $.45
=====================================================================
1999 QUARTER
- ---------------------------------------------------------------------
First $59.750 $47.000 $55.563 $.41
Second 60.125 54.375 57.625 .41
Third 58.063 49.688 52.688 .41
Fourth 62.000 43.000 44.500 .45
- ---------------------------------------------------------------------
Total $1.68
=====================================================================
</TABLE>
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The PNC Financial Services Group, Inc. Dividend Reinvestment and Stock Purchase
Plan enables holders of common and preferred stock to purchase additional shares
of common stock conveniently and without paying brokerage commissions or service
charges. A prospectus and enrollment card may be obtained by writing to
Shareholder Relations at corporate headquarters.
REGISTRAR AND TRANSFER AGENT
The Chase Manhattan Bank
P.O. Box 590
Ridgefield Park, New Jersey 07660
(800) 982-7652
THE PNC FINANCIAL SERVICES GROUP, INC.
----
37
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE PNC FINANCIAL SERVICES GROUP, INC.
(as of May 15, 2000)
FIRST. The name of the corporation is The PNC Financial Services
Group, Inc.
SECOND. The address of the corporation's registered office in the
Commonwealth of Pennsylvania is One PNC Plaza, 249 Fifth Avenue, Pittsburgh,
Pennsylvania 15222-2707.
THIRD. The corporation is incorporated under the provisions of the
Business Corporation Law, the Act approved May 5, 1933, P.L. 364, as amended.
The purpose of the corporation is, and it shall have unlimited power to engage
in and to do any lawful act concerning any or all lawful business for which
corporations may be incorporated under such Act.
FOURTH. The term of the corporation's existence is perpetual.
FIFTH. The authority to make, amend and repeal the by-laws of the
corporation is hereby vested in the Board of Directors, subject always to the
power of the shareholders to change any such action.
SIXTH. The aggregate number of shares of capital stock which the
corporation shall have authority to issue is 470,000,000 shares divided into two
classes consisting of 20,000,000 shares of preferred stock of the par value of
$1.00 each ("Preferred Stock") and 450,000,000 shares of common stock of the par
value of $5.00 each ("Common Stock").
SEVENTH. The following is a statement of certain of the designations,
preferences, qualifications, privileges, limitations, restrictions, and special
or relative rights in respect of the Preferred Stock and the Common Stock and a
statement of the authority vested in the Board of Directors to fix by resolution
any designations, preferences, privileges, qualifications, limitations,
restrictions and special or relative rights of any series of Preferred Stock
which are not fixed hereby:
PREFERRED STOCK
1. Issuance in series. The shares of Preferred Stock may be issued from
time to time in series. Each series shall be so designated as to distinguish the
shares thereof from the shares of all other series. All shares of any particular
series shall be identical except, if entitled to cumulative dividends, as to the
date or dates from which dividends thereon shall be cumulative. The shares of
any one series need not be identical or rank equally with the shares of any
other series except as required by law or as provided hereby. The Board of
Directors is expressly vested with authority to establish and designate any one
or more series of Preferred Stock and to
<PAGE> 2
fix and determine by resolution any designations, preferences, qualifications,
privileges, limitations, restrictions or special or relative rights of
additional series which are not fixed hereby, including the following:
(a) The number of shares to constitute the series and the
distinctive designation thereof.
(b) The dividend rate, the dates for payment of dividends,
whether dividends shall be cumulative, and, if so, the date or dates
from which and the extent to which dividends shall be cumulative.
(c) The amount or amounts payable upon voluntary or
involuntary liquidation of the Corporation.
(d) The voting rights, if any, of the holders of shares of the
series.
(e) The redemption price or prices, if any, and the terms and
conditions on which shares may be redeemed.
(f) Whether the shares of the series shall be convertible into
or exchangeable for shares of capital stock of the Corporation or other
securities, and, if so, the conversion price or prices or the rate or
rates of conversion or exchange, any adjustments thereof, and any other
terms and conditions of conversion or exchange.
(g) Whether the shares of the series shall be entitled to the
benefit of any retirement or sinking fund to be applied to the purchase
or redemption of such shares, and, if so, the amount thereof and the
terms and conditions relative to the operation thereof.
(h) The rank of the shares of the series, as in dividends and
assets, in relation to the shares of any other class or series of
capital stock of the Corporation.
(i) Such other preferences, qualifications, privileges,
limitations, restrictions or special or relative rights of any series
as are not fixed hereby and as the Board of Directors may deem
advisable and state in such resolutions.
2. Dividends. The holders of shares of each series of Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors,
dividends at the rate which shall have been fixed hereby or by the Board of
Directors as authorized hereby with respect to such series, and no more except
as shall have been determined by the Board of Directors as authorized hereby. If
dividends on a particular series shall have been determined hereby or by the
Board of Directors as authorized hereby to be cumulative, no dividends shall be
paid or set apart for payment or declared on the Common Stock or on any class or
series of stock of the Corporation ranking as to dividends subordinate to such
series (other than dividends payable in Common Stock or in any class or series
of stock of the Corporation ranking as to dividends and assets subordinate to
such series) and no payment shall be made or set apart for the purchase,
redemption or other acquisition for value of any shares of Common Stock or of
any class or series of stock of the Corporation ranking as to dividends or
assets subordinate to such series, until dividends (to the extent cumulative)
for all past dividend periods on all outstanding shares of such series have been
paid, or declared and set apart for payment, in full. In case dividends for any
dividend period are not paid in full on all shares of Preferred Stock ranking
equally as to dividends, all such shares shall participate ratably in the
payment of dividends for such period in proportion to the full amounts of
dividends to which they are respectively entitled.
<PAGE> 3
3. Liquidation of the Corporation. In the event of voluntary or
involuntary liquidation of the Corporation the holders of shares of each series
of Preferred Stock shall be entitled to receive from the assets of the
Corporation (whether capital or surplus), prior to any payment to the holders of
Common Stock or of any class or series of stock of the Corporation ranking as to
assets subordinate to such series, the amount fixed hereby or by the Board of
Directors as authorized hereby for such series, plus, in case dividends on such
series shall have been determined hereby or by the Board of Directors as
authorized hereby to be cumulative, an amount equal to the accrued and unpaid
dividends thereon (to the extent cumulative) computed to the date on which
payment thereof is made available, whether or not earned or declared. After such
payment to the holders of shares of such series, any remaining balance shall be
paid to the holders of Common Stock or of any class or series of stock of the
Corporation ranking as to assets subordinate to such series, as they may be
entitled. If, upon liquidation of the Corporation, its assets are not sufficient
to pay in full the amounts so payable to the holders of shares of all series of
Preferred Stock ranking equally as to assets, all such shares shall participate
ratably in the distribution of assets in proportion to the full amounts to which
they are respectively entitled. Neither a merger nor a consolidation of the
Corporation into or with any other corporation nor a sale, transfer or lease of
all or part of the assets of the Corporation shall be deemed a liquidation of
the Corporation within the meaning of this paragraph.
4. Voting rights. (a) Except as otherwise required by law, holders of
shares of Preferred Stock shall have only such voting rights, if any, as shall
have been fixed and determined hereby or by the Board of Directors as authorized
hereby. Except as otherwise required by law or as otherwise provided hereby or
by the Board of Directors as authorized hereby, holders of Preferred Stock
having voting rights and holders of Common Stock shall vote together as one
class.
(b) If the Corporation shall have failed to pay, or declare and
set apart for payment, dividends on all outstanding shares of Preferred Stock in
an amount equal to six quarterly dividends at the rates payable upon such shares
(whether or not such dividends are cumulative), the number of directors of the
Corporation shall be increased by two at the first annual meeting of the
shareholders of the Corporation held thereafter, and at such meeting and at each
subsequent annual meeting until cumulative dividends payable for all past
dividend periods and continuous noncumulative dividends for at least one year on
all outstanding shares of Preferred Stock entitled thereto shall have been paid,
or declared and set apart for payment, in full, the holders of shares of
Preferred Stock of all series shall have the right, voting as a class, to elect
such two additional members of the Board of Directors to hold office for a term
of one year. Upon such payment, or such declaration and setting apart for
payment, in full, the terms of the two additional directors so elected shall
forthwith terminate, and the number of directors of the Corporation shall be
reduced by two, and such voting right of the holders of shares of Preferred
Stock shall cease, subject to increase in the number of directors as aforesaid
and to revesting of such voting right in the event of each and every additional
failure in the payment of dividends in an amount equal to six quarterly
dividends as aforesaid.
5. Action by Corporation requiring approval of Preferred Stock. The
Corporation shall not, without the affirmative vote at a meeting, or the written
consent with or without a meeting,
<PAGE> 4
of the holders of at least two-thirds of the then outstanding shares of
Preferred Stock of all series (a) create or increase the authorized number of
shares of any class of stock ranking as to dividends or assets prior to the
Preferred Stock; or (b) change the preferences, qualifications, privileges,
limitations, restrictions or special or relative rights granted to or imposed
upon the shares of Preferred Stock in any material respect adverse to the
holders thereof, provided that if any such change will affect any particular
series materially and adversely as contrasted with the effect thereof upon any
other series, no such change may be made without, in addition, such vote or
consent of the holders of at least two-thirds of the then outstanding shares of
the particular series which would be so affected.
6. Redemption and acquisition. (a) Except as otherwise provided by
the Board of Directors as authorized hereby, the Corporation, at its option to
be exercised by its Board of Directors, may redeem the whole or any part of the
Preferred Stock or of any series thereof at such times and at the applicable
amount for each share which shall have been fixed and determined hereby or by
the Board of Directors as authorized hereby with respect thereto, plus, in case
dividends shall have been determined hereby or by the Board of Directors as
authorized hereby to be cumulative, an amount equal to the accrued and unpaid
dividends thereon (to the extent cumulative) computed to the date fixed for
redemption, whether or not earned or declared (hereinafter collectively called
the "redemption price"). If at any time less than all of the Preferred Stock
then outstanding is to be called for redemption, the Board may select one or
more series to be redeemed, and if less than all the outstanding Preferred Stock
of any series is to be called for redemption, the shares to be redeemed may be
selected by lot or by such other equitable method as the Board in its discretion
may determine. Notice of every redemption, stating the redemption date, the
redemption price, and the place of payment thereof, and, if less than all of the
Preferred Stock then outstanding is called for redemption, identifying the
shares to be redeemed, shall be published at least once in a newspaper printed
in the English language and of general circulation in the City of Philadelphia,
Pennsylvania, or in the Borough of Manhattan, the City of New York, New York,
the first publication to be not less than 30 nor more than 60 days prior to the
date fixed for redemption. Copies of such notice shall be mailed at least 30
days and not more than 60 days prior to the date fixed for redemption to the
holders of record of the shares to be redeemed at their addresses as the same
shall appear on the books of the Corporation, but failure to give such
additional notice by mail or any defect therein or failure of any addressee to
receive it shall not affect the validity of the proceedings for redemption. The
Corporation, upon publication of the first notice of redemption as aforesaid or
upon irrevocably authorizing the bank or trust company hereinafter mentioned to
publish such notice as aforesaid, may deposit or cause to be deposited in trust
with a bank or trust company in the City of Philadelphia, Pennsylvania, or in
the Borough of Manhattan, the City of New York, New York, an amount equal to the
redemption price of the shares to be redeemed, which amount shall be payable to
the holders thereof upon surrender of certificates therefor on or after the date
fixed for redemption or prior thereto if so directed by the Board of Directors.
Upon such deposit, or if no such deposit is made then from and after the date
fixed for redemption unless the Corporation shall default in making payment of
the redemption price upon surrender of certificates as aforesaid, the shares
called for redemption shall cease to be outstanding and the holders thereof
shall cease to be shareholders with respect to such shares and shall have no
interest in or claim against the Corporation with respect to such shares other
than the right to receive the redemption
<PAGE> 5
price from such bank or trust company or from the Corporation, as the case may
be, without interest thereon, upon surrender of certificates as aforesaid;
provided that conversion rights of shares called for redemption shall terminate
at the close of business on the date fixed for redemption or at such earlier
time as shall have been fixed by the Board of Directors as authorized hereby.
Any funds so deposited which shall not be required for such redemption because
of the exercise of conversion rights subsequent to the date of such deposit
shall be returned to the Corporation. In case any holder of shares called for
redemption shall not, within six years after the date of such deposit, have
claimed the amount deposited with respect to the redemption thereof, such bank
or trust company, upon demand, shall pay over to the Corporation such unclaimed
amount and shall thereupon be relieved of all responsibility in respect thereof
to such holder, and thereafter such holder shall look only to the Corporation
for payment thereof. Any interest which may accrue on funds so deposited shall
be paid to the Corporation from time to time.
(b) Except as otherwise provided by the Board of Directors as
authorized hereby, the Corporation shall have the right to acquire Preferred
Stock from time to time at such price or prices as the Corporation may
determine, provided that unless dividends (to the extent cumulative) payable for
all past quarterly dividend periods on all outstanding shares of Preferred Stock
entitled to cumulative dividends have been paid, or declared and set apart for
payment, in full, the Corporation shall not acquire for value any shares of
Preferred Stock except in accordance with an offer (which may vary as to terms
offered with respect to shares of different series but not with respect to
shares of the same series) made in writing or by publication (as determined by
the Board of Directors) to all holders of record of shares of Preferred Stock.
(c) Except as otherwise provided by the Board of Directors as
authorized hereby, Preferred Stock redeemed or acquired by the Corporation
otherwise than by conversion shall not be cancelled or retired except by action
of the Board and shall have the status of authorized and unissued Preferred
Stock which may be reissued by the Board as shares of the same or any other
series until cancelled and retired by action of the Board, but, at the option of
the Board, Preferred Stock acquired otherwise than by redemption or conversion
may be held as treasury shares which may be reissued by the Board until
cancelled and retired by action of the Board.
$1.80 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
7. Designation. A series of Preferred Stock designated $1.80 Cumulative
Convertible Preferred Stock, Series A (Redeemable) (herein called "Series A
Preferred Stock") is hereby established, consisting of 98,583 shares subject to
increase or decrease in the number of shares in accordance with law.
8. Dividends. The dividend rate of shares of this series shall be $1.80
per share per year, payable quarterly on the tenth day of each March, June,
September and December. Dividends shall be cumulative from the March 10, June
10, September 10 or December 10 next preceding the date of issue of each share,
unless the date of issue is a quarterly dividend payment date or a date between
the record date for the determination of holders of $1.80 Cumulative
<PAGE> 6
Convertible Preferred Stock of Provident National Corporation, a predecessor of
the Corporation (such stock having been converted into the Series A Preferred
Stock), entitled to receive a quarterly dividend and the date of payment of such
quarterly dividend, in either of which events such dividends shall be cumulative
from such quarterly dividend payment date.
9. Liquidation. The amount payable upon shares of Series A Preferred
Stock in the event of voluntary or involuntary liquidation of the Corporation,
prior to any payment to the holders of Common Stock or of any class or series of
stock of the Corporation ranking as to assets subordinate to the Series A
Preferred Stock, shall be $40.00 per share plus an amount equal to accrued and
unpaid dividends thereon computed to the date on which payment thereof is made
available, whether or not earned or declared.
10. Redemption. Shares of Series A Preferred Stock shall be redeemable
at any time at $40.00 per share plus an amount equal to accrued and unpaid
dividends thereon computed to the date fixed for redemption, whether or not
earned or declared.
11. Voting Rights. Each holder of record of Series A Preferred Stock
shall have the right to a number of votes equal to the number of full shares of
Common Stock into which the share or shares of Series A Preferred Stock standing
in his name on the books of the Corporation are at the time convertible.
12. Conversion provisions. (a) Shares of Series A Preferred Stock may,
at the option of the holder, be converted into Common Stock of the Corporation
(as such stock may be constituted on the conversion date) at the rate of two
shares of Common Stock for each share of Series A Preferred Stock, subject to
adjustment as provided herein; provided that, as to any shares of Series A
Preferred Stock which shall have been called for redemption, the conversion
right shall terminate at the close of business on the date fixed for redemption.
(b) The holder of a share or shares of Series A Preferred Stock
may exercise the conversion right as to any thereof by delivering to the
Corporation, during regular business hours, at its principal office or at the
office of any of its transfer agents for the Series A Preferred Stock or at such
other place as may be designated by the Corporation, the certificate or
certificates for the shares to be converted, duly endorsed or assigned in blank
or to the Corporation (if required by it), accompanied by written notice stating
that the holder elects to convert such shares and stating the name or names
(with address) in which the certificate or certificates for Common Stock are to
be issued. Conversion shall be deemed to have been effected on the date when
such delivery is made, and such date is referred to herein as the "conversion
date." As promptly as practicable thereafter the Corporation shall issue and
deliver to or upon the written order of such holder, at such office or other
place designated by the Corporation, a certificate or certificates for the
number of full shares of Common Stock to which he is entitled and a check, cash,
scrip certificate or other adjustment in respect of any fraction of a share as
provided in Section 12(d) below. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
holder of such Common Stock of record on the conversion date unless the transfer
books of the Corporation are closed on that date, in which event he shall be
deemed to have become a holder of such Common
<PAGE> 7
Stock of record on the next succeeding date on which the transfer books are
open, but the conversion rate shall be that in effect on the conversion date.
(c) No payment or adjustment shall be made for dividends accrued
on any shares of Series A Preferred Stock converted or for dividends on any
shares of Common Stock issuable on conversion.
(d) The Corporation shall not be required to issue any fraction of
a share upon conversion of any share or shares of Series A Preferred Stock. If
more than one share of Series A Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
total number of shares of Series A Preferred Stock so surrendered. If any
fractional interest in a share of Common Stock would be deliverable upon
conversion, the Corporation shall make an adjustment therefor in cash unless its
Board of Directors shall have determined to adjust fractional interests by
issuance of scrip certificates or in some other manner. Adjustment in cash shall
be made on the basis of the current market value of one share of Common Stock,
which shall be taken to be the last reported sale price of the Corporation's
Common Stock on the principal stock exchange on which the Common Stock is then
listed on the last business day before the conversion date or, if there was no
reported sale on that date, the average of the closing bid and asked quotations
on that exchange on that day or, if the Common Stock is not then listed on any
stock exchange, the average of the lowest bid and the highest asked quotations
in the over-the-counter market on that day.
(e) The issuance of Common Stock on conversion of Series A
Preferred Stock shall be without charge to the converting holder of Series A
Preferred Stock for any tax in respect of the issuance thereof, but the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of shares in any name
other than that of the holder of record on the books of the Corporation of the
shares of Series A Preferred Stock converted, and the Corporation shall not be
required to issue or deliver any certificate for shares of Common Stock unless
and until the person requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid.
(f) The conversion rate provided in Section 12(a) shall be subject
to the following adjustments, which shall be made to the nearest one-hundredth
of a share of Common Stock or, if none, to the next lower one-hundredth:
(1) If the Corporation shall pay to the holders of
its Common Stock a dividend in shares of Common Stock, the
conversion rate in effect immediately prior to the record date
fixed for the determination of the holders of Common Stock
entitled to such dividend shall be proportionately increased,
effective at the opening of business on the next following
full business day.
(2) If the Corporation shall split the outstanding
shares of its Common Stock into a greater number of shares or
combine the outstanding shares into a smaller
<PAGE> 8
number, the conversion rate in effect immediately prior to
such action shall be proportionately increased in the case of
a split or decreased in the case of a combination, effective
at the opening of business on the full business day next
following the day such action becomes effective.
(3) If the Corporation shall issue to the holders of
its Common Stock rights or warrants to subscribe for or
purchase shares of its Common Stock at a price less than 90%
of the Current Market Price (as defined below in this
paragraph) of the Corporation's Common Stock at the record
date fixed for the determination of the holders of Common
Stock entitled to such rights or warrants, the conversion rate
in effect immediately prior to said record date shall be
increased, effective at the opening of business on the next
following full business day, to an amount determined by
multiplying such conversion rate by a fraction the numerator
of which is the number of shares of Common Stock of the
Corporation outstanding immediately prior to said record date
plus the number of additional shares of its Common Stock
offered for subscription or purchase and the denominator of
which is said number of shares outstanding immediately prior
to said record date plus the number of shares of Common Stock
of the Corporation which the aggregate subscription or
purchase price of the total number of shares so offered would
purchase at the Current Market Price of the Corporation's
Common Stock at said record date. The term "Current Market
Price" at said record date shall mean the average of the daily
last reported sale prices per share of the Corporation's
Common Stock on the principal stock exchange on which the
Common Stock is then listed during the 20 consecutive full
business days commencing with the 30th full business day
before said record date, provided that if there was no
reported sale on any such day or days there shall be
substituted the average of the closing bid and asked
quotations on that exchange on that day, and provided further
that if the Common Stock was not listed on any stock exchange
on any such day or days there shall be substituted the average
of the lowest bid and the highest asked quotations in the
over-the-counter market on that day.
(g) No adjustment of the conversion rate provided in Section 12(a)
shall be made by reason of the issuance of Common Stock for cash except as
provided in Section 12(f)(3), or by reason of the issuance of Common Stock for
property or services. Whenever the conversion rate is adjusted pursuant to
Section 12(f), the Corporation shall (1) promptly place on file at its principal
office and at the office of each of its transfer agents for the Series A
Preferred Stock a statement signed by the Chairman of the Board, the President
or a Vice President of the Corporation and by its Treasurer or an Assistant
Treasurer showing in detail the facts requiring such adjustment and the
conversion rate after such adjustment, and shall make such statement available
for inspection by shareholders of the Corporation, and (2) cause a notice to be
published at least once in a newspaper printed in the English language and of
general circulation in the City of Philadelphia, Pennsylvania, or in the Borough
of Manhattan, the City of New York, New York, stating that such adjustment has
been made and the adjusted conversion rate.
<PAGE> 9
(h) If the Corporation shall issue to the holders of its Common
Stock rights or warrants to subscribe for or purchase shares of its Common Stock
or any other security, or if the Corporation shall distribute to the holders of
its Common Stock any evidences of indebtedness or any other assets (excluding
dividends and distributions in cash), the Corporation shall mail to each holder
of record of a share or shares of Series A Preferred Stock, at his address as it
shall appear on the books of the Corporation, a notice stating the record date
fixed or to be fixed for the determination of the holders of Common Stock of
record entitled to such issuance or distribution. Such notice shall be mailed at
least 10 days before such record date. Failure to mail such notice or any defect
therein or failure of any addressee to receive it shall not affect the validity
of such issuance or distribution or any vote thereon.
(i) In case of any reclassification or change in the outstanding
shares of Common Stock of the Corporation (except a split or combination of
shares) or in case of any consolidation or merger to which the Corporation is a
party (except a merger in which the Corporation is the surviving corporation and
which does not result in any reclassification of or change in the outstanding
Common Stock of the Corporation except a split or combination of shares) or in
case of any sale or conveyance to another corporation of all or substantially
all of the property of the Corporation, effective provision shall be made by the
Corporation or by the successor or purchasing corporation (1) that the holder of
each share of Series A Preferred Stock then outstanding shall thereafter have
the right to convert such share into the kind and amount of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock of the Corporation into which such share of Series A Preferred
Stock might have been converted immediately prior thereto, and (2) that there
shall be subsequent adjustments of the conversion rate which shall be
equivalent, as nearly as practicable, to the adjustments provided for in Section
12(f). The provisions of this Section 12(i) shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales or conveyances.
