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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
COMMISSION FILE NUMBER 1-9718.
THE PNC FINANCIAL SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1435979
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE PNC PLAZA
249 FIFTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222-2707
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
Registrant's telephone number, including area code - (412) 762-1553
PNC Bank Corp.
(Former Name, or Former Address, if changed since last Report)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
<S> <C>
COMMON STOCK, PAR VALUE $5.00 New York Stock Exchange
$1.60 CUMULATIVE CONVERTIBLE PREFERRED STOCK-SERIES C, PAR VALUE $1.00 New York Stock Exchange
$1.80 CUMULATIVE CONVERTIBLE PREFERRED STOCK-SERIES D, PAR VALUE $1.00 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
$1.80 CUMULATIVE CONVERTIBLE PREFERRED STOCK - SERIES A, PAR VALUE $1.00
$1.80 CUMULATIVE CONVERTIBLE PREFERRED STOCK - SERIES B, PAR VALUE $1.00
8.25% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2008
Indicate by check mark whether the registrant (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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No __
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
The aggregate market value of the voting common equity held by non-affiliates of
the registrant amounted to approximately $11.3 billion at February 29, 2000.
There is no non-voting common equity of the registrant outstanding.
Number of shares of registrant's common stock outstanding at February 29, 2000:
292,548,003
DOCUMENTS INCORPORATED BY REFERENCE
Portions of The PNC Financial Services Group, Inc. 1999 Annual Report ("Annual
Report to Shareholders") are incorporated by reference into Parts I and II and
portions of the definitive Proxy Statement of The PNC Financial Services Group,
Inc. for the annual meeting of shareholders to be held on April 25, 2000 ("Proxy
Statement") are incorporated by reference into Part III of this Form 10-K. The
incorporation by reference herein of portions of the Proxy Statement shall not
be deemed to specifically incorporate by reference the information referred to
in Item 402(a) (8) and (9) of Regulation S-K.
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TABLE OF CONTENTS
PART I Page
--------
Item 1 Business 2
Item 2 Properties 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security
Holders 6
Executive Officers of the Registrant 6
PART II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters 6
Item 6 Selected Financial Data 7
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Item 7A Quantitative and Qualitative Disclosures
About Market Risk 7
Item 8 Financial Statements and Supplementary Data 7
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 7
PART III
Item 10 Directors and Executive Officers of the
Registrant 7
Item 11 Executive Compensation 7
Item 12 Security Ownership of Certain Beneficial
Owners and Management 7
Item 13 Certain Relationships and Related
Transactions 7
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 8
SIGNATURES 9
EXHIBIT INDEX E-1
PART I
Forward-Looking Statements: From time to time The PNC Financial Services Group,
Inc. ("PNC" or "Corporation") has made and may continue to make forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
with respect to financial performance and other financial and business matters.
This report also includes forward-looking statements. 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
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 forward-looking statements.
In addition to factors previously disclosed by the Corporation and those
identified elsewhere in this Report, the following factors, among others, could
cause actual results to differ materially from forward-looking statements:
increased credit risk; the introduction, withdrawal, success and timing of
business initiatives and strategies; changes in 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; changes in economic conditions, interest rates and financial
and capital markets; inflation; changes in investment performance; customer
disintermediation; customer borrowing, repayment, investment and deposit
practices; customer acceptance of PNC products and services; the inability of
the Corporation or others to remediate year 2000 concerns; and the impact,
extent and timing of technological changes, capital management activities,
actions of the Federal Reserve Board and legislative and regulatory actions and
reforms.
ITEM 1 - BUSINESS
BUSINESS OVERVIEW The PNC Financial Services Group, Inc. is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended ("BHC
Act"), and a financial holding company under the recently enacted
Gramm-Leach-Bliley Act. PNC was incorporated under the laws of the Commonwealth
of Pennsylvania in 1983 with the consolidation of Pittsburgh National
Corporation and Provident National Corporation. Since 1983, PNC has diversified
its geographical presence and product capabilities through strategic bank and
nonbank acquisitions and the formation of various nonbanking subsidiaries.
The Corporation is one of the largest diversified financial services companies
in the United States operating regional banking, wholesale banking and asset
management businesses that provide products and services nationally and in PNC's
primary geographic markets in Pennsylvania, New Jersey, Delaware, Ohio and
Kentucky. At December 31, 1999, the Corporation's consolidated total assets,
deposits and shareholders' equity were $75.4 billion, $46.7 billion and $5.9
billion, respectively. For information about principal acquisitions and
divestitures and sale of subsidiary stock during 1999, see "Note 2 -
Acquisitions and Divestitures" and "Note 3 - Sale of Subsidiary Stock" of the
"Notes to Consolidated Financial Statements" included on page 67 of the Annual
Report to Shareholders and incorporated herein by reference. Financial and other
information by segment is included in "Note 23 - Segment Reporting" of the
"Notes to Consolidated Financial Statements" included on pages 79 and 80 of the
Annual Report to Shareholders and incorporated herein by reference.
REVIEW OF BUSINESSES The information relating to PNC Bank - Regional Banking,
PNC Bank - Corporate Banking, PNC Secured Finance, PNC Mortgage, PNC Advisors,
BlackRock and PFPC is set forth under the captions "Overview" and "Review of
Businesses" in the "Financial Review" included on pages 36 through 45 of the
Annual Report to Shareholders, and is incorporated herein by reference.
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SUBSIDIARIES The corporate legal structure currently consists of four subsidiary
banks and over 75 active nonbank subsidiaries. PNC Bank, National Association
("PNC Bank, N.A."), headquartered in Pittsburgh, Pennsylvania, is the
Corporation's principal bank subsidiary. At December 31, 1999, PNC Bank, N.A.
had consolidated total assets of $68.2 billion, representing approximately 90%
of the Corporation's consolidated total assets. For additional information on
subsidiaries, see Exhibit 21 to this Form 10-K, which is incorporated herein by
reference.
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES The following statistical
information is included on the indicated pages of the Annual Report to
Shareholders and is incorporated herein by reference:
Page of
Annual
Report to
Shareholders
- -----------------------------------------------------------------
Average Consolidated Balance Sheet and Net Interest
Analysis 86-87
Analysis of Year-to-Year Changes in Net Interest
Income 85
Book Values of Securities 68
Maturities and Weighted-Average Yield of Securities 69
Loan Types 69
Loan Maturities and Interest Sensitivity 89
Nonaccrual, Past Due and Restructured Loans 64 and 70
Potential Problem Loans 50
Summary of Loan Loss Experience 88
Allocation of Allowance for Credit Losses 88
Average Amount and Average Rate Paid on Deposits 86-87
Time Deposits of $100,000 or More 89
Selected Consolidated Financial Data 35
Short-Term Borrowings 89
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. Information relating to credit, liquidity, interest rate and market
risk and the Corporation's risk management processes is set forth under the
section "Risk Management" in the "Financial Review" included on pages 50 through
53 of the Annual Report to Shareholders, which is incorporated herein by
reference.
EFFECT OF GOVERNMENTAL MONETARY AND OTHER POLICIES The activities and results of
operations of bank holding companies and their subsidiaries are affected by
monetary, tax and other policies of the United States government and its
agencies, including the Board of Governors of the Federal Reserve System
("Federal Reserve Board"). An important function of the Federal Reserve Board is
to regulate the national supply of bank credit. The Federal Reserve Board
employs open market operations in U.S. Government securities, changes in the
discount rate on bank borrowings and changes in reserve requirements on bank
deposits to implement its monetary policy objectives. These instruments of
monetary policy are used in varying combinations to influence the overall level
of bank loans, investments and deposits, the interest rates charged on loans and
paid for deposits, the price of the dollar in foreign exchange markets and the
level of inflation. It is not possible to predict the nature or timing of future
changes in monetary, tax and other policies or the effect that they may have on
the Corporation's activities and results of operations.
IMPACT OF INFLATION The assets and liabilities of the Corporation are primarily
monetary in nature. Accordingly, future changes in prices do not affect the
obligations to pay or receive fixed and determinable amounts of money. During
periods of inflation, monetary assets lose value in terms of purchasing power
and monetary liabilities have corresponding purchasing power gains. The concept
of purchasing power, however, is not an adequate indicator of the effect of
inflation on banks because it does not take into account changes in interest
rates, which are an important determinant of the Corporation's earnings. A
discussion of interest rate risk is set forth under the caption "Interest Rate
Risk" in the "Risk Management" section of the "Financial Review" included on
page 52 of the Annual Report to Shareholders, and is incorporated herein by
reference.
SUPERVISION AND REGULATION The Corporation and its subsidiaries are subject to
numerous governmental regulations, some of which are highlighted below and in
"Note 17 - Regulatory Matters" of the "Notes to Consolidated Financial
Statements" included on pages 73 and 74 of the Annual Report to Shareholders,
("Note 17 - Regulatory Matters"), which is incorporated herein by reference.
These regulations cover, among other things, permissible activities and
investments and dividend limitations on the Corporation and its subsidiaries,
and consumer-related protections for loan, deposit, brokerage, fiduciary, mutual
fund and other customers.
As a bank holding company and, as discussed below, a "financial holding
company," the Corporation is subject to supervision and regular inspection by
the Federal Reserve Board. The Federal Reserve Board's prior approval is
required whenever the Corporation proposes to acquire all or substantially all
of the assets of any bank, to acquire direct or indirect ownership or control of
more than 5% of the voting shares of any bank, or to merge or consolidate with
any other bank holding company. When reviewing bank acquisition applications for
approval, the Federal Reserve Board considers, among other things, each
subsidiary bank's record in meeting the credit needs of the communities it
serves in accordance with the Community Reinvestment Act of 1977, as amended
("CRA"). At December 31, 1999, the Corporation's principal bank subsidiary, PNC
Bank, N.A., was rated "Outstanding" with respect to CRA; its other bank
subsidiaries were rated "Satisfactory."
As a bank holding company, the Corporation may not, with certain exceptions,
acquire direct or indirect ownership or control of more than 5% of any class of
voting shares of any nonbanking corporation, may not engage in any business
other than managing and controlling banks or furnishing certain specified
services to subsidiaries, and may not acquire voting control of nonbanking
corporations unless the Federal Reserve
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Board determines such businesses and services to be closely related to banking.
The Gramm-Leach-Bliley Act ("GLB Act"), which was enacted on November 12, 1999,
and portions of which became effective on March 11, 2000, permits a qualifying
bank holding company to become a financial holding company and thereby to
affiliate with financial companies engaging in a broader range of activities
than has previously been permitted for a bank holding company. Permitted
affiliates include securities underwriters and dealers, insurance companies, and
companies engaged in other activities that are declared by the Federal Reserve
Board, in cooperation with the Treasury Department, to be "financial in nature
or incidental thereto" or are declared by the Federal Reserve Board unilaterally
to be "complementary" to financial activities. A bank holding company may elect
to become a financial holding company if each of its subsidiary banks is "well
capitalized," is "well managed," and has at least a "Satisfactory" CRA rating.
PNC became a financial holding company as of March 13, 2000.
The Federal Reserve Board is the umbrella supervisor of a financial holding
company. The GLB Act requires the Federal Reserve Board to defer to the actions
and requirements of the "functional" regulators of subsidiary broker-dealers,
investment managers, investment companies, insurance underwriters and brokers,
banks and other regulated institutions. Thus, the various state and federal
regulators of a financial holding company's subsidiaries retain their
jurisdiction and authority over such operating entities. As the umbrella
supervisor, however, the Federal Reserve Board has the potential to affect the
operations and activities of a financial holding company's subsidiaries through
its authority over the financial holding company parent. In addition, the
Federal Reserve Board retains back-up regulatory authority over functionally
regulated subsidiaries, such as broker-dealers and banks, to intervene directly
in the affairs of the subsidiaries for specific reasons.
The Corporation's subsidiary banks and their subsidiaries are subject to
supervision and examination by applicable federal and state banking agencies,
including such federal agencies as the Office of the Comptroller of the Currency
("OCC") with respect to PNC Bank, N.A. and PNC Advisors, N.A., the Federal
Deposit Insurance Corporation ("FDIC") with respect to PNC Bank, Delaware, and
the Office of Thrift Supervision with respect to PNC Bank, FSB. One aspect of
this regulation is that the Corporation's subsidiary banks are subject to
various federal and state restrictions on their ability to pay dividends to PNC
Bancorp, Inc., the parent of the subsidiary banks, which in turn may affect the
ability of PNC Bancorp, Inc. to pay dividends to the Corporation. These
dividends constitute the Corporation's principal source of income. Without
regulatory approval, the amount available for dividend payments to PNC Bancorp,
Inc. by all bank subsidiaries was $489 million at December 31, 1999. The
Corporation's subsidiary banks are also subject to federal laws limiting
extensions of credit to their parent holding company and nonbank affiliates as
discussed in "Note 17 - Regulatory Matters."
Under Federal Reserve Board policy, a bank holding company is expected to act as
a source of financial strength to each of its subsidiary banks and to commit
resources to support each such bank. Consistent with the "source of strength"
policy for subsidiary banks, the Federal Reserve Board has stated that, as a
matter of prudent banking, a bank holding company generally should not maintain
a rate of cash dividends unless its net income available to common shareholders
has been sufficient to fully fund the dividends, and the prospective rate of
earnings retention appears to be consistent with the corporation's capital
needs, asset quality and overall financial condition.
Subsidiary banks are also limited by law and regulation in the scope of
permitted activities and investments. Subsidiary banks and their operating
subsidiaries may engage in any activities that are determined by the OCC to be
part of or incidental to the business of banking. The GLB Act, however, permits
a national bank, such as PNC Bank, N.A., to engage in expanded activities
through the formation of a "financial subsidiary." PNC Bank, N.A. has filed a
financial subsidiary certification with the OCC and may thus engage in any
activity that is financial in nature or incidental to a financial activity,
except for insurance underwriting, insurance investments, real estate investment
or development, or merchant banking. In order to qualify to establish or acquire
a financial subsidiary, PNC Bank, N.A. and each of its depository institution
affiliates must be "well capitalized" and "well managed," and may not have a
less than "satisfactory" CRA rating. In addition, the total assets of all
financial subsidiaries of a national bank may not exceed the lesser of $50
billion or 45% of the parent bank's total assets. A national bank that is one of
the largest 50 insured banks in the United States, such as PNC Bank, N.A., must
also have issued debt with a certain rating.
A financial holding company or national bank engaging in activities permitted
under the GLB Act can be subject to various corrective actions by the FRB or
OCC, respectively, if the "well capitalized" or "well managed" requirements
noted above are not met. These corrective actions could include requiring
divestiture of the activities conducted in reliance on the GLB Act. In addition,
if the CRA rating requirements discussed above are not met, the financial
holding company or national bank would not be permitted to engage in new
activities, or to make new investments, in reliance on the GLB Act.
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The federal banking agencies possess broad powers to take corrective action as
deemed appropriate for an insured depository institution and its holding
company. The extent of these powers depends upon whether the institution in
question is considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Generally, as an institution is deemed to be less well
capitalized, the scope and severity of the agencies' powers increase, ultimately
permitting the agency to appoint a receiver for the institution. Business
activities may also be influenced by an institution's capital classification.
For instance, only a "well capitalized" depository institution may accept
brokered deposits without prior regulatory approval and an "adequately
capitalized" depository institution may accept brokered deposits only with prior
regulatory approval. At December 31, 1999, all of the Corporation's subsidiary
banks exceeded the required ratios for classification as "well capitalized."
Additional discussion of capital adequacy requirements is set forth under the
caption "Capital" in the "Financial Review" on page 49 of the Annual Report to
Shareholders, which is incorporated herein by reference.
All of the Corporation's subsidiary banks have deposits insured by the FDIC and
are subject to premium assessments. The FDIC assessment is based upon the
institution's relative risk as measured by regulatory capital ratios and certain
other factors. Under current regulations, the Corporation's subsidiary banks are
not assessed a premium on deposits insured by either the Bank Insurance Fund or
the Savings Association Insurance Fund. However, insured depository institutions
continue to pay premiums based upon deposit levels to service debt issued by a
governmental entity.
The Corporation's subsidiary banks are subject to "cross-guarantee" provisions
under federal law that provide that if one of these banks fails or requires FDIC
assistance, the FDIC may assess a "commonly-controlled" bank for the estimated
losses suffered by the FDIC. Such liability could have a material adverse effect
on the financial condition of any assessed bank and the Corporation. While the
FDIC's claim is junior to the claims of depositors, holders of secured
liabilities, general creditors and subordinated creditors, it is superior to the
claims of shareholders and affiliates, such as the Corporation.
The Corporation's subsidiaries are subject to regulatory restrictions imposed by
the Federal Reserve Board and other federal and state agencies. The
Corporation's six registered broker-dealer subsidiaries are regulated by the
Securities and Exchange Commission ("SEC") and either by the OCC or the Federal
Reserve Board. They are also subject to rules and regulations promulgated by the
National Association of Securities Dealers, Inc., among others. Two subsidiaries
are registered as commodity pool operators with the Commodity Futures Trading
Commission and the National Futures Association, and are subject to regulation
by them. Several subsidiaries that are registered investment advisers are
subject to regulation by the SEC and other agencies. Several subsidiaries also
provide investment advisory and other services to registered investment
companies and thus are subject to certain obligations under the Investment
Company Act of 1940, as amended.
The rules governing the regulation of financial services institutions and their
holding companies are very detailed and technical. Accordingly, the above
discussion is general in nature and does not purport to be complete or to
describe all of the laws and regulations that apply to the Corporation and its
subsidiaries.
COMPETITION The Corporation and its subsidiaries are subject to intense
competition from various financial institutions and from "nonbank" entities that
engage in similar activities without being subject to bank regulatory
supervision and restrictions. This is particularly true as the Corporation
expands nationally beyond its primary geographic footprint, where expansion
requires significant investments to penetrate new markets and respond to
competition, and as the Corporation and other entities expand their activities
pursuant to the GLB Act, as discussed above.
In making loans, the subsidiary banks compete with traditional banking
institutions as well as consumer finance companies, leasing companies and other
nonbank lenders. Loan pricing and credit standards are under competitive
pressure as lenders seek to deploy capital and a broad range of borrowers have
access to capital markets. Traditional deposit activities are subject to pricing
pressures and customer migration as a result of intense competition for consumer
investment dollars. The Corporation's subsidiary banks compete for deposits with
not only other commercial banks, savings banks, savings and loan associations
and credit unions, but also insurance companies and issuers of commercial paper
and other securities, including mutual funds. Various nonbank subsidiaries
engaged in investment banking and venture capital activities compete with
commercial banks, investment banking firms, insurance companies and venture
capital firms. In providing asset management services, the Corporation's
subsidiaries compete with many large banks and other financial institutions,
brokerage firms, mutual fund complexes, investment management firms and
insurance companies.
The ability to access and use technology is an increasingly important
competitive factor in the financial services industry. Technology is not only
important with respect to delivery of financial services, but in processing
information. Each of the Corporation's businesses consistently must make
technological investments to remain competitive.
EMPLOYEES Average full-time equivalent employees totaled approximately 25,600 in
1999, and were approximately 27,200 in December 1999.
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ITEM 2 - PROPERTIES
The executive and administrative offices of the Corporation and PNC Bank, N.A.
are located at One PNC Plaza, 249 Fifth Avenue Pittsburgh, Pennsylvania. The
thirty-story structure is owned by PNC Bank, N.A. The Corporation and PNC Bank,
N.A. occupy all of the building. In addition, PNC Bank, N.A. owns a thirty-four
story structure adjacent to One PNC Plaza, known as Two PNC Plaza, 620 Liberty
Avenue, Pittsburgh, Pennsylvania, that houses additional office space. PNC Bank,
N.A. has operations centers in Pittsburgh and Philadelphia, Pennsylvania. A new
facility is presently under construction for the Pittsburgh operations center,
with completion expected in 2000. The Philadelphia operations center is located
in a leased facility.
The Corporation's subsidiaries own or lease numerous other premises for use in
conducting business activities. The facilities owned or occupied under lease by
the Corporation's subsidiaries are considered by management to be adequate.
Additional information pertaining to the Corporation's properties is set forth
in "Note 10 - Premises, Equipment and Leasehold Improvements" of the "Notes to
Consolidated Financial Statements" included on page 71 of the Annual Report to
Shareholders, which is incorporated herein by reference.
ITEM 3 - LEGAL PROCEEDINGS
The information set forth in "Note 25 - Litigation" of the "Notes to
Consolidated Financial Statements" included on page 81 of the Annual Report to
Shareholders is incorporated herein by reference.
ITEM 4 - SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning each executive
officer of the Corporation as of March 15, 2000 is set forth below. Each
executive officer held the position indicated or another senior executive
position with the same entity or one of its affiliates or a predecessor
corporation for the past five years.
<TABLE>
<CAPTION>
Year
Name Age Position with Corporation Employed(1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Thomas H. O'Brien (2) (3) 63 Chairman, Chief Executive 1962
Officer and Director
James E. Rohr (2) (3) 51 President, Chief Operating 1972
Officer and Director
Walter E. Gregg, Jr. (2) 58 Vice Chairman and Director 1974
Joseph C. Guyaux 49 Executive Vice President 1972
and Chief Executive Officer,
PNC Bank - Regional
Community Banking
Robert L. Haunschild 50 Senior Vice President and 1990
Chief Financial Officer
Ralph S. Michael III 45 Executive Vice President 1979
and Chief Executive
Officer, PNC Bank -
Corporate Banking
Thomas E. Paisley III 52 Senior Vice President and 1972
Chairman, Corporate
Credit Policy Committee
Samuel R. Patterson 41 Controller 1986
Helen P. Pudlin 50 Senior Vice President and 1989
General Counsel
Bruce E. Robbins (4) 55 Executive Vice President 1973
and Chief Executive
Officer, PNC Secured
Finance
Thomas K. Whitford 44 Executive Vice President 1983
and Chief Executive
Officer, PNC Advisors
</TABLE>
(1) Where applicable, refers to year first employed by predecessor company
or acquired company.
(2) Office of the Chairman member.
(3) Mr. O'Brien will retire as Chief Executive Officer effective May 1,
2000, but not as Chairman of the Board. Mr. Rohr will become Chief
Executive Officer effective May 1, 2000 and will retain the title of
President.
(4) Mr. Robbins will retire effective June 30, 2000.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock is listed on the New York Stock Exchange and is
traded under the symbol "PNC." At the close of business on February 29, 2000,
there were 60,407 common shareholders of record.
Holders of common stock are entitled to receive dividends when declared by the
Board of Directors out of funds legally available therefor. The Board of
Directors may not pay or set apart dividends on the common stock until dividends
for all past dividend periods on any series of outstanding preferred stock
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have been paid or declared and set apart for payment. The Board presently
intends to continue the policy of paying quarterly cash dividends. However, the
amount of any future dividends will depend on earnings, the financial condition
of the Corporation and other factors, including contractual restrictions and
applicable government regulations and policies (such as those relating to the
ability of bank and nonbank subsidiaries to upstream dividends to the parent
company). The Federal Reserve Board has the power to prohibit the Corporation
from paying dividends without its approval. Further discussion concerning
dividend restrictions and restrictions on loans or advances from bank
subsidiaries to the parent company is set forth under the caption "Supervision
and Regulation" in Part I, Item 1 of this Form 10-K, under the caption
"Liquidity Risk" in the "Risk Management" section of the "Financial Review" on
pages 51 and 52 of the Annual Report to Shareholders, and in "Note 17 -
Regulatory Matters", which are incorporated herein by reference.
Additional information relating to the common stock is set forth under the
caption "Common Stock Prices/Dividends Declared" on the inside back cover of the
Annual Report to Shareholders, which is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Consolidated Financial
Data" in the "Financial Review" on page 35 and the caption "Average Consolidated
Balance Sheet and Net Interest Analysis" in the "Statistical Information" on
pages 86 and 87 of the Annual Report to Shareholders is incorporated herein by
reference. Average common shareholders' equity to average assets for the
Corporation was 7.43%, 7.06%, 7.31%, 8.11% and 7.64% for 1999, 1998, 1997, 1996
and 1995, respectively.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion of the Corporation's financial condition and results of
operations set forth under the section "Financial Review" on pages 35 through 57
of the Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the captions "Interest Rate Risk," "Market Risk"
and "Financial Derivatives" in the "Financial Review" on pages 52 through 55 of
the Annual Report to Shareholders is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Report of Ernst & Young LLP, Independent Auditors," "Consolidated Financial
Statements," "Notes to Consolidated Financial Statements" and "Selected
Quarterly Financial Data" on pages 59, 60 through 63, 64 through 83, and 84,
respectively, of the Annual Report to Shareholders are incorporated herein by
reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no reportable events.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and nominees required by this item is set forth
under the caption "Election of Directors - Information Concerning Nominees" in
the Proxy Statement and is incorporated herein by reference.
Information regarding compliance with Section 16(a) of the Securities Exchange
Act of 1934 set forth under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement is incorporated herein by
reference.
Information regarding executive officers of the Corporation is included in Part
I of this Form 10-K under the caption "Executive Officers of the Registrant."
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is set forth under the captions "Election
of Directors - Compensation of Directors" and "Compensation of Executive
Officers," excluding the "Personnel and Compensation Committee Report on
Executive Compensation," in the Proxy Statement and is incorporated herein by
reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption "Security
Ownership of Directors, Nominees and Executive Officers" in the Proxy Statement
and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Transactions Involving Directors, Nominees and Executive Officers" in the Proxy
Statement and is incorporated herein by reference.
7
<PAGE> 8
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS The following report of independent auditors and
consolidated financial information of the Corporation included in the Annual
Report to Shareholders are incorporated herein by reference.
Page of
Annual
Report to
Financial Statements Shareholders
- ----------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors 59
Consolidated Statement of Income for the three
years ended December 31, 1999 60
Consolidated Balance Sheet as of December 31, 1999
and 1998 61
Consolidated Statement of Shareholders' Equity
for the three years ended December 31, 1999 62
Consolidated Statement of Cash Flows for the
three years ended December 31, 1999 63
Notes to Consolidated Financial Statements 64-83
Selected Quarterly Financial Data 84
- ----------------------------------------------------------------
No financial statement schedules are being filed.
REPORTS ON FORM 8-K The following reports on Form 8-K were filed during the
quarter ended December 31, 1999.
Form 8-K dated October 20, 1999, filing an earnings release reporting the
Corporation's consolidated financial results for the three and nine months ended
September 30, 1999, and information on the Corporation's businesses for the nine
months ended September 30, 1999 and 1998.
Form 8-K dated October 26, 1999, reporting on entering into an underwriting
agreement with respect to the public offering of $400,000,000 of 7.50%
subordinated notes due 2009 and on the form of the notes and related guarantee.
EXHIBITS The exhibits listed on the Exhibit Index on pages E-1 and E-2 of this
Form 10-K are filed herewith or are incorporated herein by reference.