(j) Shares of Common Stock issued on conversion of shares of
Series A Preferred Stock shall be issued as fully paid shares and shall be
nonassessable by the Corporation. The Corporation shall at all times reserve and
keep available for the purpose of effecting the conversion of Series A Preferred
Stock, such number of its duly authorized shares of Common Stock as shall be
sufficient to effect the conversion of all outstanding shares of Series A
Preferred Stock.
(k) Shares of Series A Preferred Stock converted as provided
herein shall not be reissued.
$1.80 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B
13. Designation. A series of Preferred Stock designated $1.80
Cumulative Convertible Preferred Stock, Series B (Nonredeemable) (herein called
"Series B Preferred Stock") is hereby established consisting of 38,542 shares
subject to increase or decrease in the number of shares in accordance with law.
<PAGE> 10
14. Dividends. The dividend rate of shares of Series B Preferred Stock
shall be $1.80 per share per year, payable quarterly on the tenth day of each
March, June, September and December. Dividends shall be cumulative from the
March 10, June 10, September 10 or December 10 next preceding the date of issue
of each share, unless the date of issue is a quarterly dividend payment date or
a date between the record date for the determination of holders of $1.80
Cumulative Convertible Preferred Stock, 1971 Series, of Provident National
Corporation, a predecessor of the Corporation (such stock having been converted
into the Series B Preferred Stock), entitled to receive a quarterly dividend and
the date of payment of such quarterly dividend, in either of which events such
dividends shall be cumulative from such quarterly dividend payment date.
15. Liquidation. The amount payable upon shares of Series B Preferred
Stock in the event of voluntary or involuntary liquidation of the Corporation,
prior to any payment to the holders of Common Stock or of any class or series of
stock of the Corporation ranking as to assets subordinate to the Series B
Preferred Stock, shall be $40.00 per share plus an amount equal to accrued and
unpaid dividends thereon computed to the date on which payment thereof is made
available, whether or not earned or declared.
16. Rank. The Series B Preferred Stock shall rank, as to dividends and
assets, equally with the series of Preferred Stock of the Corporation designated
$1.80 Cumulative Convertible Preferred Stock, Series A (Redeemable).
17. Redemption. Shares of Series B Preferred Stock shall not be
redeemable.
18. Voting rights. Each holder of record of Series B Preferred Stock
shall have the right to a number of votes equal to the number of full shares of
Common Stock into which the share or shares of Series B Preferred Stock standing
in his name on the books of the Corporation are at the time convertible.
19. Conversion provisions. (a) Shares of Series B Preferred Stock may,
at the option of the holder, be converted into Common Stock of the Corporation
(as such stock may be constituted on the conversion date) at the rate of two
shares of Common Stock for each share of Series B Preferred Stock, subject to
adjustment as provided herein.
(b) The holder of a share or shares of Series B Preferred Stock
may exercise the conversion right as to any thereof by delivering to the
Corporation during regular business hours, at its principal office or at the
office of any of its transfer agents for the Series B Preferred Stock or at such
other place as may be designated by the Corporation, the certificate or
certificates for the shares to be converted, duly endorsed or assigned in blank
or to the Corporation (if required by it), accompanied by written notice stating
that the holder elects to convert such shares and stating the name or names
(with address) in which the certificate or certificates for Common Stock are to
be issued. Conversion shall be deemed to have been effected on the date when
such delivery is made, and such date is referred to herein as the "conversion
date." As promptly as practicable thereafter, the Corporation shall issue and
deliver to or upon the written order of such holder, at such office or other
place designated by the Corporation, a certificate or certificates for
<PAGE> 11
the number of full shares of Common Stock to which he is entitled and a check,
cash, scrip certificate or other adjustment in respect of any fraction of a
share as provided in Section 19(d) below. The person in whose name the
certificate or certificates for Common Stock are to be issued shall be deemed to
have become a holder of such Common Stock of record on the conversion date
unless the transfer books of the Corporation are closed on that date, in which
event he shall be deemed to have become a holder of such Common Stock of record
on the next succeeding date on which the transfer books are open, but the
conversion rate shall be that in effect on the conversion date.
(c) No payment or adjustment shall be made for dividends accrued
on any shares of Series B Preferred Stock converted or for dividends on any
shares of Common Stock issuable on conversion.
(d) The Corporation shall not be required to issue any fraction of
a share upon conversion of any share or shares of Series B Preferred Stock. If
more than one share of Series B Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
total number of shares of Series B Preferred Stock so surrendered. If any
fractional interest in a share of Common Stock would be deliverable upon
conversion, the Corporation shall make an adjustment therefor in cash unless its
Board of Directors shall have determined to adjust fractional interests by
issuance of scrip certificates or in some other manner. Adjustment in cash shall
be made on the basis of the current market value of one share of Common Stock,
which shall be taken to be the last reported sale price of the Corporation's
Common Stock on the principal stock exchange on which the Common Stock is then
listed on the last business day before the conversion date or, if there was no
reported sale on that date, the average of the closing bid and asked quotations
on that exchange on that day or, if the Common Stock is not then listed on any
stock exchange, the average of the lowest bid and the highest asked quotations
in the over-the-counter market on that day.
(e) The issuance of Common Stock on conversion of Series B
Preferred Stock shall be without charge to the converting holder of Series B
Preferred Stock for any tax in respect of the issuance thereof, but the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of shares in any name
other than that of the holder of record on the books of the Corporation of the
shares of Series B Preferred Stock converted, and the Corporation shall not be
required to issue or deliver any certificate for shares of Common Stock unless
and until the person requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid.
(f) The conversion rate provided in Section 19(a) above shall be
subject to the following adjustments, which shall be made to the nearest
one-hundredth of a share of Common Stock or, if none, to the next lower
one-hundredth:
(1) If the Corporation shall pay to the holders of
its Common Stock a dividend in shares of Common Stock, the
conversion rate in effect immediately prior to the
<PAGE> 12
record date fixed for the determination of the holders of
Common Stock entitled to such dividend shall be
proportionately increased, effective at the opening of
business on the next following full business day.
(2) If the Corporation shall split the outstanding
shares of its Common Stock into a greater number of shares or
combine the outstanding shares into a smaller number, the
conversion rate in effect immediately prior to such action
shall be proportionately increased in the case of a split or
decreased in the case of a combination, effective at the
opening of business on the full business day next following
the day such action becomes effective.
(3) If the Corporation shall issue to the holders of
its Common Stock rights or warrants to subscribe for or
purchase shares of its Common Stock at a price less than 90%
of the Current Market Price (as defined below in this
paragraph) of the Corporation's Common Stock at the record
date fixed for the determination of the holders of Common
Stock entitled to such rights or warrants, the conversion rate
in effect immediately prior to said record date shall be
increased, effective at the opening of business on the next
following full business day, to an amount determined by
multiplying such conversion rate by a fraction the numerator
of which is the number of shares of Common Stock of the
Corporation outstanding immediately prior to said record date
plus the number of additional shares of its Common Stock
offered for subscription or purchase and the denominator of
which is said number of shares outstanding immediately prior
to said record date plus the number of shares of Common Stock
of the Corporation which the aggregate subscription or
purchase price of the total number of shares so offered would
purchase at the Current Market Price of the Corporation's
Common Stock at said record date. The term "Current Market
Price" at said record date shall mean the average of the daily
last reported sale prices per share of the Corporation's
Common Stock on the principal stock exchange on which the
Common Stock is then listed during the 20 consecutive full
business days commencing with the 30th full business day
before said record date, provided that if there was no
reported sale on any such day or days there shall be
substituted the average of the closing bid and asked
quotations on that exchange on that day, and provided further
that if the Common Stock was not listed on any stock exchange
on any such day or days there shall be substituted the average
of the lowest bid and the highest asked quotations in the
over-the-counter market on that day.
(g) No adjustment of the conversion rate provided in Section 19(a)
above shall be made by reason of the issuance of Common Stock for cash except as
provided in Section 19(f)(3) above, or by reason of the issuance of Common Stock
for property or services. Whenever the conversion rate is adjusted pursuant to
Section 19(f) above the Corporation shall (1) promptly place on file at its
principal office and at the office of each of its transfer agents for the Series
B Preferred Stock a statement signed by the Chairman of the Board, the President
or a Vice President of the Corporation and by its Treasurer or an Assistant
Treasurer showing in detail the facts requiring such adjustment and the
conversion rate after such adjustment, and shall make
<PAGE> 13
such statement available for inspection by shareholders of the Corporation, and
(2) cause a notice to be published at least once in a newspaper printed in the
English language and of general circulation in the City of Philadelphia,
Pennsylvania, or in the Borough of Manhattan, the City of New York, New York,
stating that such adjustment has been made and the adjusted conversion rate.
(h) If the Corporation shall issue to the holders of its Common
Stock rights or warrants to subscribe for or purchase shares of its Common Stock
or any other security, or if the Corporation shall distribute to the holders of
its Common Stock any evidences of indebtedness or any other assets (excluding
dividends and distributions in cash), the Corporation shall mail to each holder
of record of a share or shares of Series B Preferred Stock, at his address as it
shall appear on the books of the Corporation, a notice stating the record date
fixed or to be fixed for the determination of the holders of Common Stock of
record entitled to such issuance or distribution. Such notice shall be mailed at
least 10 days before such record date. Failure to mail such notice or any defect
therein or failure of any addressee to receive it shall not affect the validity
of such issuance or distribution or any vote thereon.
(i) In case of any reclassification or change of the outstanding
shares of Common Stock of the Corporation (except a split or combination of
shares) or in case of any consolidation or merger to which the Corporation is a
party (except a merger in which the Corporation is the surviving corporation and
which does not result in any reclassification of or change in the outstanding
Common Stock of the Corporation except a split or combination of shares) or in
case of any sale or conveyance to another corporation of all or substantially
all of the property of the Corporation, effective provision shall be made by the
Corporation or by the successor or purchasing corporation (1) that the holder of
each share of Series B Preferred Stock then outstanding shall thereafter have
the right to convert such share into the kind and amount of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock of the Corporation into which such share of Series B Preferred
Stock might have been converted immediately prior thereto, and (2) that there
shall be subsequent adjustments of the conversion rate which shall be
equivalent, as nearly as practicable, to the adjustments provided for in Section
19(f) above. The provisions of this Section 19(i) shall similarly apply to
successive reclassifications, changes, consolidations, mergers, sales or
conveyances.
(j) Shares of Common Stock issued on conversion of shares of
Series B Preferred Stock shall be issued as fully paid shares and shall be
nonassessable by the Corporation. The Corporation shall at all times reserve and
keep available for the purpose of effecting the conversion of Series B Preferred
Stock, such number of its duly authorized shares of Common Stock as shall be
sufficient to effect the conversion of all outstanding shares of Series B
Preferred Stock.
(k) Shares of Series B Preferred Stock converted as provided
herein shall not be reissued.
<PAGE> 14
20. Retirement or sinking fund. The shares of Series B Preferred Stock
shall not be entitled to the benefit of any retirement or sinking fund to be
applied to the purchase or redemption of such shares.
$1.60 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES C
21. Designation. A series of Preferred Stock designated "$1.60
Cumulative Convertible Preferred Stock, Series C" (herein called "Series C
Preferred Stock") is hereby established, consisting of 1,433,935 shares subject
to increase or decrease in the number of shares in accordance with law.
22. Rank. Series C Preferred Stock shall rank, as to dividends and
assets, equally with the Series A Preferred Stock and the Series B Preferred
Stock and every other share of capital stock from time to time outstanding which
is not Common Stock of the Corporation and which is not specifically made senior
or subordinate to the Series C Preferred Stock as to dividends or assets.
23. Dividends. The dividend rate of shares of this series shall be
$1.60 per share per year, payable in equal quarterly installments on the first
day of each January, April, July and October. Dividends shall be cumulative from
the January 1, April 1, July 1 and October 1 next preceding the date of issue of
each share, unless the date of issue is a quarterly dividend payment date or a
date between the record date for the determination of holders of record of
Series C Preferred Stock entitled to receive a quarterly dividend and the date
of payment of such quarterly dividend, in either of which events such dividends
shall be cumulative from such dividend payment date.
24. Liquidation. The amount payable upon shares of Series C Preferred
Stock in the event of voluntary or involuntary liquidation of the Corporation,
prior to any payment to the holders of Common Stock or of any class or series of
stock of the Corporation ranking as to assets subordinate to the Series C
Preferred Stock, shall be $20.00 per share plus an amount equal to accrued and
unpaid dividends thereon computed to the date on which payment thereof is made
available, whether or not earned or declared.
25. Redemption. Shares of Series C Preferred Stock shall be redeemable
at any time after February 1, 1989 at $20.00 per share plus an amount equal to
accrued and unpaid dividends thereon computed to the date fixed for redemption,
whether or not earned or declared.
26. Voting rights. Each holder of record of Series C Preferred Stock
shall have the right to a number of votes equal to the number of full shares of
Common Stock into which the share or shares of Series C Preferred Stock standing
in his name on the books of the Corporation are at the time convertible.
27. Conversion provisions. (a) Shares of Series C Preferred Stock may,
at the option of the holder, be converted into Common Stock of the Corporation
(as such stock may be constituted on the conversion date) at the conversion
price, determined as hereinafter provided,
<PAGE> 15
in effect at the time of conversion, subject to adjustment as provided herein;
provided that, as to any shares of Series C Preferred Stock which shall have
been called for redemption, the conversion right shall terminate at the close of
business on the date fixed for redemption. The value of each share of Series C
Preferred Stock for the purpose of such conversion shall be $20.00. The price at
which shares of Common Stock of the Corporation shall be delivered upon
conversion (herein called the "conversion price") shall initially be $48.00 per
share of Common Stock of the Corporation.
(b) The holder of a share or shares of Series C Preferred Stock
may exercise the conversion right as to any thereof by delivering to the
Corporation, during regular business hours, at its principal office or at the
office of any of its transfer agents for the Series C Preferred Stock or at such
other place as may be designated by the Corporation, the certificate or
certificates for the shares to be converted, duly endorsed or assigned in blank
or to the Corporation (if required by it), accompanied by written notice stating
that the holder elects to convert such shares and stating the name or names
(with address) in which the certificate or certificates for Common Stock are to
be issued. Conversion shall be deemed to have been effected on the date when
such delivery is made, and such date is referred to herein as the "conversion
date." As promptly as practicable thereafter the Corporation shall issue and
deliver to or upon the written order of such holder, at such office or other
place designated by the Corporation, a certificate or certificates for the
number of full shares of Common Stock to which he is entitled and cash, scrip
certificate or other adjustment in respect of any fraction of a share as
provided in Section 27(d) below. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
holder of such Common Stock of record on the conversion date unless the transfer
books of the Corporation are closed on that date, in which event he shall be
deemed to have become a holder of such Common Stock of record on the next
succeeding date on which the transfer books are open, but the conversion price
shall be that in effect on the conversion date.
(c) No payment or adjustment shall be made for dividends accrued
on any shares of Series C Preferred Stock converted or for dividends on any
shares of Common Stock issuable on conversion.
(d) The Corporation shall not be required to issue any fraction of
a share upon conversion of any share or shares of Series C Preferred Stock. If
more than one share of Series C Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
total number of shares of Series C Preferred Stock so surrendered. If any
fractional interest in a share of Common Stock would be deliverable upon
conversion, the Corporation shall make an adjustment therefor in cash unless its
Board of Directors shall have determined to adjust fractional interests by
issuance of scrip certificates or in some other manner. Adjustment in cash shall
be made on the basis of the current market value of one share of Common Stock,
which shall be taken to be the last reported sale price of the Corporation's
Common Stock on the principal stock exchange on which the Common Stock is then
listed (or if not so listed, on the over-the-counter market) for the last
business day before the conversion date or, if there was no
<PAGE> 16
reported sale on that day, the last reported sales price on the first preceding
day for which such price is available.
(e) The issuance of Common Stock on conversion of Series C
Preferred Stock shall be without charge to the converting holder of Series C
Preferred Stock for any tax in respect of the issuance thereof, but the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of shares in any name
other than that of the holder of record on the books of the Corporation of the
shares of Series C Preferred Stock converted, and the Corporation shall not be
required to issue or deliver any certificate for shares of Common Stock unless
and until the person requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid.
(f) The conversion rate provided in Section 27(a) shall be subject
to the following adjustments, which shall be made to the nearest cent:
(1) If the Corporation shall pay to the holders of
its Common Stock a dividend in shares of Common Stock, the
conversion price in effect immediately prior to the record
date fixed for the determination of the holders of Common
Stock entitled to such dividend shall be proportionately
decreased, effective at the opening of business on the next
following full business day.
(2) If the Corporation shall split the outstanding
shares of its Common Stock into a greater number of shares or
combine the outstanding shares into a smaller number, the
conversion price in effect immediately prior to such action
shall be proportionately decreased in the case of a split or
increased in the case of a combination, effective at the
opening of business on the full business day next following
the day such action becomes effective.
(3) If the Corporation shall issue to the holders of
its Common Stock rights or warrants to subscribe for or
purchase shares of its Common Stock at a price less than 90%
of the Current Market Price (as defined below in this
paragraph) of the Corporation's Common Stock at the record
date fixed for the determination of the holders of Common
Stock entitled to such rights or warrants, the conversion
price in effect immediately prior to said record date shall be
adjusted, effective at the opening of business on the next
following full business day, to an amount determined by
multiplying such conversion price by a fraction the numerator
of which is the number of shares of Common Stock of the
Corporation outstanding immediately prior to said record date
plus the number of shares of Common Stock of the Corporation
which the aggregate subscription or purchase price of the
total number of shares so offered would purchase at the
Current Market Price of the Corporation's Common Stock at said
record date and the denominator of which is said number of
shares outstanding immediately prior to said record date plus
the number of additional shares of its Common Stock offered
for subscription or purchase. The term "Current Market Price"
at said record date shall mean the
<PAGE> 17
average of the daily last reported sale prices per share of
the Corporation's Common Stock on the principal stock exchange
on which the Common Stock is then listed (or if not so listed,
then on the over-the-counter market) during the 20 consecutive
full business days commencing with the 30th full business day
before said record date, provided that if there was no
reported sale on any such day or days there shall be
substituted the average of the closing bid and asked
quotations on that day obtained from the market specialist
assigned to the Corporation (or a market maker in the case of
the over-the-counter market).
(4) The Corporation may make such reductions in the
conversion price, in addition to those required by the
foregoing provisions, as it considers to be advisable in order
that any event treated for federal income tax purposes as a
dividend of stock or stock rights shall not be taxable to the
recipients.
(g) No adjustment of the conversion price provided in Section
27(a) shall be made by reason of the issuance of Common Stock for cash except as
provided in Section 27(f)(3), or by reason of the issuance of Common Stock for
property or services. Whenever the conversion price is adjusted pursuant to
Section 27(f), the Corporation shall (1) promptly place on file at its principal
office and at the office of each of its transfer agents for the Series C
Preferred Stock a statement signed by the Chairman of the Board, the President
or a Vice President of the Corporation and by its Treasurer or an Assistant
Treasurer showing in detail the facts requiring such adjustment and the
conversion price after such adjustment, and shall make such statement available
for inspection by shareholders of the Corporation, and (2) cause a notice to be
published at least once in a newspaper printed in the English language and of
general circulation in the City of Erie, Pennsylvania, or in the Borough of
Manhattan, the City of New York, New York, stating that such adjustment has been
made and the adjusted conversion price.
(h) If the Corporation shall issue to the holders of its Common
Stock rights or warrants to subscribe for or purchase shares of its Common Stock
or any other security, or if the Corporation shall distribute to the holders of
its Common Stock any evidences of indebtedness or any other assets (excluding
dividends and distributions in cash), the Corporation shall mail to each holder
of record of a share or shares of Series C Preferred Stock, at his address as it
shall appear on the books of the Corporation, a notice stating the record date
fixed or to be fixed for the determination of the holders of Common Stock of
record entitled to such issuance or distribution. Such notice shall be mailed at
least 10 days before such record date. Failure to mail such notice or any defect
therein or failure of any addressee to receive it shall not affect the validity
of such issuance or distribution or any vote thereon.
(i) In case of any reclassification or change in the outstanding
shares of Common Stock of the Corporation (except a split or combination of
shares) or in case of any consolidation or merger to which the Corporation is a
party (except a merger in which the Corporation is the surviving corporation and
which does not result in any reclassification of or change in the outstanding
Common Stock of the Corporation except an increase in the number of outstanding
shares or a split or combination of shares) or in case of any sale or conveyance
to another corporation of all or substantially all of the property of the
Corporation, effective provision shall
<PAGE> 18
be made by the Corporation or by the successor or purchasing corporation (1)
that the holder of each share of Series C Preferred Stock then outstanding shall
thereafter have the right to convert such share into the kind and amount of
stock and other securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock of the Corporation into which such share of Series C
Preferred Stock might have been converted immediately prior thereto, and (2)
that there shall be subsequent adjustments of the conversion price which shall
be equivalent, as nearly as practicable, to the adjustments provided for in
Section 27(f). The provisions of this Section 27(i) shall similarly apply to
successive reclassifications, changes, consolidations, mergers, sales or
conveyances.
(j) Shares of Common Stock issued on conversion of shares of
Series C Preferred Stock shall be issued as fully paid shares and shall be
non-assessable by the Corporation. The Corporation shall at all times reserve
and keep available for the purpose of effecting the conversion of Series C
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall be sufficient to effect the conversion of all outstanding shares of Series
C Preferred Stock.
(k) Shares of Series C Preferred Stock converted as provided
herein shall not be reissued.
$1.80 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES D
28. Designation. A series of Preferred Stock designated "$1.80
Cumulative Convertible Preferred Stock, Series D" (herein called "Series D
Preferred Stock") is hereby established, consisting of 1,766,140 shares subject
to increase or decrease in the number of shares in accordance with law.
29. Rank. Series D Preferred Stock shall rank, as to dividends and
assets, equally with the Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock and every other share of capital stock from
time to time outstanding which is not Common Stock of the Corporation and which
is not specifically made senior or subordinate to the Series D Preferred Stock
as to dividends or assets.
30. Dividends. The dividend rate of shares of this series shall be
$1.80 per share per year, payable in equal quarterly installments on the first
day of each January, April, July and October. Dividends shall be cumulative from
the January 1, April 1, July 1 and October 1 next preceding the date of issue of
each share, unless the date of issue is a quarterly dividend payment date or a
date between the record date for the determination of holders of record of
Series D Preferred Stock entitled to receive a quarterly dividend and the date
of payment of such quarterly dividend, in either of which events such dividends
shall be cumulative from such dividend payment date.
31. Liquidation. The amount payable upon shares of Series D Preferred
Stock in the event of voluntary or involuntary liquidation of the Corporation,
prior to any payment to the
<PAGE> 19
holders of Common Stock or of any class or series of stock of the Corporation
ranking as to assets subordinate to the Series D Preferred Stock, shall be
$20.00 per share plus an amount equal to accrued and unpaid dividends thereon
computed to the date on which payment thereof is made available, whether or not
earned or declared.
32. Redemption. Shares of Series D Preferred Stock shall be redeemable
at any time after February 1, 1990 at $20.00 per share plus an amount equal to
accrued and unpaid dividends thereon computed to the date fixed for redemption,
whether or not earned or declared.
33. Voting rights. Each holder of record of Series D Preferred Stock
shall have the right to a number of votes equal to the number of full shares of
Common Stock into which the share or shares of Series D Preferred Stock standing
in his name on the books of the Corporation are at the time convertible.
34. Conversion provisions. (a) Shares of Series D Preferred Stock may,
at the option of the holder, be converted into Common Stock of the Corporation
(as such stock may be constituted on the conversion date) at the conversion
price, determined as hereinafter provided, in effect at the time of conversion,
subject to adjustment as provided herein; provided that, as to any shares of
Series D Preferred Stock which shall have been called for redemption, the
conversion right shall terminate at the close of business on the date fixed for
redemption. The value of each share of Series D Preferred Stock for the purpose
of such conversion shall be $20.00. The price at which shares of Common Stock of
the Corporation shall be delivered upon conversion (herein called the
"conversion price") shall initially be $48.00 per share of Common Stock of the
Corporation.
(b) The holder of a share or shares of Series D Preferred Stock
may exercise the conversion right as to any thereof by delivering to the
Corporation, during regular business hours, at its principal office or at the
office of any of its transfer agents for the Series D Preferred Stock or at such
other place as may be designated by the Corporation, the certificate or
certificates for the shares to be converted, duly endorsed or assigned in blank
or to the Corporation (if required by it), accompanied by written notice stating
that the holder elects to convert such shares and stating the name or names
(with address) in which the certificate or certificates for Common Stock are to
be issued. Conversion shall be deemed to have been effected on the date when
such delivery is made, and such date is referred to herein as the "conversion
date". As promptly as practicable thereafter the Corporation shall issue and
deliver to or upon the written order of such holder, at such office or other
place designated by the Corporation, a certificate or certificates for the
number of full shares of Common Stock to which he is entitled and cash, scrip
certificate or other adjustment in respect of any fraction of a share as
provided in Section 34(d) below. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
holder of such Common Stock of record on the conversion date unless the transfer
books of the Corporation are closed on that date, in which event he shall be
deemed to have become a holder of such Common Stock of record on the next
succeeding date on which the transfer books are open, but the conversion price
shall be that in effect on the conversion date.
<PAGE> 20
(c) No payment or adjustment shall be made for dividends accrued
on any shares of Series D Preferred Stock converted or for dividends on any
shares of Common Stock issuable on conversion.
(d) The Corporation shall not be required to issue any fraction of
a share upon conversion of any share or shares of Series D Preferred Stock. If
more than one share of Series D Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
total number of shares of Series D Preferred Stock so surrendered. If any
fractional interest in a share of Common Stock would be deliverable upon
conversion, the Corporation shall make an adjustment therefor in cash unless its
Board of Directors shall have determined to adjust fractional interests by
issuance of scrip certificates or in some other manner. Adjustment in cash shall
be made on the basis of the current market value of one share of Common Stock,
which shall be taken to be the last reported sale price of the Corporation's
Common Stock on the principal stock exchange on which the Common Stock is then
listed (or if not so listed, on the over-the-counter market) for the last
business day before the conversion date or, if there was no reported sale on
that day, the last reported sales price on the first preceding day for which
such price is available.
(e) The issuance of Common Stock on conversion of Series D
Preferred Stock shall be without charge to the converting holder of Series D
Preferred Stock for any tax in respect of the issuance thereof, but the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of shares in any name
other than that of the holder of record on the books of the Corporation of the
shares of Series D Preferred Stock converted, and the Corporation shall not be
required to issue or deliver any certificate for shares of Common Stock unless
and until the person requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid.
(f) The conversion price provided in Section 34(a) shall be
subject to the following adjustments, which shall be made to the nearest cent:
(1) If the Corporation shall pay to the holders of
its Common Stock a dividend in shares of Common Stock, the
conversion price in effect immediately prior to the record
date fixed for the determination of the holders of Common
Stock entitled to such dividend shall be proportionately
decreased, effective at the opening of business on the next
following full business day.
(2) If the Corporation shall split the outstanding
shares of its Common Stock into a greater number of shares or
combine the outstanding shares into a smaller number, the
conversion price in effect immediately prior to such action
shall be proportionately decreased in the case of a split or
increased in the case of a combination, effective at the
opening of business on the full business day next following
the day such action becomes effective.
<PAGE> 21
(3) If the Corporation shall issue to the holders of
its Common Stock rights or warrants to subscribe for or
purchase shares of its Common Stock at a price less than 90%
of the Current Market Price (as defined below in this
paragraph) of the Corporation's Common Stock at the record
date fixed for the determination of the holders of Common
Stock entitled to such rights or warrants, the conversion
price in effect immediately prior to said record date shall be
adjusted, effective at the opening of business on the next
following full business day, to an amount determined by
multiplying such conversion price by a fraction the numerator
of which is the number of shares of Common Stock of the
Corporation outstanding immediately prior to said record date
plus the number of shares of Common Stock of the Corporation
which the aggregate subscription or purchase price of the
total number of shares so offered would purchase at the
Current Market Price of the Corporation's Common Stock at said
record date and the denominator of which is said number of
shares outstanding immediately prior to said record date plus
the number of additional shares of its Common Stock offered
for subscription or purchase. The term "Current Market Price"
at said record date shall mean the average of the daily last
reported sale prices per share of the Corporation's Common
Stock on the principal stock exchange on which the Common
Stock is then listed (or if not so listed, then on the
over-the-counter market) during the 20 consecutive full
business days commencing with the 30th full business day
before said record date, provided that if there was no
reported sale on any such day or days there shall be
substituted the average of the closing bid and asked
quotations on that day obtained from the market specialist
assigned to the Corporation (or a market maker in the case of
the over-the-counter market).
(4) The Corporation may make such reductions in the
conversion price, in addition to those required by the
foregoing provisions, as it considers to be advisable in order
that any event treated for federal income tax purposes as a
dividend of stock or stock rights shall not be taxable to the
recipients.
(g) No adjustment of the conversion price provided in Section
34(a) shall be made by reason of the issuance of Common Stock for cash except as
provided in Section 34(f)(3), or by reason of the issuance of Common Stock for
property or services. Whenever the conversion price is adjusted pursuant to
Section 34(f) the Corporation shall (1) promptly place on file at its principal
office and at the office of each of its transfer agents for the Series D
Preferred Stock a statement signed by the Chairman of the Board, the President
or a Vice President of the Corporation and by its Treasurer or an Assistant
Treasurer showing in detail the facts requiring such adjustment and the
conversion price after such adjustment, and shall make such statement available
for inspection by shareholders of the Corporation, and (2) cause a notice to be
published at least once in a newspaper printed in the English language and of
general circulation in the City of Scranton, Pennsylvania, or in the Borough of
Manhattan, the City of New York, New York, stating that such adjustment has been
made and the adjusted conversion price.
(h) If the Corporation shall issue to the holders of its Common
Stock rights or warrants to subscribe for or purchase shares of its Common Stock
or any other security, or if the
<PAGE> 22
Corporation shall distribute to the holders of its Common Stock any evidences of
indebtedness or any other assets (excluding dividends and distributions in
cash), the Corporation shall mail to each holder of record of a share or shares
of Series D Preferred Stock, at his address as it shall appear on the books of
the Corporation, a notice stating the record date fixed or to be fixed for the
determination of the holders of Common Stock of record entitled to such issuance
or distribution. Such notice shall be mailed at least 10 days before such record
date. Failure to mail such notice or any defect therein or failure of any
addressee to receive it shall not affect the validity of such issuance or
distribution or any vote thereon.
(i) In case of any reclassification or change in the outstanding
shares of Common Stock of the Corporation (except a split or combination of
shares) or in case of any consolidation or merger to which the Corporation is a
party (except a merger in which the Corporation is the surviving corporation and
which does not result in any reclassification of or change in the outstanding
Common Stock of the Corporation except an increase in the number of outstanding
shares or a split or combination of shares) or in case of any sale or conveyance
to another corporation of all or substantially all of the property of the
Corporation, effective provision shall be made by the Corporation or by the
successor or purchasing corporation (1) that the holder of each share of Series
D Preferred Stock then outstanding shall thereafter have the right to convert
such share into the kind and amount of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock of the
Corporation into which such share of Series D Preferred Stock might have been
converted immediately prior thereto, and (2) that there shall be subsequent
adjustments of the conversion price which shall be equivalent, as nearly as
practicable, to the adjustments provided for in Section 34(f). The provisions of
this Section 34(i) shall similarly apply to successive reclassifications,
changes, consolidations, mergers, sales or conveyances.
(j) Shares of Common Stock issued on conversion of shares of
Series D Preferred Stock shall be issued as fully paid shares and shall be
non-assessable by the Corporation. The Corporation shall at all times reserve
and keep available for the purpose of effecting the conversion of Series D
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall be sufficient to effect the conversion of all outstanding shares of Series
D Preferred Stock.
(k) Shares of Series D Preferred Stock converted as provided
herein shall not be reissued.
$2.60 CUMULATIVE NONVOTING PREFERRED STOCK, SERIES E
35. Designation. A series of Preferred Stock designated "$2.60
Cumulative Nonvoting Preferred Stock, Series E" (herein called "Series E
Preferred Stock") is hereby established, consisting of 338,100 shares subject to
increase or decrease in the number of shares in accordance with law.
<PAGE> 23
36. Rank. Series E Preferred Stock shall rank, as to dividends and
assets, equally with the Series A Preferred Stock, the Series B Preferred Stock,
the Series C Preferred Stock and the Series D Preferred Stock and every other
share of capital stock from time to time outstanding which is not Common Stock
of the Corporation and which is not specifically made senior or subordinate to
the Series E Preferred Stock as to dividends or assets.
37. Dividends. The dividend rate of shares of this series shall be
$2.60 per share per year, payable in equal quarterly installments on the first
day of each January, April, July and October. Dividends shall be cumulative from
the January 1, April 1, July 1 and October 1 next preceding the date of issue of
each share, unless the date of issue is a quarterly dividend payment date or a
date between the record date for the determination of holders of record of
Series E Preferred Stock entitled to receive a quarterly dividend and the date
of payment of such quarterly dividend, in either of which events such dividends
shall be cumulative from such dividend payment date.
38. Liquidation. The amount payable upon shares of Series E Preferred
Stock in the event of voluntary or involuntary liquidation of the Corporation,
prior to any payment to the holders of Common Stock or of any class or series of
stock of the Corporation ranking as to assets subordinate to the Series E
Preferred Stock, shall be $27.75 per share plus an amount equal to accrued and
unpaid dividends thereon computed to the date on which payment thereof is made
available, whether or not earned or declared.
39. Redemption. Shares of Series E Preferred Stock shall be redeemable
at any time after February 1, 1990 at $27.75 per share plus an amount equal to
accrued and unpaid dividends thereon computed to the date fixed for redemption,
whether or not earned or declared.
40. Voting rights. The holder of Series E Preferred Stock shall not be
entitled to vote on any matter, except as otherwise required by law.
41. Conversion rights. The holders of Series E Preferred Stock shall
have no right to convert shares of Series E Preferred Stock into any other
security of the Corporation.
FIXED/ADJUSTABLE RATE NONCUMULATIVE PREFERRED STOCK, SERIES F
42. Designation. A series of Preferred Stock designated
"Fixed/Adjustable Rate Noncumulative Preferred Stock, Series F" (herein called
"Series F Preferred Stock") is hereby established, consisting of 6,000,000
shares subject to increase or decrease in the number of shares in accordance
with law.
43. Rank. Series F Preferred Stock shall rank, as to dividends and
assets, equally with the Series A Preferred Stock, the Series B Preferred Stock,
the Series C Preferred Stock, the Series D Preferred Stock and every other share
of capital stock from time to time outstanding which is not Common Stock of the
Corporation and which is not specifically made senior to or subordinate to the
Series F Preferred Stock as to dividends or assets.
<PAGE> 24
44. Dividends. (a) Through September 29, 2001, the dividend rate per
share of Series F Preferred Stock shall be 6.05% or $3.025 per annum, payable
quarterly on March 31, June 30, September 30 and December 31 of each year (each
a "Dividend Payment Date"), commencing December 31, 1996. The initial dividend
for the dividend period commencing on October 9. 1996 to (but not including)
December 31, 1996, shall be $.6806 per share and shall be payable on December
31, 1996. On and after September 30, 2001, dividends on the Series F Preferred
Stock shall be payable quarterly on each Dividend Payment Date at the Applicable
Rate (as defined in subsection (c) of this Section 44) per share from time to
time in effect. If a Dividend Payment Date is not a business day, dividends (if
declared) on the Series F Preferred Stock shall be paid on the immediately
preceding business day. A dividend period with respect to a Dividend Payment
Date is the period commencing on the immediately preceding Dividend Payment Date
and ending on the day immediately prior to the next succeeding Dividend Payment
Date. Each such dividend shall be payable to holders of record as they appear on
the stock books of the Corporation on such record dates, not more than 30 nor
less than 15 days preceding the payment dates thereof, as will be fixed by the
Corporation's Board of Directors or a duly authorized committee thereof.
(b) Dividends on the Series F Preferred Stock shall not be
cumulative and no rights shall accrue to the holders of the Series F Preferred
Stock by reason of the fact that the Corporation may fail to declare or pay
dividends on the Series F Preferred Stock in any amount in any year, whether or
not the earnings of the Corporation in any year were sufficient to pay such
dividends in whole or in part.
(c) Except as provided below in this subsection c of this Section
44, the "Applicable Rate" per annum for any dividend period beginning on or
after September 30, 2001 shall be equal to .35% plus the Effective Rate (as
hereinafter defined), but not less than 6.55% nor greater than 12.55% (without
taking into account any adjustments as described in subsection (d) of this
Section 44). The "Effective Rate" for any dividend period beginning on or after
September 30, 2001 shall be equal to the highest of the Treasury Bill Rate, the
Ten Year Constant Maturity Rate and the Thirty Year Constant Maturity Rate (each
as hereinafter defined) for such dividend period. In the event that the
Corporation determines in good faith that for any reason: (i) any one of the
Treasury Bill Rate, the Ten Year Constant Maturity Rate or the Thirty Year
Constant Maturity Rate cannot be determined for any dividend period, then the
Effective Rate for such dividend period shall be equal to the higher of
whichever two of such rates can be so determined; (ii) only one of the Treasury
Bill Rate, the Ten Year Constant Maturity Rate or the Thirty Year Constant
Maturity Rate can be determined for any dividend period, then the Effective Rate
for such dividend period shall be equal to whichever such rate can be so
determined; or (iii) none of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate or the Thirty Year Constant Maturity Rate can be determined for
any dividend period, then the Effective Rate for the preceding dividend period
shall be continued for such dividend period.
<PAGE> 25
Except as described in this subsection (c) of this Section 44, the "Treasury
Bill Rate" for each dividend period shall be the arithmetic average of the two
most recent weekly per annum market discount rates (or the one weekly per annum
market discount rate, if only one such rate is published during the relevant
Calendar Period (as hereinafter defined)) for three-month U.S. Treasury bills,
as published weekly by the Federal Reserve Board (as hereinafter defined) during
the Calendar Period immediately preceding the last 10 calendar days preceding
the dividend period for which the dividend rate on the Series F Preferred Stock
is being determined. In the event that the Federal Reserve Board does not
publish such a weekly per annum market discount rate during any such Calendar
Period, then the Treasury Bill Rate for such dividend period shall be the
arithmetic average of the two most recent weekly per annum market discount rates
(or the one weekly per annum market discount rate, if only one such rate is
published during the relevant Calendar Period) for three-month U.S. Treasury
bills, as published weekly during such Calendar Period by any Federal Reserve
Bank or by any U.S. Government department or agency selected by the Corporation.
In the event that a per annum market discount rate for three-month U.S. Treasury
bills is not published by the Federal Reserve Board or by any Federal Reserve
Bank or by any U.S. Government department or agency during such Calendar Period,
then the Treasury Bill Rate for such dividend period shall be the arithmetic
average of the two most recent weekly per annum market discount rates (or the
one weekly per annum market discount rate, if only one such rate is published
during the relevant Calendar Period) for all of the U.S. Treasury bills then
having remaining maturities of not less than 80 nor more than 100 days, as
published during such Calendar Period by the Federal Reserve Board or, if the
Federal Reserve Board does not publish such rates, by any Federal Reserve Bank
or by any U.S. Government department or agency selected by the Corporation. In
the event that the Corporation determines in good faith that for any reason no
such U.S. Treasury bill rates are published as provided above during such
Calendar Period, then the Treasury Bill Rate for such dividend period shall be
the arithmetic average of the per annum market discount rates based upon the
closing bids during such Calendar Period for each of the issues of marketable
non-interest-bearing U.S. Treasury securities with a remaining maturity of not
less than 80 nor more than 100 days from the date of each such quotation, as
chosen and quoted daily for each business day in New York City (or less
frequently if daily quotations are not generally available) to the Corporation
by at least three recognized dealers in U.S. Government securities selected by
the Corporation. In the event that the Corporation determines in good faith that
for any reason the Corporation cannot determine the Treasury Bill Rate for any
dividend period as provided in this paragraph, the Treasury Bill Rate for such
dividend period shall be the arithmetic average of the per annum market discount
rates based upon the closing bids during such Calendar Period for each of the
issues of marketable interest-bearing U.S. Treasury securities with a remaining
maturity of not less than 80 or more than 100 days, as chosen and quoted daily
for each business day in New York City (or less frequently if daily quotations
are not generally available) to the Corporation by at least three recognized
dealers in U.S. Government securities selected by the Corporation.
<PAGE> 26
Except as described in this subsection (c) of this Section 44, the "Ten Year
Constant Maturity Rate" for each dividend period shall be the arithmetic average
of the two most recent weekly per annum Ten Year Average Yields (as hereinafter
defined) (or the one weekly per annum Ten Year Average Yield, if only one such
yield is published during the relevant Calendar Period), as published weekly by
the Federal Reserve Board during the Calendar Period immediately preceding the
last 10 calendar days preceding the dividend period for which the dividend rate
on the Series F Preferred Stock is being determined. In the event that the
Federal Reserve Board does not publish such a weekly per annum Ten Year Average
Yield during such Calendar Period, then the Ten Year Constant Maturity Rate for
such dividend period shall be the arithmetic average of the two most recent
weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year
Average Yield, if only one such yield is published during the relevant Calendar
Period), as published weekly during such Calendar Period by any Federal Reserve
Bank or by any U.S. Government department or agency selected by the Corporation.
In the event that a per annum Ten Year Average Yield is not published by the
Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Ten Year Constant
Maturity Rate for such dividend period shall be the arithmetic average of the
two most recent weekly per annum average yields to maturity (or the one weekly
per annum average yield to maturity, if only one such yield is published during
the relevant Calendar Period) for all of the actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities (as
hereinafter defined)) then having remaining maturities of not less than eight
nor more than 12 years, as published during such Calendar Period by the Federal
Reserve Board or, if the Federal Reserve Board does not publish such yields, by
any Federal Reserve Bank or by any U.S. Government department or agency selected
by the Corporation. In the event that the Corporation determines in good faith
that for any reason the Corporation cannot determine the Ten Year Constant
Maturity Rate for any dividend period as provided above in this paragraph, then
the Ten Year Constant Maturity Rate for such dividend period shall be the
arithmetic average of the per annum average yields to maturity based upon the
closing bids during such Calendar Period for each of the issues of actively
traded marketable U.S. Treasury fixed interest rate securities (other than
Special Securities) with a final maturity date not less than eight nor more than
12 years from the date of each such quotation, as chosen and quoted daily for
each business day in New York City (or less frequently if daily quotations are
not generally available) to the Corporation by at least three recognized dealers
in U.S. Government securities selected by the Corporation.
Except as described in this subsection (c) of this Section 44, the "Thirty Year
Constant Maturity Rate" for each dividend period shall be the arithmetic average
of the two most recent weekly per annum Thirty Year Average Yields (as
hereinafter defined) (or the one weekly per annum Thirty Year Average Yield, if
only one such yield is published during the relevant Calendar Period), as
published weekly by the Federal Reserve Board during the Calendar Period
immediately preceding the last 10 calendar days preceding the dividend period
for which the dividend rate on the Series F Preferred Stock is being determined.
In the event that the Federal Reserve Board
<PAGE> 27
does not publish such a weekly per annum Thirty Year Average Yield during such
Calendar Period, then the Thirty Year Constant Maturity Rate for such dividend
period shall be the arithmetic average of the two most recent weekly per annum
Thirty Year Average Yields (or the one weekly per annum Thirty Year Average
Yield, if only one such yield is published during the relevant Calendar Period),
as published weekly during such Calendar Period by any Federal Reserve Bank or
by any U.S. Government department or agency selected by the Corporation. In the
event that a per annum Thirty Year Average Yield is not published by the Federal
Reserve Board or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Thirty Year Constant
Maturity Rate for such dividend period shall be the arithmetic average of the
two most recent weekly per annum average yields to maturity (or the one weekly
per annum average yield to maturity, if only one such yield is published during
the relevant Calendar Period) for all of the actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities) then
having remaining maturities of not less than 28 nor more than 30 years, as
published during such Calendar Period by the Federal Reserve Board or, if the
Federal Reserve Board does not publish such yields, by any Federal Reserve Bank
or by any U.S. Government department or agency selected by the Corporation. In
the event that the Corporation determines in good faith that for any reason the
Corporation cannot determine the Thirty Year Constant Maturity Rate for any
dividend period as provided above in this paragraph, then the Thirty Year
Constant Maturity Rate for such dividend period shall be the arithmetic average
of the per annum average yields to maturity based upon the closing bids during
such Calendar Period for each of the issues of actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities) with a
final maturity date not less than 28 nor more than 30 years from the date of
each such quotation, as chosen and quoted daily for each business day in New
York City (or less frequently if daily quotations are not generally available)
to the Corporation by at least three recognized dealers in U.S. Government
securities selected by the Corporation.
The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty Year
Constant Maturity Rate shall each be rounded to the nearest five hundredths of a
percent, with .025% being rounded upward.
The Applicable Rate with respect to each dividend period beginning on or after
September 30, 2001 shall be calculated as promptly as practicable by the
Corporation according to the appropriate method described in this subsection (c)
of this Section 44. The Corporation shall cause notice of each Applicable Rate
to be enclosed with the dividend payment checks next mailed to the holders of
Series F Preferred Stock.