8
<PAGE> 9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant, The PNC Financial Services Group, Inc., has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE PNC FINANCIAL SERVICES GROUP, INC.
(Registrant)
By: /s/ Robert L. Haunschild
- ---------------------------------------------------
Robert L. Haunschild, Senior Vice President
and Chief Financial Officer
March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of The PNC Financial
Services Group, Inc. and in the capacities indicated on March 27, 2000.
<TABLE>
<CAPTION>
Signature Capacities
- ---------------------------------------------------- ----------------------------------------------------
<S> <C>
/s/ Thomas H. O'Brien Chairman, Chief Executive Officer
- ---------------------------------------------------- and Director (Principal Executive Officer)
Thomas H. O'Brien
/s/ Robert L. Haunschild Senior Vice President and Chief Financial
- ---------------------------------------------------- Officer (Principal Financial Officer)
Robert L. Haunschild
/s/ Samuel R. Patterson Controller
- ---------------------------------------------------- (Principal Accounting Officer)
Samuel R. Patterson
* Paul W. Chellgren; Robert N. Clay; George A. Directors
Davidson, Jr.; David F. Girard-diCarlo; Walter E.
Gregg, Jr.; William R. Johnson; Bruce C. Lindsay;
W. Craig McClelland; Jane G. Pepper; Jackson H.
Randolph; James E. Rohr; Roderic H. Ross; Richard
P. Simmons; Thomas J. Usher; Milton A. Washington;
and Helge H. Wehmeier
*By: /s/ Thomas R. Moore
------------------------------------------
Thomas R. Moore, Attorney-in-Fact,
pursuant to Powers of Attorney filed
herewith
</TABLE>
9
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing +
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Articles of Incorporation of the Corporation, as amended and Filed herewith.
restated as of March 14, 2000.
3.2 By-Laws of the Corporation, as amended. Incorporated herein by reference to Exhibit
99.2 of the Corporation's Current Report
on Form 8-K dated January 15, 1998.
4.1 There are no instruments with respect to long-term debt of the
Corporation and its subsidiaries that involve securities
authorized under the instrument in an amount exceeding 10
percent of the total assets of the Corporation and its
subsidiaries on a consolidated basis. The Corporation agrees to
provide the SEC with a copy of instruments defining the rights
of holders of long-term debt of the Corporation and its
subsidiaries upon request.
4.2 Terms of $1.80 Cumulative Convertible Preferred Stock, Series A. Included as part of Exhibit 3.1.
4.3 Terms of $1.80 Cumulative Convertible Preferred Stock, Series B. Included as part of Exhibit 3.1.
4.4 Terms of $1.60 Cumulative Convertible Preferred Stock, Series C. Included as part of Exhibit 3.1.
4.5 Terms of $1.80 Cumulative Convertible Preferred Stock, Series D. Included as part of Exhibit 3.1.
4.6 Terms of Fixed/Adjustable Rate Noncumulative Preferred Stock, Included as part of Exhibit 3.1.
Series F.
10.1 The Corporation's Supplemental Executive Retirement Plan, as Filed herewith. *
amended as of January 1, 1999.
10.2 The Corporation's ERISA Excess Pension Plan, as amended as of Filed herewith. *
January 1, 1999.
10.3 The Corporation's Key Executive Equity Program, as amended as of Filed herewith. *
January 1, 1999.
10.4 The Corporation's Supplemental Incentive Savings Plan, as amended Filed herewith. *
as of January 1, 1999.
10.5 The Corporation's 1997 Long-Term Incentive Award Plan. Incorporated herein by reference to
Exhibit 4.3 to Post-Effective Amendment
No. 1 to the Corporation's Registration
Statement No. 33-54960 on Form S-8 filed
with the SEC on April 25, 1997.*
10.6 Form of Nonstatutory Stock Option Agreement under 1997 Award Plan. Incorporated herein by reference to Exhibit
10.6 of the Corporation's Annual Report on
Form 10-K for the year ended December 31,
1997 ("1997 Form 10-K").*
10.7 Form of Nonstatutory Stock Option Agreement under 1997 Award Plan Incorporated herein by reference to Exhibit
for options granted on or after February 17, 1999. 10.8 of the Corporation's Annual Report on
Form 10-K for the year ended December 31,
1998.*
10.8 Form of Addendum to Nonstatutory Stock Option Agreement relating Incorporated herein by reference to Exhibit
to Reload Nonstatutory Stock Options. 10.8 of the Corporation's 1997 Form 10-K.*
10.9 Form of Reload Nonstatutory Stock Option Agreement. Incorporated herein by reference to Exhibit
10.9 of the Corporation's 1997 Form 10-K.*
</TABLE>
E-1
<PAGE> 11
<TABLE>
<S> <C> <C>
10.10 The Corporation's 1996 Executive Incentive Award Plan. Incorporated herein by reference to Exhibit 10.2
of the Corporation's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.*
10.11 PNC Bank Corp. and Affiliates Deferred Compensation Plan, as Filed herewith.*
amended as of January 1, 1999.
10.12 Form of Change in Control Severance Agreement. Incorporated herein by reference to Exhibit 10.17
of the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996 ("1996 Form
10-K").*
10.13 1992 Director Share Incentive Plan. Filed herewith.*
10.14 The Corporation's Directors Deferred Compensation Plan. Incorporated by reference to Exhibit 10.1 of the
Corporation's Quarterly Report on Form 10-Q for
the Quarter ended September 30, 1996.*
10.15 The Corporation's Outside Directors Deferred Stock Unit Plan Filed herewith.*
10.16 Amended and Restated Trust Agreement between the Corporation, Incorporated herein by reference to Exhibit 10.18
as Settlor, and Hershey Trust Company, as successor of the Corporation's 1996 Form 10-K.*
Trustee to NationsBank, N.A., Trustee.
12.1 Computation of Ratio of Earnings to Fixed Charges. Filed herewith.
12.2 Computation of Ratio of Earnings to Fixed Charges and Filed herewith.
Preferred Dividends.
13 Excerpts from the Corporation's Annual Report to Shareholders Filed herewith.
for the year ended December 31, 1999. Such Annual Report,
except for the portions thereof that are expressly
incorporated by reference herein, is furnished for
information of the SEC only and is not deemed to be
"filed" as part of this Form 10-K.
21 Schedule of Certain Subsidiaries of the Corporation. Filed herewith.
23 Consent of Ernst & Young LLP, independent auditors for the Filed herewith.
Corporation.
24 Powers of Attorney. Filed herewith.
27 Financial Data Schedule. Filed herewith.
</TABLE>
- ----------------------------------------------------------------------
+ Incorporated document references to filings by the Corporation are to SEC
File No. 1-9718.
* Denotes management contract or compensatory plan.
E-2
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE PNC FINANCIAL SERVICES GROUP, INC.
(AS OF MARCH 14, 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
1
<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.
2
<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,
3
<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
4
<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 provide 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 Convertible
Preferred Stock of Provident National Corporation, a predecessor of the
Corporation
5
<PAGE> 6
(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
6
<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
7
<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.
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<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.
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<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
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<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
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<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
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<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.
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<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,
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<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
15
<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
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<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
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<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
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<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.
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<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.
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<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
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<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.
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<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.
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<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.
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<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.
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<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
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<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
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<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:
1 - [.35 (1 - .70)]
- ---------------------
1 - [.35 (1 - 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
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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
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<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.
Redemption Period Redemption Price Per Share
- ----------------- --------------------------
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
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<PAGE> 31
September 30, 2000 through September 29, 2001 50.50
On or after September 30, 2001 50.00
(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.
COMMON STOCK
49. 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
50. No holder of any class of capital stock of the Corporation shall be
entitled to cumulate his votes for the election of directors.
51. 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.
31
<PAGE> 1
Exhibit 10.1
PNC BANK CORP.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AMENDED AND RESTATED
(EFFECTIVE AS OF JANUARY 1, 1999)
WHEREAS, PNC Bank Corp. (the "Corporation") previously adopted and
presently maintains the PNC Bank Corp. Supplemental Executive Retirement Income
and Disability Plan (the "Plan") originally effective as of September 1, 1985;
WHEREAS, the Corporation desires to amend and restate the Plan in its
entirety, effective January 1, 1999, in order to reflect the conversion of the
plan for certain participants to a cash balance design with transition benefits,
incorporate all prior amendments into the Plan document and make such other
changes as deemed necessary or appropriate; and
WHEREAS, section 7 of the Plan authorizes the Corporation to amend the
Plan at any time.
NOW, THEREFORE, in consideration of the foregoing, the Plan is hereby
amended and restated in its entirety to read as follows:
SECTION 1
DEFINITIONS
1.1 "Account" means the bookkeeping record described in section 4 used
solely to communicate a Participant's Accrued Benefit expressed as a
single dollar amount.
1.2 "Accrued Benefit" means the Participant's Account balance converted to
a single-life annuity in the same manner as under the Pension Plan.
1.3 "Annual Base Salary" means the annual pay rate as of the last payday in
each January preceding the Participant's Vested Termination of
Employment.
Notwithstanding the foregoing, after a Change in Control, in
no event shall a Participant's Annual Base Salary be less than his
annual pay rate as of the last payday of the January preceding the date
of the Change in Control.
1.4 "Applicable Interest Rate" has the meaning assigned such term in the
Pension Plan.
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<PAGE> 2
1.5 "Average Bonus" means the average of the five highest bonuses whether
or not deferred of the ten final consecutive years of a Participant's
employment awarded to a Participant under the Executive Bonus Plan for
services performed by the Participant during the prior year.
1.6 "Average Final Compensation" means the Participant's average
Compensation (defined in section 1.14(a) of the Plan) for the five
highest of the ten final consecutive years of a Participant's
employment, including the year of the Participant's death or Vested
Termination of Employment.
1.7 "Beneficiary" or "Beneficiaries" means the individual or individuals
designated by the Participant to receive the balance of the
Participant's account upon the Participant's death, in accordance with
section 7 of the Plan.
1.8 "Board" means the Board of Directors of the Corporation.
1.9 "Cause" means:
(a) the willful and continued failure of a Participant to
substantially perform the Participant's duties with the
Employer (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the
Participant by the Board or the Board of Directors of the
Employer, the Chief Executive Officer of the Corporation or
the Employer, or the Participant's superior, which
specifically identifies the manner in which the Board or the
Board of Directors of the Employer, Chief Executive Officer of
the Corporation or the Employer, or superior believes that the
Participant has not substantially performed the Participant's
duties; or
(b) the willful engaging by the Participant in illegal conduct or
gross misconduct that is materially and demonstrably injurious
to the Employer.
For purposes of the preceding clauses (a) and (b), no act or failure to
act, on the part of a Participant, shall be considered "willful" unless
it is done, or omitted to be done, by the Participant in bad faith and
without reasonable belief that the Participant's action or omission was
in the best interests of the Employer. Any act, or failure to act,
based upon the instructions or prior approval of the Board or the Board
of Directors of the Employer, Chief Executive Officer of the
Corporation or the Employer or the Participant's superior, or based
upon the advice of counsel for the Corporation or the Employer, shall
be conclusively presumed to be done, or omitted to be done, by the
Participant in good faith and in the best interests of the Corporation
or the Employer. The cessation of employment of the Participant shall
not be deemed to be for Cause unless and until there shall have been
delivered to the Participant a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership
of the Board or the Committee at a Board or Committee meeting called
and held for the purpose of considering such termination finding that,
in the good faith opinion of the Board or Committee, the Participant is
guilty of the conduct described in clause (a) or (b) above,
2
<PAGE> 3
and specifying the particulars thereof in detail. Such resolution shall
be adopted only after reasonable notice of such meeting is provided to
the Participant and the Participant is given an opportunity, together
with counsel, to be heard before the Board or the Committee.
1.10 "Change in Control" means a change of control of the Corporation of a
nature that would be required to be reported in response to Item 6(e)
of Schedule 14A of Regulation 14A (or in response to any similar item
on any similar schedule or form) promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act"), whether or not the
Corporation is then subject to such reporting requirement; provided,
however, that without limitation, a Change in Control shall be deemed
to have occurred if:
(a) any person, excluding employee benefit plans of the
Corporation, is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 20%
or more of the combined voting power of the Corporation's then
outstanding securities, provided, however, that such an
acquisition of beneficial ownership representing between 20%
and 40%, inclusive, of such voting power shall not be
considered a Change in Control if the Board approves such
acquisition either prior to or immediately after its
occurrence;
(b) the Corporation consummates a merger, consolidation, share
exchange, division or other reorganization or transaction of
the Corporation (a "Fundamental Transaction") with any other
corporation, other than a Fundamental Transaction that results
in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 60% of the
combined voting power immediately after such Fundamental
Transaction of (i) the Corporation's outstanding securities,
(ii) the surviving entity's outstanding securities or (iii) in
the case of a division, the outstanding securities of each
entity resulting from the division;
(c) the shareholders of the Corporation approve a plan of complete
liquidation or winding-up of the Corporation or an agreement
for the sale or disposition (in one transaction or a series of
transactions) of all or substantially all of the Corporation's
assets;
(d) as a result of a proxy contest, individuals who prior to the
conclusion thereof constituted the Board (including for this
purpose any new director whose election or nomination for
election by the Corporation's shareholders in connection with
such proxy contest was approved by a vote of at least
two-thirds of the directors then still in office who were
directors prior to such proxy contest) cease to constitute at
least a majority of the Board (excluding any Board seat that
is vacant or otherwise unoccupied);
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<PAGE> 4
(e) during any period of 24 consecutive months, individuals who at
the beginning of such period constituted the Board (including
for this purpose any new director whose election or nomination
for election by the Corporation's shareholders was approved by
a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of such period)
cease for any reason to constitute at least a majority of the
Board (excluding any Board seat that is vacant or otherwise
unoccupied); or
(f) the Board determines that a Change in Control has occurred.
"Person" has the meaning given in section 3(a)(9) of the Exchange Act
and also includes any syndicate or group deemed to be a "person" under
section 13(d)(3) of the Exchange Act.
Notwithstanding anything to the contrary herein, a divestiture or
spin-off of a Subsidiary or division of the Corporation shall not by
itself constitute a "Change in Control."
1.11 "Code" means the Internal Revenue Code of 1986, as amended.
1.12 "Committee" means the Personnel and Compensation Committee of the
Board.
1.13 "Compensation" means:
(a) For purposes of section 3 of the Plan, the Annual Base Salary
established by the Employer for services rendered by a
Participant for a particular year, plus the amount of cash, if
any, whether deferred or not, awarded to a Participant under
any Executive Bonus Plan paid during that same year; provided,
however, that, subject to exceptions approved by the
Committee, the amount of cash awarded to a Participant under
any Executive Bonus Plan shall be the lower of the amount
awarded under such Executive Bonus Plan or the amount that
such Participant would have been awarded under such Executive
Bonus Plan had the Participant's annual bonus been awarded
pursuant to the same grade or level that is used in
calculating the Participant's recommended stock option grant
under the PNC Bank Corp. 1992 Long-Term Incentive Award Plan.
(b) For purposes of section 4 of the Plan, the amount of cash,
whether deferred or not, awarded to a Participant under any
Executive Bonus Plan paid during a particular year; provided,
however, that for a Participant who is not a member of the
Corporate Executive Group, Compensation under the Plan may not
exceed $250,000 per year.
(c) Participants who have incurred a Total Disability shall be
treated as though they have continued in employment throughout
the continuance of such Total Disability with Compensation
equal to (i) for purposes of section 3 of the Plan, the annual
pay rate in effect at the onset of such Total Disability plus
the bonus award described in section 1.13(a) that was earned
in the year prior to the Total
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<PAGE> 5
Disability, or (ii) for purposes of section 4 of the Plan,
Compensation as defined in section 1.13(b) for the last full
calendar year of Compensation, Compensation used for all of
the Participant's previous Earnings Credits annualized to be
reflective of one full year.
1.14 "Corporate Executive Group" means the group designated as such by the
Corporation.
1.15 "Corporation" means PNC Bank Corp. and any successors thereto.
1.16 "Credited Service" has the meaning assigned such term in the Pension
Plan from time to time that results in the largest period of credited
service for the applicable participant.
1.17 "Deferral Election" means a Participant's irrevocable election to defer
the commencement of the payments of his or her benefits under the Plan
by timely delivery to the Plan Manager of a Deferral Election Form.
1.18 "Deferral Election Form" means the document, in a form approved by the
Plan Manager, whereby the Participant elects to defer the commencement
of the payment of his or her benefits under the Plan.
1.19 "Deferred Benefits" means the participant's benefits under the Plan the
payment of which have been deferred pursuant to a Deferral Election.
1.20 "Earnings Credits" means the credits allocated pursuant to section 4.2
of the Plan to the Account of a Participant who is not a Grandfathered
Participant.
1.21 "Employer" means the Corporation and any Subsidiary that has been
designated by the Plan Manager as an Employer hereunder and listed in
Schedule A hereto.
1.22 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.23 "Executive Bonus Plan" means the plans designated by the Committee as
participating hereunder and listed in Schedule B hereto.
1.24 "Good Reason" means:
(a) the assignment to a Participant of any duties inconsistent in
any respect with the Participant's position (including status,
offices, titles and reporting requirements), authority, duties
or responsibilities immediately prior to the Change in
Control, or any other action by the Employer which results in
a diminution in any respect in such position, authority,
duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in
bad faith that is remedied by the Employer promptly after
receipt of notice thereof given by the Participant;
5
<PAGE> 6
(b) a reduction by the Employer in the Participant's Annual Base
Salary in effect on the day prior to the date of a Change in
Control;
(c) the Employer's requiring the Participant to be based at any
office or location that is more than 50 miles from the
Participant's office or location immediately prior to the
Change in Control;
(d) the failure by the Employer (i) to continue in effect any
bonus, stock option or other cash or equity-based incentive
plan in which the Participant participates immediately prior
to the Change in Control that is material to the Participant's
total compensation, unless a substantially equivalent
arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or (ii) to
continue the Participant's participation in such plan (or in
such substitute or alternative plan) on a basis at least as
favorable, both in terms of the amount of benefits provided
and the level of the Participant's participation relative to
other participants, as existed immediately prior to the Change
in Control; or
(e) the failure by the Employer to continue to provide the
Participant with benefits substantially similar to those
received by the Participant under any of the Employer's
pension (including, but not limited to, tax-qualified plans),
life insurance, health, accident, disability or other welfare
plans in which the Participant was participating, at costs
substantially similar to those paid by the Participant,
immediately prior to the Change in Control.
1.25 "Grandfathered Participant" means a Participant who on December 31,
1998 (i) was employed by the Employer, (ii) participated in the Plan
and (iii) had completed at least five years of Credited Service and
attained age 50.
1.26 "Initial SEG 06 Participant" means a Participant who as of December 31,
1998 was a member of the Senior Executive Group level 06 or higher and
is not a member of the group described in section 1.25.
1.27 "Hardship" means severe financial hardship to the Participant resulting
from a sudden and unexpected illness of the Participant or one of the
Participant's dependents (within the meaning of section 152(a) of the
Code), or an accident involving the Participant or a Participant's
dependent, loss of a Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant. The
circumstances that will constitute Hardship shall depend upon the facts
of each case, but, in any case, Hardship will not exist to the extent
that such hardship is or may be relieved;
(a) through reimbursement or compensation by insurance or
otherwise;
(b) by liquidation of the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe
financial hardship; or
6
<PAGE> 7
(c) by cessation of deferrals under this Plan or other plans
maintained by the Employer.
The Plan Manager shall have the sole and absolute discretion to
determine whether a Hardship exists.
1.28 "Interest Credits" means the credits allocated pursuant to section 4.4
of the Plan to the Account of a Participant who is not a Grandfathered
Participant.
1.29 "Minimum Benefit" means the minimum benefit calculated under section
4.7 for a Participant who is not a Grandfathered Participant.
1.30 "Participant" means all persons who participated in the Plan on
December 31, 1998 and all other persons who are invited thereafter by
the Corporation to participate in the Plan.
1.31 "Pension Plan" means the PNC Bank Corp. Pension Plan as in effect on
January 1, 1999 and as amended from time to time thereafter.
1.32 "Plan" means this PNC Bank Corp. Supplemental Executive Retirement Plan
as amended from time to time.
1.33 "Plan Manager" means any individual designated by the Committee to
manage the operation of the Plan as herein provided or to whom the
Committee has duly delegated any of its duties and obligations
hereunder.
1.34 "Plan Year" means the calendar year beginning January 1.
1.35 "Prior Excess Plan" means the PNC Bank Corp. ERISA Excess Pension Plan
as in effect on December 31, 1998.
1.36 "Prior Pension Plan" means the PNC Bank Corp. Pension Plan as in effect
on December 31, 1998.
1.37 "Prior Plan" means the PNC Bank Corp. Supplemental Executive Retirement
Plan as in effect on December 31, 1998.
1.38 "Subsidiary" means any business entity the equity of which (directly or
indirectly) is owned 50% or more by the Corporation.
1.39 "Total Disability" has the meaning assigned such term in the Pension
Plan.
1.40 "Transitional Earnings Credits" means the credits allocated pursuant to
section 4.3 of the Plan to the Account of a Participant who is not a
Grandfathered Participant.
1.41 "Trust" means the grantor trust established by the Corporation to
assist in funding its obligation under the Plan.
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<PAGE> 8
1.42 "Vested Termination of Employment" means a Participant's termination of
employment with the Employer:
(a) for any reason after completing five years of Vesting Service;
or
(b) by the Participant for Good Reason after a Change in Control
or by the Employer without Cause after a Change in Control.
1.43 "Vesting Service" has the meaning assigned such term in the Pension
Plan.
SECTION 2
APPLICATION OF PLAN
This Plan applies only to Participants who are employed on or after January 1,
1999. A Participant under the Prior Plan who was not employed on or after
January 1, 1999 will continue to be covered under the Prior Plan.
SECTION 3
RETIREMENT INCOME SUPPLEMENT FOR
GRANDFATHERED PARTICIPANTS
3.1 Grandfathered Participants
Upon Vested Termination of Employment, a Grandfathered Participant
shall receive an annual cash payment equal to the greater of:
(a) 10% plus 1% for each year of Credited Service (including
fractions thereof) in excess of ten but less than 25 years
times the Participant's Annual Base Salary at the time of
Vested Termination of Employment; or
(b) the annual amount of retirement benefit the Participant would
have received as a single life annuity under the Prior Pension
Plan if the Prior Pension Plan had been continued and the
definition of "Compensation" and "Average Final Compensation"
in the Prior Pension Plan were as recited in 1.13(a) and 1.6
above, respectively (assuming that the Participant elected a
single life annuity under the Prior Pension Plan and commenced
receiving benefits at age 62).
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<PAGE> 9
The amount determined under section 3.1(b) above will be reduced by the
annual amount of any benefit the Participant would have been entitled
to receive under the Prior Pension Plan and the Prior Excess Plan,
assuming the Participant commenced receiving benefit payments in the
form of a single life annuity under such plans at age 62.
Unless otherwise elected, the annual amount payable pursuant to section
3.1(a) or 3.1(b) and the preceding sentence shall be paid in monthly
installments, commencing on the first day of the month coincident with
or next following the Vested Termination of Employment of the
Participant and continuing for fifteen years. Any benefit payment made
pursuant to section 3.1(a) or 3.1(b) that commences prior to a
Participant's attainment of age 62 shall be actuarially reduced in
accordance with reduction factors used in the Prior Pension Plan. A
Participant may elect, in accordance with appropriate administrative
procedures, to receive, in lieu of the monthly retirement benefit to
which he is entitled hereunder, a lump-sum cash payment equal to the
present value of such monthly benefit, calculated using the interest
rate used under the Prior Pension Plan as of the date the payment is to
be made.
A Participant also may elect, pursuant to section 9 of the Plan, to
defer the commencement of the payment of his or her benefits.
3.2 Death Benefit
Upon the death of a Grandfathered Participant prior to Vested
Termination of Employment, his or her Beneficiary shall receive an
annual cash payment equal to the greater of:
(a) 10% plus 1% for each year of Credited Service (including
fractions thereof) between ten and 25 years times the
Participant's Annual Base Salary at the time of death; or
(b) the annual amount of retirement benefit the Participant would
have received as a single life annuity under the Prior Pension
Plan if the Prior Pension Plan had been continued and if the
definition of "Compensation" and "Average Final Compensation"
in the Prior Pension Plan were as recited in 1.13(a) and 1.6
above, respectively.
The amount determined under section 3.2(b) above will be reduced by the
annual amount of any benefit the Participant would be entitled to
receive under the Prior Pension Plan and the Prior Excess Plan.
The benefit shall be distributed to the Participant's Beneficiary or
Beneficiaries at the time and pursuant to the method elected by the
Participant. Upon application of the Participant's Beneficiary, the
Plan Manager may, in his or her sole and absolute discretion, direct
that the benefit be paid in a single lump sum.
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<PAGE> 10
SECTION 4
RETIREMENT INCOME SUPPLEMENT FOR PARTICIPANTS
WHO ARE NOT GRANDFATHERED PARTICIPANTS
4.1 Accounts
An Account shall be established and maintained for each Participant who
is not a Grandfathered Participant to which credits shall be allocated
pursuant to the provisions of this section 4. A Participant's opening
Account balance shall be determined in the same manner as under the
Pension Plan based on the Participant's benefit accrued under the Prior
Plan as of December 31, 1998.
4.2 Earnings Credits
As of each pay period, there shall be credited to the Account of each
such active Participant who is not an Initial SEG 06 Participant and
who has earned Compensation during such pay period an amount determined
as follows:
Age Plus Years Percentage of Compensation
of Credited Service Credited to Participant's Account
------------------- ---------------------------------
Less than 40 3%
Between 40 and 49 4%
Between 50 and 59 5%
Between 60 and 69 6%
70 or more 8%
As of each pay period, there shall be credited to the Account of each
such active Participant who is an Initial SEG 06 Participant and who
has earned Compensation during such pay period an amount determined as
follows:
Age Plus Years Percentage of Compensation
of Credited Service Credited to Participant's Account
------------------- ---------------------------------
Less than 40 6%
Between 40 and 49 8%
Between 50 and 59 10%
Between 60 and 69 12%
70 or more 16%
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<PAGE> 11
For purposes of the above two charts, age and Credited Service are
determined as of the last day of the preceding Plan Year. For purposes
of determining the percentage of Compensation to be credited to a
Participant's Account, only complete years of Credited Service and age
shall be used; no partial years of age or Credited Service shall be
counted.
4.3 Transitional Earnings Credits
Beginning on January 1, 1999 and ending on December 31, 2008, as of
each calendar quarter, there shall be allocated Transitional Earnings
Credits to the Account of each active Participant who has earned
Compensation during such calendar quarter. These Transitional Earnings
Credits shall apply to the following Participants and are determined as
follows:
(a) For active Participants who as of January 1, 1999 were age 45
or older and had at least fifteen years of Credited Service,
an additional allocation of 4% of Compensation shall be made.