For the purposes of this subsection (c) of this Section 44, the following terms
shall have the following meanings: (i) "Calendar Period" means a period of 14
calendar days; (ii) "Federal Reserve Board" means the Board of Governors of the
Federal Reserve System or any successor agency; (iii) "Special Securities" means
securities which can, at the option of the holder, be
<PAGE> 28
surrendered at face value in payment of any Federal estate tax or which provide
tax benefits to the holder and are priced to reflect such tax benefits or which
were originally issued at a deep or substantial discount; (iv) the term "Ten
Year Average Yield" means the average yield to maturity for actively traded
marketable U.S. Treasury fixed interest rate securities (adjusted to constant
maturities of 10 years); and (v) "Thirty Year Average Yield" means the average
yield to maturity for actively traded Treasury fixed interest rate securities
(adjusted to constant maturities of 30 years).
(d) If one or more amendments to the Internal Revenue Code of 1986, as
amended (the "Code"), are enacted that change the percentage of the dividends
received deduction (70% as of October 4, 1996) as specified in Section 243(a)(l)
of the Code or any successor provision (the "Dividends Received Percentage"), as
applicable to the Series F Preferred Stock, the amount of each dividend payable
per share of the Series F Preferred Stock for dividend payments made on or after
the later of the date of enactment or the effective date of such change shall be
adjusted by multiplying the amount of the dividend payable determined as
described under subsection (a) of this Section 44 (before adjustment) by a
factor, which shall be the number determined in accordance with the following
formula (the "DRD Formula"), and rounding the result to the nearest cent:
l - [.35 (l - .70)]
- ---------------------
l - [.35 (l - DRP)]
For purposes of the DRD Formula. "DRP" means the Dividends Received Percentage
applicable to the dividend in question. No amendment to the Code, other than a
change in the dividends received deduction set forth in Section 243(a)(l) of the
Code or any successor provision, as applicable to the Series F Preferred Stock,
shall give rise to an adjustment. Notwithstanding the foregoing provisions of
this subsection (d) of this Section 44, in the event that, with respect to any
such amendment, the Corporation shall receive an unqualified opinion of
nationally recognized independent tax counsel selected by the Corporation and
approved by Cravath, Swaine & Moore (which approval shall not be unreasonably
withheld) or a private letter ruling or similar form of authorization from the
Internal Revenue Service to the effect that such an amendment would not apply to
dividends payable on the Series F Preferred Stock, then any such amendment shall
not result in the adjustment provided for pursuant to the DRD Formula. The
opinion referenced in the previous sentence shall be based upon a specific
provision in the legislation or upon a published pronouncement of the Internal
Revenue Service addressing such legislation. The Corporation's calculation of
the dividends payable as so adjusted and as certified accurate as to calculation
and reasonable as to method by the independent certified public accountants then
regularly engaged by the Corporation, shall be final and not subject to review.
If any amendment to the Code which reduces the Dividends Received Percentage, as
applicable to the Series F Preferred Stock, is enacted and becomes effective
after a dividend payable on a Dividend Payment Date has been declared, the
amount of dividend payable on such Dividend
<PAGE> 29
Payment Date shall not be increased; but instead, an amount, equal to the excess
of (x) the product of the dividends paid by the Corporation on such Dividend
Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be
equal to the reduced Dividends Received Percentage) and (y) the dividends paid
by the Corporation on such Dividend Payment Date, shall be payable to holders of
record on the next succeeding Dividend Payment Date in addition to any other
amounts payable on such date.
If prior to April 1, 1997, an amendment to the Code is enacted that reduces the
Dividends Received Percentage, as applicable to the Series F Preferred Stock,
and such reduction retroactively applies to a Dividend Payment Date as to which
the Corporation previously paid dividends on the Series F Preferred Stock (each
an "Affected Dividend Payment Date"), the Corporation shall pay (if declared)
additional dividends (the "Additional Dividends") on the next succeeding
Dividend Payment Date (or if such amendment is enacted after the dividend
payable on such Dividend Payment Date has been declared, on the second
succeeding Dividend Payment Date following the date of enactment) to holders of
record on such succeeding Dividend Payment Date in an amount equal to the excess
of (x) the product of the dividends paid by the Corporation on each Affected
Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula
would be equal to the Dividends Received Percentage applicable to each Affected
Dividend Payment Date) over (y) the dividends paid by the Corporation on each
Affected Dividend Payment Date.
Additional Dividends shall not be paid in respect of the enactment of any
amendment to the Code on or after April 1, 1997 which retroactively reduces the
Dividends Received Percentage, or if prior to April l, 1997, such amendment
would not result in an adjustment due to the Corporation having received either
an opinion of counsel or tax ruling referred to in the third preceding
paragraph. The Corporation shall only make one payment of Additional Dividends.
In the event that the amount of dividend payable per share of the Series F
Preferred Stock shall be adjusted pursuant to the DRD Formula and/or Additional
Dividends are to be paid, the Corporation will cause notice of each such
adjustment and, if applicable, any Additional Dividends, to be sent to the
holders of the Series F Preferred Stock.
In the event that the Dividends Received Percentage, applicable to the Series F
Preferred Stock, is reduced to 40% or less, the Corporation may at its option,
redeem the Series F Preferred Stock as a whole, but not in part, as described in
Section 46 below.
45. Liquidation. The amount payable upon shares of Series F Preferred
Stock in the event of voluntary or involuntary liquidation of the Corporation,
prior to any payment to the holders of Common Stock or of any class or series of
stock of the Corporation ranking as to assets subordinated to the Series F
Preferred Stock, shall be $50.00 per share plus an amount equal to accrued and
unpaid dividends, whether or not earned or declared, computed thereon from the
immediately preceding Dividend Payment Date (but without cumulation for unpaid
<PAGE> 30
dividends for prior dividend periods on the Series F Preferred Stock) to the
date on which payment thereof is made available.
46. Redemption. (a) Prior to September 30, 2001, shares of Series F
Preferred Stock shall not be redeemable, except under the circumstances
described in subsection (b) of this Section 46. Shares of Series F Preferred
Stock shall be redeemable by the Corporation, in whole or in part, at any time
and from time to time on and after September 30, 2001 at $50.00 per share plus
an amount equal to accrued and unpaid dividends, whether or not earned or
declared, computed thereon from the immediately preceding Dividend Payment Date
(but without cumulation for unpaid dividends for prior dividend periods on the
Series F Preferred Stock) to the date fixed for redemption, including any
changes in dividends payable due to changes in the Dividends Received Percentage
and Additional Dividends, if any (each as defined in subsection (d) of Section
44).
(b) Notwithstanding anything to the contrary in subsection (a) of
this Section 46, if the Dividends Received Percentage is equal to or less than
40% and, as a result, the amount of dividends on the Series F Preferred Stock on
any Dividend Payment Date will be or is adjusted upwards as described in
subsection (d) of Section 44 above, the Corporation, at its option, may redeem
all, but not less than all, of the outstanding shares of Series F Preferred
Stock; provided, however, that within 60 days of the date on which an amendment
to the Code is enacted which reduces the Dividends Received Percentage to 40
percent or less, the Corporation sends notice to the holders of the Series F
Preferred Stock of such redemption. Any redemption of Series F Preferred Stock
in accordance with this Section 46(b) shall take place on the date specified in
the notice, which shall not be less than 30 days nor more than 60 days from the
date such notice is sent to holders of Series F Preferred Stock. Any redemption
of Series F Preferred Stock in accordance with this Section 46(b) shall be on
notice as aforesaid at the applicable redemption price set forth in the
following table, in each case plus accrued and unpaid dividends computed thereon
from the immediately preceding Dividend Payment Date (but without any cumulation
for unpaid dividends for prior dividend periods on Series F Preferred Stock) to
the date fixed for redemption, including any changes in dividends payable due to
changes in the Dividends Received Percentage and Additional Dividends, if any,
whether or not earned or declared.
<TABLE>
<CAPTION>
Redemption Period Redemption Price Per Share
- ----------------- --------------------------
<S> <C>
October 9, 1996 through September 29, 1997 $52.50
September 30, 1997 through September 29, 1998 52.00
September 30, 1998 through September 29, 1999 51.50
September 30, 1999 through September 29, 2000 51.00
September 30, 2000 through September 29, 2001 50.50
On or after September 30, 2001 50.00
</TABLE>
<PAGE> 31
(c) Holders of Series F Preferred Stock shall have no right to
require the redemption of shares of Series F Preferred Stock.
47. Voting Rights. Holders of Series F Preferred Stock shall have no
voting rights except as set forth in Section 4 and Section 5 of ARTICLE SEVENTH
of the Corporation's Articles of Incorporation or as otherwise required from
time to time by law.
48. Conversion Rights. Shares of Series F Preferred Stock shall not be
convertible into shares of Common Stock or any other security of the
Corporation.
JUNIOR PARTICIPATING PREFERRED STOCK, SERIES G
49. Designation and Amount. The shares of such series shall be
designated as "Series G Junior Participating Preferred Stock" (the "Series G
Preferred Stock") and the number of shares constituting the Series G Preferred
Stock initially shall be 450,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series G Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series G Preferred Stock.
50. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series G Preferred Stock with respect to dividends, the holders of shares of
Series G Preferred Stock, in preference to the holders of Common Stock, par
value $5.00 per share (the "Common Stock"), of the Corporation, and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series G Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $0.10 or (b) subject to the provision for adjustment hereinafter set
forth, 1,000 times the aggregate per share amount of all cash dividends, and
1,000 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series G Preferred Stock. In the event the
<PAGE> 32
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series G Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
the Series G Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $0.10 per share on the
Series G Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series G Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series G Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series G Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series G Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
51. Voting Rights. The holders of shares of Series G Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series G Preferred Stock shall entitle the holder thereof
to 1,000 votes on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a
<PAGE> 33
greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series G Preferred Stock
were entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) Except as otherwise provided herein, in any other Statement
with Respect to Shares pursuant to Section 1522 of the Business Corporation Law
or amendment to the Corporation's Amended and Restated Articles of Incorporation
creating a series of Preferred Stock or any similar stock, or by law, the
holders of shares of Series G Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of shareholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series G Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
52. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series G Preferred Stock as provided in
Section 50 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series G Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series G Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series G Preferred Stock, except
dividends paid ratably on the Series G Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series G Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to
<PAGE> 34
dividends or upon dissolution, liquidation or winding up) to
the Series G Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series G Preferred Stock, or any
shares of stock ranking on a parity with the Series G
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 52, purchase or otherwise acquire such shares at such time and in
such manner.
53. Reacquired Shares. Except as otherwise provided by action of the
Board of Directors, any shares of Series G Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever (other than by
conversion) shall not be retired or cancelled but shall become authorized but
unissued shares of Preferred Stock and may be reissued as part of the same or a
new series of Preferred Stock subject to the conditions and restrictions on
issuance set forth herein, in the Amended and Restated Articles of Incorporation
of the Corporation, or in any other Statement with Respect to Shares pursuant to
Section 1522 of the Business Corporation Law creating a series of Preferred
Stock or any similar stock or as otherwise required by law.
54. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series G Preferred Stock unless,
prior thereto, the holders of shares of Series G Preferred Stock shall have
received $1.00 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series G Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to
be distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series G Preferred Stock,
except distributions made ratably on the Series G Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series G
<PAGE> 35
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (1) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
55. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination, division or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series G Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series G Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
56. No Redemption. The shares of Series G Preferred Stock shall not be
redeemable.
57. Rank. The Series G Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of any
other class of the Corporation's Preferred Stock.
58. Amendment. If any shares of Series G Preferred Stock are then
outstanding, the Amended and Restated Articles of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series G Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series G Preferred Stock, voting
together as a single class.
COMMON STOCK
59. Each holder of record of Common Stock shall have the right to one
vote for each share of Common Stock standing in his name on the books of the
Corporation.
PROVISIONS APPLICABLE TO ALL CLASSES OF CAPITAL STOCK
<PAGE> 36
60. No holder of any class of capital stock of the Corporation shall be
entitled to cumulate his votes for the election of directors.
61. No holder of any class of capital stock of the Corporation shall
have preemptive rights, and the Corporation shall have the right to issue and to
sell to any person or persons any shares of its capital stock or any option
rights or any securities having conversion or option rights, without first
offering such shares, rights or securities to any holders of any class of
capital stock of the Corporation.
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
THE PNC FINANCIAL SERVICES GROUP, INC.
(Effective April 25, 2000)
================================================================================
Article I. PRINCIPAL OFFICE
The principal office of the Corporation shall be located at One PNC
Plaza, Pittsburgh, Pennsylvania.
Article II. SHAREHOLDERS
1. Annual Meeting
1.1 Time and Place.
An annual meeting of the shareholders for the election of
directors and the transaction of such other business as may properly come before
the meeting shall be held at 11 a.m. on the fourth Tuesday in April of each
year, or on such other date or hour as may be fixed by the Board of Directors.
1.2 Nominations and Other Business.
(a) Nominations for the election of directors and other
proposals for action at an annual meeting of shareholders may be made only (i)
pursuant to the Corporation's notice of such meeting, (ii) by the presiding
officer, (iii) by or at the direction of a majority of the Board of Directors,
or (iv) by one or more shareholders in accordance with applicable rules of the
Securities and Exchange Commission and the provisions of this Section 1.2.
(b) A nomination for the election of a director or a proposal
for action at an annual meeting may be made by a shareholder only if written
notice of such nomination or proposal has been received by the Secretary of the
Corporation at its principal office not later than (i) 90 days prior to such
annual meeting (unless a different date for such notice has been stated in the
Corporation's most recent proxy materials distributed to shareholders), or (ii)
if the annual meeting is to be held on a date other than the fourth Tuesday in
April, the close of business on the tenth day following the first public
disclosure of the date of such meeting. The first public disclosure of the date
of any annual meeting of shareholders shall be when public disclosure of such
meeting date is first made in a filing by the Corporation with the Securities
and Exchange Commission, in any notice given to the New York Stock Exchange, or
in a news release reported by any national news service.
<PAGE> 2
By-Laws - The PNC Financial Services Group, Inc.
Page 2
(c) Each such notice from a shareholder shall set forth: (i)
as to the shareholder giving the notice and the beneficial owner, if any, on
whose behalf the notice is given (A) the name and address of such shareholder
and of such beneficial owner, and (B) the class and number of shares of the
Corporation which are owned of record and beneficially by such shareholder and
such beneficial owner; and (ii) a representation that the shareholder is a
beneficial owner of stock of the Corporation entitled to vote at such meeting
and intends to be present at the meeting in person or by proxy to make such
nomination or proposal.
(d) Each notice of nomination for the election of a director
from a shareholder also shall set forth: (i) the name and address of the person
to be nominated; (ii) a description of all arrangements or understandings
between the shareholder and the nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination is to be made by the
shareholder; (iii) such other information regarding the nominee as would be
required to be included in proxy materials filed under applicable rules of the
Securities and Exchange Commission had the nominee been nominated by the Board
of Directors; and (iv) the written consent of the nominee to serve as a director
of the Corporation if so elected.
(e) Each notice of a proposal for action at an annual meeting
from a shareholder also shall set forth a brief description of the proposal, the
reasons for making such proposal, and any direct or indirect interest of the
shareholder, or any person on whose behalf the shareholder is acting, in making
such proposal.
(f) The presiding officer of the meeting may refuse to permit
any nomination for the election of a director or proposal to be made at an
annual meeting by a shareholder who has not complied with all of the foregoing
procedures.
2. Special Meetings
Special meetings of the shareholders may be called, at any time, only
by the Board of Directors, the Chairman of the Board, the President, or a Vice
Chairman of the Board. Only business brought before the meeting (a) pursuant to
the Corporation's notice of such meeting, (b) by the presiding officer, or (c)
by or at the direction of a majority of the Board of Directors, shall be
conducted at a special meeting of the shareholders.
3. Place of Meetings
Meetings of the shareholders shall be held at the principal office of
the Corporation or at such other place as the Board of Directors may designate.
4. Notice of Meetings
Written notice of every meeting of the shareholders shall be given to
each shareholder of record entitled to vote at the meeting at least five days
prior to the day named for the meeting, unless a greater period of notice is
required by law. The notice shall state the day, time and place
<PAGE> 3
By-Laws - The PNC Financial Services Group, Inc.
Page 3
of such meeting and the general nature of the business to be transacted. Notice
of a meeting may be waived in writing and attendance at a meeting shall itself
constitute a waiver of notice of the meeting.
5. Quorum
The presence, in person or by proxy, of shareholders entitled to cast
at least a majority of the votes which all shareholders are entitled to cast on
the particular matter shall constitute a quorum for the purpose of considering
such matter. At a duly organized meeting, except as may be otherwise specified
in the Articles of Incorporation or provided by law, each matter shall be
decided upon receiving the affirmative vote of a majority of the votes cast by
all shareholders entitled to vote thereon and, if any shareholders are entitled
to vote thereon as a class, upon receiving the affirmative vote of a majority of
the votes cast by the shareholders entitled to vote as a class.
6. Record Date
The Board of Directors may fix a record date not more than ninety days
prior to the date of any meeting of shareholders, or the date fixed for the
payment of any dividend or distribution, or the date for the allotment of rights
or the date when any change or conversion or exchange of shares will be made or
go into effect. Only such shareholders as shall be shareholders of record at the
close of business on the record date shall be entitled to notice of, or to vote
at such meeting or to receive such allotment of rights or to exercise such
rights, as the case may be.
Article III. DIRECTORS
1. Board of Directors
The business and offices of the Corporation shall be managed by the
Board of Directors, which shall consist of not less than five nor more than
thirty-six members as shall be established from time to time by the Board of
Directors.
2. Term of Office
After elected by the shareholders, directors shall hold office until
the next succeeding annual meeting and until their successors shall have been
elected and qualified.
3. Vacancy
Vacancies in the Board of Directors, including vacancies resulting from
an increase in the number of directors, may be filled by a majority of the
remaining directors though less than a quorum, and any director so elected shall
serve until the next annual meeting of the shareholders and until a successor
shall have been elected and qualified.
<PAGE> 4
By-Laws - The PNC Financial Services Group, Inc.
Page 4
4. Organization
As soon as practicable after the annual meeting of shareholders at
which they were elected, the Board of Directors shall meet for the purpose of
electing officers and the transaction of such other business as may be properly
brought before the meeting.
5. Regular Meetings
Regular meetings of the Board of Directors may be held without notice
at such times and at such places as the Board of Directors, by resolution, shall
establish. When a regular meeting falls on a business holiday, it shall be held
on the preceding or next following business day, as the Chief Executive Officer
shall select.
6. Special Meetings
Special meetings of the Board of Directors may be called by the
Chairman of the Board, the President, a Vice Chairman, or at the written request
of any three directors. Notice of special meetings shall be given to each
director personally or in writing, or by telephone, not later than during the
day immediately preceding the day of such meeting and shall include the general
nature of the business to be transacted at the meeting.
7. Quorum
A majority of the directors shall constitute a quorum for the
transaction of business, and the acts of a majority of the directors present at
a meeting at which a quorum is present shall be the acts of the Board of
Directors. One or more directors may participate in a meeting of the Board of
Directors, or in a meeting of a Committee of the Board of Directors by means of
communication facilities enabling all persons participating in the meeting to
hear each other.
8. Action Without a Meeting
Any action which may be taken at a meeting of the Board of Directors
may be taken without a meeting if a written consent or consents setting forth
the action so taken is signed by all the directors and filed with the Secretary
of the Corporation.
9. Compensation of Directors
Directors shall be compensated for their services and reimbursed for
their meeting attendance expenses, in such manner and at such time as the Board
of Directors may determine.
<PAGE> 5
By-Laws - The PNC Financial Services Group, Inc.
Page 5
Article IV. OFFICERS
1. Designation
The officers of the Corporation shall be a Chairman of the Board, a
President, one or more Vice Chairmen, one or more Vice Presidents of whom one or
more may be designated Senior Executive Vice President, Executive Vice President
or Senior Vice President, a Secretary, a Treasurer, a Controller, a General
Auditor and such other officers, as the Board of Directors, the Chairman, the
President, or the Vice Chairman may from time to time designate. The Board of
Directors shall designate from among the Chairman of the Board, President, and
Vice Chairmen, one of those officers to be the Chief Executive Officer. All
officers having the rank of Senior Vice President or higher shall be elected by
the Board of Directors and shall hold office during the pleasure of the Board of
Directors. All other officers shall be appointed by the Chief Executive Officer,
or, in his absence, by such other officer or officers as may be designated by
the Board of Directors, and such appointments shall be reported to the Board of
Directors.
2. Responsibilities of the Senior Officers
2.1 Chief Executive Officer
The Chief Executive Officer of the Corporation shall preside
at all meetings of the shareholders and the Board of Directors, and shall be ex
officio a member of all Committees except the Audit Committee, the Nominating
Committee, and the Personnel and Compensation Committee; subject to the
direction of the Board of Directors, the Chief Executive Officer shall have the
general supervision of the policies, business and operations of the Corporation,
and of the other officers, agents and employees of the Corporation and, except
as otherwise provided in these By-Laws or by the Board of Directors, shall have
all the other powers and duties as are usually incident to the Chief Executive
Officer of a corporation. In the absence of the Chief Executive Officer, his
rights and duties shall be performed by such other officer or officers as shall
be designated by the Board of Directors.
2.2 Chairman, President and Vice Chairman
The Chairman, the President and the Vice Chairman if not
designated as the Chief Executive Officer shall have such duties and powers as
may be assigned to them from time to time by the Board of Directors or the Chief
Executive Officer.
2.3 Vice Presidents
The Executive Vice Presidents, Senior Vice Presidents and the
Vice Presidents, if such are elected, shall have the duties and powers as may
from time to time be assigned to them by the Board of Directors, or by the Chief
Executive Officer in the absence of any assignment by the Board of Directors.
Any reference in these By-Laws to a Vice President will apply equally to an
Executive Vice President or a Senior Vice President unless the context requires
otherwise.
<PAGE> 6
By-Laws - The PNC Financial Services Group, Inc.
Page 6
2.4 Treasurer
The Treasurer shall be responsible for the funding of the
Corporation and for all moneys, funds, securities, fidelity and indemnity bonds
and other valuables belonging to the Corporation; and shall perform such other
duties as may be assigned to him from time to time by the Board of Directors or
the Chief Executive Officer.
2.5 Secretary
The Secretary shall: attend the meetings of the shareholders,
of the Board of Directors, of the Executive Committee, and of such other
committees, and shall keep minutes thereof in suitable minute books; have charge
of the corporate records, papers and the corporate seal; have charge of the
stock and transfer records of the Corporation and shall keep a record of all
shareholders and give notices of all meetings of shareholders, special meetings
of the Board of Directors and of its Committees; and have such other duties as
the Board of Directors or the Chief Executive Officer shall assign.
2.6 Controller
The Controller, if a Controller is elected, shall cause to be
kept proper records of the transactions of the Corporation; shall be responsible
for the preparation of financial and tax reports required of the Corporation;
and shall perform such other duties as may be assigned to him from time to time
by the Board of Directors or the Chief Executive Officer.
2.7 General Auditor
The General Auditor shall have charge of auditing the books,
records and accounts and shall report directly to the Board of Directors or the
Audit Committee thereof.