(b) For active Participants not described in (a) above who as of
January 1, 1999 were age 40 or older and had at least ten
years of Credited Service, an additional allocation of 2% of
Compensation shall be made.
Only Participants employed by the Employer on January 1, 1999 are
eligible for Transitional Earnings Credits. The rules applicable to
Earnings Credits described in section 4.2 also apply to these
Transitional Earnings Credits.
4.4 Interest Credits
Each calendar quarter, the determination, calculation and allocation of
Interest Credits shall occur in the manner described in subsection (b)
below determined in accordance with subsection (a) below:
(a) For each calendar quarter, one-fourth of the Applicable
Interest Rate.
(b) During each calendar quarter, each Participant's Account shall
be adjusted by an amount equal to the interest rate determined
in (a) above multiplied by the Account balance as of the end
of the immediately preceding calendar quarter.
(c) A Participant who elects to defer the commencement of the
payment of his or her benefits under section 9 of the Plan,
shall continue to receive an allocation of Interest Credits on
his or her Deferred Benefits in the manner prescribed above
until the first day of the month coincident with or preceding
the date the Participant receives a final distribution of his
or her Account.
11
<PAGE> 12
4.5 Payment of Benefits
Upon Vested Termination of Employment, a Participant covered under this
section 4 may elect, in accordance with appropriate administrative
procedures, to receive his or her benefit under this Plan in a form
available to the Participant under the Pension Plan. The form of
benefit elected under this Plan may be different from the basis upon
which a Participant receives his or her benefit under the Pension Plan.
A Participant also may elect, pursuant to Section 9 of the Plan, to
defer the commencement of the payment of his or her benefits.
The calculation of the amounts of optional forms of benefit
shall utilize the same adjustment factors as used in the Pension Plan,
and it is intended that these factors will be monitored and amended as
necessary to meet the provisions of Treasury Regulation section
3121(v)(2)-1(C)(2)(iii)(B)(3).
4.6 Death Benefit
Upon the death of a Participant prior to Vested Termination of
Employment, but after completing five full years of Vesting Service,
his or her Beneficiary shall be entitled to a benefit in an amount
equal to the Participant's Accrued Benefit determined as of the date of
his death.
The benefit shall be distributed to the Participant's Beneficiary or
Beneficiaries at the time and pursuant to the method elected by the
Participant. Upon application of the Participant's Beneficiary, the
Plan Manager may, in his or her sole and absolute discretion, direct
that the benefit be paid in a single lump sum.
4.7 Minimum Benefit
Upon Vested Termination of Employment, a Participant who is not a
Grandfathered Participant is entitled to a Minimum Benefit under the
Plan. The Minimum Benefit is equal to the Participant's benefit under
the Prior Plan calculated as of December 31, 1998. If the Minimum
Benefit exceeds the Participant's benefit under section 4, the
Participant shall receive the Minimum Benefit in lieu of the section 4
benefit.
12
<PAGE> 13
SECTION 5
FROZEN BENEFIT
Any Participant who is or becomes eligible to participate in the PNC Bank Corp.
Retirement Savings Plan or who transfers employment to a Subsidiary that is not
an Employer shall have the value of his or her benefit frozen as of the first
day of the month following the date he or she is eligible to participate in the
PNC Bank Corp. Retirement Savings Plan or transfers employment to a Subsidiary
that is not an Employer, except that interest will continue to be credited under
section 4.4. Such frozen benefit will be payable at the same time and in the
same manner as benefits otherwise payable under the Plan, provided that any
future benefit eligibility requirements are met.
SECTION 6
TRANSFER OF EMPLOYMENT TO MINORITY-OWNED ENTITY
If a Participant is transferred from the employment of the Corporation or a
Subsidiary to an entity the equity of which (directly or indirectly) is owned
10% or more (but 50% or less) by the Corporation (a "Minority-Owned Entity"),
the benefits earned while a Participant will be frozen (except that Interest
Credits under section 4.4, if applicable, shall continue) and will be paid in
the event that the Participant subsequently becomes disabled while employed by
the Minority-Owned Entity or retires from the employment of the Minority-Owned
Entity.
SECTION 7
DESIGNATION OF BENEFICIARIES
A Participant shall designate a Beneficiary or Beneficiaries to receive the
balance of the Participant's Account upon the Participant's death. Such
designation shall be on a form approved by the Plan Manager and shall not be
effective until it is received by the Plan Manager. If no valid Beneficiary
designation form is on file with the Plan Manager upon the Participant's death,
then the balance of the Participant's Account shall be payable to the
Beneficiary designated by the Participant under the Employer's group life
insurance plan, or, if no such designation exists, to the Participant's estate.
13
<PAGE> 14
SECTION 8
PAYMENT OF BENEFITS
The benefits payable to a Participant under this Plan shall be made from the
general revenues of the entity that employs the Participant on the date of the
Participant's Vested Termination of Employment.
SECTION 9
DEFERRAL OF BENEFITS
9.1 Deferral Election
A Participant may elect to defer the commencement of the payment of his
or her benefits under this Plan. A Participant's Deferral Election Form
must be received by the Plan Manager at least one year prior to the
Participant's Vested Termination of Employment. The Deferral Election
Form shall specify the year in which payment shall commence and the
form of distribution.
9.2 Hardship Distribution
Upon approval by the Plan Manager, in his or her sole and absolute
discretion, payment of a Participant's Deferred Benefits under the Plan
shall be made in the event of a Participant's Hardship. Payment of any
Hardship distribution shall be made in a single lump sum as soon as
administratively feasible after approval.
SECTION 10
RIGHTS OF PARTICIPANTS
No Participant shall have any rights to any payment under this Plan until Vested
Termination of Employment and in no event shall the interests of Participants
under this Plan be in any way subject to their debts or other obligations and
may not be voluntarily or involuntarily sold, transferred, or assigned.
14
<PAGE> 15
SECTION 11
TRUST FUND
No assets of the Corporation or any Employer shall be segregated or earmarked in
respect to any benefits, and all such benefits shall constitute unsecured
contractual obligations of the Employer. If the Corporation chooses to
contribute to the Trust to offset its obligation under this Plan, all assets or
property held by the Trust shall at all times remain subject to the claims of
the general creditors of the Corporation or any Employer.
SECTION 12
CLAIMS PROCEDURE
12.1 Initial Claim
Claims for benefits under the Plan shall be filed with the Plan
Manager. If any Participant or Beneficiary claims to be entitled to a
benefit under the Plan and the Plan Manager determines that such claim
should be denied in whole or in part, the Plan Manager shall notify
such person of its decision in writing. Such notification will be
written in a manner calculated to be understood by such person and will
contain (i) specific reasons for the denial, (ii) specific reference to
pertinent Plan provisions, (iii) a description of any additional
material or information necessary for such person to perfect such claim
and an explanation of why such material or information is necessary and
(iv) information as to the steps to be taken if the person wishes to
submit a request for review. Such notification will be given within 90
days after the claim is received by the Plan Manager. If such
notification is not given within such period, the claim will be
considered denied as of the last day of such period and such person may
request a review of his or her claim.
12.2 Review Procedure
Within 60 days after the date on which a Participant or Beneficiary
receives a written notice of a denied claim (or, if applicable, within
60 days after the date on which such denial is considered to have
occurred) such person (or his or her duly authorized representative)
may (i) file a written request with the Committee for a review of his
or her denied claim and of pertinent documents and (ii) submit written
issues and comments to the Committee. The Committee will notify such
person of its decision in writing. Such notification will be written in
a manner calculated to be understood by such person and will contain
specific reasons for the decision as well as specific references to
pertinent Plan provisions. The decision on review will be made within
60 days after the request for review is received by the Committee. If
the decision on review is not made within such period, the claim will
be considered denied.
15
<PAGE> 16
12.3 Claims and Review Procedure Not Mandatory After a Change in Control
After the occurrence of a Change in Control, the claims procedure and
review procedure provided for in this section 12 shall be provided for
the use and benefit of Participants who may choose to use such
procedures, but compliance with the provisions of this section 12 shall
not be mandatory for any Participant claiming benefits after a Change
in Control. It shall not be necessary for any Participant to exhaust
these procedures and remedies after a Change in Control prior to
bringing any legal claim or action, or asserting any other demand, for
payments or other benefits to which such Employee claims entitlement.
SECTION 13
ADMINISTRATION
This Plan shall be administered by the Committee, and it shall have the sole
authority to resolve any questions which arise hereunder.
This Plan is intended to be "a plan which is unfunded and is maintained by an
employer primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees" within the meaning
of sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and shall be administered
in a manner consistent with that intent.
SECTION 14
AMENDMENT AND TERMINATION
The Plan may be amended or terminated by the Board at any time, and any
Subsidiary of PNC that has adopted the Plan may withdraw from further
participation in the Plan at any time; provided, however, that no such
amendment, termination or withdrawal (each, a "Plan Change") shall reduce or in
any way adversely affect (i) the retirement or disability benefits payable
hereunder with respect to a Participant who is entitled to disability benefits
by reason of having become disabled prior to the date of the Plan Change or who
has terminated employment with the Employer prior to the date of such Plan
Change or (ii) the amount of, or payment of, the Accrued Benefit (as hereinafter
defined) of any other Participant as of the date of such Plan Change.
16
<PAGE> 17
For purposes of this section 14, the term "Accrued Benefit" means, for a
Grandfathered Participant, the benefit that would be payable to the Participant
hereunder assuming that (i) the Participant terminated employment immediately
prior to the Plan Change, and (ii) solely for the purpose of determining the
Participant's eligibility for Vested Termination of Employment under this Plan
and not for purposes of determining the amount of benefit, that the Participant
had completed five years of Vesting Service (to the extent that the Participant
had not yet completed such years of Vesting Service immediately prior to the
Plan Change). The term "Accrued Benefit" means, for a Participant who is not a
Grandfathered Participant, an amount equal to the balance of the Participant's
Account immediately prior to the Plan Change.
After a Change in Control, the Plan may not be amended in any manner that
adversely affects the administration or payment of a Participant's benefits
hereunder (including but not limited to the timing and form or payment of
benefits hereunder) without the consent of the Participant nor may the
provisions of this section 14, section 15 or, for a Participant who is not a
Grandfathered Participant, section 4.4, be amended after a Change in Control
with respect to a Participant without the written consent of the Participant;
provided, however, that the failure of a Participant to consent to any such
amendment shall not impair the ability of the Committee to amend the Plan with
respect to any other Participant who has consented to such amendment.
SECTION 15
SUCCESSORS
In addition to any obligations imposed by law upon any successor(s) to the
Corporation and the Employers, the Corporation and the Employers shall be
obligated to require any successor(s) (whether direct or indirect, by purchase,
merger, consolidation, operation of law or otherwise) to all or substantially
all of the business and/or assets of the Corporation and the Employers to
expressly assume and agree to perform under this Plan in the same manner and to
the same extent that the Corporation and the Employers would be required to
perform under it if no such succession had taken place; in the event of such a
succession, references to "Corporation" and "Employers" herein shall thereafter
be deemed to include such successor(s).
SECTION 16
GOVERNING LAW
The Plan shall be governed according to the laws of the Commonwealth of
Pennsylvania to the extent not preempted by federal law.
17
<PAGE> 18
SECTION 17
FUNDING OF BENEFITS
In the sole discretion of the Corporation, the Corporation may establish a
grantor trust and make contributions thereto for the purpose of providing a
source of funds to pay benefits as they become due and payable hereunder;
provided, however, that no such trust shall result in a Participant being
required to include in gross income for federal income tax purposes any benefits
payable hereunder prior to the date of actual payment. Notwithstanding the
establishment of any such trust, a Participant's rights hereunder shall be
solely those of a general unsecured creditor of the Corporation and the
Employers.
18
<PAGE> 19
* * * *
Executed and adopted by the Director of Human Resources of PNC Bank Corp. this
_____ day of ____________________, 1999.
---------------------------
William E. Rosner
Director of Human Resources
19
<PAGE> 20
SCHEDULE A
SUBSIDIARIES
PNC Bank, N.A.
PNC Capital Markets, Inc.
PNC Bank Corp.
PNC Bank, FSB
PNC Alliance, Inc.
PNC Equity Management Corp.
PNC Management Services Corp.
PNC Leasing Corp.
PNC Brokerage Corp
PNC Bank, Delaware
Delvest, Inc.
BlackRock Institutional Management Corp.
PFPC, Inc.
PFPC Trust Co.
Midland Loan Services, Inc.
Columbia Housing Partners, L.P.
PNC Affordable Housing Inc.
PNC Bank, New England
PNC Mortgage Corp. of America
PNC Mortgage Securities Corp.
PNC Commercial Corp.
PNC Commercial Management, Inc.
Provident Advisers, Inc.
BlackRock Financial Mgmt (Partners)
BlackRock Financial Management, Inc.
CastleInternational Asset Management, Inc.
Provident Capital Management
Compass Capital Group, Inc.
J.J.B. Hilliard, W.L. Lyons, Inc. and Hilliard Lyons Trust Company
and their affiliates and subsidiaries
<PAGE> 21
SCHEDULE B
EXECUTIVE BONUS PLANS
<TABLE>
<CAPTION>
===============================================================================================
PLAN CODE LOB PLAN NAME
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
C02 Secured Lending PNC Business Credit
- -----------------------------------------------------------------------------------------------
C04 PNC Advisors IM & T Institutional Trust Sales Team
- -----------------------------------------------------------------------------------------------
C10 Secured Lending PNC Leasing Corp.
- -----------------------------------------------------------------------------------------------
C11 Corporate Bank Leveraged Finance Incentive
- -----------------------------------------------------------------------------------------------
C13 Corporate Bank Capital Markets (Investment Banking)
- -----------------------------------------------------------------------------------------------
C14 Corporate Bank Client Relationship Team
- -----------------------------------------------------------------------------------------------
C16 Corporate Bank Treasury Management Incentive
- -----------------------------------------------------------------------------------------------
E01 Secured Lending Commercial Finance Incentive
- -----------------------------------------------------------------------------------------------
F02 Mutual Fund Servicing PFPC Accountant Performance Award Program
- -----------------------------------------------------------------------------------------------
F06 Mutual Fund Servicing PFSG Incentive for Key Management Group
- -----------------------------------------------------------------------------------------------
G02 Secured Lending Relationship Manager (R/E)
- -----------------------------------------------------------------------------------------------
G04 Secured Lending CMBS
- -----------------------------------------------------------------------------------------------
G08 Secured Lending Midland Performance Bonus Plan
- -----------------------------------------------------------------------------------------------
H01 Credit Policy CRC PNC Capital Recovery Corp.
- -----------------------------------------------------------------------------------------------
K01 Consumer Bank PNC Insurance Group
- -----------------------------------------------------------------------------------------------
M14 Mortgage PNC Mortgage - Sales VP Incentive
- -----------------------------------------------------------------------------------------------
M18 Mortgage PNC MCA Mortgage Center/Process Managers
- -----------------------------------------------------------------------------------------------
M19 Mortgage PNC MCA Purchase Program Ops. Managers (Lucken)
- -----------------------------------------------------------------------------------------------
M23 Mortgage National Accounts - Executive
- -----------------------------------------------------------------------------------------------
M25 Mortgage Purchase Program National Sales Mgmt. (Bulletin)
- -----------------------------------------------------------------------------------------------
M27 Mortgage Senior VP Regional Manager
- -----------------------------------------------------------------------------------------------
M35 Mortgage Senior VP Production Ops. (Meola)
- -----------------------------------------------------------------------------------------------
M36 Mortgage Executive VP - Strategic Bus. Devel (96)
- -----------------------------------------------------------------------------------------------
M38 Mortgage Structured Finance
- -----------------------------------------------------------------------------------------------
M40 Mortgage SVP - Structured Finance
- -----------------------------------------------------------------------------------------------
M41 Mortgage SVP - Secondary Marketing
- -----------------------------------------------------------------------------------------------
M42 Mortgage SVP - Bonus Plan
- -----------------------------------------------------------------------------------------------
Q01 Equity Management PNC Equity Management Corp. Incentive
- -----------------------------------------------------------------------------------------------
R37 Consumer Bank Consumer Lending
- -----------------------------------------------------------------------------------------------
T01 PNC Advisors Equity Research Team
===============================================================================================
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
===============================================================================================
PLAN CODE LOB PLAN NAME
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
T02 BlackRock Fixed Income Research Team
- -----------------------------------------------------------------------------------------------
T05 PNC Advisors Team Performance - AMG
- -----------------------------------------------------------------------------------------------
V01 PNC Advisors PNC Brokerage Corporate Sales Incentive Plan
- -----------------------------------------------------------------------------------------------
V12 PNC Advisors Executive Sales Management
- -----------------------------------------------------------------------------------------------
V14 PNC Advisors Private Bank Managers Incentive
- -----------------------------------------------------------------------------------------------
V15 PNC Advisors Regional Sales Managers IM & T
===============================================================================================
</TABLE>
<PAGE> 1
Exhibit 10.2
ERISA EXCESS PENSION PLAN
AMENDED AND RESTATED
(EFFECTIVE AS OF JANUARY 1, 1999)
WHEREAS, PNC Bank Corp. (the "Corporation") previously adopted and
presently maintains the PNC Bank Corp. Supplemental Pension Plan (the "Plan")
originally effective as of December 1, 1984;
WHEREAS, the Corporation desires to amend and restate the Plan in its
entirety, effective January 1, 1999, in order to reflect the conversion of the
PNC Bank Corp. Pension Plan to a cash balance design with transition benefits,
incorporate all prior amendments into the Plan document and make such other
changes as deemed necessary or appropriate; and
WHEREAS, section 5 of the Plan authorizes the Corporation to amend the
Plan at any time.
NOW, THEREFORE, in consideration of the foregoing, the Plan is hereby
amended and restated in its entirety to read as follows:
SECTION 1
DEFINITIONS
As used in this Plan, initially capitalized terms that are not otherwise defined
herein shall have the meaning given to them in the PNC Bank Corp. Pension Plan
as amended from time to time. The following words and phrases shall have the
meanings assigned to them herein, unless the context otherwise requires.
1.1 "Account" means the bookkeeping record used under this Plan solely to
communicate a Participant's or Beneficiary's Accrued Benefit expressed
as a single dollar amount.
1.2 "Change in Control" has the meaning assigned to such term in the PNC
Bank Corp. Supplemental Executive Retirement Plan as amended from time
to time.
1.3 "Committee" means the committee appointed to administer the Pension
Plan.
1.4 "Deferred Compensation Plan" means the PNC Bank Corp. and Affiliates
Deferred Compensation Plan as amended from time to time.
1
<PAGE> 2
1.5 "Excess Benefits" means the difference between (A) the amount of an
Employee's benefit under the Pension Plan computed without taking into
consideration the limitation on benefits contained in section
401(a)(17) and section 415 of the Code and, effective January 1, 1999,
computed as if "Compensation" as defined in the Pension Plan included
bonus amounts deferred under the Deferred Compensation Plan and (B) the
amount of an Employee's benefit actually computed under the Pension
Plan.
For a Participant who incurred a Total Disability prior to 1999 and
who, for purposes of the PNC Bank Corp. Supplemental Executive
Retirement Plan, was a "Participant" (as defined therein) as of
December 31, 1998, Excess Benefits also shall include the difference
between (C) the aggregate amount of the Participant's benefit under the
Pension Plan and this Plan computed using Earnings Credits that reflect
Compensation that, for any period, is a pro rata portion of annual
Compensation equal to the sum of (i) the rate of base pay in effect at
the time of Total Disability and (ii) variable pay (limited as
described in the definition of Compensation in the Pension Plan) equal
to the annual bonus amount earned for the calendar year prior to such
Total Disability and (D) the aggregate amount of the Participant's
benefit otherwise computed under the Pension Plan and this Plan.
1.6 "Participant" means any Employee who meets the eligibility criteria set
forth in section 2 of the Plan.
1.7 "Pension Plan" means the PNC Bank Corp. Pension Plan as in effect on
January 1, 1999 and as amended from time to time thereafter.
1.8 "Plan" means this PNC Bank Corp. ERISA Excess Pension Plan as amended
from time to time.
1.9 "Plan Manager" means any individual designated by the Committee to
manage the operation of the Plan as herein provided or to whom the
Committee has duly delegated any of its duties and obligations
hereunder.
1.10 "Trust" means the grantor trust established by the Corporation to
assist in funding its obligations under the Plan.
2
<PAGE> 3
SECTION 2
ELIGIBILITY FOR PARTICIPATION
AND CESSATION OF PARTICIPATION
An Employee who participates in the Pension Plan is eligible to participate in
this Plan if the Employee has Excess Benefits. If an Employee ceases to
participate in the Pension Plan, the Employee is no longer eligible to
participate in this Plan. Such Participant's Account shall be frozen as of the
date he or she ceases participation, except that interest will continue to be
credited under section 3 of the Plan. Such frozen benefit will be payable at the
same time and in the same manner as benefits otherwise payable under the Plan.
SECTION 3
BENEFITS
An Account shall be established and maintained for each Participant to which
Excess Benefits shall be allocated. A Participant's Account under this Plan
shall be allocated Earnings Credits, Transitional Earnings Credits and Interest
Credits in the same manner as under the Pension Plan. In addition, a
Participant's opening Account balance shall be determined in the same manner as
under the Pension Plan.
SECTION 4
DISTRIBUTION
The benefits under this Plan are payable in accordance with all the terms and
conditions applicable to the Participant's benefits under the Pension Plan.
The calculation of the amounts of optional forms of benefit shall utilize the
same adjustment factors as used in the Pension Plan, and it is intended that
these factors will be monitored and amended as necessary to meet the provisions
of Treasury Regulation section 3121(v)(2)-1(C)(2)(iii)(B)(3).
3
<PAGE> 4
SECTION 5
TRUST FUND
No assets of the Corporation or any Employer shall be segregated or earmarked in
respect to any benefits, and all such benefits shall constitute unsecured
contractual obligations of the Employer. If the Corporation chooses to
contribute to the Trust to offset its obligation under this Plan, all assets or
property held by the Trust shall at all times remain subject to the claims of
the general creditors of the Corporation or any Employer.
SECTION 6
CLAIMS PROCEDURE
6.1 Initial Claim
Claims for benefits under the Plan shall be filed with the Plan
Manager. If any Participant or Beneficiary claims to be entitled to a
benefit under the Plan and the Plan Manager determines that such claim
should be denied in whole or in part, the Plan Manager shall notify
such person of its decision in writing. Such notification will be
written in a manner calculated to be understood by such person and will
contain (i) specific reasons for the denial, (ii) specific reference to
pertinent Plan provisions, (iii) a description of any additional
material or information necessary for such person to perfect such claim
and an explanation of why such material or information is necessary and
(iv) information as to the steps to be taken if the person wishes to
submit a request for review. Such notification will be given within 90
days after the claim is received by the Plan Manager. If such
notification is not given within such period, the claim will be
considered denied as of the last day of such period and such person may
request a review of his or her claim.
6.2 Review Procedure
Within 60 days after the date on which a Participant or Beneficiary
receives a written notice of a denied claim (or, if applicable, within
60 days after the date on which such denial is considered to have
occurred) such person (or his or her duly authorized representative)
may (i) file a written request with the Committee for a review of his
or her denied claim and of pertinent documents and (ii) submit written
issues and comments to the Committee. The Committee will notify such
person of its decision in writing. Such notification will be written in
a manner calculated to be understood by such person and will contain
specific reasons for the decision as well as specific references to
pertinent Plan provisions. The decision on review will be made within
60 days after the request for review is received by the Committee. If
the decision on review is not made within such period, the claim will
be considered denied.
4
<PAGE> 5
6.3 Claims and Review Procedure Not Mandatory After a Change in Control
After the occurrence of a Change in Control, the claims procedure and
review procedure provided for in this section 6 shall be provided for
the use and benefit of Participants who may choose to use such
procedures, but compliance with the provisions of this section 6 shall
not be mandatory for any Participant claiming benefits after a Change
in Control. It shall not be necessary for any Participant to exhaust
these procedures and remedies after a Change in Control prior to
bringing any legal claim or action, or asserting any other demand, for
payments or other benefits to which such Employee claims entitlement.
SECTION 7
ADMINISTRATION
The Committee shall administer the Plan. The Committee shall have the same
rights, powers and duties as specified in the Pension Plan.
SECTION 8
AMENDMENT AND TERMINATION
The Plan may be amended or terminated by the Board at any time, and any Employer
may withdraw from further participation in the Plan at any time; provided,
however, that no such amendment, termination or withdrawal (each, a "Plan
Change") shall, without the consent of each affected Participant, reduce or in
any way adversely affect (i) the benefits payable hereunder with respect to a
Participant who has terminated employment with the Corporation or an Employer
(as applicable) prior to the date of such Plan Change or (ii) the amount of, or
payment of, the Accrued Benefit (as hereinafter defined) of any other
Participant as of the date of such Plan Change.
For purposes of this section 8, the term "Accrued Benefit" means an amount equal
to the balance of a Participant's Account immediately prior to the Plan Change.
After a Change in Control, the Plan may not be amended in any manner that
adversely affects the administration or payment of a Participant's benefits
hereunder (including but not limited to the timing and form or payment of
benefits hereunder) without the consent of the Participant nor may the
provisions of this section 8, section 9 or, for purposes of this Plan, "Interest
Credits" as defined in the Pension Plan immediately prior to the Plan Change, be
amended after a Change in Control with respect to a Participant without the
written consent of the Participant; provided, however, that the failure of a
Participant to consent to any such amendment shall not impair the ability of the
Committee to amend the Plan with respect to any other Participant who has
consented to such amendment.
5
<PAGE> 6
SECTION 9
SUCCESSORS
In addition to any obligations imposed by law upon any successor(s) to the
Corporation and the Employers, the Corporation and the Employers shall be
obligated to require any successor(s) (whether direct or indirect, by purchase,
merger, consolidation, operation of law, or otherwise) to all or substantially
all of the business and/or assets of the Corporation and the Employers to
expressly assume and agree to perform under this Plan in the same manner and to
the same extent that the Corporation and the Employers would be required to
perform under it if no such succession had taken place; in the event of such a
succession, references to "Corporation" and "Employers" herein shall thereafter
be deemed to include such successor(s).
SECTION 10
GOVERNING LAW
This Plan shall be governed according to the laws of the Commonwealth of
Pennsylvania to the extent not preempted by federal law.
SECTION 11
FUNDING OF BENEFITS
In the sole discretion of the Corporation, the Corporation may establish a
grantor trust and make contributions thereto for the purpose of providing a
source of funds to pay benefits as they become due and payable hereunder;
provided, however, that no such trust shall result in a Participant being
required to include in gross income for federal income tax purposes any benefits
payable hereunder prior to the date of actual payment. Notwithstanding the
establishment of any such trust, a Participant's rights hereunder shall be
solely those of a general unsecured creditor.