2.8 Assistant Officers
Each assistant officer as shall be elected shall assist in the
performance of the duties of the officer to whom he is assistant and shall
perform such duties in the absence of the officer. He shall perform such
additional duties as the Board of Directors, the Chief Executive Officer, or the
officer to whom he is assistant, may from time to time assign to him.
3. Incumbency
Any officer elected by the Board of Directors may be removed by the
Board of Directors whenever, in its best judgment, the best interest of the
Corporation will be served thereby, without prejudice however to any contract
rights the person so removed may have with the Corporation or any of its
subsidiaries.
<PAGE> 7
By-Laws - The PNC Financial Services Group, Inc.
Page 7
Article V. COMMITTEES
1. Standing Committees
The Standing Committees which shall be appointed from time to time by
the Board of Directors shall be the Executive Committee, the Audit Committee,
the Credit Committee, the Asset and Liability Committee, the Nominating
Committee and the Personnel and Compensation Committee. The Board of Directors
may appoint such other Committees as the Board of Directors shall deem
advisable.
1.1 Executive Committee
The Executive Committee shall consist of its Chairman and
Chief Executive Officer and such other directors, not less than five, all of
whom shall from time to time be appointed by the Board of Directors or the Chief
Executive Officer. The Committee shall meet at such time or times as may be
fixed by the Board of Directors, or upon call of its Chairman or the Chief
Executive Officer. In the absence of the Chairman of the Committee, the Chief
Executive Officer shall act as Chairman of the Executive Committee, unless the
Board of Directors shall appoint some other person. The Executive Committee
shall have and exercise in the intervals between the meetings of the Board of
Directors all the powers of the Board of Directors so far as may be permitted by
law. All acts done and powers conferred by the Executive Committee from time to
time shall be deemed to be, and may be certified as being, done and conferred
under authority of the Board of Directors. Five directors shall constitute a
quorum.
1.2 Audit Committee
The Board of Directors shall appoint annually the Audit
Committee consisting of not less than five directors, nor more than eight, none
of whom shall be an officer, or a former officer of the Corporation. The
Committee shall select a chairman from its membership, and may appoint a
secretary who need not be a director. The Committee shall meet on call of its
Chairman. The duties and responsibilities of the Committee shall be established
by the Board of Directors.
1.3 Corporate Governance Committee
The Board of Directors shall appoint annually the members of
the Committee, consisting of not fewer than three directors, none of whom shall
be an officer or former officer of the Corporation, and from these directors
appoint the Chairman. The Committee may appoint a Secretary, who need not be a
director.
<PAGE> 8
By-Laws - The PNC Financial Services Group, Inc.
Page 8
The Committee on Corporate Governance shall be responsible for
selecting the persons to be candidates for nomination for election or
appointment as directors of the Corporation, making recommendations with respect
thereto to the Board of Directors and monitoring and recommending enhancements
to the Corporation's corporate governance framework, particularly with respect
to the structure, processes and proceedings of the Board of Directors. The
Committee shall conduct its affairs in accordance with a charter approved by the
Board of Directors.
1.4 Personnel and Compensation Committee
The Board of Directors shall appoint annually the members of
the Personnel and Compensation Committee, consisting of not fewer than five
directors, none of whom shall be an officer or former officer of the
Corporation. Further, upon appointment and at all times during his or her tenure
on the Committee, each Committee member shall satisfy such standards of
independence as may be prescribed for purposes of any federal securities or tax
laws relating to the Committee's duties and responsibilities. The Committee
Chairman shall be appointed by the Board of Directors and the Committee may
appoint a Secretary, who need not be a director. The duties and responsibilities
of the Committee shall be as set forth in a charter approved by the Board of
Directors.
1.5 Credit Committee
The Board of Directors shall appoint annually the members of
the Credit Committee consisting of not less than five directors, including no
more than two officer- directors, and shall select a chairman from its
membership, who shall not be an officer. The Committee may appoint a secretary
who need not be a director. The duties and responsibilities of the Committee
shall be as set forth in a charter approved by the Board of Directors.
1.6 Finance Committee
The Board of Directors shall appoint annually the members of
the Finance Committee consisting of not less than five directors, including no
more than two officer- directors, and shall select a chairman from its
membership, who shall not be an officer. The Committee may appoint a secretary
who need not be a director. The duties and responsibilities of the Committee
shall be as set forth in a charter approved by the Board of Directors.
2. Other Committees
The Board of Directors may authorize the appointment of such other
Committees as it shall deem advisable.
<PAGE> 9
By-Laws - The PNC Financial Services Group, Inc.
Page 9
3. Minutes
The Executive Committee and the Audit Committee shall keep minutes of
their meetings, and such minutes shall be submitted at a regular meeting of the
Board of Directors, and any action taken by the Board of Directors with respect
thereto shall be entered in the minutes of the Board of Directors. All other
Committees shall keep minutes of their meetings which shall be accessible to
inspection by the Board of Directors at all times.
4. Procedure
Except as otherwise expressly provided for herein, each Committee may
appoint a secretary, adopt its own rules of procedure and, unless the Board of
Directors has acted with respect thereto, determine the date, place and hour for
its meetings. In the absence of any other provision herein to the contrary, a
majority of the members of any Committee shall constitute a quorum, and the
action of a majority of the members in attendance at a meeting shall constitute
the action of the body. Notice of meetings shall be given to each member
personally, or in writing addressed to the address of the director appearing on
the books of the Corporation on or before the day preceding the meeting.
5. Attendance
In the absence or disqualification of any member of a Committee, the
members thereof present at any meeting and not disqualified from voting, whether
or not they constitute a quorum, may unanimously appoint another director to act
at the meeting in place of any absent or disqualified member.
Article VI. STOCK CERTIFICATES
1. Signatures
Certificates of stock of the Corporation shall be signed by the
Chairman of the Board, or the President, or any Vice Chairman, or any Vice
President and countersigned by the Secretary or the Treasurer or by any
Assistant Secretary or Assistant Treasurer, and sealed with the seal of the
Corporation, which may be a facsimile. Where any such certificate is signed
manually by a transfer agent or a registrar, the signatures of the officers may
be facsimiles.
2. Transfers
The shares of stock of the Corporation shall be transferable only on
its books upon surrender of the stock certificate for such shares properly
endorsed. The Board of Directors shall have power to appoint one or more
Transfer Agents and Registrars for the transfer and registration of certificates
of stock of any class, and may require that stock certificates shall be
countersigned and registered by one or more such Transfer Agents and Registrars.
<PAGE> 10
By-Laws - The PNC Financial Services Group, Inc.
Page 10
3. Lost or Destroyed Certificates
If a stock certificate shall be lost, stolen or destroyed, the
shareholder may file with the Corporation an affidavit stating the circumstances
of the loss, theft or destruction and may request the issuance of a new
certificate. He shall give to the Corporation a bond which shall be in such sum,
contain such terms and provisions and have such surety or sureties as the Board
of Directors may direct. The Corporation may thereupon issue a new certificate
replacing the certificate lost, stolen or destroyed.
Article VII. DIRECTOR LIABILITY LIMITATION AND INDEMNIFICATION
1. Limitation of Director Liability
A director of the Corporation shall, to the maximum extent permitted by
the laws of the Commonwealth of Pennsylvania, have no personal liability for
monetary damages for any action taken, or any failure to take any action as a
director, provided that this Section 1, Article VII shall not eliminate the
liability of a director in any case where such elimination is not permitted by
law.
2. Indemnification
Each person who at any time is or shall have been a director or officer
of the Corporation, or is serving or shall have served at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, and his heirs, executors
and administrators, shall be indemnified by the Corporation in accordance with
and to the full extent permitted by the laws of the Commonwealth of Pennsylvania
as in effect at the time of such indemnification. The foregoing right of
indemnification shall constitute a contract between the Corporation and each of
its directors and officers and shall not be deemed exclusive of other rights to
which any director, officer, employee, agent or other person may be entitled in
any capacity as a matter of law or under any by-law, agreement, vote of
shareholders or directors, or otherwise. If authorized by the Board of
Directors, the Corporation may purchase and maintain insurance on behalf of any
person to the full extent permitted by the laws of the Commonwealth of
Pennsylvania.
Article VIII. APPLICATION OF STATUTORY ANTI-TAKEOVER PROVISIONS
The following provisions of Title 15 of the Pennsylvania consolidated
statutes shall not be applicable to the Corporation: (1) Subchapter G of Chapter
25; and (2) Subchapter H of Chapter 25.
<PAGE> 11
By-Laws - The PNC Financial Services Group, Inc.
Page 11
Article IX. EXERCISE OF AUTHORITY DURING EMERGENCIES
The Board of Directors or the Executive Committee may from time to time
adopt resolutions authorizing certain persons and entities to exercise authority
on behalf of this Corporation in time of emergency, and in the time of emergency
any such resolutions will be applicable, notwithstanding any provisions as to
the contrary contained in these By-Laws.
Article X. CHARITABLE CONTRIBUTIONS
The Board of Directors may authorize contributions to community funds,
or to charitable, philanthropic, or benevolent instrumentalities conducive to
public welfare in such sums as the Board of Directors may deem expedient and in
the interest of the Corporation.
Article XI. AMENDMENTS
These By-Laws may be altered, amended, added to or repealed by a vote
of a majority of the Board of Directors at any regular meeting of the Board of
Directors, or at any special meeting of the Board of Directors called for that
purpose.
<PAGE> 1
Exhibit 4.8
------------------------------------------------------------------------------
THE PNC FINANCIAL SERVICES
GROUP, INC.
and
THE CHASE MANHATTAN BANK
Rights Agreement
Dated as of May 15, 2000
------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Section 1. Definitions.................................................................. 1
Section 2. Appointment of Rights Agent.................................................. 6
Section 3. Issuance of Right Certificates............................................... 6
Section 4. Form of Right Certificates................................................... 9
Section 5. Countersignature and Registration............................................ 10
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates................................. 11
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights................ 12
Section 8. Cancellation and Destruction of Right Certificates........................... 14
Section 9. Availability of Preferred Shares............................................. 14
Section 10. Preferred Shares Record Date................................................. 15
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights........... 16
Section 12. Certificate of Adjusted Purchase Price or Number of Shares................... 27
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power......... 27
Section 14. Fractional Rights and Fractional Shares...................................... 29
Section 15. Rights of Action............................................................. 31
Section 16. Agreement of Right Holders................................................... 32
Section 17. Right Certificate Holder Not Deemed a Stockholder............................ 33
Section 18. Concerning the Rights Agent.................................................. 33
Section 19. Merger or Consolidation or Change of Name of Rights Agent.................... 34
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Section 20. Duties of Rights Agent....................................................... 35
Section 21. Change of Rights Agent....................................................... 39
Section 22. Issuance of New Right Certificates........................................... 40
Section 23. Redemption................................................................... 40
Section 24. Exchange..................................................................... 42
Section 25. Notice of Certain Events..................................................... 44
Section 26. Notices...................................................................... 45
Section 27. Supplements and Amendments................................................... 46
Section 28. Successors................................................................... 47
Section 29. Benefits of this Agreement................................................... 47
Section 30. Severability................................................................. 47
Section 31. Governing Law................................................................ 47
Section 32. Counterparts................................................................. 48
Section 33. Descriptive Headings......................................................... 48
Signatures..................................................................................... 49
Exhibit A - Form of Resolution Establishing the Preferred Shares
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
</TABLE>
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<PAGE> 4
Agreement, dated as of May 15, 2000 ("Agreement"), between The
PNC Financial Services Group, Inc., a Pennsylvania corporation (the "Company"),
and The Chase Manhattan Bank, as rights agent (the "Rights Agent").
The Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Company outstanding on May 25, 2000
(the "Record Date"), each Right representing the right to purchase one
one-thousandth of a Preferred Share (as hereinafter defined), upon the terms and
subject to the conditions herein set forth, and has further authorized and
directed the issuance of one Right with respect to each Common Share that shall
become outstanding between the Record Date and the earliest of the Distribution
Date, the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 10% or more of the Common Shares of the Company then
outstanding, but shall not include the Company, any Subsidiary of the Company,
any employee benefit plan, employee stock or deferral plan or director
compensation or deferral plan of the Company or any Subsidiary of the Company,
or any trust or other entity organized, appointed, established or holding Common
Shares for or pursuant to the terms of any such plan. Notwithstanding the
foregoing, no Person shall become an "Acquiring
<PAGE> 5
Person" as the result of an acquisition of Common Shares by the Company which,
by reducing the number of Common Shares of the Company outstanding, increases
the proportionate number of Common Shares of the Company beneficially owned by
such Person to 10% or more of the Common Shares of the Company then outstanding;
provided, however, that, if a Person shall become the Beneficial Owner of 10% or
more of the Common Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the Company,
become the Beneficial Owner of any additional Common Shares of the Company, then
such Person shall be deemed to be an "Acquiring Person." Notwithstanding the
foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an "Acquiring Person," as defined pursuant
to the foregoing provisions of this paragraph (a), has become such
inadvertently, and such Person divests as promptly as practicable a sufficient
number of Common Shares so that such Person would no longer be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
then such Person shall not be deemed to be an "Acquiring Person" for any
purposes of this Agreement.
(b) "Affiliate" shall have the meaning ascribed to such term
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in
effect on the date of this Agreement.
(c) "Associate" shall have the meaning ascribed to such term
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in
effect on the date of this Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
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<PAGE> 6
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than the
Rights), warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, securities tendered pursuant to a tender or exchange offer made by
or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, any
security if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to
such Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations promulgated under the Exchange Act and (2) is not also then
reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of
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<PAGE> 7
securities) for the purpose of acquiring, holding, voting (except to
the extent contemplated by the proviso to Section 1(d)(ii)(B) hereof)
or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used with
reference to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which such
Person would be deemed to beneficially own hereunder.
(e) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in New York or Pennsylvania are
authorized or obligated by law or executive order to close.
(f) "Close of Business" on any given date shall mean
5:00 P.M., New York time, on such date; provided, however, that, if such date is
not a Business Day, it shall mean 5:00 P.M., New York time, on the next
succeeding Business Day.
(g) "Common Shares" when used with reference to the Company
shall mean the shares of common stock, par value $5.00 per share, of the
Company. "Common Shares" when used with reference to any Person other than the
Company shall mean the capital stock (or equity interest) with the greatest
aggregate voting power of such other Person or, if such other Person is a
Subsidiary of another Person, the Person or Persons which ultimately control
such first-mentioned Person.
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<PAGE> 8
(h) "Distribution Date" shall have the meaning set forth in
Section 3(a) hereof.
(i) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(j) "Exchange Ratio" shall have the meaning set forth in
Section 24(a) hereof.
(k) "Final Expiration Date" shall have the meaning set forth
in Section 7(a) hereof.
(l) "NASDAQ" shall mean the National Association of Securities
Dealers, Inc. Automated Quotation System.
(m) "Person" shall mean any individual, firm, corporation,
limited liability company, or other entity, and shall include any successor (by
merger or otherwise) of such entity.
(n) "Preferred Shares" shall mean shares of Series G Junior
Participating Preferred Stock, par value $1.00 per share, of the Company having
the rights and preferences set forth in the Form of Statement with Respect to
Shares attached to this Agreement as Exhibit A.
(o) "Purchase Price" shall have the meaning set forth in
Section 4 hereof.
(p) "Record Date" shall have the meaning set forth in the
second paragraph hereof.
(q) "Redemption Date" shall have the meaning set forth in
Section 7(a) hereof.
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<PAGE> 9
(r) "Redemption Price" shall have the meaning set forth in
Section 23(a) hereof.
(s) "Right" shall have the meaning set forth in the second
paragraph hereof.
(t) "Right Certificate" shall have the meaning set forth in
Section 3(a) hereof.
(u) "Shares Acquisition Date" shall mean the first date of
public announcement by the Company or an Acquiring Person that an Acquiring
Person has become such.
(v) "Subsidiary" of any Person shall mean any corporation or
other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
(w) "Summary of Rights" shall have the meaning set forth in
Section 3(b) hereof.
(x) "Trading Day" shall have the meaning set forth in Section
11(d) hereof.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable. The Rights Agent shall have no duty to
supervise, and in no event shall be liable for, the acts or omissions of any
such co-Rights Agent.
Section 3. Issuance of Right Certificates. (a) Until the
earlier of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth
Business Day (or such later date as may be
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<PAGE> 10
determined by action of the Board of Directors of the Company prior to such time
as any Person becomes an Acquiring Person) after the date of the commencement by
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan, employee stock or deferral plan or director compensation or
deferral plan of the Company or of any Subsidiary of the Company or any trust or
other entity organized, appointed, established or holding Common Shares of the
Company for or pursuant to the terms of any such plan) of a tender or exchange
offer the consummation of which would result in any Person becoming the
Beneficial Owner of Common Shares of the Company aggregating 10% or more of the
then outstanding Common Shares of the Company (including any such date which is
after the date of this Agreement and prior to the issuance of the Rights; the
earlier of such dates being herein referred to as the "Distribution Date"), (x)
the Rights will be evidenced (subject to the provisions of Section 3(b) hereof)
by the certificates for Common Shares of the Company registered in the names of
the holders thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the right to
receive Right Certificates will be transferable only in connection with the
transfer of Common Shares of the Company. As soon as practicable after the
Distribution Date, the Company will notify the Rights Agent thereof and prepare
and execute, the Rights Agent will countersign, and the Company will send or
cause to be sent (and the Rights Agent will, if requested and if provided with a
list of record holders of Common Shares of the Company, send) by first-class,
insured, postage-prepaid mail, to each record holder of Common Shares of the
Company as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company's registrar and transfer agent,
a Right Certificate, in substantially the form of Exhibit B hereto (a "Right
Certificate"), evidencing one
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<PAGE> 11
Right for each Common Share so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter,
the Company will send a copy of a Summary of Rights to Purchase Preferred
Shares, in substantially the form of Exhibit C hereto (the "Summary of Rights"),
by first-class, postage-prepaid mail, to each record holder of Common Shares as
of the Close of Business on the Record Date, at the address of such holder shown
on the records of the Company's registrar and transfer agent. With respect to
certificates for Common Shares of the Company outstanding as of the Record Date,
until the Distribution Date, the Rights will be evidenced by such certificates
registered in the names of the holders thereof together with a copy of the
Summary of Rights attached thereto. Until the Distribution Date (or the earlier
of the Redemption Date or the Final Expiration Date), the surrender for transfer
of any certificate for Common Shares of the Company outstanding on the Record
Date, with or without a copy of the Summary of Rights attached thereto, shall
also constitute the transfer of the Rights associated with the Common Shares of
the Company represented thereby.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, original issuances of Common Shares and
disposition of Common Shares that are reacquired by the Company) after the
Record Date but prior to the earliest of the Distribution Date, the Redemption
Date or the Final Expiration Date shall have impressed on, printed on, written
on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in an Agreement between The PNC Financial
Services Group, Inc. and The Chase Manhattan Bank, dated as of May 15,
2000, as it may be amended from time to time (the "Agreement"), the
terms of which are hereby incorporated herein by reference and a copy
of which is on file at the principal executive offices of The PNC
Financial Services Group, Inc. Under certain circumstances, as set
forth in the Agreement, such Rights (as
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<PAGE> 12
defined in the Agreement) will be evidenced by separate certificates
and will no longer be evidenced by this certificate. The PNC Financial
Services Group, Inc. will mail to the holder of this certificate a copy
of the Agreement without charge after receipt of a written request
therefor addressed to its Corporate Secretary at its principal
executive offices. As set forth in the Agreement, Rights beneficially
owned by any Person (as defined in the Agreement) who becomes an
Acquiring Person (as defined in the Agreement) become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares of the Company
represented by such certificates shall be evidenced by such certificates alone,
and the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares of the Company
represented thereby. In the event that the Company purchases or acquires any
Common Shares of the Company after the Record Date but prior to the Distribution
Date, any Rights associated with such Common Shares of the Company shall be
deemed cancelled and retired so that the Company shall not be entitled to
exercise any Rights associated with the Common Shares of the Company which are
no longer outstanding. The preceding sentence shall not apply to Rights
associated with Common Shares of the Company held by any employee benefit plan,
employee stock or deferral plan or director compensation or deferral plan of the
Company or any Subsidiary of the Company, or any trust or other entity
organized, appointed, established or holding Common Shares for or pursuant to
the terms of any such plan.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto, and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
provided that such marks, legends, summaries and endorsements do not affect the
rights, duties or responsibilities
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<PAGE> 13
of the Rights Agent as set forth in this Agreement, or as may be required to
comply with any applicable law or with any applicable rule or regulation made
pursuant thereto or with any applicable rule or regulation of any applicable
stock exchange or the National Association of Securities Dealers, Inc., or to
conform to usage. Subject to the provisions of Section 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-thousandths of a Preferred Share as shall be set forth therein at the price
per one one-thousandth of a Preferred Share set forth therein (the "Purchase
Price"), but the number of such one one-thousandths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, any of its Vice Chairmen, its President or any of its Vice Presidents,
either manually or by facsimile signature, shall have affixed thereto the
Company's seal or a facsimile thereof, and shall also be signed by the Corporate
Secretary or the Treasurer or by any Assistant Corporate Secretary or Assistant
Treasurer of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by a duly authorized officer of the
Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the individual who signed such Right Certificates had not ceased to be such
officer of the Company; and any Right Certificate may be signed on behalf of the
Company by any individual who, at the actual date of the execution of such Right
Certificate,
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<PAGE> 14
shall be a proper officer of the Company to sign such Right Certificate,
although at the date of the execution of this Agreement any such individual was
not such an officer.
Following the Distribution Date and receipt by the Rights
Agent of all information reasonably required by the Rights Agent to do so, the
Rights Agent will keep or cause to be kept, at its office designated for such
purpose, books for registration and transfer of the Right Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Right Certificates, the number of Rights evidenced on its face by
each of the Right Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of Section 14 hereof, at any time after the Close of
Business on the Distribution Date, and at or prior to the Close of Business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates
entitling the registered holder to purchase a like number of one one-thousandths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purpose. Thereupon the Rights Agent shall countersign and
deliver to the Person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company
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<PAGE> 15
may require prior payment by such holder of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates. The Rights Agent shall have
no duty or obligation under this Section 6 or any other similar provision of
this Agreement unless and until it is reasonably satisfied that all such taxes
and/or governmental charges have been paid in full.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security satisfactory to them, and, at the Company's request, reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Right Certificate
if mutilated, the Company will make and deliver a new Right Certificate of like
tenor to the Rights Agent for delivery to the registered holder in lieu of the
Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein), in whole or in
part, at any time after the Distribution Date, upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the office of the Rights Agent designated
for such purpose, together with payment of the Purchase Price for each one
one-thousandth of a Preferred Share as to which the Rights are exercised, at or
prior to the earliest of (i) the Close of Business on May 15, 2010 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof (the "Redemption Date"), or (iii) the time at which such
Rights are exchanged as provided in Section 24 hereof.