6
<PAGE> 7
* * * *
Executed and adopted by the Director of Human Resources of PNC Bank Corp. this
_____ day of ____________________, 1999.
---------------------------
William E. Rosner
Director of Human Resources
7
<PAGE> 1
Exhibit 10.3
PNC BANK CORP.
KEY EXECUTIVE EQUITY PROGRAM
AMENDED AND RESTATED
(EFFECTIVE AS OF JANUARY 1, 1999)
WHEREAS, PNC Bank Corp. (the "Corporation") previously adopted and
presently maintains the PNC Bank Corp. Supplemental Executive Life Insurance and
Spouse's Benefit Plan (the "Plan") originally effective as of January 1, 1987;
WHEREAS, the Corporation desires to amend and restate the Plan in its
entirety, effective January 1, 1999, in order to incorporate all prior
amendments into the Plan document and make such other changes as deemed
necessary or appropriate; and
WHEREAS, section 7 of the Plan authorizes the Corporation to amend the
Plan at any time.
NOW, THEREFORE, in consideration of the foregoing, the Plan is hereby
amended and restated in its entirety to read as follows:
SECTION 1
DEFINITIONS
1.1 "Annual Base Salary" means for the purpose of determining life
insurance benefits, the biweekly rate of pay that is in effect at the
time a Participant retires under the Pension Plan multiplied by 26.
1.2 "Beneficiary" means the person, persons, or entity designated as
Beneficiary by the Participant in the records maintained for this Plan
of the Prior Plans, or absent such designation, the Beneficiary
designated by the Participant under the Employer's group life insurance
plan, or, if no such designation exists, to the Participant's estate.
1.3 "Board" means the Board of Directors of the Corporation.
1.4 "Change in Control" has the meaning assigned such term in the PNC Bank
Corp. Supplemental Executive Retirement Plan as amended from time to
time.
1.5 "Committee" means the Personnel and Compensation Committee of the
Board.
1.6 "Corporation" means PNC Bank Corp. and any successors thereto.
1
<PAGE> 2
1.7 "Disability" means the Participant's eligibility to receive benefits
under the Employer's long-term disability plan.
1.8 "Employer" means the Corporation and any Subsidiary that has been
designated by the Plan Manager as an Employer hereunder and listed in
Schedule A hereto.
1.9 "Executive Bonus Plan" means the plans designated by the Plan Manager
as participating hereunder and listed in Schedule B hereto.
1.10 "Participant" means all persons who were Participants in the Prior
Plans and, at the discretion of the Board, any other person employed by
the Corporation and its Subsidiaries who has been granted a stock
option under the Corporation's Executive Bonus Plan.
1.11 "Pension Plan" means the PNC Bank Corp. Pension Plan as amended from
time to time.
1.12 "Plan" means this PNC Bank Corp. Key Executive Equity Program.
1.13 "Plan Manager" means any individual designated by the Committee to
manage the operation of the Plan as herein provided or to whom the
Committee has duly delegated any of its duties and obligations
hereunder.
1.14 "Prior Plans" means the Executive Group Life Insurance Plan of
Pittsburgh National Bank, the Death Benefit Section of the Supplemental
Excess Retirement Plan of Provident National Bank, the Supplemental
Insurance Plan of Marine Bank and the Supplemental Insurance Plan of
Northeastern Bank.
1.15 "Retirement" means that the Participant has attained age 55 and
completed five years of Vesting Service.
1.16 "Subsidiary" means any business entity the equity of which (directly or
indirectly) is owned 50% or more by the Corporation.
1.17 "Trust" means the grantor trust established by the Corporation to
assist in funding its obligations under the Plan.
1.18 "Vesting Service" has the meaning assigned such term in the Pension
Plan.
2
<PAGE> 3
SECTION 2
BENEFITS
2.1 Pre-Retirement Life Insurance
Except as provided in the following subparagraphs for Participants in
Prior Plans, the pre-retirement life insurance benefit shall be equal
to the amount of insurance elected by the Participant or assigned by
the Employer.
(a) Pittsburgh National Bank
The benefit shall be an amount which is equal to the Annual
Base Salary multiple elected by the Participant under the
Executive Group Life Insurance Plan of Pittsburgh National
Bank.
(b) Provident National Bank
The benefit shall be an amount equal to three times the
Participant's Annual Base Salary rate in effect on January 30,
1985.
(c) Marine Bank
The benefit shall be an amount equal to three times the
Participant's Annual Base Salary rate in effect on January 30,
1985.
2.2 Post-Retirement Life Insurance Benefit
Except as provided in the following subparagraphs for Participants in
the Prior Plans, the post-retirement life insurance benefit shall be
equal to an amount which is equal to the Participant's Annual Base
Salary rate in effect immediately preceding the Participant's
Retirement.
(a) Pittsburgh National Bank
The benefit shall be an amount which is equal to the multiple
of the Annual Base Salary elected by the Participant under the
Executive Group Life Insurance Plan of Pittsburgh National
Bank.
(b) Marine Bank
The benefit shall be equal to three times the Annual Base
Salary rate in effect on January 30, 1985.
3
<PAGE> 4
(c) Northeastern Bank
The benefit shall be equal to the face amount of the
individually owned policy less amounts due Northeastern Bank
to satisfy the insurance obligation.
SECTION 3
RIGHTS OF PARTICIPANTS
No Beneficiary shall have any rights to any payment under this Plan except at
the death of the Participant, and in no event shall the interests of
Participants or Beneficiaries under this Plan be in any way subject to their
debts or other obligations and may not be voluntarily or involuntarily sold,
transferred or assigned without the express written consent of the Corporation.
SECTION 4
TERMINATION OF EMPLOYMENT
If a Participant's employment with the Employer is terminated for any reason
other than Retirement, Disability or death, all benefits provided by this Plan
shall cease.
SECTION 5
TRUST FUND
No assets of the Corporation or any Employer shall be segregated or earmarked in
respect to any benefits, and all such benefits shall constitute unsecured
contractual obligations of the Employer. If the Corporation chooses to
contribute to the Trust to offset its obligation under this Plan, all assets or
property held by the Trust shall at all times remain subject to claims of the
general creditors of the Corporation or any Employer.
4
<PAGE> 5
SECTION 6
CLAIMS PROCEDURE
6.1 Initial Claim
Claims for benefits under the Plan shall be filed with the Plan
Manager. If any Participant or Beneficiary claims to be entitled to a
benefit under the Plan and the Plan Manager determines that such claim
should be denied in whole or in part, the Plan Manager shall notify
such person of its decision in writing. Such notification will be
written in a manner calculated to be understood by such person and will
contain (i) specific reasons for the denial, (ii) specific reference to
pertinent Plan provisions, (iii) a description of any additional
material or information necessary for such person to perfect such claim
and an explanation of why such material or information is necessary and
(iv) information as to the steps to be taken if the person wishes to
submit a request for review. Such notification will be given within 90
days after the claim is received by the Plan Manager. If such
notification is not given within such period, the claim will be
considered denied as of the last day of such period and such person may
request a review of his or her claim.
6.2 Review Procedure
Within 60 days after the date on which a Participant or Beneficiary
receives a written notice of a denied claim (or, if applicable, within
60 days after the date on which such denial is considered to have
occurred) such person (or his or her duly authorized representative)
may (i) file a written request with the Committee for a review of his
or her denied claim and of pertinent documents and (ii) submit written
issues and comments to the Committee. The Committee will notify such
person of its decision in writing. Such notification will be written in
a manner calculated to be understood by such person and will contain
specific reasons for the decision as well as specific references to
pertinent Plan provisions. The decision on review will be made within
60 days after the request for review is received by the Committee. If
the decision on review is not made within such period, the claim will
be considered denied.
6.3 Claims and Review Procedure Not Mandatory After a Change in Control
After the occurrence of a Change in Control, the claims procedure and
review procedure provided for in this section 6 shall be provided for
the use and benefit of Participants who may choose to use such
procedures, but compliance with the provisions of this section 6 shall
not be mandatory for any Participant claiming benefits after a Change
in Control. It shall not be necessary for any Participant to exhaust
these procedures and remedies after a Change in Control prior to
bringing any legal claim or action, or asserting any other demand, for
payments or other benefits to which such Employee claims entitlement.
5
<PAGE> 6
SECTION 7
AMENDMENT AND TERMINATION
The Plan may be amended or terminated by the Board at any time, and any
Subsidiary that has adopted the Plan may withdraw from further participation in
the Plan at any time; provided, however, that no such amendment, termination or
withdrawal shall reduce or adversely affect any amounts due hereunder to the
Beneficiary of a Participant.
After a Change in Control, the Plan may not be amended in any manner that
adversely affects the administration or payment of a Participant's benefits
hereunder (including but not limited to the timing and form or payment of
benefits hereunder) without the consent of the Participant nor may the
provisions of this section 7, section 8 or section 9 be amended after a Change
in Control with respect to a Participant without the written consent of the
Participant; provided, however, that the failure of a Participant to consent to
any such amendment shall not impair the ability of the Committee to amend the
Plan with respect to any other Participant who has consented to such amendment.
SECTION 8
CERTAIN REQUIRED POLICY TRANSFERS
If, after a Change in Control, either (i) the Plan is terminated and is not
replaced by a plan that provides substantially equivalent benefits to
Participants in this Plan or (ii) the Corporation ceases making premium payments
on one or more of the split dollar life insurance policies (the "Split Dollar
Policies") that cover Participants hereunder, then (x) in the case of a
termination described in the precedent clause (i), all of the Split Dollar
Policies shall be promptly transferred to the respective Participants on whose
lives the policies were issued, and (y) in the case of a cessation of premium
payments described in the preceding clause (ii), the Split Dollar Policies on
which premiums have ceased shall be promptly transferred to the respective
Participants on whose lives the policies were issued. Such transfers shall be
made without the payment of any consideration by the affected Participants.
6
<PAGE> 7
SECTION 9
SUCCESSORS
In addition to any obligations imposed by law upon any successor(s) to the
Corporation and the Employers, the Corporation and the Employers shall be
obligated to require any successor(s) (whether direct or indirect, by purchase,
merger, consolidation, operation of law, or otherwise) to all or substantially
all of the business and/or assets of the Corporation and the Employers to
expressly assume and agree to perform this Plan in the same manner and to the
same extent that the Corporation and the Employers would be required to perform
it if no such succession had taken place; in the event of such a succession,
references to "Corporation" and "Employers" herein shall thereafter be deemed to
include such successor(s).
SECTION 10
ADMINISTRATION
This Plan shall be administered by the Committee, and it shall have the sole
authority to resolve any questions which arise hereunder.
SECTION 11
GOVERNING LAW
This Plan shall be governed according to the laws of the Commonwealth of
Pennsylvania to the extent not preempted by federal law.
SECTION 12
FUNDING OF BENEFITS
In the sole discretion of the Corporation, the Corporation may establish a
grantor trust and make contributions thereto for the purpose of providing a
source of funds to pay benefits as they become due and payable hereunder;
provided, however, that no such trust shall result in a Participant being
required to include in gross income for federal income tax purposes any benefits
payable hereunder prior to the date of actual payment. Notwithstanding the
establishment of any such trust, a Participant's rights hereunder shall be
solely those of a general unsecured creditor.
7
<PAGE> 8
* * * *
Executed and adopted by the Director of Human Resources of PNC Bank Corp. this
_____ day of ____________________, 1999.
___________________________
William E. Rosner
Director of Human Resources
8
<PAGE> 9
SCHEDULE A
SUBSIDIARIES
PNC Bank, N.A.
PNC Capital Markets, Inc.
PNC Bank Corp.
PNC Bank, FSB
PNC Alliance, Inc.
PNC Equity Management Corp.
PNC Management Services Corp.
PNC Leasing Corp.
PNC Brokerage Corp
PNC Bank, Delaware
Delvest, Inc.
BlackRock Institutional Management Corp.
PFPC, Inc.
PFPC Trust Co.
Midland Loan Services, Inc.
Columbia Housing Partners, L.P.
PNC Affordable Housing Inc.
PNC Bank, New England
PNC Mortgage Corp. of America
PNC Mortgage Securities Corp.
PNC Commercial Corp.
PNC Commercial Management, Inc.
Provident Advisers, Inc.
BlackRock Financial Mgmt (Partners)
BlackRock Financial Management, Inc.
CastleInternational Asset Management, Inc.
Provident Capital Management
Compass Capital Group, Inc.
J.J.B. Hilliard, W.L. Lyons, Inc. and Hilliard Lyons Trust Company
and their affiliates and subsidiaries
<PAGE> 10
SCHEDULE B
EXECUTIVE BONUS PLANS
<TABLE>
<CAPTION>
=================================================================================================
PLAN CODE LOB PLAN NAME
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
C02 Secured Lending PNC Business Credit
- -------------------------------------------------------------------------------------------------
C04 PNC Advisors IM & T Institutional Trust Sales Team
- -------------------------------------------------------------------------------------------------
C10 Secured Lending PNC Leasing Corp.
- -------------------------------------------------------------------------------------------------
C11 Corporate Bank Leveraged Finance Incentive
- -------------------------------------------------------------------------------------------------
C13 Corporate Bank Capital Markets (Investment Banking)
- -------------------------------------------------------------------------------------------------
C14 Corporate Bank Client Relationship Team
- -------------------------------------------------------------------------------------------------
C16 Corporate Bank Treasury Management Incentive
- -------------------------------------------------------------------------------------------------
E01 Secured Lending Commercial Finance Incentive
- -------------------------------------------------------------------------------------------------
F02 Mutual Fund Servicing PFPC Accountant Performance Award Program
- -------------------------------------------------------------------------------------------------
F06 Mutual Fund Servicing PFSG Incentive for Key Management Group
- -------------------------------------------------------------------------------------------------
G02 Secured Lending Relationship Manager (R/E)
- -------------------------------------------------------------------------------------------------
G04 Secured Lending CMBS
- -------------------------------------------------------------------------------------------------
G08 Secured Lending Midland Performance Bonus Plan
- -------------------------------------------------------------------------------------------------
H01 Credit Policy CRC PNC Capital Recovery Corp.
- -------------------------------------------------------------------------------------------------
K01 Consumer Bank PNC Insurance Group
- -------------------------------------------------------------------------------------------------
M14 Mortgage PNC Mortgage - Sales VP Incentive
- -------------------------------------------------------------------------------------------------
M18 Mortgage PNC MCA Mortgage Center/Process Managers
- -------------------------------------------------------------------------------------------------
M19 Mortgage PNC MCA Purchase Program Ops. Managers (Lucken)
- -------------------------------------------------------------------------------------------------
M23 Mortgage National Accounts - Executive
- -------------------------------------------------------------------------------------------------
M25 Mortgage Purchase Program National Sales Mgmt. (Bulletin)
- -------------------------------------------------------------------------------------------------
M27 Mortgage Senior VP Regional Manager
- -------------------------------------------------------------------------------------------------
M35 Mortgage Senior VP Production Ops. (Meola)
- -------------------------------------------------------------------------------------------------
M36 Mortgage Executive VP - Strategic Bus. Devel (96)
- -------------------------------------------------------------------------------------------------
M38 Mortgage Structured Finance
- -------------------------------------------------------------------------------------------------
M40 Mortgage SVP - Structured Finance
- -------------------------------------------------------------------------------------------------
M41 Mortgage SVP - Secondary Marketing
- -------------------------------------------------------------------------------------------------
M42 Mortgage SVP - Bonus Plan
- -------------------------------------------------------------------------------------------------
Q01 Equity Management PNC Equity Management Corp. Incentive
=================================================================================================
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
=================================================================================================
PLAN CODE LOB PLAN NAME
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
R37 Consumer Bank Consumer Lending
- -------------------------------------------------------------------------------------------------
T01 PNC Advisors Equity Research Team
- -------------------------------------------------------------------------------------------------
T02 BlackRock Fixed Income Research Team
- -------------------------------------------------------------------------------------------------
T05 PNC Advisors Team Performance - AMG
- -------------------------------------------------------------------------------------------------
V01 PNC Advisors PNC Brokerage Corporate Sales Incentive Plan
- -------------------------------------------------------------------------------------------------
V12 PNC Advisors Executive Sales Management
- -------------------------------------------------------------------------------------------------
V14 PNC Advisors Private Bank Managers Incentive
- -------------------------------------------------------------------------------------------------
V15 PNC Advisors Regional Sales Managers IM & T
=================================================================================================
</TABLE>
<PAGE> 1
Exhibit 10.4
PNC BANK CORP.
SUPPLEMENTAL INCENTIVE SAVINGS PLAN
AMENDED AND RESTATED
(EFFECTIVE JANUARY 1, 1999)
WHEREAS, PNC Bank Corp. (the "Corporation") and certain of its
affiliates previously adopted and presently maintain the PNC Bank Corp.
Supplemental Incentive Savings Plan (the "Plan") originally effective as of
January 1, 1989;
WHEREAS, the Corporation desires to amend and restate the Plan in its
entirety, effective January 1, 1999, in order to incorporate all prior
amendments into the Plan document and make such other changes as deemed
necessary or appropriate; and
WHEREAS, section 12 of the Plan authorizes the Corporation to amend the
Plan at any time.
NOW, THEREFORE, in consideration of the foregoing, the Plan is hereby
amended and restated in its entirety to read as follows:
SECTION 1
DEFINITIONS
As used in this Plan, initially capitalized terms that are not otherwise defined
herein shall have the meaning given to them in the PNC Bank Corp. Incentive
Savings Plan as amended from time to time. The following words and phrases shall
have the meanings assigned to them herein, unless the context otherwise
requires.
1.1 "Account" means that bookkeeping account established for each
Participant who is entitled to a benefit under this Plan. An Account is
established only for purposes of determining benefits hereunder and not
to segregate assets or to identify assets that may or must be used to
satisfy benefits. An Account will be credited with the amounts set
forth in section 3 of the Plan and will be credited or debited to
reflect deemed investment results under section 5 of the Plan.
1.2 "Affiliate" means any business entity whose relationship with the
Corporation is described in subsections (b), (c) or (m) of section 414
of the Code.
1.3 "Annual Cash Incentive Award" has the meaning assigned to such term in
the Deferred Compensation Plan.
1
<PAGE> 2
1.4 "Change in Control" has the meaning assigned to such term in the PNC
Bank Corp. Supplemental Executive Retirement Plan as amended from time
to time.
1.5 "Committee" means the committee appointed to administer the ISP.
1.6 "Corporate Executive Group" means the group designated as such by the
Corporation.
1.7 "Corporation" means PNC Bank Corp. and any successors thereto.
1.8 "Deferred Compensation Plan" means the PNC Bank Corp. and Affiliates
Deferred Compensation Plan as amended from time to time.
1.9 "Deferral Election" means a Participant's election under the ISP to
defer a percentage of his or her Compensation.
1.10 "Eligible Annual Cash Incentive Award" means the amount of a
Participant's Annual Cash Incentive Award, up to the greater of (i)
$25,000 or (ii) 50% of the Annual Cash Incentive Award; provided,
however, that for a Participant who is not a member of the Corporate
Executive Group, the Eligible Annual Cash Incentive Award may not
exceed $125,000.
1.11 "Employee" means any person employed by an Employer.
1.12 "Employer" means the Corporation and any Affiliate that has been
designated by the Plan Manager as an Employer hereunder and listed in
Schedule A hereto.
1.13 "Hardship" has the meaning assigned to such term in the Deferred
Compensation Plan.
1.14 "ISP" means the PNC Bank Corp. Incentive Savings Plan as amended from
time to time.
1.15 "Matching Contributions" has the meaning assigned such term in the ISP,
except that Employers listed in Schedule B hereto do not participate in
the Matching Contributions feature of this Plan.
1.16 "Participant" means an Employee who meets the eligibility criteria set
forth in section 2 hereof.
1.17 "Plan" means this PNC Bank Corp. Supplemental Incentive Savings Plan.
1.18 "Plan Manager" means any individual designated by the Committee to
manage the operation of the Plan as herein provided or to whom the
Committee has duly delegated any of its duties and obligations
hereunder.
1.19 "Trust" means the grantor trust established by the Corporation to
assist in funding its obligations under the Plan.
2
<PAGE> 3
SECTION 2
ELIGIBILITY FOR PARTICIPATION
An Employee is eligible to participate if: (i) the Employee participated in the
Plan on December 31, 1998; (ii) the Employee participates in both the ISP and
the Deferred Compensation Plan; (iii) the Employee participates in the ISP, the
Employee is eligible to participate in the Deferred Compensation Plan and the
Employee's Elective Contributions exceed the limit under Code section 402(g); or
(iv) the Employee's Compensation exceeds the maximum amount that may be taken
into account under Code section 401(a)(17).
SECTION 3
BENEFITS
3.1 Employer Contributions, Matching Contributions and Elective
Contributions
If Employer Contributions, Matching Contributions or Elective
Contributions allocated to a Participant's Account under the ISP are
reduced for any Plan Year to conform to sections 401(a)(17), 415 or
402(g) of the Code, the Corporation will credit the Participant's
Account under this Plan with an amount equal to the difference between
(A) the maximum amount of Employer Contributions, Matching
Contributions and Elective Contributions to which the Participant would
have been entitled pursuant to the Participant's Deferral Election Form
under the ISP if sections 401(a)(17), 415 and 402(g) of the Code were
not applicable and (B) the amount of Employer Contributions, Matching
Contributions and Elective Contributions credited to the Participant
under the ISP.
3.2 Deferrals under Deferred Compensation Plan
If a Participant receives an Annual Cash Incentive Award while
participating in this Plan and elects to defer payment of the Annual
Cash Incentive Award under the Deferred Compensation Plan, a portion of
the Eligible Annual Cash Incentive Award will be transferred to this
Plan. The portion that will be allocated to this Plan will equal the
percentage of Compensation the Participant has elected to defer under
the ISP multiplied by an amount equal to the difference between (A) the
Participant's "Compensation" under the ISP calculated as if Code
section 401(a)(17) were not applicable and the Participant had not made
a deferral under the Deferred Compensation Plan and (B) the
Participant's Compensation actually calculated under the ISP. The
Corporation shall make appropriate Matching Contributions not to exceed
6%.
3
<PAGE> 4
SECTION 4
DISTRIBUTION; VESTING
4.1 Time and Manner of Distribution
The amount to which the Participant or Beneficiary is entitled under
this Plan will be paid at such time and in such manner as benefits are
being paid to the Participant or Beneficiary under the ISP; provided,
however, that no amount shall be paid hereunder prior to the
Participant's retirement, death or other separation from service or, if
earlier, the Participant's entitlement to payment of any amount under
the ISP by reason of disability.
4.2 Hardship Distribution
At its sole discretion and at the request of a Participant before and
after the Participant's cessation of employment with the Employer, or
at the request of any of the Participant's Beneficiaries after the
Participant's death, the Committee may accelerate and pay all or part
of any amount of a Participant's Accounts under this Plan on account of
Hardship. The amount of an accelerated distribution will be limited to
the amount determined by the Committee to be necessary to satisfy the
financial emergency.
4.3 Vesting
Amounts in a Participant's Account shall be fully vested at all times.
SECTION 5
INVESTMENT FUNDS
Amounts credited to a Participant's Account under this Plan shall be deemed to
be invested in the same investment fund or funds selected by the Participant
under the ISP (as in effect at the time that contribution would have been made
on the Participant's behalf under the ISP were it not for the limitations
described in section 3 of the Plan). In the event that a Participant elects to
change the investment of amounts accumulated under the ISP, such change shall be
applicable proportionally to amounts held in the Participant's Account under
this Plan. A Participant's Account shall be valued daily.
4
<PAGE> 5
SECTION 6
CHANGES TO LIMITATIONS OF CONTRIBUTIONS AND BENEFITS
When Code sections are referenced herein, it is intended that these references
shall be to such sections as they may be amended from time to time, in order
that the determination of benefits payable under the Plan shall taken into
account any amendments to limitations of contributions or benefits imposed by
section 402 or section 415 of the Code. However, references in the Plan to
section 415(c) of the Code shall also reference section 415(d) of the Code with
the amounts therein adjusted pursuant to section 415(d) of the Code.
SECTION 7
TRUST FUND
No assets of the Corporation or any Employer shall be segregated or earmarked in
respect to any benefits, and all such benefits shall constitute unsecured
contractual obligations of the Employer. If the Corporation chooses to
contribute to the Trust to offset its obligation under this Plan, all assets or
property held by the Trust shall at all times remain subject to the claims of
the general creditors of the Corporation or any Employer.
SECTION 8
CLAIMS PROCEDURE
8.1 Initial Claim
Claims for benefits under the Plan shall be filed with the Plan
Manager. If any Participant or Beneficiary claims to be entitled to a
benefit under the Plan and the Plan Manager determines that such claim
should be denied in whole or in part, the Plan Manager shall notify
such person of its decision in writing. Such notification will be
written in a manner calculated to be understood by such person and will
contain (i) specific reasons for the denial, (ii) specific reference to
pertinent Plan provisions, (iii) a description of any additional
material or information necessary for such person to perfect such claim
and an explanation of why such material or information is necessary and
(iv) information as to the steps to be taken if the person wishes to
submit a request for review. Such notification will be given within 90
days after the claim is received by the Plan Manager. If such
notification is not given within such period, the claim will be
considered denied as of the last day of such period and such person may
request a review of his or her claim.
5
<PAGE> 6
8.2 Review Procedure
Within 60 days after the date on which a Participant or Beneficiary
receives a written notice of a denied claim (or, if applicable, within
60 days after the date on which such denial is considered to have
occurred) such person (or his or her duly authorized representative)
may (i) file a written request with the Committee for a review of his
or her denied claim and of pertinent documents and (ii) submit written
issues and comments to the Committee. The Committee will notify such
person of its decision in writing. Such notification will be written in
a manner calculated to be understood by such person and will contain
specific reasons for the decision as well as specific references to
pertinent Plan provisions. The decision on review will be made within
60 days after the request for review is received by the Committee. If
the decision on review is not made within such period, the claim will
be considered denied.
8.3 Claims and Review Procedure Not Mandatory After a Change in Control
After the occurrence of a Change in Control, the claims procedure and
review procedure provided for in this section 8 shall be provided for
the use and benefit of Participants who may choose to use such
procedures, but compliance with the provisions of this section 8 shall
not be mandatory for any Participant claiming benefits after a Change
in Control. It shall not be necessary for any Participant to exhaust
these procedures and remedies after a Change in Control prior to
bringing any legal claim or action, or asserting any other demand, for
payments or other benefits to which such Employee claims entitlement.
SECTION 9
ADMINISTRATION
The Committee shall administer the Plan. The Committee shall have the same
rights, powers and duties as specified in the ISP.
This Plan is intended to be "a plan which is unfunded and is maintained by an
employer primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees" within the meaning
of section 201(2), 301(a)(3) and 401(a)(1) of ERISA and shall be administered in
a manner consistent with that intent.
6
<PAGE> 7
SECTION 10
AMENDMENT AND TERMINATION
The Corporation retains the right to modify, amend or terminate the Plan;
provided, however, that no modification, amendment or termination shall, without
the consent of the Participant, adversely affect the rights of that Participant
to the benefits that have accrued under this Plan before such modification,
amendment or termination. Notice of every such modification, amendment or
termination shall be given in writing to each Participant.
After a Change in Control, the Plan may not be amended in any manner that
adversely affects the administration or payment of a Participant's benefits
hereunder (including but not limited to the timing and form of payment of
benefits hereunder) without the consent of the Participant nor may the
provisions of this section 10 or section 11 be amended after a Change in Control
with respect to a Participant without the written consent of the Participant;
provided, however, that the failure of a Participant to consent to any such
amendment shall not impair the ability of the Committee to amend the Plan with
respect to any other Participant who has consented to such amendment.
SECTION 11
SUCCESSORS
In addition to any obligations imposed by law upon any successor(s) to the
Corporation and the Employers, the Corporation and the Employers shall be
obligated to require any successor(s) (whether direct or indirect, by purchase,
merger, consolidation, operation of law, or otherwise) to all or substantially
all of the business and/or assets of the Corporation and the Employers to
expressly assume and agree to perform this Plan in the same manner and to the
same extent that the Corporation and the Employers would be required to perform
it if no such succession had taken place; in the event of such a succession,
references to "Corporation" and "Employers" herein shall thereafter be deemed to
include such successor(s).
SECTION 12
GOVERNING LAW
The Plan shall be governed according to the laws of the Commonwealth of
Pennsylvania to the extent not preempted by federal law.
7
<PAGE> 8
SECTION 13
MISCELLANEOUS
13.1 No Contract of Employment
Participation in the Plan does not give any person any right to be
retained in the service of the Corporation or any Affiliate. The right
and power of the Corporation or any Affiliate to terminate any Employee
is expressly reserved.
13.2 Compensation under Other Plans
Any amount deferred and/or payable under this Plan shall not be
considered Compensation for the purpose of computing benefits to which
such Participant may be entitled under any qualified pension plan (as
that term is defined in section 3(3) of ERISA) or other arrangement of
the Corporation or an Affiliate for the benefit of Employees, except as
specified in such plan or arrangement.
13.3 Withholding
The Corporation or an Affiliate shall have the right to deduct from
payment of any amount under the Plan any taxes required by law to be
withheld from a Participant or Beneficiary with respect to such
payment.
13.4 Spendthrift Clause
The interests of Participant and their Beneficiaries under the Plan are
not in any way subject to their debts or other obligations and may not
be voluntarily or involuntarily sold, transferred, or assigned, except
to the extent otherwise required by law.
13.5 Severability
Whenever possible, each provision of this Plan shall be interpreted in
such manner as to be effective and valid under applicable law
(including the Code), but if any provision of the Plan shall be held to
be prohibited by or invalid under applicable law, then (i) such
provision shall be deemed to be amended to, and to have contained from
the outset such language as shall be necessary to, accomplish the
objectives of the provision as originally written to the fullest extent
permitted by law and (ii) any other provisions of this Plan shall
remain in full force and effect.
8
<PAGE> 9
13.6 Construction
No rule of strict construction shall be applied against the
Corporation, Affiliate, Committee, Board or any other person regarding
the interpretation of any terms of this Plan or any rule or procedure
established by the Committee.
Where the context allows, words in the masculine gender shall include
the feminine and neuter genders, the plural shall include the singular
and the singular shall include the plural.
The captions of sections and paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or
construction of any of its provisions.
13.7 Corporation and Affiliate Liability
Whenever, in the Committee's opinion, any person entitled to receive
any payment is under a legal disability, a minor, or incapacitated in
any way, so as to be unable to manage his or her financial affairs, the
Corporation or an Affiliate, at its discretion, may make such payment
for the benefit of such person to his or her legal representative, or
to a relative or friend of such person for his or her benefit, or it
may apply the payment for the benefit of such person in any manner it
deems advisable. When the Corporation or an Affiliate makes any payment
pursuant to this subsection, it shall be considered as a complete
discharge of its liability for the making of such payments under the
Plan.
13.8 Notices
All notices to the Corporation hereunder shall be delivered to the
attention of the Committee. Any notice or filing required or permitted
to be given to the Committee or the Corporation under this Plan shall
be sufficient if in writing and hand delivered, or sent by registered
or certified mail, to the Committee, at the principal office of the
Corporation. Such notice shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date shown on the
postmark or the receipt for registration or certification.
9
<PAGE> 10
* * * *
Executed and adopted by the Director of Human Resources of PNC Bank Corp. this
_____ day of ____________________, 1999.
___________________________
William E. Rosner
Director of Human Resources
10
<PAGE> 11
SCHEDULE A
AFFILIATES
PNC Bank, N.A.
PNC Capital Markets, Inc.
PNC Bank Corp.
PNC Bank, FSB
PNC Alliance, Inc.
PNC Equity Management Corp.
PNC Management Services Corp.
PNC Leasing Corp.
PNC Brokerage Corp
PNC Bank, Delaware
Delvest, Inc.
BlackRock Institutional Management Corp.
PFPC, Inc.
PFPC Trust Co.
Midland Loan Services, Inc.
Columbia Housing Partners, L.P.
PNC Affordable Housing Inc.
PNC Bank, New England
PNC Mortgage Corp. of America
PNC Mortgage Securities Corp.
PNC Commercial Corp.
PNC Commercial Management, Inc.
Provident Advisers, Inc.
BlackRock Financial Mgmt (Partners)
BlackRock Financial Management, Inc.
CastleInternational Asset Management, Inc.
Provident Capital Management
Compass Capital Group, Inc.
<PAGE> 12
SCHEDULE B
EMPLOYERS NOT PARTICIPATING IN
MATCHING CONTRIBUTIONS FEATURE OF PLAN
BlackRock Institutional Management Corp.
BlackRock Financial Mgmt (Partners)
BlackRock Financial Management, Inc.
<PAGE> 1
Exhibit 10.11
PNC BANK CORP. AND AFFILIATES
DEFERRED COMPENSATION PLAN
AMENDED AND RESTATED
(EFFECTIVE AS OF JANUARY 1, 1999)
WHEREAS, PNC Bank Corp. (the "Corporation") and certain of its
affiliates previously adopted and presently maintain the PNC Bank Corp. and
Affiliates Deferred Compensation Plan (the "Plan") originally effective as of
November 21, 1996;
WHEREAS, the Corporation desires to amend and restate the Plan in its
entirety, effective January 1, 1999, in order to incorporate all prior
amendments into the Plan document and make such other changes as deemed
necessary or appropriate; and
WHEREAS, section 9(b) of the Plan authorizes the Corporation to amend
the Plan at any time.
NOW, THEREFORE, in consideration of the foregoing, the Plan is hereby
amended and restated in its entirety to read as follows:
SECTION 1
DEFINITIONS
1.1 "Account" means the bookkeeping account established for each
Participant who is entitled to a benefit under the Plan. An Account is
established only for purposes of determining deemed investments
hereunder and not to segregate assets that may or must be used to
satisfy benefits. An Account will be credited with Deferral Amounts set
forth in section 3 of the Plan and will be credited or debited to
reflect deemed investment results under section 5 of the Plan. A
Participant's "Account" shall also include amounts deferred under
deferral elections made before January 1, 1996, which pre-1996
deferrals shall be accounted for separately from Deferral Amounts for
and after 1996.
1.2 "Affiliate" means any business entity whose relationship with the
Corporation is described in subsections (b), (c) or (m) of section 414
of the Code.
1.3 "Annual Cash Incentive Award" means any annual incentive award granted
to a Participant under an incentive plan designated by the Plan Manager
as participating hereunder and listed in Schedule B hereto, any other
annual cash bonus or incentive compensation payment that may be
designated by the Plan Manager as eligible for deferral hereunder and
listed in Schedule B hereto and amounts payable under any Severance
Agreement
1
<PAGE> 2
1.4 "Beneficiary" or "Beneficiaries" means the individual or individuals
designated by the Participant to receive the balance of the
Participant's Account upon the Participant's death, in accordance with
section 6 of the Plan.
1.5 "Board" means the Board of Directors of the Corporation.
1.6 "Change in Control" has the meaning assigned to such term in the PNC
Bank Corp. Supplemental Executive Retirement Plan as amended from time
to time.
1.7 "CIC Trigger Event" has the meaning assigned to such term in the Trust.
1.8 "Code" means the Internal Revenue Code of 1986, as amended.
1.9 "Committee" means the Personnel and Compensation Committee of the
Board.
1.10 "Corporate Executive Group" means the group designated as such by the
Corporation.
1.11 "Corporation" means PNC Bank Corp. and any successors thereto.
1.12 "Coverage Period" has the meaning assigned to such term in the PNC Bank
Corp. Supplemental Executive Retirement Plan as amended from time to
time.
1.13 "Deferral Amount" means the amount credited to a Participant's Account
in accordance with the Participant's Deferral Election less any amounts
transferred to the SISP and employment taxes. The term "Deferral
Amount" shall not include any gains or losses credited or debited
thereto.
1.14 "Deferral Election" means a Participant's irrevocable election to defer
all or a portion of the Participant's Annual Cash Incentive Award by
timely delivery to the Plan Manager of a Deferral Election Form.
1.15 "Deferral Election Form" means the document, in a form approved by the
Plan Manager, whereby the Participant elects to defer all or a portion
of any Annual Cash Incentive Award, which designates when payment of
the portion of the Participant's Account attributable to such Deferral
Amount, including earnings thereon, will commence, and the form of
payment.
1.16 "Disability" means the Participant's eligibility to receive benefits
under the Employer's long-term disability plan.
1.17 "Distribution Date" means the annual payment date designated by the
Participant on the Participant's Deferral Election Form for all
distributions, except for distributions on account of Hardship. A
Participant may designate January 15 or July 15 as the applicable
annual Distribution Date.
2
<PAGE> 3
1.18 "Eligible Annual Cash Incentive Award" means the amount of a
Participant's Annual Cash Incentive Award up to the greater of (i)
$25,000 or (ii) 50% of the Annual Cash Incentive Award; provided,
however, that for a Participant who is not a member of the Corporate
Executive Group, the Eligible Annual Cash Incentive Award may not
exceed $125,000.
1.19 "Employee" means any person employed by an Employer.
1.20 "Employer" means the Corporation and any Affiliate that has been
designated by the Plan Manager as an Employer hereunder and listed in
Schedule A hereto.
1.21 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.22 "Hardship" means severe financial hardship to the Participant resulting
from a sudden and unexpected illness of the Participant or one of the
Participant's dependents (within the meaning of section 152(a) of the
Code), or an accident involving the Participant or a Participant's
dependent, loss of a Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant. The
circumstances that will constitute Hardship shall depend upon the facts
of each case, but, in any case, Hardship will not exist to the extent
that such hardship is or may be relieved:
(a) through reimbursement or compensation by insurance or
otherwise;
(b) by liquidation of the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe
financial hardship; or
(c) by cessation of deferrals under this Plan or other plans
maintained by the Employer.
The Plan Manager shall have the sole and absolute discretion to
determine whether a Hardship exists.
1.23 "ISP" means the PNC Bank Corp. Incentive Savings Plan as amended from
time to time.
1.24 "Participant" means any Employee who meets the eligibility criteria set
forth in section 2 of the Plan and/or has an Account under the Plan.
1.25 "Pension Plan" means the PNC Bank Corp. Pension Plan as amended from
time to time.
1.26 "Plan" means this PNC Bank Corp. and Affiliates Deferred Compensation
Plan.
1.27 "Plan Manager" means any individual designated by the Committee to
manage the operation of the Plan as herein provided or to whom the
Committee has duly delegated any of its duties and obligations
hereunder.
3
<PAGE> 4
1.28 "Retirement" means that the Participant has attained age 55 and
completed five years of Vesting Service.
1.29 "Severance Agreement" means any Change in Control Severance Agreement
between the Corporation and an executive of the Corporation.
1.30 "Severance From Service" means a Participant's termination of
employment with PNC Bank Corp. and all of its Affiliates on account of
Retirement, Disability or other termination of employment.
1.31 "SISP" means the PNC Bank Corp. Supplemental Incentive Savings Plan as
amended from time to time.
1.32 "Spouse" means the person to whom the Participant is legally married
(as determined under the laws of the state in which the Participant is
a resident at the time of marriage).
1.33 "Trust" means the grantor trust established by the Corporation to
assist in funding its obligations under the Plan.
1.34 "Vesting Service" has the meaning assigned such term in the Pension
Plan.
SECTION 2
ELIGIBILITY FOR PARTICIPATION
Any Employee who has historically earned or is anticipated to earn annual total
compensation in the year for which a Deferral Election is made of at least
$100,000, or such other greater amount as may be designated by the Committee
from time to time, may be eligible to participate in the Plan, if so designated
by the Plan Manager. The Plan Manager may from time to time expand or limit the
group of employees permitted to participate in the Plan. The decision as to
whether an Employee is eligible to participate in the Plan is reserved to the
Plan Manager in his or her sole discretion.
4
<PAGE> 5
SECTION 3
DEFERRAL ELECTION
3.1 Deferral Amount
Any Employee who is eligible to participate in the Plan pursuant to the
criteria set forth in section 2 may elect to defer payment of all or
any part of an Annual Cash Incentive Award; provided, however, that a
Participant's gross Deferral Amount may not be less than $5,000 for any
year. Effective January 1, 1999, if a Participant also participates in
the ISP at the time of an Annual Cash Incentive Award, a portion of the
Eligible Annual Cash Incentive Award amount that the Participant elects
to defer under this Plan will be transferred to the SISP. The portion
that will be allocated to the SISP will equal the percentage of
"Compensation" (as defined in the ISP) the Participant has elected to
defer under the ISP multiplied by an amount equal to the difference
between (A) the Participant's "Compensation" under the ISP calculated
as if Code section 401(a)(17) were not applicable and the Participant
had not made a deferral under this Plan and (B) the Participant's
"Compensation" actually calculated under the ISP. Amounts transferred
to the SISP will be subject to the terms and conditions of the SISP.
3.2 Deferral Election Form
Except for Deferral Election Forms for any Annual Cash Incentive Award
payable under a Severance Agreement, a Participant's Deferral Election
Form must be received by the Plan Manager prior to January 1 of each
calendar year. Except for Deferral Election Forms for any Annual Cash
Incentive Award payable under a Severance Agreement, any Deferral
Election Form shall apply only to an Annual Cash Incentive Award
granted to the Participant for the calendar year beginning on such
January 1. Notwithstanding the foregoing, in the calendar year in which
an Employee first becomes eligible to be a Participant hereunder, the
Deferral Election Form must be received by the Plan Manager within 30
days after the Employee first becomes eligible, in order to be
effective for any Annual Cash Incentive Award granted for such calendar
year. Each Deferral Election Form shall also specify the year in which
payment shall commence, the form of distribution and the applicable
Distribution Date. A Deferral Election Form for any Annual Cash
Incentive Award payable under a Severance Agreement will be valid only
if it is received by the Plan Manager either 30 days after the date of
the Severance Agreement or at least one year before the Participant's
"Date of Termination," as that term is defined in the Severance
Agreement.
5
<PAGE> 6
SECTION 4
DISTRIBUTION OF DEFERRAL AMOUNTS AND PARTICIPANT ACCOUNTS
4.1 Distribution Deferral Elections
Distributions of a Participant's Account attributable to any Deferral
Amount shall commence in accordance with the Participant's Deferral
Election Form; provided, however, that no Participant may elect to
defer the payment of any Deferred Amount for a period of less than one
year, and, provided, further, that if the Participant fails to select a
time when payment of a Participant's Account attributable to any
Deferral Amount will commence, payment will commence as of the first
Distribution Date after the Participant's Severance From Service.
Notwithstanding the foregoing and except as set forth below under
distributions on account of Hardship, any distribution of a
Participant's Account attributable to any pre-1996 Deferral Election
shall be payable only upon the Participant's Severance From Service.
4.2 Time and Manner of Distribution
All distributions shall be payable in a lump sum or annual installments
over a period designated by the Participant not to exceed the lesser of
ten years or the joint life expectancy of the Participant and the
Participant's Spouse, based upon life expectancy tables approved by the
Plan Manager. The form of distribution applicable to any Deferral
Amount, and any earnings thereon, shall be elected at the time of the
Participant's Deferral Election on each Deferral Election Form;
provided, however, that if the Participant fails to select a form for
the payment of a Participant's Account attributable to any Deferral
Amount, payment will be made in the form of the lump sum. A Participant
may not subsequently change the time or form of distribution, except
with respect to any Annual Cash Incentive Award payable under a
Severance Agreement; provided, however, that such change will be valid
only if it is received by the Plan Manager at least one year before the
Participant's "Date of Termination," as that term is defined in the
Severance Agreement. Distributions shall be made only in cash. The
first annual payment will be made as soon as may be practicable after
the Distribution Date in the year designated by the Participant with
the remaining installments (if any) continuing to be payable as soon as
may be practicable after the same Distribution Date each year
thereafter.
4.3 Hardship Distribution
Upon approval of the Plan Manager, in his or her sole and absolute
discretion, payment of all or any portion of any Participant's Account
shall be made in the event of a Participant's Hardship. Payment of any
Hardship distribution shall be made only in cash in a single sum as
soon as administratively feasible after approval.
6
<PAGE> 7
4.4 Death Benefit
Except as provided in section 4.5, if a Participant's Severance From
Service occurs because of the Participant's death, either before or
after payments commence, the balance of the Participant's Account shall
be distributed to the Participant's Beneficiary or Beneficiaries at the
time and pursuant to the method elected by the Participant. Upon
application of the Participant's Beneficiary, the Plan Manager may, in
his or her sole and absolute discretion, direct that the balance of any
deceased Participant's Account be paid in a single lump sum.
4.5 Accelerated Distribution
Except as may be otherwise provided in any Participant's Severance
Agreement or upon a Severance From Service that occurs during a
Coverage Period, upon a Participant's Severance From Service for any
reason other than death, Disability or Retirement, the Committee shall
direct payment of the balance of the Participant's Account to be
accelerated and paid in a single sum to the Participant on the first
annual Distribution Date coincident with or next following the date of
the Participant's Severance From Service.
SECTION 5
INVESTMENT FUNDS
Deferral Amounts credited to a Participant's Account under the Plan shall be
deemed to be invested in the investment fund or funds selected by the
Participant in accordance with procedures established by the Plan Manager. The
Participant may elect to change the investment fund elections in accordance with
procedures established by the Plan Manager. The Committee shall, in its sole
discretion, determine the various investment funds which will be available for
the deemed investment of all Deferral Amounts. If a Participant fails to select
an investment fund or funds with respect to any Deferral Amount, such Deferral
Amount shall be automatically invested in a short-term investment fund as may be
designated from time-to-time by the Committee, until the Participant provides
investment directions in accordance with procedures established by the Plan
Manager. A Participant's Account shall be valued daily.
The Committee, in its sole and absolute discretion, shall establish procedures
for allocating earnings to a Participant's Account.
7
<PAGE> 8
SECTION 6
DESIGNATION OF BENEFICIARIES
A Participant shall designate a Beneficiary or Beneficiaries to receive the
balance of the Participant's Account upon the Participant's death. Such
designation shall be on a form approved by the Plan Manager and shall not be
effective until it is received by the Plan Manager. If no valid Beneficiary
designation form is on file with the Plan Manager upon the Participant's death,
then the balance of the Participant's Account shall be payable to the
Beneficiary designated by the Participant under the Employer's group life
insurance plan, or, if no such designation exists, to the Participant's estate.
SECTION 7
TRUST FUND
No assets of the Corporation or any Employer shall be segregated or earmarked in
respect to any Deferral Amounts and all such amounts shall constitute unsecured
contractual obligations of the Employer. If the Corporation chooses to
contribute to the Trust to offset its obligation under this Plan, all assets or
property held by the Trust shall at all times remain subject to the claims of
the general creditors of the Corporation or any Employer.
SECTION 8
CLAIMS PROCEDURE
8.1 Initial Claim
Claims for benefits under the Plan shall be filed with the Plan
Manager. If any Participant or Beneficiary claims to be entitled to a
benefit under the Plan and the Plan Manager determines that such claim
should be denied in whole or in part, the Plan Manager shall notify
such person of its decision in writing. Such notification will be
written in a manner calculated to be understood by such person and will
contain (i) specific reasons for the denial, (ii) specific reference to
pertinent Plan provisions, (iii) a description of any additional
material or information necessary for such person to perfect such claim
and an explanation of why such material or information is necessary and
(iv) information as to the steps to be taken if the person wishes to
submit a request for review. Such notification will be given within 90
days after the claim is received by the Plan Manager. If such
notification is not given within such period, the claim will be
considered denied as of the last day of such period and such person may
request a review of his or her claim.
8
<PAGE> 9
8.2 Review Procedure
Within 60 days after the date on which a Participant or Beneficiary
receives a written notice of a denied claim (or, if applicable, within
60 days after the date on which such denial is considered to have
occurred) such person (or his or her duly authorized representative)
may (i) file a written request with the Committee for a review of his
or her denied claim and of pertinent documents and (ii) submit written
issues and comments to the Committee. The Committee will notify such
person of its decision in writing. Such notification will be written in
a manner calculated to be understood by such person and will contain
specific reasons for the decision as well as specific references to
pertinent Plan provisions. The decision on review will be made within
60 days after the request for review is received by the Committee. If
the decision on review is not made within such period, the claim will
be considered denied.
8.3 Claims and Review Procedure Not Mandatory After a Change in Control
After the occurrence of a Change in Control, the claims procedure and
review procedure provided for in this section 8 shall be provided for
the use and benefit of Participants who may choose to use such
procedures, but compliance with the provisions of this section 8 shall
not be mandatory for any Participant claiming benefits after a Change
in Control. It shall not be necessary for any Participant to exhaust
these procedures and remedies after a Change in Control prior to
bringing any legal claim or action, or asserting any other demand, for
payments or other benefits to which such Employee claims entitlement.
SECTION 9
ADMINISTRATION
The Committee shall have the sole and absolute authority to determine
eligibility for benefits and administer, interpret, construe and vary the terms
of the Plan; provided, however, that after a Change in Control the Committee
shall be subject to the direction of the trustee of the Trust with respect to
the exercise of the authority granted by this section 9 and elsewhere in this
Plan.
This Plan is intended to be "a plan which is unfunded and is maintained by an
employer primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees" within the meaning
of section 201(2), 301(a)(3) and 401(a)(1) of ERISA and shall be administered in
a manner consistent with that intent.
9
<PAGE> 10
SECTION 10
AMENDMENT AND TERMINATION
The Committee shall have the sole and absolute discretion to modify, amend or
terminate this Plan at any time; provided, that no modification, amendment or
termination shall be made which would have the effect of decreasing the amount
payable to any Participant or Beneficiary hereunder without the consent of such
Participant or Beneficiary.
After a Change in Control, the Plan may not be amended in any manner that
adversely affects the administration or payment of a Participant's benefits
hereunder (including but not limited to the timing and form or payment of
benefits hereunder) without the consent of the Participant nor may the
provisions of this section 10 or section 11 be amended after a Change in Control
with respect to a Participant without the written consent of the Participant;
provided, however, that the failure of a Participant to consent to any such
amendment shall not impair the ability of the Committee to amend the Plan with
respect to any other Participant who has consented to such amendment.
SECTION 11
SUCCESSORS
In addition to any obligations imposed by law upon any successor(s) to the
Corporation and the Employers, the Corporation and the Employers shall be
obligated to require any successor(s) (whether direct or indirect, by purchase,
merger, consolidation, operation of law, or otherwise) to all or substantially
all of the business and/or assets of the Corporation and the Employers to
expressly assume and agree to perform this Plan in the same manner and to the
same extent that the Corporation and the Employers would be required to perform
it if no such succession had taken place; in the event of such a succession,
references to "Corporation" and "Employers" herein shall thereafter be deemed to
include such successor(s).
SECTION 12
GOVERNING LAW
The Plan shall be governed according to the laws of the Commonwealth of
Pennsylvania to the extent not preempted by federal law.
10
<PAGE> 11
SECTION 13
MISCELLANEOUS
13.1 Liability of the Board
The Board shall not be liable to any person for any action taken or
admitted in connection with the administration, interpretation,
construction or variance of the Plan.
13.2 No Contract of Employment
Nothing herein shall be construed as an offer or commitment by the
Corporation or any Affiliate to continue any Participant's employment
with it for any period of time.
13.3 Withholding
All applicable federal, state, local and social security taxes will be
withheld and deducted from amounts distributed hereunder, as
appropriate.
13.4 Spendthrift Clause
The right of the Participants to any amounts deferred or invested in
this Plan shall not be transferable or assignable and shall not be
subject to alienation, encumbrance, garnishment, attachment, execution
or levy of any kind, voluntary or involuntary, except when, where and
if compelled by applicable law.
13.5 Severability
Whenever possible, each provision of this Plan shall be interpreted in
such manner as to be effective and valid under applicable law, but if
any provision of the Plan shall be held to be prohibited by or invalid
under applicable law, then (i) such provision shall be deemed to be
amended to, and to have contained from the outset such language as
shall be necessary to, accomplish the objectives of the provision as
originally written to the fullest extent permitted by law and (ii) and
other provisions of this Plan shall remain in full force and effect.
13.6 Entire Agreement
This writing constitutes the final and complete embodiment of the
understandings of the parties hereto and all prior understandings and
communications of the parties oral or written concerning this Plan are
hereby renounced, revoked and superseded.
11
<PAGE> 12
* * * *
Executed and adopted by the Director of Human Resources of PNC Bank Corp. this
_____ day of ____________________, 1999.
___________________________
William E. Rosner
Director of Human Resources
12
<PAGE> 13
SCHEDULE A
AFFILIATES
PNC Bank, N.A.
PNC Capital Markets, Inc.
PNC Bank Corp.
PNC Bank, FSB
PNC Alliance, Inc.
PNC Equity Management Corp.
PNC Management Services Corp.
PNC Leasing Corp.
PNC Brokerage Corp
PNC Bank, Delaware
Delvest, Inc.
BlackRock Institutional Management Corp.
PFPC, Inc.
PFPC Trust Co.
Midland Loan Services, Inc.
Columbia Housing Partners, L.P.
PNC Affordable Housing Inc.
PNC Bank, New England
PNC Mortgage Corp. of America
PNC Mortgage Securities Corp.
PNC Commercial Corp.
PNC Commercial Management, Inc.
Provident Advisers, Inc.
BlackRock Financial Mgmt (Partners)
BlackRock Financial Management, Inc.