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<PAGE> 16
(b) The Purchase Price for each one one-thousandth of a
Preferred Share purchasable pursuant to the exercise of a Right shall initially
be $180, and shall be subject to adjustment from time to time as provided in
Section 11 or 13 hereof, and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable tax or governmental charge required to be paid
by the holder of such Right Certificate in accordance with Section 9 hereof by
wire transfer, certified check, cashier's check or money order payable to the
order of the Company, the Rights Agent shall thereupon promptly (i) (A)
requisition from any transfer agent of the Preferred Shares certificates for the
number of Preferred Shares to be purchased and the Company hereby irrevocably
authorizes any such transfer agent to comply with all such requests, or (B)
requisition from the depositary agent depositary receipts representing such
number of one one-thousandths of a Preferred Share as are to be purchased (in
which case certificates for the Preferred Shares represented by such receipts
shall be deposited by the transfer agent of the Preferred Shares with such
depositary agent) and the Company hereby directs such depositary agent to comply
with such request; (ii) when necessary to comply with this Agreement,
requisition from the Company the amount of cash to be paid in lieu of issuance
of fractional shares in accordance with Section 14 hereof; (iii) promptly after
receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder; and (iv) when necessary to comply with this Agreement, after receipt,
promptly deliver such cash to or upon the order of the registered holder of such
Right Certificate.
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(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to such holder's duly authorized assigns, subject to the
provisions of Section 6 and Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company (other than in a fiduciary capacity) otherwise than upon the exercise
thereof. The Rights Agent shall deliver all cancelled Right Certificates to the
Company, or shall, at the written request of the Company, destroy such cancelled
Right Certificates, and, in such case, shall as promptly as practicable
thereafter deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares. The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7 hereof.
The Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery
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<PAGE> 18
of the certificates for such Preferred Shares (subject to payment of the
Purchase Price and any required tax or governmental charge), be duly and validly
authorized and issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when
due and payable any and all taxes and governmental charges which may be payable
in respect of the issuance or delivery of the Right Certificates or of any
Preferred Shares upon the exercise of Rights. The Company shall not, however, be
required to pay any tax or governmental charge which may be payable in respect
of any transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax or governmental charge shall have been paid
(any such tax or governmental charge being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Company's reasonable satisfaction that no such tax or governmental charge is
due.
Section 10. Preferred Shares Record Date. Each Person in whose
name any certificate for Preferred Shares is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable taxes or
governmental charges) was made; provided, however, that, if the date of such
surrender and payment is a date upon which the Preferred Shares transfer books
of the Company's registrar and transfer agent are closed, such Person shall be
deemed to have become the record holder of such shares
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<PAGE> 19
on, and such certificate shall be dated, the next succeeding Business Day on
which the Preferred Shares transfer books of the Company's registrar and
transfer agent are open. Prior to the exercise of the Rights evidenced thereby,
the holder of a Right Certificate shall not be entitled to any rights of a
holder of Preferred Shares for which the Rights shall be exercisable, including,
without limitation, the right to vote or to receive dividends or other
distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. The Purchase Price, the number of Preferred Shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation,
a division or a merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a), the Purchase
Price in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Company's
registrar and transfer agent were open, such holder would have owned upon
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such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right.
(ii) Subject to Section 24 hereof, in the event any Person
becomes an Acquiring Person, each holder of a Right shall thereafter have a
right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-thousandths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Company as shall equal the result obtained by (A) multiplying the then
current Purchase Price by the number of one one-thousandths of a Preferred Share
for which a Right is then exercisable and dividing that product by (B) 50% of
the then current per share market price of the Common Shares of the Company
(determined pursuant to Section 11(d) hereof) on the date of the occurrence of
such event. In the event that any Person shall become an Acquiring Person and
the Rights shall then be outstanding, the Company shall not take any action
which would eliminate or diminish the benefits intended to be afforded by the
Rights.
From and after the occurrence of such event, any Rights that
are or were acquired or beneficially owned by any Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) shall be void, and any holder
of such Rights shall thereafter have no right to exercise such Rights under any
provision of this Agreement. No Right Certificate shall be issued pursuant to
Section 3 hereof that represents Rights beneficially owned by an Acquiring
Person whose Rights would be void pursuant to the preceding sentence or any
Associate or Affiliate thereof; no Right Certificate shall be issued at any time
upon the transfer of any Rights to an Acquiring
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<PAGE> 21
Person whose Rights would be void pursuant to the preceding sentence or any
Associate or Affiliate thereof or to any nominee of such Acquiring Person,
Associate or Affiliate; and any Right Certificate delivered to the Rights Agent
for transfer to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof shall be cancelled.
(iii) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights in accordance with subparagraph (ii) above, the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exercise of the Rights. In the event the Company
shall, after good faith effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exercise
of a Right, a number of Preferred Shares or fraction thereof (or, if sufficient
Preferred Shares are not available, of equivalent preferred shares, as defined
in Section 11(b) below, or fraction thereof), such that the current per share
market price of one Preferred Share (or equivalent preferred shares) multiplied
by such number or fraction is equal to the current per share market price of one
Common Share as of the date of issuance of such Preferred Shares (or equivalent
preferred shares) or fraction thereof.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current
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<PAGE> 22
per share market price (as defined in Section 11(d)) of the Preferred Shares on
such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
Preferred Shares which the aggregate offering price of the total number of
Preferred Shares and/or equivalent preferred shares so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent and holders
of the Rights. Preferred Shares owned by or held for the account of the Company
(other than in a fiduciary, agency, custodial or other representative capacity)
shall not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed; and,
in the event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
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<PAGE> 23
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation, merger or division in
which the Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the then-current per share market price of the
Preferred Shares on such record date, less the fair market value (as determined
in good faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent and shall be
binding on the Rights Agent and holders of the Rights) of the portion of the
assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to one Preferred Share and the denominator of
which shall be such then-current per share market price of the Preferred Shares
on such record date; provided, however, that in no event shall the consideration
to be paid upon the exercise of one Right be less than the aggregate par value
of the shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record date
is fixed; and, in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30
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<PAGE> 24
consecutive Trading Days immediately prior to such date; provided, however,
that, in the event that the current per share market price of the Security is
determined during a period following the announcement by the issuer of such
Security of (A) a dividend or distribution on such Security payable in shares of
such Security or Securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, reported at or prior to 4:00 P.M. New York City
time or, in case no such sale takes place on such day, the average of the bid
and asked prices, regular way, reported as of 4:00 P.M. New York City time, in
either case, as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price reported at or prior to 4:00 P.M. New York City
time or, if not so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported as of 4:00 P.M. New York City time by
NASDAQ or such other system then in use, or, if on any such date the Security is
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Security selected by the Board of Directors of the Company. The term "Trading
Day" shall mean a day on which the principal national
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<PAGE> 25
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business, or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i) hereof
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one thousand. If
neither the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, "current per share market price" shall mean the fair value per
share as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, however, that any adjustments that by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one ten-millionth
of a Preferred Share or one ten-thousandth of any other share or security, as
the case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
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(f) If, as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Shares, thereafter the number of such other shares so receivable upon exercise
of any Right shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c) hereof, inclusive, and
the provisions of Sections 7, 9, 10 and 13 hereof with respect to the Preferred
Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i) hereof, upon each adjustment of the Purchase Price as
a result of the calculations made in Sections 11(b) and (c) hereof, each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-thousandths of a Preferred Share (calculated to the nearest one
ten-millionth of a Preferred Share) obtained by (A) multiplying (x) the number
of one one-thousandths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (B) dividing the product so obtained by the
Purchase Price in effect immediately after such adjustment of the Purchase
Price.
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<PAGE> 27
(i) The Company may elect, on or after the date of any
adjustment of the Purchase Price, to adjust the number of Rights in substitution
for any adjustment in the number of one one-thousandths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one 100-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall promptly notify the Rights Agent and make a public announcement of
its election to adjust the number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to be made.
This record date may be the date on which the Purchase Price is adjusted or any
day thereafter, but, if the Right Certificates have been issued, shall be at
least 10 days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Right Certificates on such
record date Right Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Right Certificates evidencing
all the Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided
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<PAGE> 28
for herein, and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or in the number of one one-thousandths of a Preferred Share issuable upon
the exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one
one-thousandths of a Preferred Share which were expressed in the initial Right
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-thousandth of the then par value, if
any, of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer (and shall promptly notify the
Rights Agent of any such election) until the occurrence of such event the
issuing to the holder of any Right exercised after such record date of the
Preferred Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
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<PAGE> 29
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it, in its sole discretion, shall
determine to be advisable in order that any consolidation or subdivision of the
Preferred Shares, issuance wholly for cash of any Preferred Shares at less than
the current per share market price, issuance wholly for cash of Preferred Shares
or securities which by their terms are convertible into or exchangeable for
Preferred Shares, dividends on Preferred Shares payable in Preferred Shares or
issuance of rights, options or warrants referred to in Section 11(b) hereof,
hereafter made by the Company to holders of the Preferred Shares shall not be
taxable to such shareholders.
(n) In the event that, at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i) declare or
pay any dividend on the Common Shares payable in Common Shares, or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then, in any such case, (A)
the number of one one-thousandths of a Preferred Share purchasable after such
event upon proper exercise of each Right shall be determined by multiplying the
number of one one-thousandths of a Preferred Share so purchasable immediately
prior to such event by a fraction, the numerator of which is the number of
Common Shares outstanding immediately before such event and the denominator of
which is the number of Common Shares outstanding immediately after such event,
and (B) each Common Share outstanding immediately after such event shall have
issued with respect to it that number of Rights which each Common Share
outstanding immediately prior to such event had issued with respect to it. The
adjustments provided for in this Section 11(n) shall
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<PAGE> 30
be made successively whenever such a dividend is declared or paid or such a
subdivision, combination or consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 or 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment and a brief, reasonably detailed, statement of the facts and
computations accounting for such adjustment, (b) file with the Rights Agent and
with each transfer agent for the Common Shares or the Preferred Shares and the
Securities and Exchange Commission a copy of such certificate and (c) if such
adjustment occurs at any time after the Distribution Date, mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25
hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment contained therein, and shall have no duty with
respect to and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such a certificate.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power. In the event, directly or indirectly, at any time after
a Person has become an Acquiring Person, (a) the Company shall consolidate with,
or merge with and into, any other Person, or the Company shall divide into two
or more corporations (Persons) and the Company shall not survive the division,
(b) any Person shall consolidate with the Company, or merge with and into the
Company, or the Company shall divide, and the Company shall be the continuing or
surviving corporation of such merger or division and, in connection with such
merger or division, all or part of the Common Shares shall be changed into or
exchanged for or shall receive as a distribution thereon stock or other
securities of any other Person (or the Company) or cash or any other property,
or (c) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries
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<PAGE> 31
shall sell or otherwise transfer), in one or more transactions, assets or
earning power aggregating 50% or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person other than
the Company or one or more of its wholly-owned Subsidiaries, then, and in each
such case, proper provision shall be made so that (i) each holder of a Right
(except as otherwise provided herein) shall thereafter have the right to
receive, upon the exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of one one-thousandths of a Preferred Share for
which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of Common Shares of such
other Person (including the Company as successor thereto or as the surviving
corporation) as shall equal the result obtained by (A) multiplying the then
current Purchase Price by the number of one one-thousandths of a Preferred Share
for which a Right is then exercisable and dividing that product by (B) 50% of
the then current per share market price of the Common Shares of such other
Person (determined pursuant to Section 11(d) hereof) on the date of consummation
of such consolidation, merger, division, sale or transfer; (ii) the issuer of
such Common Shares shall thereafter be liable for, and shall assume, by virtue
of such consolidation, merger, division, sale or transfer, all the obligations
and duties of the Company pursuant to this Agreement; (iii) the term "Company"
shall thereafter be deemed to refer to such issuer; and (iv) such issuer shall
take such steps (including, but not limited to, the reservation of a sufficient
number of its Common Shares in accordance with Section 9 hereof) in connection
with such consummation as may be necessary to assure that the provisions hereof
shall thereafter be applicable, as nearly as reasonably may be, in relation to
the Common Shares of the Company thereafter deliverable upon the exercise of the
Rights. The Company shall not consummate any such consolidation, merger, sale or
transfer unless, prior thereto, the Company and such issuer shall
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have executed and delivered to the Rights Agent a supplemental agreement so
providing. The Company shall not enter into any transaction of the kind referred
to in this Section 13 if at the time of such transaction there are any rights,
warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or divisions or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, reported at or prior to 4:00 P.M. New York City time or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, reported as of 4:00 P.M. New York City time, in either
case, as reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading or, if the Rights
are not listed or admitted to trading on any national securities
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exchange, the last quoted price reported at or prior to 4:00 P.M. New York City
time or, if not so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported as of 4:00 P.M. New York City time by
NASDAQ or such other system then in use or, if on any such date the Rights are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company. If on any such date no such
market maker is making a market in the Rights, the fair value of the Rights on
such date as determined in good faith by the Board of Directors of the Company
shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions which are integral multiples of one one-thousandth of a Preferred
Share). Fractions of Preferred Shares in integral multiples of one
one-thousandth of a Preferred Share may, at the election of the Company, be
evidenced by depositary receipts, pursuant to an appropriate agreement between
the Company and a depositary selected by it; provided that such agreement shall
provide that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Shares represented by such depositary receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one
one-thousandth of a Preferred Share, the Company shall pay to the registered
holders of Right Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of one Preferred Share. For the purposes of this Section 14(b), the
current market value of a Preferred Share shall be the
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closing price of a Preferred Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(c) The holder of a Right, by the acceptance of the Right,
expressly waives such holder's right to receive any fractional Rights or any
fractional shares upon exercise of a Right (except as provided above).
(d) The Rights Agent shall have no duty or obligation with
respect to this Section 14 or Section 24(d) unless and until it has received
reasonably specific instructions (and sufficient cash, if required) from the
Company with respect to its duties and obligations under such Sections.
Section 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in such holder's own behalf
and for such holder's own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, such holder's right to exercise the Rights evidenced by such Right
Certificate in the manner provided in such Right Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement, and
will be entitled to specific performance of the obligations under,
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and injunctive relief against actual or threatened violations of the obligations
of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent designated for such purpose, duly endorsed or
accompanied by a proper instrument of transfer;
(c) the Company and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificate or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree, judgment or ruling (whether
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interlocutory or final) issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, or any statute,
rule, regulation or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such obligation;
provided, however, that the Company must use its best efforts to have any such
order, decree, judgment or ruling lifted or otherwise overturned as soon as
possible.
Section 17. Right Certificate Holder Not Deemed a Shareholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder, and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the preparation,
delivery, administration, execution and amendment of this Agreement and the
exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or
expense incurred without
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gross negligence, bad faith or willful misconduct on the part of the Rights
Agent (as finally determined by a court of competent jurisdiction), for any
action taken, suffered or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement or the exercise or performance
of its duties hereunder, including, without limitation, the reasonable costs and
expenses of defending against any claim of liability in the premises. The
indemnity provided herein shall survive the termination of this Agreement and
the termination and the expiration of the Rights. The reasonable costs and
expenses incurred by the Rights Agent in enforcing this right of indemnification
shall be paid by the Company.
The Rights Agent shall be authorized to rely on, shall be
protected and shall incur no liability for, or in respect of any action taken,
suffered or omitted by it in connection with, its acceptance and administration
of this Agreement or the exercise or performance of its duties hereunder in
reliance upon any Right Certificate or certificate for the Preferred Shares or
Common Shares or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement, or other paper or document believed
by it to be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper person or persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent. Any Person into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any Person
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any Person succeeding to the
corporate trust powers of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any
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further act on the part of any of the parties hereto; provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and, in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and, in
all such cases, such Right Certificates shall have the full force provided in
the Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and, in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and, in all such cases, such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations, and only the duties and obligations
imposed by this Agreement (and no implied duties and obligations) upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:
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(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the oral or written opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent, and the Rights Agent shall incur no liability for or in respect of any
action taken, suffered or omitted by it in good faith and in accordance with
such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking, suffering or
omitting any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, any Vice Chairman, the Chief Executive Officer, the
President, any Vice President, the Treasurer or the Corporate Secretary of the
Company and delivered to the Rights Agent; and such certificate shall be full
authorization and protection to the Rights Agent, and the Rights Agent shall
incur no liability for or in respect of any action taken, suffered or omitted in
good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own gross negligence, bad faith or willful
misconduct (as finally determined by a court of competent jurisdiction).
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Rights Agent be liable for special, punitive, indirect, incidental or
consequential loss or damage of any kind whatsoever (including, but not limited
to, lost profits), even if the Rights Agent has been advised of the possibility
of such loss or damage.
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(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not have any liability for, nor
shall it be under any responsibility in respect of the validity of this
Agreement or the execution and delivery hereof (except the due execution and
delivery hereof by the Rights Agent) or in respect of the validity or execution
of any Right Certificate (except its countersignature thereof); nor shall it be
responsible for any breach by the Company of any covenant or condition contained
in this Agreement or in any Right Certificate; nor shall it be responsible for
any change in the exercisability of the Rights (including the Rights becoming
void pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the
Rights (including the manner, method or amount thereof) provided for in Section
3, 11, 13, 23 or 24 hereof, or the ascertaining of the existence of facts that
would require any such change or adjustment (except with respect to the exercise
of Rights evidenced by Right Certificates after actual notice that such change
or adjustment is required); nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
Preferred Shares to be issued pursuant to this Agreement or any Right
Certificate or as to whether any Preferred Shares will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
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(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, any Vice Chairman, the Chief Executive
Officer, the President, any Vice President, the Corporate Secretary or the
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and such advice or instructions, if
in writing, shall be full authorization and protection to the Rights Agent and
the Rights Agent shall incur no liability for or in respect of any action taken,
suffered or omitted by it in good faith in accordance with the written advice or
instructions of any such officer or for any delay in acting while waiting for
such advice or instructions.
(h) The Rights Agent and any shareholder, director, officer,
Affiliate or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other Person.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, absent gross negligence or willful
misconduct in the selection and continued employment thereof.
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(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds in the performance of any of its duties
hereunder or in the exercise of its rights if it believes that repayment of such
funds or adequate indemnification against such risk or liability is not assured
it; provided, however, that the Rights Agent shall first provide written notice
to the Company of its intention to act, or to fail to act, in reliance upon this
Section 20(j).
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(which holder shall, with such notice, submit such holder's Right Certificate
for inspection by the Company), then the registered holder of any Right
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a Person organized and doing business
under the laws of the United States or any state of the United States, in good
standing under such laws, subject to supervision or examination
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by federal or state authority and having at the time of its appointment as
Rights Agent a combined capital and surplus of at least $50 million or (b) an
Affiliate of a Person described in clause (a) of this sentence, in good standing
under the laws of the jurisdiction in which it is organized. After appointment,
and its written acceptance of such appointment, the successor Rights Agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property, records, files, data or other materials at the time held by
it hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares or
Preferred Shares, and mail a notice thereof in writing to the registered holders
of the Right Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by the Board of Directors of
the Company to reflect any adjustment or change in the Purchase Price and the
number or kind or class of shares or other securities or property purchasable
under the Right Certificates made in accordance with the provisions of this
Agreement.
Section 23. Redemption. (a) The Board of Directors of the
Company may, at its option, at any time prior to such time as any Person becomes
an Acquiring Person, redeem all,
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but not less than all, the then outstanding Rights at a redemption price of $.01
per Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"). The redemption of the Rights
by the Board of Directors of the Company may be made effective at such time, on
such basis and with such conditions as the Board of Directors of the Company, in
its sole discretion, may establish.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights pursuant to paragraph (a) of
this Section 23, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly notify the Rights Agent and give public notice of any such redemption;
provided, however, that the failure to give, or any defect in, any such notice
shall not affect the validity of such redemption. Within 10 days after such
action of the Board of Directors of the Company ordering the redemption of the
Rights, the Company shall mail a notice of redemption to all the holders of the
then outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Shares. Any notice that is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made. Neither the Company nor
any of its Affiliates or Associates may, except insofar as they may be acting in
a fiduciary capacity or in connection with a trust or other entity established
for or pursuant to the terms of an employee or director plan, redeem, acquire or
purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in
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Section 24 hereof, and other than in connection with the purchase of Common
Shares prior to the Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the
Company may, at its option, at any time after any Person becomes an Acquiring
Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the provisions
of Section 11(a)(ii) hereof) for Common Shares at an exchange ratio of one
Common Share per Right, appropriately adjusted to reflect any adjustment in the
number of Rights pursuant to Section 11(i) (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors of the Company shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan, employee stock or deferral plan or
director compensation or deferral plan of the Company or any such Subsidiary, or
any trust or other entity organized, appointed, established or holding Common
Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Common Shares equal to
the number of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such
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Rights at their last addresses as they appear upon the registry books of the
Rights Agent. Any notice that is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the Common Shares for
Rights will be effected, and, in the event of any partial exchange, the number
of Rights which will be exchanged. Any partial exchange shall be effected pro
rata based on the number of Rights (other than Rights which have become void
pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of
Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exchange of the Rights. In the event the Company
shall, after good faith effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exchange
of a Right, a number of Preferred Shares (or, if sufficient Preferred Shares are
not available, of equivalent preferred shares, as defined in Section 11(b)
above) or fraction thereof such that the current per share market price of one
Preferred Share (or equivalent preferred share) multiplied by such number or
fraction is equal to the current per share market price of one Common Share as
of the date of issuance of such Preferred Shares (or equivalent preferred share)
or fraction thereof.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares, Preferred Shares or equivalent preferred shares. In lieu of such
fractional Common Shares, Preferred Shares or equivalent preferred shares, the
Company shall pay to the registered holders of the Right Certificates
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with regard to which such fractional Common Shares, Preferred Shares or
equivalent preferred shares would otherwise be issuable an amount in cash equal
to the same fraction of the current market value of a whole Common Share,
Preferred Share or equivalent preferred share. For the purposes of this
paragraph (d), the current market value of a whole Common Share, Preferred Share
or equivalent preferred share shall be the closing price of a Common Share,
Preferred Share or equivalent preferred share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case the Company
shall, at any time after the Distribution Date, propose (i) to pay any dividend
payable in stock of any class to the holders of the Preferred Shares or to make
any other distribution to the holders of the Preferred Shares (other than a
regular quarterly cash dividend), (ii) to offer to the holders of the Preferred
Shares rights or warrants to subscribe for or to purchase any additional
Preferred Shares or shares of stock of any class or any other securities, rights
or options, (iii) to effect any reclassification of the Preferred Shares (other
than a reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of 50% or more
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to, any other Person or to divide into two or more Persons, (v) to effect
the liquidation, dissolution or winding up of the Company, or (vi) to declare or
pay any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company
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shall give to the Rights Agent and each holder of a Right Certificate, in
accordance with Section 26 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, or distribution
of rights or warrants, or the date on which such reclassification,
consolidation, merger, division, sale, transfer, liquidation, dissolution, or
winding up is to take place and the date of participation therein by the holders
of the Common Shares and/or Preferred Shares, if any such date is to be fixed,
and such notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least 10 days prior to the record date for determining
holders of the Preferred Shares for purposes of such action, and, in the case of
any such other action, at least 10 days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of the
Common Shares and/or Preferred Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof
shall occur, then the Company shall, as soon as practicable thereafter, give to
the Rights Agent and each holder of a Right Certificate, in accordance with
Section 26 hereof, a notice of the occurrence of such event, which notice shall
describe such event and the consequences of such event to holders of Rights
under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
The PNC Financial Services Group, Inc.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Attention: Corporate Secretary
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Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
The Chase Manhattan Bank
c/o CMSS
111 Founders Plaza
11th Floor
East Hartford, CT 06108
Attention: Relationship Manager
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from
time to time supplement or amend this Agreement without the approval of any
holders of Right Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein that may be defective or inconsistent
with any other provisions herein, or to make any other provisions with respect
to the Rights which the Company may deem necessary or desirable, any such
supplement or amendment to be evidenced by a writing signed by the Company and
the Rights Agent; provided, however, that, from and after such time as any
Person becomes an Acquiring Person, this Agreement shall not be amended in any
manner which would adversely affect the interests of the Rights Agent or the
holders of Rights.