CastleInternational Asset Management, Inc.
Provident Capital Management
Compass Capital Group, Inc.
<PAGE> 14
SCHEDULE B
INCENTIVE PLANS AND OTHER ANNUAL CASH BONUSES
OR INCENTIVE COMPENSATION PAYMENTS
<TABLE>
<CAPTION>
========================================================================================================
PLAN CODE LOB PLAN NAME
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
A90 All Regional President
- --------------------------------------------------------------------------------------------------------
C04 PNC Advisors IM & T Institutional Trust Sales Team
- --------------------------------------------------------------------------------------------------------
C10 Secured Lending PNC Leasing Corp.
- --------------------------------------------------------------------------------------------------------
C11 Corporate Bank Leveraged Finance Incentive
- --------------------------------------------------------------------------------------------------------
C13 Corporate Bank Capital Markets (Investment Banking)
- --------------------------------------------------------------------------------------------------------
C14 Corporate Bank Client Relationship Team
- --------------------------------------------------------------------------------------------------------
C16 Corporate Bank Treasury Management Incentive
- --------------------------------------------------------------------------------------------------------
E01 Secured Lending Commercial Finance Incentive
- --------------------------------------------------------------------------------------------------------
E02 Secured Lending PNC Business Credit
- --------------------------------------------------------------------------------------------------------
F02 Mutual Fund Servicing PFPC Accountant Performance Award Program
- --------------------------------------------------------------------------------------------------------
F06 Mutual Fund Servicing PFSG Incentive for Key Management Group
- --------------------------------------------------------------------------------------------------------
G02 Secured Lending Relationship Manager (R/E)
- --------------------------------------------------------------------------------------------------------
G04 Secured Lending CMBS
- --------------------------------------------------------------------------------------------------------
G08 Secured Lending Midland Performance Bonus Plan
- --------------------------------------------------------------------------------------------------------
H01 Credit Policy CRC PNC Capital Recovery Corp.
- --------------------------------------------------------------------------------------------------------
K01 Consumer Bank PNC Insurance Group
- --------------------------------------------------------------------------------------------------------
M14 Mortgage PNC Mortgage - Sales VP Incentive
- --------------------------------------------------------------------------------------------------------
M18 Mortgage PNC MCA Mortgage Center/Process Managers
- --------------------------------------------------------------------------------------------------------
M19 Mortgage PNC MCA Purchase Program Ops. Managers (Lucken)
- --------------------------------------------------------------------------------------------------------
M23 Mortgage National Accounts - Executive
- --------------------------------------------------------------------------------------------------------
M25 Mortgage Purchase Program National Sales Mgmt. (Bulletin)
- --------------------------------------------------------------------------------------------------------
M27 Mortgage Senior VP Regional Manager
- --------------------------------------------------------------------------------------------------------
M35 Mortgage Senior VP Production Ops. (Meola)
- --------------------------------------------------------------------------------------------------------
M36 Mortgage Executive VP - Strategic Bus. Devel (96)
- --------------------------------------------------------------------------------------------------------
M38 Mortgage Structured Finance
- --------------------------------------------------------------------------------------------------------
M40 Mortgage SVP - Structured Finance
- --------------------------------------------------------------------------------------------------------
M41 Mortgage SVP - Secondary Marketing
- --------------------------------------------------------------------------------------------------------
M42 Mortgage SVP - Bonus Plan
- --------------------------------------------------------------------------------------------------------
M46 Mortgage Management Incentive Plan
========================================================================================================
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
========================================================================================================
PLAN CODE LOB PLAN NAME
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
M47 Mortgage Pres. & COO PNC Mortgage Securities
- --------------------------------------------------------------------------------------------------------
M48 Mortgage VP National Programs - Annual
- --------------------------------------------------------------------------------------------------------
M49 Mortgage VP National Programs - Quarterly
- --------------------------------------------------------------------------------------------------------
M50 Mortgage SVP Correspondent - Annual
- --------------------------------------------------------------------------------------------------------
M51 Mortgage SVP Correspondent - Quarterly
- --------------------------------------------------------------------------------------------------------
Q01 Equity Management PNC Equity Management Corp. Incentive
- --------------------------------------------------------------------------------------------------------
R37 Consumer Bank Consumer Lending
- --------------------------------------------------------------------------------------------------------
T01 PNC Advisors Equity Research Team
- --------------------------------------------------------------------------------------------------------
T02 BlackRock Fixed Income Research Team
- --------------------------------------------------------------------------------------------------------
T05 PNC Advisors Team Performance - AMG
- --------------------------------------------------------------------------------------------------------
V01 PNC Advisors PNC Brokerage Corporate Sales Incentive Plan
- --------------------------------------------------------------------------------------------------------
V12 PNC Advisors Executive Sales Management
- --------------------------------------------------------------------------------------------------------
V14 PNC Advisors Private Bank Managers Incentive
- --------------------------------------------------------------------------------------------------------
V15 PNC Advisors Regional Sales Managers IM & T
- --------------------------------------------------------------------------------------------------------
V17 PNC Advisors AMG Fixed Income Trade Group
- --------------------------------------------------------------------------------------------------------
V18 PNC Advisors PNC Bank, New England
- --------------------------------------------------------------------------------------------------------
V20 PNC Advisors Private Bank Corporate Staff
- --------------------------------------------------------------------------------------------------------
V21 PNC Advisors Relationship Mgmt/Investment Sales
- --------------------------------------------------------------------------------------------------------
V22 PNC Advisors Investment Sales & Institutional Trust
- --------------------------------------------------------------------------------------------------------
V23 PNC Advisors Hawthorn Incentive Plan
- --------------------------------------------------------------------------------------------------------
V24 PNC Advisors Institutional Invest Group Vested Interest Central Support
========================================================================================================
</TABLE>
<PAGE> 1
Exhibit 10.13
PNC FINANCIAL CORP
1992 DIRECTOR SHARE INCENTIVE PLAN
1. DEFINITIONS
In this Plan, except where the context otherwise indicates, the following
definitions apply:
1.1. "Board" means the Board of Directors of the Corporation.
1.2. "Committee" means the committee appointed by the Board to administer
the Plan. Unless otherwise determined by the Board, the Personnel and
Compensation Committee of the Board shall be the Committee.
1.3. "Common Stock" means the common stock, par value $5.00 per share, of
the Corporation.
1.4. "Corporation" means PNC Financial Corp.
1.5. "Date of Grant" means the date on which Non-Employee Directors are
entitled to receive Director Shares pursuant to Article 6.
1.6. "Director Shares" means Shares awarded pursuant to Article 6.
1.7. "Fair Market Value" means the closing price of the Common Stock on
the New York Stock Exchange composite transactions tape on the applicable date
or the nearest preceding date on which a sale was reported.
1.8. "Grantee" means a Non-Employee Director to whom Director Shares have
been awarded pursuant to Article 6.
1.9. "Non-Employee Director" means as of any date a person who on such
date is a director of the Corporation and is not an employee of the Corporation
or any Subsidiary.
1.10. "Plan" means this PNC Financial Corp 1992 Director Share Incentive
Plan.
1.11. "Share" means a share of authorized but unissued Common Stock or a
reacquired share of Common Stock.
1.12. "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.
2. PURPOSE
The Plan is intended to assist in attracting, retaining and motivating
Non-Employee Directors of outstanding ability and to promote identification of
their interests with those of the shareholders of the Corporation.
3. ADMINISTRATION
The Plan shall be administered by the Committee. 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 construe and interpret the Plan;
3.2. to make all determinations and take all other actions necessary or
advisable for the administration of the Plan, except that the persons entitled
to receive awards of Director Shares and the dates and amounts of such awards
shall be determined as provided in Article 6, and the Committee shall have no
discretion as to such matters; and
3.3. to delegate to officers or managers of the Corporation or any
Subsidiary the authority to perform administrative functions under the Plan.
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Any determination or actions made or taken by the Committee pursuant to
this Article shall be binding and final.
4. ELIGIBILITY
Director Shares shall be awarded only to Non-Employee Directors, including
members of the Committee, as provided in Article 6.
5. STOCK SUBJECT TO THE PLAN
The maximum number of shares that may be issued under the Plan is 200,000.
6. DIRECTOR SHARES
On April 28, 1992 and thereafter on the first business day of each
calendar year during the term of the Plan, commencing January 4, 1993, each
person who is then a Non-Employee Director shall, automatically and without
necessity of any action by the Committee, be entitled to receive a number of
Shares (rounded to the nearest whole share) having a Fair Market Value on such
Date of Grant equal to five thousand dollars ($5,000). Notwithstanding the
foregoing, the number of Director Shares to be issued to any Non-Employee
Director on any annual Date of Grant shall not exceed one thousand (1,000)
Shares. If on any annual Date of Grant the number of Director Shares otherwise
issuable to the Non-Employee Directors shall exceed the number of Shares then
remaining available under the Plan, each Non-Employee Director shall be entitled
to receive a number of Director Shares equal to the number of Shares then
remaining available under the Plan, divided by the number of Non-Employee
Directors, disregarding any fractions of a Share. Certificates for Director
Shares awarded pursuant to this Article 6 shall be issued to Non-Employee
Directors as promptly as practicable following the Date of Grant.
7. CAPITAL ADJUSTMENTS
The maximum number of Shares subject to the Plan pursuant to Article 5 and
the maximum number of Director Shares which may be issued to any Non-Employee
Director on any Date of Grant pursuant to Article 6 shall be proportionately
adjusted to reflect any dividend or other distribution on the outstanding Common
Stock payable in Shares of Common Stock or any split or consolidation of the
outstanding shares of Common Stock. If the outstanding Common Stock shall, in
whole or in part, be changed into or exchangeable for a different class or
classes of securities of the Corporation or securities of another corporation,
whether through recapitalization, merger, consolidation, reorganization or
otherwise, then (subject to the powers of the Board to terminate or amend the
Plan in whole or in part as provided in Article 8) the $5,000 in Fair Market
Value which each Non-Employee Director is entitled to receive on any Date of
Grant pursuant to Article 6 shall thereafter be paid in the class, or
proportionately in the classes, of securities into which the outstanding shares
of Common Stock shall have been converted or for which they are exchangeable,
and the maximum amount of securities issuable under the Plan under Article S and
the maximum amount of securities which may be issued to any Non-Employee
Director on a Date of Grant under Article 6 shall be the amount of securities
into or for which the maximum number of Shares of Common Stock otherwise
issuable under the Plan or issuable on such Date of Grant to any Non-Employee
Director shall be changed or exchangeable. The method for determining the Fair
Market Value of any such class or classes of securities on the Date of Grant
shall be the method determined by the Committee in good faith to be as similar
as reasonably practicable to the method for determining the Fair Market Value of
Director Shares hereunder.
8. TERMINATION OR AMENDMENT
The Board shall have the power to terminate the Plan in whole or in part
and to amend it in any respect, provided that, the Board may not, without the
approval of the shareholders of the Corporation, amend the Plan so as to
increase materially the aggregate number of Shares that may be issued under the
Plan (except as provided in Article 7), to modify materially the
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requirements as to eligibility to receive Director Shares or to increase
materially the benefits accruing to participants under the Plan. The provisions
of the Plan relating to the determination of the persons entitled to receive
awards of Director Shares pursuant to Article 6 and the dates and amounts of
such awards shall not be amended (except as provided in Article 7) more than
once every six months, other than to comport with changes in the Internal
Revenue Code and the regulations thereunder.
9. EFFECTIVENESS OF THE PLAN AND AMENDMENTS
The Plan and any amendments requiring shareholder approval pursuant to
Article 8 are subject to approval by vote of the shareholders of the Corporation
within 12 months after their adoption by the Board. Director Shares may be
awarded prior to shareholder approval of amendments, but any Director Share
award requiring such amendments shall be subject to the approval of the
amendments by the shareholders. The date on which any Director Shares awarded
prior to shareholder approval of the amendment are awarded shall be the Date of
Grant for all purposes of the Plan as if the Director Shares had not been
subject to such approval. Any Director Shares awarded subject to shareholder
approval of an amendment and any dividends payable thereon are subject to
forfeiture if such shareholder approval is not obtained.
10. 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 Director Shares
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.
11. GENERAL PROVISIONS
11.1. The establishment of the Plan shall not confer upon any Non-Employee
Director any legal or equitable right against the Corporation or the Committee,
except as expressly provided in the Plan.
11.2. The Plan does not constitute inducement for the service of any
Non-Employee Director, nor is it a contract between the Corporation and any
Non-Employee Director. Participation in the Plan shall not give any Non-Employee
Director any right to be retained in the service of the Corporation.
11.3. The Corporation and its Subsidiaries may assume options, warrants or
rights to purchase or receive stock issued, granted or awarded 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, award or assume stock or options,
warrants or rights to purchase or receive stock, otherwise than under this Plan,
or to adopt other stock plans or to impose any requirement of shareholder
approval upon the same.
11.4. The interests of any Non-Employee Director under the Plan are not
subject to the claims of creditors and may not, in any way, be assigned,
alienated or encumbered.
11.5. The Plan shall be governed, construed and administered in accordance
with the laws of the Commonwealth of Pennsylvania.
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Exhibit 10.15
PNC BANK CORP.
OUTSIDE DIRECTORS DEFERRED STOCK UNIT PLAN
1. DEFINITIONS
In this Plan, except where the context otherwise indicates, the
following definitions apply:
1.1. "ACCOUNT" means an unfunded deferred compensation bookkeeping
account established in the name of an Outside Director pursuant to the Plan.
1.2. "BOARD" means the Board of Directors of the Corporation.
1.3. "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. Unless otherwise determined by the Board, the Committee
on Corporate Governance of the Board shall be the Committee.
1.4. "COMMON STOCK" means the common stock, par value $5.00 per share,
of the Corporation.
1.5. "CORPORATION" means PNC Bank Corp. or any successor thereto.
1.6. "DATE OF GRANT" means the date on which a Deferred Stock Unit is
granted by the Committee or such later date as may be specified by the Committee
in authorizing the grant.
1.7. "DEFERRED STOCK UNIT" means a phantom share of the Corporation's
Common Stock, which may be redeemed and paid only in cash pursuant to the terms
of the Plan.
1.8. "EFFECTIVE DATE" means November 18, 1999 or such later date as may
be specified in the Board resolution adopting the Plan.
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 an 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. In the absence of a method of
valuation specifically adopted by the Committee, Fair Market Value shall mean
the closing price of a share of Common Stock on the New York Stock Exchange
composite transactions tape on the valuation date, except as otherwise provided
in Article 9, Section 9.2, determined as of such time on the valuation date as
the Corporation's officers may select for this purpose.
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1.11. "GRANTEE" means an Outside Director to whom Deferred Stock Units
have been granted pursuant to Article 6 and credited to the Grantee's Account.
1.12. "OUTSIDE DIRECTOR" means a member of the Corporation's Board of
Directors who is not on the Date of Grant an officer, as defined in Rule
16a-1(f) under the Exchange Act or any similar successor rule, or employee of
the Corporation or a Subsidiary.
1.13. "PLAN" means the PNC Bank Corp. Outside Directors Deferred Stock
Unit Plan, as amended from time to time.
1.14. "SHARE" means a share of authorized but unissued Common Stock or
a reacquired share of Common Stock.
1.15. "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.
1.16. "VALUATION DATE" means March 31, June 30, September 30, and
December 31 of each year, except as otherwise provided in Section 10.1. If any
of the preceding dates is not a date on which the New York Stock Exchange is
open for business, then the next preceding date on which the Exchange is open
for business shall serve as the Valuation Date.
2. PURPOSE
The Plan is intended to provide a tax-deferred method of compensation
to assist in attracting, retaining, and motivating Outside Directors 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. 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 Date of Grant and number or
dollar value of Deferred Stock Units to be granted to each Outside Director and
the terms upon which Deferred Stock Units may be acquired or forfeited and the
terms and conditions of each grant of Deferred Stock Units, which terms and
conditions need not be identical for each Outside Director;
3.2. to construe and interpret the Plan;
3.3. to make all other determinations and take all other actions
necessary or advisable for the administration of the Plan; and
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3.4. to delegate to officers or managers of the Corporation or any
Subsidiary the authority to perform administrative functions under the Plan.
Any determinations or actions made or taken by the Committee pursuant to this
Article shall be binding and final.
4. ELIGIBILITY
Deferred Stock Units may be granted to each Outside Director (including
Committee members) serving on the Effective Date of the Plan, or elected or
appointed and duly qualified thereafter.
5. ESTABLISHMENT AND TERMINATION OF ACCOUNTS
5.1. As of the Effective Date of the Plan, the Corporation shall
establish an Account in the name of each Outside Director serving on the
Effective Date.
5.2. With respect to Outside Directors elected or appointed and duly
qualified after the Effective Date of the Plan, the Corporation shall establish
an Account in the name of each such Outside Director as of the date on which he
or she is duly qualified to serve on the Board.
5.3. The Corporation shall terminate an Account promptly upon the
redemption of all Deferred Stock Units credited to the Account and the
distribution of all cash resulting therefrom, following the death or retirement
of the Outside Director.
6. GRANT OF DEFERRED STOCK UNITS
6.1. Effective as of each Date of Grant specified by the Committee, the
Corporation shall credit each Grantee's Account with the number of Deferred
Stock Units granted by the Committee to that Grantee.
6.2. The Committee may elect to authorize an annual grant of Deferred
Stock Units to each Grantee, as of a Date of Grant specified by the Committee.
In such case, the number of Deferred Stock Units (including fractional Deferred
Stock Units) to be credited to a Grantee's Account shall be calculated by
dividing a dollar amount specified by the Committee by the Fair Market Value of
a Share as of the Date of Grant. Grants authorized by the Committee pursuant to
this Section shall be credited by the Corporation to each Grantee's Account as
of each annual Date of Grant until the Committee acts to supersede its standing
grant authorization.
6.3. In addition to the annual grants of Deferred Stock Units
authorized by Section 6.2, the Committee may authorize grants on a special or
one-time basis to Outside Directors, as of such Date of Grant and for such
purposes as the Committee may deem necessary or appropriate. The number of
Deferred Stock Units credited to a Grantee's Account pursuant to such grants
shall be calculated in the same manner as specified in Section 6.2 for annual
grants.
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6.4. All Deferred Stock Units granted pursuant to the Plan shall be
credited directly to the Grantee's Account, subject to the terms and conditions
of the Plan and such elections and designations as the Grantee may make pursuant
to Article 8.
7. ADJUSTMENTS TO DEFERRED STOCK UNITS FOR DIVIDENDS ON COMMON STOCK
7.1. Except as otherwise provided in Section 7.3, in the event of the
declaration of a dividend on Common Stock that is payable in cash or property
other than Common Stock, the Corporation shall, on or as promptly as shall be
practicable after the date fixed for payment of such dividend, credit to each
Account a number of Deferred Stock Units (including fractional Deferred Stock
Units) equal in value to the number of Shares of Common Stock which would have
been otherwise purchased using the methodology in effect pursuant to the
Corporation's Dividend Reinvestment and stock Purchase Plan from time to time in
effect ("DRP"). Under the DRP as currently in effect, the purchase price per
Share is 100% of the average of the per Share closing prices of the Common Stock
on the New York Stock Exchange for the last two trading days prior to the date
that the dividend is payable.
7.2. Except as otherwise provided in Section 7.3, in the event of the
declaration of a dividend on Common Stock that is payable in the form of Common
Stock, or if the Common Stock shall be changed into a different number of shares
of stock of the Corporation through a merger, consolidation, reorganization,
stock split or similar transaction, the Corporation shall, on the date fixed for
determining the stockholders of the Corporation entitled to receive such stock
dividend or to participate in such merger, consolidation, reorganization, stock
split or similar transaction, credit each Account with a number of Deferred
Stock Units (including fractional Deferred Stock Units) equal to the number of
Shares (including fractions thereof, even if fractional shares would not have
been issuable) that the Outside Director would have received as a result of such
stock dividend, merger, consolidation, reorganization, stock split or similar
transaction, if the Outside Director were a stockholder of record on such record
date with respect to a number of Shares equal to the number of Deferred Stock
Units credited to the Account on the payable date.
7.3 In the case of an Outside Director who elects to receive payment of
Deferred Stock Units either (a) as of the date after the later of the Outside
Director's retirement from the Board or attainment of age 70, or (b) in
installments that commence or continue on or after the later of such retirement
or attainment of age 70, in lieu of the credits and adjustments to the Outside
Director's Account otherwise provided for by Sections 7.1 and 7.2, the Outside
Director's Account shall, with respect to Deferred Stock Units covered by an
election described in the preceding clauses (a) or (b), be credited on or as
promptly as shall be practicable after the date fixed for the payment of the
Common Stock dividend, with a number of Deferred Stock Units (including
fractional Deferred Stock Units) equal in value (determined as hereinafter
provided) to the product of (a) the value (determined as herein provided) of the
Deferred Stock Units credited to the Outside Director's Account and covered by
such election and (b) a fair market interest rate approved by the Committee;
provided, that for purposes of this Section, the value of the Deferred Stock
Units credited to the Outside Director's Account and the number of additional
Deferred Stock Units to be credited shall be determined using the Fair Market
Value of a Share as of the later of the Outside Director's date of retirement
from the Board or attainment of age 70. Notwithstanding the foregoing
provisions, the Corporation's officers may instead elect to assign a notional
equivalent cash value to the Deferred Stock Units which would otherwise be
credited to the Outside Director's Account and to account for the value of the
Account, including interest credited thereto, on that basis.
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8. PAYMENT ELECTIONS AND BENEFICIARY DESIGNATIONS BY AN OUTSIDE DIRECTOR
8.1. With respect to each grant of Deferred Stock Units, each Outside
Director shall have the right to elect: (a) the event or date (which event or
date shall not precede the earlier of the date of the Outside Director's
retirement from the Board or the date on which the Outside Director attains age
70) when the Deferred Stock Units credited to his or her Account shall be
redeemed and paid out in cash; and (b) whether the payment shall be in a lump
sum or in a designated number of annual installments, not to exceed ten annual
installments.
8.2. Each Outside Director shall also have the right to designate one
or more beneficiaries to receive unpaid amounts in his or her Account in the
event of the Outside Director's death, in accordance with the administrative
procedures and applicable elections and beneficiary payment options then in
effect for the Plan. Unless otherwise specified by the Outside Director, in the
event that a designated beneficiary dies after beginning to receive payments
from the Account but before the payment of all amounts in the Account due to
that beneficiary, the beneficiary's estate shall be entitled to receive such
unpaid amounts in a lump sum. The estate of a beneficiary who has predeceased
the Outside Director shall have no claim to payments under the Plan.
8.3. In the event that an Outside Director fails to make a payment
election or beneficiary designation, or all designated beneficiaries have
predeceased the Outside Director, the following default elections or
designations shall be deemed to have been made by the Outside Director: (a) the
default payment election shall be a lump-sum payment upon retirement from the
Board; and (b) the default beneficiary designation shall be the Outside
Director's surviving spouse, or if none, the Outside Director's estate.
8.4. An Outside Director shall have the right to amend or terminate his
or her elections or designations at any time upon completing, signing, dating,
and submitting to the Corporation's Corporate Secretary Department the form of
agreement provided by the Corporation. Amendments or terminations shall be
effective as follows: With respect to payment elections, amendments shall be
effective on the next subsequent Date of Grant. Except as otherwise provided in
Article 10, such amendment shall only apply to Deferred Stock Units or notional
cash value credited (plus adjustments made for dividends or interest pursuant to
Article 7) to the Account after the effective date of the amendment. The
Deferred Stock Units or notional cash value in the Account immediately prior to
the effective date of the amended payment election shall be paid in accordance
with the prior payment election or elections. With respect to beneficiary
designations, amendments or terminations shall be effective immediately upon the
Corporation's Corporate Secretary Department's receipt of a properly completed,
executed, and dated form of agreement.
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9. REDEMPTION OF DEFERRED STOCK UNITS
9.1. The Corporation shall redeem Deferred Stock Units credited to an
Account at such times and in such amounts as may be necessary to distribute cash
in accordance with the elections and designations made by an Outside Director
pursuant to Article 8 and the provisions of Article 10.
9.2. In the case of an Outside Director who elects to defer the receipt
of Deferred Stock Units until retirement from the Board or attainment of age 70,
or in the event an Outside Director elects to receive payment in the manner
described in Section 9.3 or pursuant to Section 10.3, Deferred Stock Units
covered by such an election shall be valued as of the applicable Valuation Date
at the higher of the following: (a) the Fair Market Value of a Share on the
Valuation Date; or (b) the average Fair Market Value of a Share for all trading
days during the twelve-month period immediately preceding the Valuation Date.
Notwithstanding the foregoing provisions, the twelve-month period immediately
preceding the Valuation Date shall not extend earlier than January 3, 2000.
9.3 In the case of an Outside Director who elects to receive payment of
Deferred Stock Units either (a) as of a date after the later of the Outside
Director's retirement from the Board or attainment of age 70, or (b) in
installments that commence or continue on or after the later of such retirement
or attainment of age 70, Deferred Stock Units covered by such an election shall
be valued for purposes of redemption using the Fair Market Value of a Share on
the later of the date of the Outside Director's retirement from the Board or
attainment of age 70, except as otherwise provided in Section 9.2. It is the
express purpose of this Section to fix the value of a Deferred Stock Unit as of
the later of the date of an Outside Director's retirement from the Board or
attainment of age 70 in all cases where the redemption is for a payment other
than one paid upon retirement from the Board or attainment of age 70 or an early
withdrawal made pursuant to Section 10.3.
9.4. Deferred Stock Units shall be redeemed only for cash.
10. PAYMENT FOLLOWING THE REDEMPTION OF DEFERRED STOCK UNITS
10.1. All payments from an Account shall be made solely in cash.
Payment shall commence on or before thirty days after the Valuation Date
immediately following the designated date or the date that the designated event
occurs and the amount to be paid shall be based on the Account balance on such
Valuation Date. Notwithstanding the preceding sentence, the Corporation's
officers may elect to accelerate payment by deeming the designated date or the
date that the designated event occurs to be a Valuation Date and to make payment
within thirty days thereafter. If an Outside Director elects the equal annual
installment payment option, the amount of each installment to be paid shall be
determined by dividing the balance in the Account to be paid in the form of
installments by the number of installments remaining to be paid. The Deferred
Stock Units or notional cash value remaining in an Account subject to
installment payouts shall continue to be adjusted for dividends or interest in
accordance with Article 7. In the event of the death or disability of an Outside
Director, the Committee may accelerate the
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payment of any installment or lump-sum payment because of hardship or other
circumstances deemed in the sole discretion of the Committee to warrant such
acceleration.
10.2. Notwithstanding Section 10.1: (a) at any time earlier than twelve
months prior to the date on which a payment of all or a portion of an Account
would be payable, an Outside Director may elect to extend the deferral of all of
his or her Account, or of such portion of his or her Account as would otherwise
be paid; and (b) at any time earlier than twelve months prior to the date on
which a payment of all or a portion of an Account would be payable, an Outside
Director may modify his or her prior payment date election for the Account;
provided, that such modified payment date is on or after the earlier of the date
that he or she expects to retire from the Board or reaches the age of 70.
10.3. An Outside Director may at any time elect the payment, as soon as
administratively practicable, of all of the balance of his or her Account;
provided, that in each such instance, a 10 percent early withdrawal penalty
shall apply to the amount of the requested early withdrawal. An Outside Director
who makes such an election shall not be eligible to have Deferred Stock Units
credited to his or her Account for two years after the date of the payment
election.
11. ACCOUNT STATEMENTS
11.1. A regular quarterly statement of account shall be sent to each
current or former Outside Director with a balance in his or her Account listing
the aggregate number of Deferred Stock Units in the Account, including
adjustments for dividends or interest made pursuant to Article 7, and showing
the aggregate Fair Market Value of such Deferred Stock Units as of each
Valuation Date, respectively. The Corporation's officers may also provide such
additional statements of account as they may deem appropriate from time to time.
11.2. In the case of an Outside Director who elects to receive payment
of Deferred Stock Units either (a) as of a date after the later of the Outside
Director's retirement from the Board or attainment of age 70, or (b) in
installments that commence or continue on or after the later of such retirement
or attainment of age 70, Account statements after the later of retirement or
attainment of age 70 shall reflect the aggregate Fair Market Value of such
Deferred Stock Units using the Fair Market Value of a Share as of the later of
the date of the Outside Director's retirement from the Board or attainment of
age 70. Notwithstanding the foregoing provisions, the Corporation's officers may
instead elect to assign a notional equivalent cash value to the Deferred Stock
Units which would otherwise be credited to the Outside Director's Account and to
account for the value of the Account, including interest credited thereto, on
that basis.
12. EFFECTIVENESS OF THE PLAN
The Plan shall become effective as of November 18, 1999, or such later
date as may be specified in the Board resolution adopting the Plan.
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13. TERM OF THE PLAN
The Plan shall continue in effect until terminated by the Board upon
the Committee's recommendation pursuant to Section 15.8. No Deferred Stock Units
may be granted under Article 6 hereof after termination. The termination of the
Plan shall not affect the validity of any Deferred Stock Unit credited to an
Account on the date of termination.
14. 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
attorney's 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 Deferred Stock Unit
granted 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.
15. MISCELLANEOUS PROVISIONS
15.1. NO RIGHT OR OBLIGATION OF CONTINUED SERVICE. Nothing contained
herein shall entitle an Outside Director to continue to serve as a member of the
Board or require an Outside Director to continue to provide services as a member
of the Board. The termination of an Outside Director's service as a member of
the Board shall have no effect on his or her rights hereunder, except as
otherwise provided herein.
15.2. NO STOCKHOLDER RIGHTS. The sole interest of an Outside Director
hereunder shall be the right to receive the payments provided for herein as and
when the same shall become due and payable, and an Outside Director shall have
no rights as a stockholder of the Corporation with respect to Deferred Stock
Units credited to his or her Account.
15.3. NONALIENABILITY. Except for the withholding of any tax under
applicable law, no Deferred Stock Units credited to an Account or any amount
payable at any time hereunder shall be subject in any manner to alienation,
sale, transfer, assignment, pledge, attachment or other legal process, or
encumbrance of any kind. Any attempt to alienate, sell, transfer, assign, pledge
or otherwise encumber any such Deferred Stock Units or amount, whether currently
or hereafter payable, shall be void. Except as otherwise specifically provided
by law, no Deferred Stock Units or amount payable hereunder shall, in any
manner, be liable for or subject to the debts or liabilities of an Outside
Director or beneficiary.
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15.4. WITHHOLDING. Payments made by the Corporation hereunder shall be
subject to any applicable tax withholding requirements and to such other
deductions as shall at the time of such payment be required under any income tax
or other law, whether of the United States or any other jurisdiction.
15.5. HEADINGS. The headings of Articles and Sections herein are
included solely for convenience of reference and shall not alter the meaning or
interpretation of any of the provisions of the Plan.
15.6. SUCCESSORS. The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to expressly
assume the Corporation's obligations hereunder in the same manner and to the
same extent that the Corporation would be required to perform if no such
succession had taken place. This Plan shall inure to the benefit of and be
enforceable by each Outside Director and each Outside Director's personal or
legal representatives, beneficiaries, executors, administrators, successors,
heirs, distributees, devisees and legatees.
15.7. STATUS AS UNSECURED CREDITOR; FUNDING OF PAYMENTS. All Account
balances shall constitute unsecured contractual obligations of the Corporation.
In the sole discretion of the Corporation, the Corporation or any of its
affiliates may establish or maintain a nonqualified grantor trust and make
contributions thereto for the purpose of providing a source of funds to make
payments hereunder as they become due and payable; provided, that no such trust
shall result in an Outside Director or any designated beneficiary being required
to include in gross income for federal income tax purposes any amounts payable
hereunder prior to the date of actual payment. Notwithstanding the establishment
or maintenance of any such trust, Outside Directors' and their designated
beneficiaries' rights hereunder shall be solely those of a general unsecured
creditor of the Corporation.
15.8. TERMINATION AND AMENDMENT OF PLAN. The Plan may be terminated or
amended at any time by vote of the Board without the consent of any current or
former Outside Director for whom an Account has been established, upon the
Committee's recommendation; provided, that any termination or amendment shall be
of general application to all Outside Directors participating in the Plan (and
their beneficiaries) and shall not, without the specific written consent of any
such Outside Director (or beneficiary) adversely affect: (a) any Deferred Stock
Units or amounts theretofore credited to an Account; or (b) the right of an
Outside Director (or beneficiary) to receive all amounts due and payable with
respect to an Account.
15.9. GOVERNING LAW. The Plan shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania, without reference to
its conflicts of laws provisions.
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<TABLE>
<CAPTION>
THE PNC FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
Year ended December 31
Dollars in millions 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes $1,891 $1,710 $1,618 $1,527 $ 627
Fixed charges excluding interest on deposits 1,235 1,366 1,171 1,098 1,487
-----------------------------------------------------------------
Subtotal 3,126 3,076 2,789 2,625 2,114
Interest on deposits 1,369 1,471 1,457 1,428 1,552
-----------------------------------------------------------------
Total $4,495 $4,547 $4,246 $4,053 $3,666
=================================================================
FIXED CHARGES
Interest on borrowed funds $1,119 $1,268 $1,098 $1,065 $1,454
Interest component of rentals 50 37 29 31 32
Amortization of notes and debentures 1 1 1 1 1
Distributions on Mandatorily Redeemable Capital
Securities of Subsidiary Trusts 65 60 43 1
-----------------------------------------------------------------
Subtotal 1,235 1,366 1,171 1,098 1,487
Interest on deposits 1,369 1,471 1,457 1,428 1,552
-----------------------------------------------------------------
Total $2,604 $2,837 $2,628 $2,526 $3,039
=================================================================
RATIO OF EARNINGS TO FIXED CHARGES
Excluding interest on deposits 2.53x 2.25x 2.38x 2.39x 1.42x
Including interest on deposits 1.73 1.60 1.62 1.60 1.21
====================================================================================================================================
</TABLE>
<PAGE> 1
<TABLE>
<CAPTION>
THE PNC FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES EXHIBIT 12.2
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Year ended December 31
Dollars in millions 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS
Income before taxes $1,891 $1,710 $1,618 $1,527 $ 627
Fixed charges and preferred stock dividends excluding
interest on deposits 1,265 1,395 1,201 1,106 1,492
----------------------------------------------------------------
Subtotal 3,156 3,105 2,819 2,633 2,119
Interest on deposits 1,369 1,471 1,457 1,428 1,552
----------------------------------------------------------------
Total $4,525 $4,576 $4,276 $4,061 $3,671
================================================================
FIXED CHARGES
Interest on borrowed funds $1,119 $1,268 $1,098 $1,065 $1,454
Interest component of rentals 50 37 29 31 32
Amortization of notes and debentures 1 1 1 1 1
Distributions on Mandatorily Redeemable Capital Securities
of Subsidiary Trusts 65 60 43 1
Preferred stock dividend requirements 30 29 30 8 5
----------------------------------------------------------------
Subtotal 1,265 1,395 1,201 1,106 1,492
Interest on deposits 1,369 1,471 1,457 1,428 1,552
----------------------------------------------------------------
Total $2,634 $2,866 $2,658 $2,534 $3,044
================================================================
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Excluding interest on deposits 2.49x 2.23x 2.35x 2.38x 1.42x
Including interest on deposits 1.72 1.60 1.61 1.60 1.21
===================================================================================================================================
</TABLE>
<PAGE> 1
Exhibit 13
FINANCIAL REVIEW CONTENTS
FINANCIAL REVIEW
35 Selected Consolidated Financial Data
36 Overview
37 Forward-Looking Statements
38 Review of Businesses
39 PNC Bank - Regional Banking
40 PNC Bank - Corporate Banking
41 PNC Secured Finance
42 PNC Mortgage
43 PNC Advisors
44 BlackRock
45 PFPC
46 Consolidated Income Statement Review
48 Consolidated Balance Sheet Review
50 Risk Management
53 Financial Derivatives
56 1998 versus 1997
57 Year 2000
<PAGE> 2
Exhibit 13
FINANCIAL REVIEW
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income ........................................ $4,921 $5,313 $5,051 $4,938 $5,149
Interest expense ....................................... 2,488 2,740 2,556 2,494 3,007
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income ................................... 2,433 2,573 2,495 2,444 2,142
Provision for credit losses ............................ 163 225 70 6
Noninterest income before net securities gains (losses). 2,723 2,286 1,735 1,353 1,198
Net securities gains (losses) .......................... 22 16 40 22 (280)
Noninterest expense .................................... 3,124 2,940 2,582 2,292 2,427
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes ............................. 1,891 1,710 1,618 1,527 627
Income taxes ........................................... 627 595 566 535 219
- ---------------------------------------------------------------------------------------------------------------------------
Net income ............................................. $1,264 $1,115 $1,052 $992 $408
- ---------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Earnings
Basic ................................................ $4.19 $3.64 $3.33 $2.91 $1.20
Diluted .............................................. 4.15 3.60 3.28 2.88 1.19
Cash* ................................................ 4.42 3.82 3.45 3.04 1.31
Book value ............................................. 19.23 18.86 16.87 17.13 16.87
Cash dividends declared ................................ 1.68 1.58 1.50 1.42 1.40
*EXCLUDES AMORTIZATION OF GOODWILL.
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS (At December 31)
Total assets ........................................... $75,413 $77,207 $75,120 $73,260 $73,404
Earning assets ......................................... 64,671 69,027 66,688 65,439 66,772
Loans, net of unearned income .......................... 50,046 57,650 54,245 51,798 48,653
Securities available for sale .......................... 7,611 7,074 8,522 11,917 15,839
Loans held for sale .................................... 5,798 3,226 2,324 941 659
Deposits ............................................... 46,668 47,496 47,649 45,676 46,899
Borrowed funds.......................................... 19,347 20,946 19,622 19,604 19,063
Shareholders' equity ................................... 5,946 6,043 5,384 5,869 5,768
Common shareholders' equity ............................ 5,633 5,729 5,069 5,553 5,751
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on
Average common shareholders' equity .................. 22.41% 20.81% 20.01% 17.18% 7.05%
Average assets ....................................... 1.69 1.49 1.49 1.40 .54
Net interest margin .................................... 3.68 3.85 3.94 3.83 3.15
Noninterest income to total revenue .................... 52.79 46.97 41.29 35.68 29.55
Efficiency** ........................................... 54.82 54.76 56.07 56.95 75.24
Leverage ............................................... 6.61 7.28 7.30 7.70 6.37
Common shareholders' equity to assets .................. 7.47 7.42 6.75 7.58 7.83
Dividend payout......................................... 40.22 43.43 45.39 48.89 94.76
===========================================================================================================================
</TABLE>
** EXCLUDES AMORTIZATION, DISTRIBUTIONS ON CAPITAL SECURITIES AND
MORTGAGE BANKING HEDGING ACTIVITIES.
34|35
<PAGE> 3
FINANCIAL REVIEW
This Financial Review should be read in conjunction with The PNC Financial
Services Group, Inc. and subsidiaries' ("Corporation" or "PNC") Consolidated
Financial Statements and Statistical Information included herein.
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, wholesale banking and asset
management 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 a result of these strategies, the financial characteristics of PNC have
changed significantly over the last few years. Since 1996, PNC has become
significantly less dependent on balance sheet leverage and related net interest
income. Revenue growth over the past three years has been generated through core
noninterest income that has grown more than 20% compounded annually while the
balance sheet and net interest income were essentially flat. Core diluted
earnings per share grew 11% compounded annually over the same time period. Core
performance ratios also improved as noninterest income to total revenue grew
from 36% in 1996 to 51% in 1999 and returns on equity and assets increased from
17.18% and 1.40% in 1996 to 21.24% and 1.60%, respectively, in 1999.
As part of this ongoing transition, during 1999 the Corporation implemented
a number of initiatives designed to improve the risk and return characteristics
of its lending businesses. These include the sale of the credit card business,
exiting certain non-strategic wholesale lending businesses and continued
downsizing of the indirect automobile lending portfolio.
At the same time, PNC has taken aggressive steps to build on asset
management and processing businesses including the completion of the acquisition
of First Data Investor Services Group ("ISG").
The combination of ISG with PFPC, the Corporation's investment servicing
subsidiary, creates one of the nation's leading full-service processors for
pooled investment products. The acquisition was one cent dilutive to the
Corporation's earnings per share in 1999 and is anticipated to be four cents
dilutive in 2000. On a cash basis, ISG is expected to be substantially accretive
to earnings per share in 2000.
Additionally, in October 1999, BlackRock, Inc., PNC's investment management
subsidiary, completed an initial public offering ("IPO") for approximately 14%
of the equity ownership of BlackRock. PNC continues to own approximately 70%
of BlackRock's stock after the IPO.
SUMMARY FINANCIAL RESULTS
Full year 1999 earnings were $1.264 billion or $4.15 per diluted share and
included one-time gains that were partially offset by the cost of certain
strategic initiatives. Cash earnings per diluted share, which excludes goodwill
amortization, were $4.42 for 1999, a 16% increase compared with 1998.
Core earnings were $1.199 billion or $3.93 per diluted share, a 9% increase
compared with 1998. On a core basis, return on average common shareholders'
equity was 21.24% and return on average assets was 1.60% compared with 20.81%
and 1.49%, respectively, in the prior year. Core cash earnings per share were
$4.21 for 1999, a 10% increase compared with 1998.
<PAGE> 4
The following table summarizes one-time gains and the cost of certain
strategic initiatives and reconciles reported to core earnings for full year
1999:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
IN MILLIONS, EXCEPT PER SHARE DATA PRETAX AFTER-TAX PER SHARE
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Reported earnings .................... $1,891 $1,264 $4.15
Gain on sale of credit card
business ........................ (193) (125) (.41)
Gain on sale of equity
interest in Electronic
Payment Services, Inc. .......... (97) (63) (.21)
BlackRock IPO gain ................ (64) (59) (.20)
Branch gains ...................... (27) (17) (.06)
Gain on sale of Concord EFS,
Inc. stock, net of PNC Bank
Foundation contribution ......... (11) (16) (.05)
Wholesale lending
repositioning ................... 195 126 .42
Costs related to efficiency
initiatives ..................... 98 64 .21
Write-down of an equity
investment ...................... 28 18 .06
Mall ATM buyout ................... 12 7 .02
- --------------------------------------------------------------------------
Core earnings ........................ $1,832 $1,199 $3.93
==========================================================================
</TABLE>
Total revenue for 1999 on a reported basis was $5.178 billion, a $303 million
increase compared with the prior year. Noninterest income of $2.745 billion for
1999 increased $443 million or 19% compared with 1998 primarily due to strong
growth in fee-based services. Noninterest income grew to 53% of total revenue
for 1999 compared with 47% in 1998. The ISG acquisition is expected to further
increase noninterest income to 60% of total revenue by the end of 2000.
The increase in noninterest income more than offset the decline in net
interest income that resulted from the sale of the credit card business.
Excluding the impact of credit cards, net interest income for 1999 increased
$111 million or 5% and the net interest margin widened four basis points
compared with the prior year.
The provision for credit losses was $163 million for 1999 and fully covered
net charge-offs of $161 million for the year. Net charge-offs for 1999 were .30%
of average loans compared with .80% in 1998. The year-to-year decrease was
primarily due to the sale of the credit card business in the first quarter of
1999. Excluding credit cards, net charge-offs were .20% of average loans for
1999 compared with .32% in 1998.
Noninterest expense was $3.124 billion for 1999 compared with $2.940
billion in 1998. The increase supported revenue growth in fee-based businesses.
The efficiency ratio of 54.8% for 1999 remained consistent with 1998 reflecting
a continued focus on improving returns in traditional businesses.
Overall asset quality characteristics remained stable during 1999. The
ratio of nonperforming assets to total loans, loans held for sale and foreclosed
assets was .61% at December 31, 1999 and .55% at December 31, 1998.
Nonperforming assets were $338 million at December 31, 1999 compared with $332
million at December 31, 1998. The allowance for credit losses was $674 million
and represented 225% of nonaccrual loans and 1.35% of period-end loans at
December 31, 1999. The comparable ratios were 255% and 1.31%, respectively, at
December 31, 1998.
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.
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: increased
credit risk; the introduction, withdrawal, success and timing of business
initiatives and strategies; changes in 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; changes in economic conditions, interest rates and financial and
capital markets; inflation; changes in investment performance; customer
disintermediation; customer borrowing, repayment, investment and deposit
practices; customer acceptance of PNC products and services; the inability of
the Corporation or others to remediate year 2000 concerns; and the impact,
extent and timing of technological changes, capital management activities,
actions of the Federal Reserve Board and legislative and regulatory actions and
reforms.
36|37
<PAGE> 5
FINANCIAL REVIEW
REVIEW OF BUSINESSES
PNC operates seven major businesses engaged in regional banking, wholesale
banking and asset management activities: PNC Bank - Regional Banking, PNC Bank -
Corporate Banking, PNC Secured Finance, PNC Mortgage, PNC Advisors, BlackRock
and PFPC.
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 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 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. 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.
Wholesale lending businesses designated for exit in PNC Bank - Corporate
Banking and PNC Secured Finance are included in Other. Total outstandings and
exposure designated for exit during 1999 in wholesale lending totaled $3.7
billion and $10.5 billion, respectively.
RESULTS OF BUSINESSES
<TABLE>
<CAPTION>
Return on
Earnings Revenue * Assigned Capital Average Assets
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 - DOLLARS IN MILLIONS 1999 1998 1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PNC Bank - Regional Banking..................... $641 $582 $2,307 $2,317 22% 20% $39,513 $38,848
Wholesale
PNC Bank - Corporate Banking................. 127 56 408 351 22 11 8,417 7,564
PNC Secured Finance.......................... 114 60 281 178 24 16 6,701 5,477
PNC Mortgage................................. 62 35 421 339 14 10 6,906 5,350
- ------------------------------------------------------------------------------------ ----------------
Total wholesale............................ 303 151 1,110 868 20 12 22,024 18,391
Asset Management................................
PNC Advisors................................. 147 119 738 489 27 30 3,353 2,731
BlackRock.................................... 59 36 381 339 36 41 448 441
PFPC......................................... 45 38 257 191 40 41 308 229
- ------------------------------------------------------------------------------------ ----------------
Total asset management..................... 251 193 1,376 1,019 30 34 4,109 3,401
- ------------------------------------------------------------------------------------ ----------------
Total businesses............................. 1,195 926 4,793 4,204 23 19 65,646 60,640
Other........................................... 4 189 208 697 9,174 13,986
- ------------------------------------------------------------------------------------ ----------------
Total consolidated-core **................... 1,199 1,115 5,001 4,901 21 21 74,820 74,626
Gain on sale of credit card business............ 125 193
Gain on sale of equity interest in
Electronic Payment Services, Inc............. 63 97
BlackRock IPO gain.............................. 59 64
Branch gains.................................... 17 27
Gain on sale of Concord stock, net of
PNC Bank Foundation contribution............. 16 41
Wholesale lending repositioning................. (126) (195)
Costs related to efficiency initiatives......... (64)
Write-down of an equity investment.............. (18) (28)
Mall ATM buyout................................. (7)
- ------------------------------------------------------------------------------------ ----------------
Total consolidated-reported.................. $1,264 $1,115 $5,200 $4,901 22 21 $74,820 $74,626
================================================================================================================================
</TABLE>
* TAXABLE-EQUIVALENT BASIS
** 1998 CORE RESULTS INCLUDE $162 MILLION OF NET GAINS FROM THE SALE OF THE
CORPORATE TRUST AND ESCROW BUSINESS, BRANCH SALES AND THE SALE OF A CREDIT
CARD PORTFOLIO. THESE ITEMS WERE PRIMARILY OFFSET BY A
HIGHER-THAN-ANTICIPATED PROVISION FOR CREDIT LOSSES RELATED TO A SINGLE
CREDIT IN THE HEALTH CARE INDUSTRY, ONE-TIME COSTS RELATED TO CONSUMER
BANKING INITIATIVES, VALUATION ADJUSTMENTS ON CERTAIN MARKET-SENSITIVE
ASSET POSITIONS AND MERGER AND ACQUISITION INTEGRATION COSTS.
<PAGE> 6
PNC BANK - REGIONAL BANKING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 - DOLLARS IN MILLIONS 1999 1998
- --------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Net interest income ........................ $1,728 $1,706
Noninterest income ......................... 579 611
- --------------------------------------------------------------
Total revenue ........................... 2,307 2,317
Provision for credit losses ................ 59 65
Noninterest expense ........................ 1,215 1,291
- --------------------------------------------------------------
Pretax earnings ......................... 1,033 961
Income taxes ............................... 392 379
- --------------------------------------------------------------
Earnings ................................ $641 $582
- --------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Consumer ................................ $8,753 $9,737
Commercial .............................. 9,452 8,998
Residential mortgage .................... 9,876 9,717
Other ................................... 3,061 2,852
- --------------------------------------------------------------
Total loans ........................... 31,142 31,304
Assigned assets and other assets ........... 8,371 7,544
- --------------------------------------------------------------
Total assets ............................ $39,513 $38,848
- --------------------------------------------------------------
Deposits
Noninterest-bearing demand .............. $6,235 $6,546
Interest-bearing demand ................. 4,961 4,241
Money market ............................ 9,311 7,421
Savings ................................. 2,337 2,589
Certificates ............................ 13,338 14,778
- --------------------------------------------------------------
Total net deposits .................... 36,182 35,575
Other liabilities .......................... 363 354
Assigned capital ........................... 2,968 2,919
- --------------------------------------------------------------
Total funds ............................. $39,513 $38,848
- --------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital ................. 22% 20%
Noninterest income to total revenue ........ 25 26
Efficiency ................................. 51 54
==============================================================
</TABLE>
PNC Bank - Regional Banking ("Regional Banking") provides credit, deposit,
branch-based brokerage and electronic banking products and services to retail
customers as well as credit, leasing, treasury management and capital markets
products and services to mid-sized and small businesses primarily within PNC's
geographic footprint.
Regional Banking is focused 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 54% of total business earnings for 1999
compared with 63% for 1998. Earnings increased $59 million or 10% to $641
million for 1999 and the return on assigned capital and efficiency ratios
improved. Excluding the impact of $86 million of branch gains and $40 million of
costs related to consumer delivery initiatives in 1998, earnings increased 16%.
Revenue increased $76 million to $2.307 billion for 1999 compared with the
prior year, excluding the impact of the branch gains in 1998. The increase was
primarily due to growth in deposits and fee-based services. Consumer loans
declined primarily due to the continued downsizing of the indirect automobile
lending portfolio and the decision to sell student loans in repayment. Partially
offsetting the decrease in consumer loans was a 5% increase in commercial loans
due to strong growth in middle market lending. More valuable transaction
deposits increased $2.0 billion while higher rate certificates of deposit
decreased in the year-to-year comparison primarily reflecting the impact of
strategic marketing initiatives.
Excluding the impact of costs related to consumer delivery initiatives in
1998, noninterest expense decreased 3% for 1999 compared with the prior year
reflecting the continued focus on operating efficiency.
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.
38|39
<PAGE> 7
FINANCIAL REVIEW
- ----------------
PNC BANK - CORPORATE BANKING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 - DOLLARS IN MILLIONS 1999 1998
- ---------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Credit-related revenue ...................... $160 $143
Noncredit revenue ........................... 248 208
- ---------------------------------------------------------------
Total revenue ............................ 408 351
Provision for credit losses ................. 9 84
Noninterest expense ......................... 203 183
- ---------------------------------------------------------------
Pretax earnings .......................... 196 84
Income taxes ................................ 69 28
- ---------------------------------------------------------------
Earnings ................................. $127 $56
- ---------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Specialized industries ................... $3,720 $3,391
Large corporate .......................... 2,532 2,340
Other .................................... 451 366
- ---------------------------------------------------------------
Total loans ............................ 6,703 6,097
Other assets ................................ 1,714 1,467
- ---------------------------------------------------------------
Total assets ............................. $8,417 $7,564
- ---------------------------------------------------------------
Net deposits ................................ $2,793 $2,509
Assigned funds and other liabilities ........ 5,035 4,525
Assigned capital ............................ 589 530
- ---------------------------------------------------------------
Total funds .............................. $8,417 $7,564
- ---------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital .................. 22% 11%
Noncredit revenue to total revenue .......... 61 59
Efficiency .................................. 49 51
===============================================================
</TABLE>
PNC Bank - Corporate Banking ("Corporate Banking") provides specialized credit,
capital markets and treasury management products and services to corporations,
institutions and government entities primarily within PNC's geographic
footprint.
The strategic focus for Corporate Banking is to reduce historical reliance on
balance sheet leverage and to emphasize higher-margin noncredit products and
services, especially treasury management and capital markets.
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.
Corporate Banking contributed 11% of total business earnings for 1999
compared with 6% in the prior year. Earnings of $127 million for 1999 more than
doubled in the comparison with 1998.
Total revenue of $408 million for 1999 increased $57 million or 16%
compared with 1998. Credit-related revenue increased 12% in the year-to-year
comparison driven by higher loans in selected segments that have attractive
risk/return characteristics. Noncredit revenue, which includes noninterest
income and the benefit of compensating balances received in lieu of fees, was
$248 million for 1999, a $40 million or 19% increase compared with the prior
year primarily driven by growth in treasury management and capital markets fees.
Noncredit revenue comprised 61% of total revenue in 1999 reflecting the emphasis
on sales of fee-based products.