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Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the Commonwealth of Pennsylvania and for all purposes shall be governed
by and construed in accordance with the laws of such state applicable to
contracts to be made and performed entirely within such state; provided,
however, that all provisions regarding the rights, duties, and obligations of
the Rights Agent shall be governed by and construed in accordance with the laws
of the State of New York applicable to contracts made and to be performed
entirely within such State.
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Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day and year first
above written.
Attest: THE PNC FINANCIAL SERVICES
GROUP, INC.
By /s/ Thomas R. Moore By /s/ R. Haunschild
------------------------------- ---------------------------
Name: Thomas R. Moore Name: R. Haunschild
Title: Corporate Secretary Title: Senior Vice President
and Chief Financial
Officer
Attest: THE CHASE MANHATTAN BANK
By /s/ Theodore Driggin By /s/ Eric R. Leason
------------------------------- ---------------------------
Name: Theodore Driggin Name: Eric R. Leason
Title: Financial Director Title: Vice President
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<PAGE> 53
Exhibit A
FORM
of
RESOLUTION
establishing the
SERIES G JUNIOR PARTICIPATING PREFERRED STOCK
of
THE PNC FINANCIAL SERVICES GROUP, INC.
(Pursuant to Section 1522 of the
Pennsylvania Business Corporation Law - to
be attached to "Statement with Respect to Shares"
or incorporated into amended and restated
Articles of Incorporation of the Corporation)
---------------------
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Amended and
Restated Articles of Incorporation of the Corporation and Section 1522 of the
Pennsylvania Business Corporation Law, the Board of Directors hereby creates a
series of Preferred Stock, par value $1.00 per share, of the Corporation (the
"Preferred Stock"), and hereby states the designation and number of shares, and
fixes the relative rights, preferences, and limitations thereof as follows:
SERIES G JUNIOR PARTICIPATING PREFERRED STOCK:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series G Junior Participating Preferred Stock" (the
"Series G Preferred Stock") and the number of shares constituting the Series G
Preferred Stock initially shall be 450,000. Such number of shares may be
increased or decreased by resolution of the Board of Directors; provided, that
no decrease shall reduce the number of shares of Series G Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series G Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series G Preferred Stock with respect to dividends, the
holders of shares of Series G Preferred Stock, in preference to the
holders of Common Stock, par value $5.00 per share (the "Common
Stock"), of the
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Corporation, and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series G
Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $0.10 or (b) subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series G Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series G Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series G Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $0.10 per share on the Series G Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series G Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series G Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series G Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a
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<PAGE> 55
share-by-share basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of
holders of shares of Series G Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the
payment thereof.
Section 3. Voting Rights. The holders of shares of Series G
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series G Preferred Stock shall entitle the holder
thereof to 1,000 votes on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series G Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Statement with Respect to Shares pursuant to Section 1522 of the
Business Corporation Law or amendment to the Corporation's Amended and
Restated Articles of Incorporation creating a series of Preferred Stock
or any similar stock, or by law, the holders of shares of Series G
Preferred Stock and the holders of shares of Common Stock and any other
capital stock of the Corporation having general voting rights shall
vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series G Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series G Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series G Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series G Preferred Stock;
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<PAGE> 56
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series G Preferred Stock, except
dividends paid ratably on the Series G Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series G Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series G
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series G Preferred Stock, or any
shares of stock ranking on a parity with the Series G
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Except as otherwise provided by
action of the Board of Directors, any shares of Series G Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
(other than by conversion) shall not be retired or cancelled but shall become
authorized but unissued shares of Preferred Stock and may be reissued as part of
the same or a new series of Preferred Stock subject to the conditions and
restrictions on issuance set forth herein, in the Amended and Restated Articles
of Incorporation of the Corporation, or in any other Statement with Respect to
Shares pursuant to Section 1522 of the Business Corporation Law creating a
series of Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series G
Preferred Stock unless, prior thereto, the holders of shares of Series G
Preferred Stock shall have received $1.00 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series G
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to
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<PAGE> 57
1,000 times the aggregate amount to be distributed per share to holders of
shares of Common Stock, or (2) to the holders of shares of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series G Preferred Stock, except distributions made ratably on the
Series G Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series G Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination, division or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then in any such
case each share of Series G Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series G Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series G Preferred
Stock shall not be redeemable.
Section 9. Rank. The Series G Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. If any shares of Series G Preferred
Stock are then outstanding, the Amended and Restated Articles of Incorporation
of the Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series G
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Series G
Preferred Stock, voting together as a single class.
A-5
<PAGE> 58
Exhibit B
Form of Right Certificate
Certificate No. R- Rights
-----
NOT EXERCISABLE AFTER May 15, 2010 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT
$0.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE
AGREEMENT.
Right Certificate
THE PNC FINANCIAL SERVICES GROUP, INC.
This certifies that, ______________ or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Agreement, dated as of May 15, 2000 (the "Agreement"), between The PNC
Financial Services Group, Inc., a Pennsylvania corporation (the "Company"), and
The Chase Manhattan Bank (the "Rights Agent"), to purchase from the Company at
any time after the Distribution Date (as such term is defined in the Agreement)
and prior to 5:00 P.M., New York time, on May 15, 2010 office of the Rights
Agent designated for such purpose, or at the office of its successor as Rights
Agent, one one-thousandth of a fully paid non-assessable share of Series G
Junior Participating Preferred Stock, par value $1.00 per share, of the Company
(the "Preferred Shares"), at a purchase price of $180 per one one-thousandth of
a Preferred Share (the "Purchase Price"), upon presentation and surrender of
this Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of one
one-thousandths of a Preferred Share which may be purchased upon exercise
hereof) set forth above, and the Purchase Price set forth above, are the number
and Purchase Price as of May 15, 2000, based on the Preferred Shares as
constituted at such date. As provided in the Agreement, the Purchase Price and
the number of one one-thousandths of a Preferred Share which may be purchased
upon the exercise of the Rights evidenced by this Right Certificate are subject
to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Agreement reference is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities hereunder of
the Rights Agent, the Company and the holders of the Right Certificates. Copies
of the Agreement are on file at the principal executive offices of the Company
and the offices of the Rights Agent.
This Right Certificate, with or without other Right
Certificates, upon surrender at the office of the Rights Agent designated for
such purpose, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Preferred Shares as the Rights evidenced by
the Right
B-1
<PAGE> 59
Certificate or Right Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder shall
be entitled to receive upon surrender hereof another Right Certificate or Right
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Agreement, the Rights
evidenced by this Right Certificate (i) may be redeemed by the Company at a
redemption price of $0.01 per Right or (ii) may be exchanged in whole or in part
for Preferred Shares, equivalent preferred shares or shares of the Company's
Common Stock, par value $5.00 per share.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-thousandth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts), but, in lieu
thereof, a cash payment will be made, as provided in the Agreement.
No holder of this Right Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Agreement
or herein be construed to confer upon the holder hereof, as such, any of the
rights of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting shareholders (except as provided in the
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
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<PAGE> 60
WITNESS the facsimile signature of the duly authorized
officers of the Company and its corporate seal. Dated as of __________, ____.
THE PNC FINANCIAL SERVICES GROUP, INC.
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
Countersigned:
THE CHASE MANHATTAN BANK
By_______________________________
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<PAGE> 61
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ________________________________ hereby
sells, assigns and transfers unto ______________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ______________________________
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated: ___________________
________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Agreement).
________________________________
Signature
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<PAGE> 62
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: THE PNC FINANCIAL SERVICES GROUP, INC.
The undersigned hereby irrevocably elects to exercise ________
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ___________________
________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
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<PAGE> 63
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Agreement).
________________________________
Signature
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Agreement) and such Assignment
or Election to Purchase will not be honored.
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<PAGE> 64
Exhibit C
SUMMARY OF RIGHTS
TO PURCHASE SHARES
Introduction.
The Board of Directors of The PNC Financial Services Group, Inc.
adopted a Shareholder Rights Plan effective May 15, 2000 providing for the
issuance of share purchase rights (the "Rights") in order to protect
shareholders from coercive or otherwise unfair tactics to acquire control of the
Company. In general terms, the Rights Plan works by imposing a significant
penalty upon any person or group that acquires 10% or more of our outstanding
common stock without the approval of our Board. The Rights Plan would not
interfere with any merger or other business combination approved by our Board.
You do not need to take any action to receive the Rights, which will
attach to each share of our common stock automatically upon issuance pursuant to
the terms of the Rights Agreement. Nor do you need to maintain a copy of this
"Summary of Rights" for your records. We will keep all shareholders informed of
any subsequent developments relevant to the Rights Plan.
We provide the following summary description for those interested in
the basic features of the Rights Plan. This description is only a summary, is
not complete, and should be read together with the entire Rights Agreement,
which has been filed with the Securities and Exchange Commission as an exhibit
to the Company's quarterly report on Form 10-Q for the period ended March 31,
2000. A copy of the Rights Agreement is also available free of charge from our
Company by calling (412) 762-1553.
The Rights. Our Board authorized the issuance of a Right with respect
to each share of common stock outstanding on May 25, 2000. The Rights will
initially trade with, and will be inseparable from, the common stock. The Rights
are evidenced only by the certificates that represent shares of our common
stock.
New Rights automatically accompany any new shares of common stock we
issue after May 25, 2000 until the Distribution Date described below. For
example, holders of our convertible preferred stock, convertible debentures and
stock options will receive the Rights when they convert or exercise.
Exercisability. The Rights are not exercisable immediately, and prior
to exercise they do not give their holders any dividend, voting, or liquidation
rights. The Rights only become exercisable:
o 10 days after the public announcement that a person or group has
become an "Acquiring Person" by obtaining beneficial ownership of
10% or more of our outstanding common stock, or, if earlier,
o 10 business days (or a later date determined by our Board before
any person or group becomes an Acquiring Person) after a person or
group begins a tender or exchange
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<PAGE> 65
offer which, if completed, would result in that person or group
becoming an Acquiring Person.
We refer to the date when the Rights become exercisable as the
"Distribution Date." Until that date, the common stock certificates will also
evidence the Rights, and any transfer of shares of our common stock will also
constitute a transfer of Rights. After that date, the Rights would separate from
the common stock and be evidenced by Rights certificates that we would mail to
all eligible holders of common stock. Any Rights held by an Acquiring Person
would be void and could not be exercised.
Consequences of a Person or Group Becoming an Acquiring Person.
Once a person or group becomes an Acquiring Person, the Rights have
certain "Flip-In" and "Flip-Over" features:
o Flip-In. If a person or group becomes an Acquiring Person, all
holders of Rights except the Acquiring Person may, for $180 per
Right, purchase shares of our common stock (or equivalent
preferred stock) with a market value of $360, based on the market
price of the common stock prior to the acquisition.
o Flip-Over. If our Company is later acquired in a merger or similar
transaction after the Distribution Date, all holders of Rights
except the Acquiring Person may, for $180 per Right, purchase
shares of the acquiring corporation with a market value of $360,
based on the market price of the acquiring corporation's stock
prior to such merger.
Exercise Price and Other Rights Features. Once the Rights become
exercisable, the Rights holder can purchase one one-thousandth of a share of our
Series G Junior Participating Preferred Stock ("Preferred Shares") from our
Company for $180 for each Right held. This portion of a Preferred Share has
approximately the same dividend, voting and liquidation rights as one share of
our common stock and should have approximately the same value.
Redemption. Our Board may redeem the Rights for $0.01 per Right at any
time before any person or group becomes an Acquiring Person. If our Board
redeems any Rights, it must redeem all of the Rights. Once the Rights are
redeemed, the only right of the holders of Rights will be to receive the
redemption price of $0.01 per Right. The redemption price will be adjusted if we
have a stock split or stock dividends relating to our common stock.
Exchange. After a person or group becomes an Acquiring Person, but
before an Acquiring Person owns 50% or more of our outstanding common stock, our
Board may extinguish the Rights by exchanging one share of common stock (or
equivalent preferred stock) for each Right, other than Rights held by the
Acquiring Person.
Anti-Dilution Provisions. Our Board may adjust the purchase price of
the Preferred Shares, the number of Preferred Shares issuable and the number of
outstanding Rights to prevent dilution that may occur from a stock dividend, a
stock split, or a reclassification of the Preferred
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<PAGE> 66
Shares or common stock. Adjustments to the purchase price of less than 1% will
be deferred until the earlier of three years after the transaction requiring the
adjustment or the date the right to exercise the Rights expires.
Amendments. The terms of the Rights Agreement may be amended by our
Board without the consent of the holders of the Rights. After a person or group
becomes an Acquiring Person, our Board may not amend the Rights Agreement in a
way that adversely affects the holders of the Rights.
Expiration. The Rights will expire on May 25, 2010.
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<PAGE> 1
EXHIBIT 10.5
THE PNC FINANCIAL SERVICES GROUP, INC.
1997 LONG-TERM INCENTIVE AWARD PLAN
(As amended as of March 27, 2000)
1. DEFINITIONS
In this Plan, except where the context otherwise indicates, the
following definitions apply:
1.1. "Agreement" means a written agreement implementing a grant of an
Option, Right or Performance Unit or an award of Incentive Shares.
1.2. "Board" means the Board of Directors of the Corporation.
1.3. "Code" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
1.4. "Committee" means the committee appointed by the Board to
administer the Plan, all of the members of which shall be "non-employee
directors" as defined in Rule 16b-3 (b)(3)(i) under the Exchange Act or any
similar successor rule and "outside directors" as defined in Treas. Reg. Section
1.162-27(e)(3) or any similar successor regulation. Unless otherwise determined
by the Board, the Personnel and Compensation Committee of the Board shall be the
Committee.
1.5. "Common Stock" means the common stock, par value $5.00 per
share, of the Corporation.
1.6. "Corporation" means The PNC Financial Services Group, Inc.
1.7. "Date of Exercise" means the date on which the Corporation
receives notice of the exercise of an Option, Right or Performance Unit in
accordance with the terms of Article 9.
1.8. "Date of Grant" means the date on which an Option, Right or
Performance Unit is granted or Incentive Shares are awarded by the Committee or
such later date as may be specified by the Committee in authorizing the grant or
award.
1.9. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
1.10. "Fair Market Value" of a Share means the amount equal to the
fair market value of a Share as determined pursuant to a reasonable method
adopted by the Committee in good faith for such purpose.
1.11. "Grantee" means a Senior Executive to whom Incentive Shares
have been awarded pursuant to Article 12.
1.12. "Incentive Shares" means Shares awarded pursuant to the
provisions of Article 12.
1.13. "Incentive Stock Option" means an Option granted under the Plan
that qualifies as an incentive stock option under Section 422 of the Code and
that the Corporation designates as such in the Agreement granting the Option.
1.14. "Nonstatutory Stock Option" means an Option granted under the
Plan that is not an Incentive Stock Option.
<PAGE> 2
1.15. "Option" means an option to purchase Shares granted under the
Plan in accordance with the terms of Article 6.
1.16. "Option Period" means the period during which an Option may be
exercised.
1.17. "Option Price" means the price per Share at which an Option may
be exercised. The Option Price shall be determined by the Committee, but unless
otherwise determined by the Committee pursuant to Section 3.7, in no event shall
the Option Price be less than the Fair Market Value per Share determined as of
the Date of Grant.
1.18. "Optionee" means a Senior Executive to whom an Option, Right or
Performance Unit has been granted.
1.19. "Performance Period" means the period or periods during which
each performance criterion of a Performance Unit will be measured against the
performance standards established by the Committee and specified in the
Agreement relating thereto.
1.20. "Performance Unit" means a performance unit granted under the
Plan in accordance with the terms of Article 8.
1.21. "Performance Unit Exercise Period" means the period during
which a Performance Unit may be exercised.
1.22. "Plan" means The PNC Financial Services Group, Inc. 1992
Long-Term Incentive Award Plan, as amended, restated, and renamed The PNC
Financial Services Group, Inc. 1997 Long-Term Incentive Award Plan.
1.23. "Related Option" means an Option granted in connection with a
specified Right or Performance Unit.
1.24. "Related Performance Unit" means a Performance Unit granted in
connection with a specified Option.
1.25. "Related Right" means a Right granted in connection with a
specified Option.
1.26. "Right" means a stock appreciation right granted under the Plan
in accordance with the terms of Article 7.
1.27. "Right Period" means the period during which a Right may be
exercised.
1.28. "Senior Executive" means any officer or key employee of the
Corporation or a Subsidiary who is designated as a "Senior Executive" by the
Committee.
1.29. "Share" means a share of authorized but unissued Common Stock
or a reacquired share of Common Stock.
1.30. "Subsidiary" means a corporation at least 80% of the total
combined voting power of all classes of stock of which is owned by the
Corporation, either directly or through one or more other Subsidiaries, except
that with respect to Nonstatutory Stock Options, Rights, Performance Units and
Incentive Shares granted or awarded after March 27, 2000, such term shall mean a
corporation, bank, partnership, business trust, limited liability company or
other form of business organization which is a consolidated subsidiary of the
Corporation under generally accepted accounting principles.
<PAGE> 3
2. PURPOSE
The Plan is intended to assist in attracting, retaining, and
motivating Senior Executives of outstanding ability and to promote the
identification of their interests with those of the shareholders of the
Corporation.
3. ADMINISTRATION
The Plan shall be administered by the Committee or by the Chairman of
the Committee in the exercise of such authority as the Committee may delegate to
him or her from time to time, provided that Section 162(m)(4)(C) of the Code
does not require action by the Committee as a whole. In addition to any other
powers granted to the Committee, it shall have the following powers, subject to
the express provisions of the Plan:
3.1. to determine in its discretion the Senior Executives to whom
Options, Performance Units or Rights shall be granted and to whom Incentive
Shares shall be awarded, the number of Shares to be subject to each Option,
Right, Performance Unit grant or Incentive Share award, and the terms upon which
Options, Rights or Performance Units may be acquired, exercised, or forfeited
and the terms and conditions of Incentive Share awards;
3.2. to determine all other terms and provisions of each Agreement,
which need not be identical;
3.3. without limiting the generality of the foregoing, to provide in
its discretion in an Agreement:
(i) for an agreement by the Optionee or Grantee to render
services to the Corporation or a Subsidiary upon such terms and
conditions as may be specified in the Agreement, provided that the
Committee shall not have the power under the Plan to commit the
Corporation or any Subsidiary to employ or otherwise retain any
Optionee or Grantee;
(ii) for restrictions on the transfer, sale or other
disposition of Shares issued to the Optionee upon the exercise of an
Option, Right or Performance Unit, or for conditions with respect to
the issuance of Incentive Shares;
(iii) for an agreement by the Optionee or Grantee to resell to
the Corporation, under specified conditions, Shares issued upon the
exercise of an Option, Right or Performance Unit or awarded as
Incentive Shares;
(iv) for the payment of the Option Price upon the exercise of
an Option otherwise than in cash, including without limitation by
delivery of Shares valued at Fair Market Value on the Date of Exercise
of the Option or a combination of cash and Shares; by means of any
attestation procedure approved or ratified by the Committee; or by
delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the
Corporation the amount of sale or loan proceeds to pay the exercise
price;
(v) for the deferral of receipt of amounts that otherwise
would be distributed upon exercise of a Performance Unit, the terms and
conditions of any such deferral and any interest or dividend equivalent
or other payment that shall accrue with respect to deferred
distributions, subject to the provisions of Article 11;
<PAGE> 4
(vi) for the forfeiture by any Optionee or Grantee of any
Option, Right, Performance Unit, or Incentive Shares upon such terms
and conditions as the Committee may deem advisable from time to time;
and
(vii) for the effect of a "change in control," as defined in
the Agreement, of the Corporation on the rights of an Optionee or
Grantee with respect to any Options, Rights, Performance Units or
Incentive Shares.
3.4. to construe and interpret the Agreements and the Plan;
3.5. to require, whether or not provided for in the pertinent
Agreement, of any person exercising an Option, Right or Performance Unit or
acquiring Incentive Shares, at the time of such exercise or acquisition, the
making of any representations or agreements which the Committee may deem
necessary or advisable in order to comply with applicable securities, tax, or
other laws;
3.6. to provide for satisfaction of an Optionee's or Grantee's tax
liabilities arising in connection with the Plan through, without limitation,
retention by the Corporation of shares of Common Stock otherwise issuable on the
exercise of a Nonstatutory Stock Option, Right or Performance Unit or pursuant
to an award of Incentive Shares or through delivery of Common Stock to the
Corporation by the Optionee or Grantee under such terms and conditions as the
Committee deems appropriate, including but not limited to any attestation
procedure approved or ratified by the Committee;
3.7. to provide with respect to any Option, including those outstanding
on February 20, 1997, that, if the Optionee, while a Senior Executive, exercises
the Option or satisfies any related tax withholding obligation in whole or in
part by surrendering already-owned shares of Common Stock, the Optionee will,
subject to this Section 3.7 and such other terms and conditions as may be
imposed by the Committee, receive an additional option ("Reload Option"). The
Reload Option will be to purchase, at Fair Market Value as of the date the
original Option was exercised, a number of shares of Common Stock equal to the
number of whole shares surrendered by the Optionee to exercise the original
Option or to satisfy any related tax withholding obligation. The Reload Option
will be exercisable only between its Date of Grant and the date of the
expiration of the original Option. A Reload Option shall be subject to such
additional terms and conditions as the Committee shall approve, which terms may
provide that the Committee may cancel the Optionee's right to receive the Reload
Option and that the Reload Option will be granted only if the Committee has not
canceled such right prior to the exercise of the original Option.
3.8. to make all other determinations and take all other actions
necessary or advisable for the administration of the Plan; and
3.9. to delegate to officers or managers of the Corporation or any
Subsidiary the authority to perform administrative functions under the Plan,
provided that Section 162(m)(4)(C) of the Code does not require action by the
Committee as a whole with respect to such function.
Any determinations or actions made or taken by the Committee pursuant
to this Article shall be binding and final.
4. ELIGIBILITY
Options, Rights, Performance Units and Incentive Shares may be granted
or awarded only to Senior Executives; provided, that the members of the
Committee are not eligible to receive Options, Rights, Performance Units or
Incentive Shares.
<PAGE> 5
5. STOCK SUBJECT TO THE PLAN
5.1. The maximum number of Shares that may be issued or as to which
grants or awards may be made under the Plan (excluding Shares issued pursuant to
grants or awards made prior to February 20, 1997) shall not exceed the sum of
(i) 10,141,853 Shares plus (ii) as of January 1 of each calendar year commencing
with 1998 an additional number of Shares (which shall be cumulative from year to
year) equal to one and one-half percent (1.5%) of the total issued shares of
Common Stock (including reacquired Shares) at the end of the immediately
preceding calendar year. Notwithstanding the foregoing, in no event shall more
than three percent (3%) of the total issued shares of Common Stock (including
reacquired Shares) at the end of the immediately preceding calendar year be
cumulatively available for grants and awards made in any calendar year. The
maximum number of Shares as to which grants or awards may be made under the Plan
to one Optionee or Grantee with respect to one calendar year shall be 250,000
Shares. The limitation provided in the first sentence of this Section 5.1 is
hereinafter called the "Cumulative Limitation"; the limitation provided in the
second sentence is hereinafter called the "Annual Limitation"; and the
limitation provided in the third sentence is hereinafter called the "Individual
Limitation."
5.2. If an Option, Right or Performance Unit expires or terminates for
any reason (other than termination by virtue of the exercise of a Related
Option, Related Right or Related Performance Unit, as the case may be) without
having been fully exercised, or if Shares covered by an Incentive Share award
are not issued or are forfeited Shares which had been subject to the Agreement
relating thereto shall for purposes of the Cumulative Limitation (and if granted
or awarded in the same calendar year, then also for purposes of the Annual
Limitation) again become available for the grant of other Options, Rights and
Performance Units or for the award of additional Incentive Shares.
5.3. The Shares issued upon the exercise of a Right or Performance Unit
(or if cash is payable in connection with such exercise, that number of Shares
having a Fair Market Value equal to the cash payable upon such exercise), shall
be charged against the number of Shares issuable under the Plan and shall not
become available for the grant of other Options, Rights and Performance Units or
for the award of Incentive Shares. If the Right referred to in the preceding
sentence is a Related Right, or if the Performance Unit referred to in the
preceding sentence is a Related Performance Unit, the Shares subject to the
Related Option, to the extent not charged against the number of Shares subject
to the Plan in accordance with this Section 5.3, shall for purposes of the
Cumulative Limitation (and if granted in the same calendar year, then also for
purposes of the Annual Limitation) again become available for the grant of other
Options, Rights or Performance Units or for the award of additional Incentive
Shares.
6. OPTIONS
6.1. The Committee is hereby authorized to grant Nonstatutory Stock
Options and Incentive Stock Options to Senior Executives, provided that the
number of Options granted to a Senior Executive during a calendar year shall not
exceed the Individual Limitation when aggregated with other grants or awards
made to that Senior Executive during that calendar year.
6.2. All Agreements granting Options shall contain a statement that the
Option is intended to be either (i) a Nonstatutory Stock Option or (ii) an
Incentive Stock Option.
6.3. The Option Period shall be determined by the Committee and
specifically set forth in the Agreement, provided that an Option shall not be
exercisable until the expiration of at least six months from the Date of Grant
(except that this limitation need not apply in the event of the death or
disability of the Optionee or as otherwise permitted by the Agreement
<PAGE> 6
upon a change in control of the Corporation) or after ten years from the Date of
Grant.
6.4. All Incentive Stock Options granted under the Plan shall comply
with the provisions of the Code governing incentive stock options and with all
other applicable rules and regulations.
6.5. All other terms of Options granted under the Plan shall be
determined by the Committee in its sole discretion.
7. RIGHTS
7.1. The Committee is hereby authorized to grant Rights to Senior
Executives, provided that the number of Rights granted to a Senior Executive
during a calendar year shall not exceed the Individual Limitation when
aggregated with other grants or awards made to that Senior Executive during that
calendar year.
7.2. Right may be granted under the Plan:
(i) in connection with, and at the same time as, the grant
of an Option to a Senior Executive;
(ii) by amendment of an outstanding Nonstatutory Stock Option
granted under the Plan to a Senior Executive; or
(iii) independently of any Option granted under the Plan.
A Right granted under clause (i) or (ii) of the preceding sentence is a
Related Right. A Related Right may, in the Committee's discretion, apply to all
or a portion of the Shares subject to the Related Option.
7.3. A Right may be exercised in whole or in part as provided in the
Agreement, and, subject to the provisions of the Agreement, entitles its
Optionee to receive, without any payment to the Corporation (other than required
tax withholding amounts), either cash or that number of Shares (equal to the
highest whole number of Shares), or a combination thereof, in an amount or
having a Fair Market Value determined as of the Date of Exercise not to exceed
the number of Shares subject to the portion of the Right exercised multiplied by
an amount equal to the excess of the Fair Market Value per Share on the Date of
Exercise of the Right over either (i) the Fair Market Value per Share on the
Date of Grant of the Right or the base price determined by the Committee
pursuant to Section 3.7 if the Right is not a Related Right, or (ii) the Option
Price as provided in the Related Option if the Right is a Related Right.
7.4. The Right Period shall be determined by the Committee and
specifically set forth in the Agreement, provided, however:
(i) a Right may not be exercised until the expiration of at
least six months from the Date of Grant (except that this limitation
need not apply in the event of the death or disability of the Optionee
or as otherwise permitted by the Agreement upon a change in control of
the Corporation);
(ii) a Right will expire no later than the earlier of (A) ten
years from the Date of Grant, or (B) in the case of a Related Right,
the expiration of the Related Option; and
(iii) a Right that is a Related Right may be exercised only
when and to the extent the Related Option is exercisable.
<PAGE> 7
7.5. The exercise, in whole or in part, of a Related Right shall cause
a reduction in the number of Shares subject to the Related Option equal to the
number of Shares with respect to which the Related Right is exercised.
Similarly, the exercise, in whole or in part, of a Related Option shall cause a
reduction in the number of Shares subject to the Related Right equal to the
number of Shares with respect to which the Related Option is exercised.
8. PERFORMANCE UNITS
8.1. The Committee is hereby authorized to grant Performance Units to
Senior Executives, provided that the number of Performance Units granted to a
Senior Executive during a calendar year shall not exceed the Individual
Limitation when aggregated with other grants or awards made to that Senior
Executive during that calendar year.
8.2. Performance Units may be granted under the Plan:
(i) in connection with, and at the same time as, the grant of a
Nonstatutory Stock Option to a Senior Executive;
(ii) by amendment of an outstanding Nonstatutory Stock Option granted
under the Plan to a Senior Executive; or
(iii) independently of any Option granted under the Plan.
A Performance Unit granted under Subparagraph (i) or (ii) of the
preceding sentence is a Related Performance Unit. A Related Performance Unit
may, in the Committee's discretion, apply to all or a portion of the Shares
subject to the Related Option. A Performance Unit may not be granted in
connection with, or by amendment to, an Incentive Stock Option.
8.3. A Performance Unit may be exercised in whole or in part as
provided in the Agreement, and, subject to the provisions of the Agreement,
entitles its Optionee to receive, without any payment to the Corporation (other
than required tax withholding amounts), cash, Shares or a combination of cash
and Shares, based upon the degree to which performance standards established by
the Committee and specified in the Agreement have been achieved. During the
Performance Period, such performance standards may be particular to a Senior
Executive or the department, branch, Subsidiary or other unit in which he works,
or may be based on the performance of the Corporation generally. The performance
standards may be based on earnings or earnings growth; return on assets, equity
or investment; regulatory compliance; satisfactory internal or external audits;
improvement of financial ratings; reduction of nonperforming loans; achievement
of balance sheet or income statement objectives; or any other objective goals
established by the Committee, and may be absolute in their terms or measured
against or in relationship to other companies comparably, similarly or otherwise
situated.
8.4. The Performance Unit Exercise Period shall be determined by the
Committee and specifically set forth in the Agreement, provided, however:
(i) A Performance Unit may not be exercised until the expiration of at
least six months from the Date of Grant (except that this limitation need
not apply in the event of the death or disability of the Optionee or as
otherwise permitted by an Agreement upon a change in control of the
Corporation); and
(ii) a Performance Unit will expire no later than the earlier of (A)
ten years from the Date of Grant, or (B) in the case of a Related
Performance Unit, the expiration of the Related Option.
8.5. Each Agreement granting Performance Units shall specify the number
of Performance Units granted; provided, that the maximum number of Related
<PAGE> 8
Performance Units may not exceed the maximum number of Shares subject to the
Related Option and the number of Performance Units may not exceed the maximum
number of Shares subject to the Related Option and the maximum value of a
Related Performance Unit may not exceed the Fair Market Value of a Share subject
to the Related Option.
8.6. The exercise, in whole or in part, of Related Performance Units shall
cause a reduction in the number of Shares subject to the Related Option and the
number of Performance Units in accordance with the terms of the Agreement.
Similarly, the exercise, in whole or in part, of a Related Option shall cause a
reduction in the number of Related Performance Units equal to the number of
Shares with respect to which the Related Option is exercised.
9. EXERCISE; PAYMENT OF WITHHOLDING TAXES
An Option, Right or Performance Unit may, subject to the provisions of the
Agreement under which it was granted, be exercised in whole or in part by the
delivery to the Corporation of written notice of the exercise, in such form as
the Committee may prescribe, accompanied, in the case of an Option, by full
payment for the Shares with respect to which the Option is exercised, and in the
case of an Option, Right or Performance Unit, full payment for related
withholding taxes, if any. The receipt of Incentive Shares shall be subject to
full payment by the Grantee of any withholding taxes then required to be paid.
10. NONTRANSFERABILITY
Except as the Committee may expressly provide otherwise in or with respect
to an Agreement, including any Agreement in effect as of February 20, 1997,
Options, Rights and Performance Units granted under the Plan shall not be
transferable otherwise than by will or the laws of descent and distribution, and
an Option, Right or Performance Unit may be exercised during his or her lifetime
only by the Optionee or, in the event of his or her legal disability, by his or
her legal representative. A Related Right or Related Performance Unit is
transferable only when the Related Option is transferable and only with the
Related Option and under the same conditions. An Optionee may also designate a
beneficiary to exercise his or her Options after the Optionee's death, provided
that the Committee has first expressly approved the procedures and forms
necessary to effect such a designation.
11. DEFERRAL OF AWARDS
If an Optionee so elects in accordance with the terms of an Agreement, the
Optionee may defer any or all of the amount otherwise payable on the exercise of
Performance Units in accordance with the provisions of a deferred compensation
plan maintained by the Corporation or a Subsidiary, provided:
(i) that the Optionee makes such election by delivering to the
Corporation written notice of such election, in such form as the Committee
may from time to time prescribe, prior to the beginning of the Performance
Period;
(ii) that such election shall be irrevocable until at least six months
after termination of the Optionee's employment; and
(iii) that such deferred payment shall be made in accordance with the
provisions of such deferred compensation plan.
12. INCENTIVE SHARE AWARDS
The Committee may, in its sole discretion, grant Incentive Share awards to
Senior Executives, provided that the number of Incentive Share awards granted to
a Senior Executive during a calendar year shall not exceed the Individual
Limitation when aggregated with other grants or awards made to that
<PAGE> 9
Senior Executive during that calendar year. Incentive Share awards shall entitle
a Senior Executive to receive Shares, to be issued at such times, subject to the
achievement of such performance standards or other goals, in recognition of such
performance or other achievements or for such other purposes, and on such other
terms and conditions, if any, as the Committee shall deem appropriate.
Performance standards may be based on earnings or earnings growth; return on
assets, equity or investment; regulatory compliance; satisfactory internal or
external audits; improvement of financial ratings; reduction of nonperforming
loans; achievement of balance sheet or income statement objectives; or any other
objective goals established by the Committee, and may be absolute in their terms
or measured against or in relationship to other companies comparably, similarly
or otherwise situated. The number of Incentive Share awards made to a Senior
Executive during a calendar year shall not exceed the Individual Limitation when
aggregated with other grants or awards made to that Senior Executive during that
calendar year.
13. CAPITAL ADJUSTMENTS
The number and class of Shares (or the Performance Unit equivalent)
subject to each outstanding Option, Right or Performance Unit or Incentive Share
award, the Option Price and the aggregate number and class of Shares for which
grants or awards thereafter may be made, and the Individual Limitation provided
for in Section 5.1, shall be subject to such adjustment, if any, as the
Committee in its sole discretion deems appropriate to reflect such events as
stock dividends, stock splits, recapitalizations, mergers, consolidations or
reorganizations of or by the Corporation.
14. TERMINATION OR AMENDMENT
The Board or the Committee may amend, alter or terminate this Plan in any
respect, at any time; provided, however, that, after this Plan has been approved
by the Shareholders of the Corporation, no amendment, alteration or termination
of this Plan shall be made by the Board or the Committee without approval of (i)
the Corporation's shareholders to the extent shareholder approval of the
amendment is required by applicable law or regulations or the requirements of
the principal exchange or interdealer quotation system on which the Common Stock
is listed or quoted, and (ii) each affected Optionee if such amendment,
alteration or termination would adversely affect his or her rights or
obligations under any grant or award made prior to the date of such amendment,
alteration or termination.
15. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS, RIGHTS AND PERFORMANCE UNITS
Subject to the terms and conditions and within the limitations of the
Plan, the Committee may modify, extend or renew outstanding Options, Rights and
Performance Units, or accept the surrender of outstanding options, rights and
performance units (to the extent not theretofore exercised) granted under the
Plan or under any other plan of the Corporation, a Subsidiary or a company or
similar entity acquired by the Corporation or a Subsidiary, and authorize the
granting of new Options, Rights and Performance Units pursuant to the Plan in
substitution therefor (to the extent not theretofore exercised), and the
substituted Options, Rights and Performance Units may specify a longer term than
the surrendered Options, Rights and Performance Units or have any other
provisions that are authorized by the Plan; provided, however, that the
substituted Options, Rights and Performance Units may not specify a lower
exercise price than the surrendered options, rights and performance units.
Subject to the terms and conditions and within the limitations of the Plan, the
Committee may modify the terms of any outstanding Agreement providing for awards
of Incentive Shares. Notwithstanding the foregoing, however, no modification of
an Option, Right or Performance Unit granted under the Plan, or an award of
Incentive Shares, shall, without the consent of the Optionee or Grantee,
adversely affect the rights or obligations of the Optionee or Grantee.
<PAGE> 10
16. EFFECTIVENESS OF THE PLAN AND AMENDMENTS
The effective date of the Plan was December 17, 1987. The effective date
of the Plan amendments contained herein is February 20, 1997 unless otherwise
set forth herein. Any amendments to the Plan requiring shareholder approval
pursuant to Article 14 are subject to approval by vote of the shareholders of
the Corporation within 12 months after their adoption by the Board or the
Committee. Subject to that approval, any amendments are effective on the date on
which they are adopted by the Board. Options, Rights, Performance Units or
Incentive Shares may be granted or awarded prior to shareholder approval of
amendments, but each Option, Right, Performance Unit or Incentive Share grant or
award requiring such amendments shall be subject to the approval of the
amendments by the shareholders. The date on which any Option, Right, Performance
Unit or Incentive Shares granted or awarded prior to shareholder approval of the
amendment shall be the Date of Grant for all purposes of the Plan as if the
Option, Right, Performance Unit or Incentive Shares had not been subject to
approval. No Option, Right or Performance Unit granted subject to shareholder
approval of an amendment may be exercised prior to such shareholder approval,
and any Incentive Share award subject to shareholder approval of an amendment
and any dividends payable thereon are subject to forfeiture if such shareholder
approval is not obtained.
17. TERM OF THE PLAN
Unless sooner terminated by the Board or the Committee pursuant to Article
14, the Plan shall terminate on February 20, 2007, and no Options, Rights,
Performance Units or Incentive Share awards may be granted or awarded after
termination. The termination shall not affect the validity of any Option, Right,
Performance Unit or Incentive Share awards outstanding on the date of
termination.
18. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and reasonably incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Option, Right,
Performance Unit or Incentive Shares granted or awarded hereunder, and against
all amounts reasonably paid by them in settlement thereof or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, if such
members acted in good faith and in a manner which they believed to be in, and
not opposed to, the best interests of the Corporation.
19. COMPLIANCE WITH SECTION 162(m) OF THE CODE
To the extent that any provision of the Plan or an Agreement, or any
action of the Committee, may result in the application of Section 162(m)(1) of
the Code to compensation payable to a Grantee or Optionee, such provision or
action shall be deemed to be null and void, to the extent permitted by law and
deemed advisable by the Committee. The Committee shall have the authority to
override the application of this Article by an action duly approved or ratified
by the Committee and reflected in the Committee's records.
20. GENERAL PROVISIONS
20.1. The establishment of the Plan shall not confer upon any Senior
Executive any legal or equitable right against the Corporation, any Subsidiary
or the Committee, except as expressly provided in the Plan.
<PAGE> 11
20.2. Neither the Plan nor any Agreement constitutes inducement or
consideration for the employment of any Senior Executive, nor are they a
contract between the Corporation or any Subsidiary and any Senior Executive.
Participation in the Plan shall not give a Senior Executive any right to be
retained in the service of the Corporation or any Subsidiary.
20.3. The Corporation and its Subsidiaries may assume options, warrants,
or rights to purchase stock issued or granted by other corporations whose stock
or assets shall be acquired by the Corporation or its Subsidiaries, or which
shall be merged into or consolidated with the Corporation or its Subsidiaries.
Neither the adoption of this Plan, nor its submission to the shareholders, shall
be taken to impose any limitations on the powers of the Corporation or its
affiliates to issue, grant, or assume options, warrants, or rights, otherwise
than under this Plan, or to adopt other stock option or restricted stock plans
or to impose any requirement of shareholder approval upon the same.
20.4. Except as the Committee may otherwise provide pursuant to Article
10, or as otherwise required by a deferral election pursuant to Article 11, the
interests of any Senior Executive under the Plan are not subject to the claims
of creditors and may not, in any way, be assigned, alienated or encumbered.
20.5. The Plan shall be governed, construed and administered in accordance
with the laws of the Commonwealth of Pennsylvania, and it is the intention of
the Corporation that Incentive Stock Options granted under the Plan qualify as
such under Section 422 of the Code.
<PAGE> 1
THE PNC FINANCIAL SERVICES GROUP, INC. EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Year ended December 31
months ended ------------------------------------------------------------
Dollars in millions March 31, 2000 1999 1998 1997 1996 1995
- --------------------------------------------------------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative effect
of changes in accounting principles $471 $1,891 $1,710 $1,618 $1,527 $627
Fixed charges excluding interest on deposits 337 1,235 1,366 1,171 1,098 1,487
------ ------ ------ ------ ------ ------
Subtotal 808 3,126 3,076 2,789 2,625 2,114
Interest on deposits 369 1,369 1,471 1,457 1,428 1,552
------ ------ ------ ------ ------ ------
Total $1,177 $4,495 $4,547 $4,246 $4,053 $3,666
====== ====== ====== ====== ====== ======
FIXED CHARGES
Interest on borrowed funds $308 $1,119 $1,268 $1,098 $1,065 $1,454
Interest component of rentals 13 50 37 29 31 32
Amortization of notes and debentures 1 1 1 1 1
Distributions on Mandatorily Redeemable
Capital Securities of Subsidiary Trusts 16 65 60 43 1
------ ------ ------ ------ ------ ------
Subtotal 337 1,235 1,366 1,171 1,098 1,487
Interest on deposits 369 1,369 1,471 1,457 1,428 1,552
------ ------ ------ ------ ------ ------
Total $ 706 $2,604 $2,837 $2,628 $2,526 $3,039
====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES
Excluding interest on deposits 2.40 x 2.53 x 2.25 x 2.38 x 2.39 x 1.42 x
Including interest on deposits 1.67 1.73 1.60 1.62 1.60 1.21
======================================================================================================================
</TABLE>
<PAGE> 1
THE PNC FINANCIAL SERVICES GROUP, INC. EXHIBIT 12.2
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Three Year ended December 31
months ended ------------------------------------------------------------
Dollars in millions March 31, 2000 1999 1998 1997 1996 1995
- --------------------------------------------------------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes and cumulative effect
of changes in accounting principles $471 $1,891 $1,710 $1,618 $1,527 $627
Fixed charges and preferred stock dividends
excluding interest on deposits 344 1,265 1,395 1,201 1,106 1,492
------- ------ ------ ------ ------ ------
Subtotal 815 3,156 3,105 2,819 2,633 2,119
Interest on deposits 369 1,369 1,471 1,457 1,428 1,552
------- ------ ------ ------ ------ ------
Total $1,184 $4,525 $4,576 $4,276 $4,061 $ 3,671
======= ====== ====== ====== ====== =======
FIXED CHARGES
Interest on borrowed funds $308 $1,119 $1,268 $1,098 $1,065 $1,454
Interest component of rentals 13 50 37 29 31 32
Amortization of notes and debentures 1 1 1 1 1
Distributions on Mandatorily Redeemable
Capital Securities of Subsidiary Trusts 16 65 60 43 1
Preferred stock dividend requirements 7 30 29 30 8 5
------- ------ ------ ------ ------ ------
Subtotal 344 1,265 1,395 1,201 1,106 1,492
Interest on deposits 369 1,369 1,471 1,457 1,428 1,552
------- ------ ------ ------ ------ ------
Total $713 $2,634 $2,866 $2,658 $2,534 $3,044
======= ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
Excluding interest on deposits 2.37 x 2.49 x 2.23 x 2.35 x 2.38 x 1.42 x
Including interest on deposits 1.66 1.72 1.60 1.61 1.60 1.21
======================================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL INFORMATION INCORPORATED BY REFERENCE IN THE 2000 FIRST
QUARTER FINANCIAL REVIEW AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,190
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,666
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 50,653
<ALLOWANCE> (674)
<TOTAL-ASSETS> 74,307
<DEPOSITS> 46,701
<SHORT-TERM> 8,898
<LIABILITIES-OTHER> 2,625
<LONG-TERM> 9,196
0
7
<COMMON> 1,764
<OTHER-SE> 4,268
<TOTAL-LIABILITIES-AND-EQUITY> 74,307
<INTEREST-LOAN> 991
<INTEREST-INVEST> 117
<INTEREST-OTHER> 129
<INTEREST-TOTAL> 1,237
<INTEREST-DEPOSIT> 369
<INTEREST-EXPENSE> 677
<INTEREST-INCOME-NET> 560
<LOAN-LOSSES> 31
<SECURITIES-GAINS> (3)
<EXPENSE-OTHER> 847
<INCOME-PRETAX> 471
<INCOME-PRE-EXTRAORDINARY> 308
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 308
<EPS-BASIC> 1.04
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 3.46
<LOANS-NON> 307
<LOANS-PAST> 110
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 674
<CHARGE-OFFS> (45)
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 674
<ALLOWANCE-DOMESTIC> 674
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