The higher provision for credit losses in 1998 related to exposure to a
single health care relationship.
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 $264 million for 1999, a 15% increase compared with
1998. Consolidated revenue from capital markets was $109 million for 1999, a 20%
increase compared with the prior year.
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.
<PAGE> 8
PNC SECURED FINANCE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 - DOLLARS IN MILLIONS 1999 1998
- -----------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Net interest income ............................ $164 $122
Noninterest income
Net commercial mortgage banking ............. 64 26
Corporate finance ........................... 31 18
Other ....................................... 22 12
- -----------------------------------------------------------------
Total noninterest income .................. 117 56
- -----------------------------------------------------------------
Total revenue ............................... 281 178
Provision for credit losses .................... (8) (8)
Noninterest expense ............................ 147 106
- -----------------------------------------------------------------
Pretax earnings ............................. 142 80
Income taxes ................................... 28 20
- -----------------------------------------------------------------
Earnings .................................... $114 $60
- -----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Commercial - real estate related ............ $1,791 $1,124
Commercial real estate ...................... 981 1,138
Business credit ............................. 1,726 1,339
Leasing ..................................... 1,032 726
Other ....................................... 282 348
- -----------------------------------------------------------------
Total loans ............................... 5,812 4,675
Commercial mortgages held for sale ............. 135 181
Other assets ................................... 754 621
- -----------------------------------------------------------------
Total assets ................................ $6,701 $5,477
- -----------------------------------------------------------------
Deposits ....................................... $341 $142
Assigned funds and other liabilities ........... 5,891 4,952
Assigned capital ............................... 469 383
- -----------------------------------------------------------------
Total funds ................................. $6,701 $5,477
- -----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital ..................... 24% 16%
Noninterest income to total revenue ............ 42 31
Efficiency ..................................... 42 48
=================================================================
</TABLE>
PNC Secured Finance, serving corporate clients nationwide, is engaged in
commercial real estate finance, business credit, and equipment lease financing.
Over the past several years, through customer segmentation and strategic
acquisitions, commercial 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.
In 1998, PNC Secured Finance acquired Midland Loan Services, one of the
nation's largest servicers of commercial mortgage-backed securities, and
Columbia Housing Partners, one of the nation's largest originators of
investments in affordable housing.
At the end of 1999, the decision was made to exit the cyclical mortgage
warehouse lending business and certain non-strategic commercial real estate
portfolios. These activities are excluded from business results in both periods.
PNC Secured Finance also continued the strategy to expand business credit
and equipment leasing. Consistent with this strategy, PNC Secured Finance
increased its business credit marketing presence to fifteen locations, while
maintaining centralized collateral monitoring and loan approval.
PNC Secured Finance contributed 9% of total business earnings for 1999
compared with 6% in the prior year.
Net interest income of $164 million for 1999 increased $42 million or 34%
compared with the prior year. The increase was driven by loan growth within
business credit, equipment lease financing and commercial real estate related
lending.
Noninterest income of $117 million for 1999 increased to 42% of total
revenue. The increase was primarily due to higher commercial mortgage
securitization and servicing revenue and fee income from affordable housing
equity placements, as well as the comparative impact of valuation adjustments
recorded in 1998.
Noninterest expense increased in the year-to-year comparison to support
revenue growth.
COMMERCIAL MORTGAGE SERVICING PORTFOLIO
<TABLE>
<CAPTION>
IN BILLIONS 1999 1998
- ---------------------------------------------------------
<S> <C> <C>
January 1 .............................. $39
Acquisitions/additions ................. 17 $39
Repayments/transfers ................... (11)
- ---------------------------------------------------------
December 31 ......................... $45 $39
- ---------------------------------------------------------
</TABLE>
At December 31, 1999 the commercial mortgage servicing portfolio was $45
billion, a 15% increase compared with December 31, 1998.
PNC Secured 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.
40|41
<PAGE> 9
FINANCIAL REVIEW
- ----------------
PNC MORTGAGE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 - DOLLARS IN MILLIONS 1999 1998
- ---------------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Net mortgage banking revenue
Residential mortgage servicing ................. $350 $212
Origination and securitization ................. 172 186
MSR amortization, net of
servicing hedge .............................. (190) (144)
- ---------------------------------------------------------------------
Net mortgage banking revenue ................. 332 254
Net interest income ............................... 89 85
- ---------------------------------------------------------------------
Total revenue .................................. 421 339
Operating expense ................................. 318 280
- ---------------------------------------------------------------------
Pretax earnings ................................ 103 59
Income taxes ...................................... 41 24
- ---------------------------------------------------------------------
Earnings ....................................... $62 $35
- ---------------------------------------------------------------------
AVERAGE BALANCE SHEET
Residential mortgages held for sale ............... $2,594 $2,935
Securities available for sale ..................... 2,470 1,245
Mortgage servicing rights and
other assets ................................... 1,842 1,170
- ---------------------------------------------------------------------
Total assets ................................... $6,906 $5,350
- ---------------------------------------------------------------------
Escrow deposits ................................... $1,151 $1,002
Assigned funds and other liabilities .............. 5,306 4,000
Assigned capital .................................. 449 348
- ---------------------------------------------------------------------
Total funds .................................... $6,906 $5,350
- ---------------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital ........................ 14% 10%
Net mortgage banking revenue to
total revenue .................................. 79 75
Efficiency ........................................ 52 58
=====================================================================
</TABLE>
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 5% of total business earnings for 1999 compared
with 4% for 1998. Earnings nearly doubled in the comparison primarily due to
lower amortization, improved efficiency and the impact of a larger servicing
portfolio. The efficiency ratio improved significantly as PNC Mortgage continued
to leverage its technology platform and servicing capabilities.
During 1999, PNC Mortgage funded $20 billion of residential mortgages, with
36% consisting of retail originations. The comparable amounts were $22 billion
and 35%, respectively, in 1998. Production volume for 1999 consisted of $7
billion of originated loans and $13 billion of mortgages acquired through
correspondent and contractual flow agreements. The corresponding amounts for
1998 were $8 billion and $14 billion, respectively.
RESIDENTIAL MORTGAGE SERVICING PORTFOLIO
<TABLE>
<CAPTION>
IN BILLIONS 1999 1998
- ---------------------------------------------------------
<S> <C> <C>
January 1 ............................... $62 $41
Production volume .................... 20 22
Acquisitions ......................... 8 16
Repayments ........................... (15) (16)
Sales ................................ (1)
- ---------------------------------------------------------
DECEMBER 31 ........... $75 $62
=========================================================
</TABLE>
At December 31, 1999, the residential mortgage servicing portfolio totaled $75
billion. Loans included in this portfolio that were serviced for others totaled
$67 billion and had a weighted-average coupon of 7.53%. Capitalized residential
mortgage servicing rights ("MSR") totaled $1.6 billion at December 31, 1999, and
had an estimated fair value of $1.8 billion. The master servicing portfolio grew
33% to $35 billion at December 31, 1999.
Securities available for sale increased $1.2 billion in 1999 compared with
the prior year and are used in managing the interest rate risk associated with
the mortgage servicing portfolio.
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.
<PAGE> 10
PNC ADVISORS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
YEAR ENDED DECEMBER 31 - DOLLARS IN MILLIONS 1999 1998
- -----------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT
Net interest income ........................... $130 $121
Noninterest income
Investment management and trust ............ 388 324
Brokerage .................................. 149 31
Other ...................................... 71 13
- -----------------------------------------------------------------
Total noninterest income ................. 608 368
- -----------------------------------------------------------------
Total revenue .............................. 738 489
Provision for credit losses ................... 7 1
Noninterest expense ........................... 494 296
- -----------------------------------------------------------------
Pretax earnings ............................ 237 192
Income taxes .................................. 90 73
- -----------------------------------------------------------------
Earnings ................................... $147 $119
- -----------------------------------------------------------------
AVERAGE BALANCE SHEET
Loans
Residential mortgage ....................... $959 $967
Consumer ................................... 940 936
Commercial ................................. 631 614
Other ...................................... 389 44
- -----------------------------------------------------------------
Total loans .............................. 2,919 2,561
Other assets .................................. 434 170
- -----------------------------------------------------------------
Total assets ............................... $3,353 $2,731
- -----------------------------------------------------------------
Deposits ...................................... $2,164 $2,300
Assigned funds and other liabilities .......... 641 36
Assigned capital .............................. 548 395
- -----------------------------------------------------------------
Total funds ................................ $3,353 $2,731
- -----------------------------------------------------------------
PERFORMANCE RATIOS
Return on assigned capital .................... 27% 30%
Noninterest income to total revenue ........... 82 75
Efficiency .................................... 66 60
=================================================================
</TABLE>
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 pensions, 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. In 1998, the
Corporation acquired Hilliard-Lyons, Inc. ("Hilliard Lyons"), a firm primarily
focused on delivering brokerage services and investment advice to affluent
clients. PNC Advisors is expanding the Hilliard Lyons brand and organization
throughout PNC's geographic footprint, which includes several of the nation's
wealthiest metropolitan areas.
PNC Advisors contributed 12% of total business earnings for 1999 compared
with 13% in the prior year. Earnings of $147 million for 1999 increased $28
million or 24% compared with 1998.
Revenue increased $249 million or 51% for 1999 compared with the prior
year. The increase was due to higher brokerage revenue resulting from the
Hilliard Lyons acquisition and higher investment management and trust revenue
primarily resulting from new business. The year-to-year increase in noninterest
expense and the efficiency ratio, as well as the lower return on assigned
capital, was due to the impact of Hilliard Lyons.
ASSETS UNDER MANAGEMENT*
DECEMBER 31 - IN BILLIONS 1999 1998
- ------------------------------------------------------------
Personal investment management
and trust ............................ $60 $57
Institutional trust 11 7
- ------------------------------------------------------------
Total ................................ $71 $64
============================================================
* ASSETS UNDER MANAGEMENT DO NOT INCLUDE BROKERAGE ASSETS ADMINISTERED.
At December 31, 1999, PNC Advisors managed $71 billion of assets, an 11%
increase compared with the prior year primarily due to new business. Brokerage
assets administered by PNC Advisors increased $4 billion in the year-to-year
comparison to $27 billion at December 31, 1999, primarily due to increased asset
gathering at Hilliard Lyons.
PNC Advisors' revenue is affected by, among other things, the volume of new
business, the value of assets managed, investment performance and financial
market conditions. Revenue may be positively affected by growth in new business,
increasing values of assets managed, strong investment performance and improving
financial markets. Conversely, a decline in new business, declining values of
assets managed, declining investment performance and deteriorating financial
markets may have an adverse effect on results of operations.
42|43
<PAGE> 11
FINANCIAL REVIEW
BLACKROCK
YEAR ENDED DECEMBER 31 - DOLLARS IN MILLIONS 1999 1998
- ------------------------------------------------------------------------
INCOME STATEMENT
Advisory and administrative fees .................. $ 362 $325
Other income ...................................... 19 14
- ------------------------------------------------------------------------
Total revenue .................................. 381 339
Operating expense ................................. 260 250
Goodwill amortization ............................. 10 10
- ------------------------------------------------------------------------
Operating income ............................... 111 79
Interest expense .................................. 8 11
- ------------------------------------------------------------------------
Pretax earnings ................................ 103 68
Income taxes ...................................... 44 32
- ------------------------------------------------------------------------
Earnings ....................................... $ 59 $ 36
- ------------------------------------------------------------------------
PERIOD-END BALANCE SHEET
Goodwill .......................................... $ 194 $204
Other assets ...................................... 254 237
- ------------------------------------------------------------------------
Total assets ................................... $ 448 $441
- ------------------------------------------------------------------------
Borrowings ........................................ $ 28 $197
Other liabilities ................................. 139 138
Shareholders' equity .............................. 281 106
- ------------------------------------------------------------------------
Total funds .................................... $ 448 $441
- ------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on average equity .......................... 36% 41%
Operating margin* ................................. 37 30
Diluted earnings per share ........................ $1.04 $.66
========================================================================
*EXCLUDES THE IMPACT OF BAI AND 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 completed an IPO in October 1999 representing approximately a 14%
equity interest. Management anticipates that having its own public currency will
assist BlackRock in attracting and retaining the highest quality professionals
and support its long-term growth objectives.
BlackRock contributed 5% of total business earnings for 1999 compared with
4% a year ago. Earnings of $59 million for 1999 increased 67% compared with the
prior year primarily due to strong growth in advisory and administrative fees
resulting from new asset management mandates that accounted for the majority of
the $34 billion or 26% increase in assets under management. Total revenue for
1999 increased $110 million or 39% compared with the prior year, excluding
performance fees in both years associated with BlackRock Asset Investors
("BAI"), a pooled investment fund that was liquidated in the third quarter of
1999. The growth in revenue was strong across all product categories,
particularly fixed income separate accounts that increased primarily due to
significant new business. The increase in operating expense in the year-to-year
comparison supported revenue growth.
At December 31, 1999, BlackRock managed $165 billion of assets for
individual and institutional investors.
ASSETS UNDER MANAGEMENT
DECEMBER 31 - IN BILLIONS 1999 1998
- ----------------------------------------------------------
Separate Accounts
Fixed income* ....................... $ 75 $ 53
Liquidity ........................... 21 14
Equity .............................. 3 2
- ----------------------------------------------------------
Subtotal .......................... 99 69
Mutual Funds
Fixed income ........................ 13 14
Liquidity ........................... 37 36
Equity .............................. 16 12
- ----------------------------------------------------------
Subtotal .......................... 66 62
- ----------------------------------------------------------
Total assets under management .......... $165 $131
- ----------------------------------------------------------
Proprietary mutual funds
BlackRock Funds ..................... $ 27 $ 24
Provident Institutional Funds ....... 26 25
- ----------------------------------------------------------
Total proprietary mutual funds .... $ 53 $ 49
==========================================================
* INCLUDES ALTERNATIVE INVESTMENT PRODUCTS.
BlackRock's revenue is affected by, among other things, the volume of new
business, the value of assets managed, investment performance and financial
market conditions. Revenue may be positively affected by growth in new business,
increasing values of assets managed, strong investment performance and improving
financial markets. Conversely, a decline in new business, declining values of
assets managed, declining investment performance and deteriorating financial
markets may have an adverse effect on results of operations.
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.
<PAGE> 12
PFPC
YEAR ENDED DECEMBER 31 - DOLLARS IN MILLIONS 1999 1998
- -------------------------------------------------------------------------
INCOME STATEMENT
Revenue .......................................... $257 $191
Operating expense ................................ 185 131
- -------------------------------------------------------------------------
Pretax earnings ............................... 72 60
Income taxes ..................................... 27 22
- -------------------------------------------------------------------------
Earnings ...................................... $ 45 $ 38
- -------------------------------------------------------------------------
AVERAGE BALANCE SHEET
Total assets ..................................... $308 $229
- -------------------------------------------------------------------------
Other liabilities ................................ $196 $137
Assigned capital ................................. 112 92
- -------------------------------------------------------------------------
Total funds ................................... $308 $229
- -------------------------------------------------------------------------
PERFORMANCE RATIOS
Return On Assigned Capital ....................... 40% 41%
Operating margin ................................. 28 31
Efficiency ....................................... 70 68
=========================================================================
PFPC, the Corporation's global fund services 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 First Data Investor Services Group
("ISG"), one of the nation's leading providers of back-office services to mutual
funds and retirement plans. The transaction was valued at $1.1 billion and
accounted for as a purchase. The acquisition adds key related businesses, as
well as retirement plan servicing, to PFPC's expanding operations.
PFPC contributed 4% of total business earnings for 1999 and 1998. Earnings
increased $7 million or 18% to $45 million for 1999. Excluding the net impact of
ISG, earnings increased 26% in the year-to-year comparison.
Revenue increased $66 million to $257 million for 1999, of which $24 million
was attributable to the one-month impact of ISG. The remaining increase was
driven by new business, existing client growth and market appreciation.
Operating expense increased in the year-to-year comparison due to the impact of
ISG and to support revenue growth and infrastructure costs associated with
business expansion.
At December 31, 1999, PFPC provided accounting/ administration services for
$412 billion of mutual fund and other pooled assets, a 63% increase compared
with December 31, 1998, primarily due to the impact of ISG. PFPC provided
custody services for $388 billion of assets at December 31, 1999, an increase of
23% compared with December 31, 1998.
ASSETS SERVICED
DECEMBER 31 - IN BILLIONS 1999 1998
- -------------------------------------------------
Accounting/administration ..... $412 $252
Custody ....................... 388 315
=================================================
PFPC's revenue is affected by, among other things, the number and value of
customer accounts serviced and financial market conditions. Revenue may be
positively affected by increasing customer accounts and account values serviced
or improving financial markets. Conversely, declining customer accounts and
account values serviced or deteriorating financial markets may have an adverse
effect on results of operations.
44|45
<PAGE> 13
FINANCIAL REVIEW
CONSOLIDATED INCOME STATEMENT REVIEW
NET INTEREST INCOME ANALYSIS
<TABLE>
<CAPTION>
TAXABLE-EQUIVALENT BASIS AVERAGE BALANCES INTEREST INCOME/EXPENSE AVERAGE YIELDS/RATES
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 -- DOLLARS IN MILLIONS 1999 1998 CHANGE 1999 1998 CHANGE 1999 1998 CHANGE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans held for sale ...................... $3,986 $3,371 $615 $291 $233 $58 7.30% 6.91% 39bp
Securities available for sale ............ 8,554 7,374 1,180 487 430 57 5.70 5.83 (13)
Loans, net of unearned income
Consumer ............................... 10,314 11,073 (759) 844 940 (96) 8.18 8.49 (31)
Credit card ............................ 672 3,849 (3,177) 100 538 (438) 14.88 13.98 90
Residential mortgage ................... 12,451 12,496 (45) 871 905 (34) 7.00 7.24 (24)
Commercial ............................. 23,084 22,773 311 1,792 1,794 (2) 7.76 7.88 (12)
Commercial real estate ................. 3,362 3,279 83 265 277 (12) 7.88 8.45 (57)
Other .................................. 3,096 2,223 873 222 157 65 7.17 7.06 11
- ----------------------------------------------------------------------------------------------------
Total loans, net of
unearned income ..................... 52,979 55,693 (2,714) 4,094 4,611 (517) 7.73 8.28 (55)
Other .................................... 1,117 1,001 116 71 65 6 6.36 6.49 (13)
- ----------------------------------------------------------------------------------------------------
Total interest-earning assets/
interest income ..................... 66,636 67,439 (803) 4,943 5,339 (396) 7.42 7.92 (50)
Noninterest-earning assets .................. 8,184 7,187 997
- -----------------------------------------------------------------------
Total assets ........................... $74,820 $74,626 $194
- -----------------------------------------------------------------------
Interest-bearing liabilities
Deposits
Demand and money market ................ $17,698 $14,820 $2,878 493 439 54 2.79 2.96 (17)
Savings ................................ 2,390 2,620 (230) 39 51 (12) 1.63 1.95 (32)
Other time ............................. 15,734 17,206 (1,472) 793 929 (136) 5.04 5.40 (36)
Deposits in foreign offices ............ 872 935 (63) 44 52 (8) 5.05 5.56 (51)
- ----------------------------------------------------------------------------------------------------
Total interest-bearing deposits ........ 36,694 35,581 1,113 1,369 1,471 (102) 3.73 4.13 (40)
Borrowed funds ........................... 20,594 21,809 (1,215) 1,119 1,269 (150) 5.43 5.82 (39)
- ----------------------------------------------------------------------------------------------------
Total interest-bearing liabilities/
interest expense ....................... 57,288 57,390 (102) 2,488 2,740 (252) 4.34 4.77 (43)
-----------------------------------------------------
Noninterest-bearing liabilities,
capital securities and
shareholders' equity ..................... 17,532 17,236 296
- -----------------------------------------------------------------------
Total liabilities, capital
securities and
shareholders' equity ................ $74,820 $74,626 $194
- -----------------------------------------------------------------------
Interest rate spread ........................ 3.08 3.15 (7)
Impact of noninterest-bearing
sources .................................. .60 .70 (10)
--------------------
Net interest income/margin ............. $2,455 $2,599 $(144) 3.68% 3.85% (17)bp
=================================================================================================================================
</TABLE>
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 $2.455 billion for 1999, a $144
million decrease compared with 1998. The net interest margin was 3.68% for 1999
compared with 3.85% in the prior year. These declines were primarily due to the
sale of the credit card business in the first quarter of 1999. Excluding the
credit card business, net interest income for 1999 increased $111 million or 5%
and the net interest margin widened four basis points compared with the prior
year. The increases were primarily due to higher commercial and other loans that
resulted from strong growth in middle market lending and the strategic expansion
of secured and equipment lease financing. The decrease in consumer loans was due
to the continued downsizing of the indirect automobile lending portfolio and the
decision to sell student loans in repayment. Excluding indirect automobile loans
and student loans, consumer loans increased 5% due to strong growth in home
equity loans. Loans represented 80% of average earning assets for 1999 compared
with 83% for the prior year. Average loans held for sale increased $615 million
in the year-to-year comparison, reflecting the decision to exit certain
non-strategic wholesale lending businesses during 1999. Average securities
available for sale increased $1.2 billion compared with the prior year and
<PAGE> 14
represented 13% of average earning assets for 1999 compared with 11% a year ago.
The increase was due to securities purchased as part of PNC Mortgage's risk
management strategies.
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 1999 and 1998, respectively, with the remainder
primarily comprised of wholesale funding obtained at prevailing market rates.
Average demand and money market deposits increased $2.9 billion or 19% to $17.7
billion for 1999 primarily reflecting the impact of strategic marketing
initiatives while savings and certificates decreased in the year-to-year
comparison.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $163 million in 1999 compared with $225
million in the prior year. Net charge-offs were $161 million or .30% of average
loans for 1999 compared with $447 million or .80%, respectively, in 1998. 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 .20% of
average loans for 1999 compared with .32% in 1998.
NONINTEREST INCOME
Noninterest income was $2.745 billion for 1999 and represented 53% of total
revenue compared with $2.302 billion and 47%, respectively, in 1998. The
increases were primarily due to strong growth in fee-based businesses.
Asset management fees of $681 million for 1999 increased $143 million or 26%
compared with 1998, excluding performance fees associated with BAI, a pooled
investment fund that was liquidated in the third quarter of 1999, and revenue
from the corporate trust business that was sold in the fourth quarter of 1998.
Assets under management increased to approximately $213 billion at December 31,
1999 compared with $174 billion at December 31, 1998.
Mutual fund servicing fees of $251 million for 1999 increased $69 million or
38% compared with 1998 of which $30 million was attributable to the one-month
impact of the ISG acquisition. The remaining increase was primarily due to new
business and existing client growth as well as market appreciation.
Service charges on deposits of $207 million remained consistent with the
prior year.
Brokerage income of $219 million in 1999 increased $128 million compared
with 1998 primarily due to the acquisition of Hilliard Lyons.
Other consumer services revenue of $236 million for 1999 decreased $63
million compared with 1998 due to the sale of the credit card business in the
first quarter of 1999.
The decrease in corporate services revenue primarily reflected the impact of
$195 million of valuation adjustments in 1999 associated with the exit of
certain non-strategic wholesale lending businesses. Excluding valuation
adjustments in both years, corporate services revenue was $328 million and $275
million for 1999 and 1998, respectively, a 19% increase primarily due to growth
in commercial mortgage banking, capital markets and treasury management fees.
Net residential mortgage banking revenue of $272 million for 1999 increased
$60 million or 28% compared with the prior year primarily due to a larger
servicing portfolio.
Equity management income was $100 million for 1999 and $96 million for 1998.
Both years benefited from strong equity market conditions.
Net securities gains for 1999 were $22 million and included a $41 million
gain from the sale of Concord EFS, Inc. stock partially offset by a $28 million
write-down of an equity investment in Friedman Billings Ramsey Group, Inc.
Sale of subsidiary stock of $64 million in 1999 reflects the gain from the
BlackRock IPO.
Other noninterest income included a $193 million gain from the sale of the
credit card business in the first quarter of 1999. Also included in other
noninterest income was a $97 million gain from the sale of an equity interest in
Electronic Payment Services Inc. ("EPS") and $27 million of gains from the sale
of twelve branches in Western Pennsylvania. During 1998, other noninterest
income included a $97 million gain from the sale of the corporate trust
business, $86 million of branch gains and a $21 million loss from the sale of a
credit card portfolio. Excluding these items, other noninterest income increased
$73 million in the comparison primarily due to the Hilliard Lyons acquisition.
NONINTEREST EXPENSE
Noninterest expense was $3.124 billion for 1999 compared with $2.940 billion in
1998. The increase was primarily to support revenue growth in fee-based
businesses. On a comparable basis, noninterest expense increased $120 million or
4% excluding $98 million of costs related to efficiency initiatives
(compensation -- $22 million, net occupancy -- $35 million, equipment -- $38
million and other -- $3 million), a $30 million contribution to the PNC Bank
Foundation and $12 million of expense associated with the buyout of PNC's mall
ATM marketing representative from 1999. For 1998, $55 million of costs related
to consumer banking initiatives and $21 million of merger and acquisition
integration costs were excluded from the comparison. The efficiency ratio of
54.8% for 1999 remained consistent with 1998 reflecting a continued focus on
improving returns in traditional businesses. Average full-time equivalent
employees were relatively consistent in the year-to-year comparison and totaled
approximately 25,600 and 25,500 in 1999 and 1998, respectively.
46|47
<PAGE> 15
FINANCIAL REVIEW
CONSOLIDATED
BALANCE SHEET REVIEW
LOANS
Loans outstanding of $50.0 billion at December 31, 1999 decreased $7.7 billion
from year-end 1998 primarily due to the impact of strategies designed to reduce
balance sheet leverage in lower-return businesses. During 1999, the Corporation
sold the credit card business, decided to sell education loans in repayment and
continued the downsizing of the indirect automobile lending portfolio. In the
first quarter of 1999, the decision was made to exit certain non-strategic
wholesale lending businesses. Additional actions were taken in the fourth
quarter of 1999 to further reduce exposure to wholesale lending businesses and
exit the mortgage warehouse lending business. Total outstandings and exposure
designated for exit during 1999 totaled $3.7 billion and $10.5 billion,
respectively. At December 31, 1999, the remaining outstandings and exposure
associated with this initiative totaled $2.9 billion and $7.7 billion,
respectively.
DETAILS OF LOANS
DECEMBER 31 - IN MILLIONS 1999 1998
- -------------------------------------------------------------
Consumer
Home equity ...................... $ 6,068 $ 5,731
Automobile ....................... 1,691 2,444
Education ........................ 85 1,196
Other ............................ 1,513 1,609
- -------------------------------------------------------------
Total consumer ................. 9,357 10,980
Credit card ......................... 2,958
Residential mortgage ................ 12,869 12,265
Commercial
Manufacturing .................... 5,355 5,336
Retail/wholesale ................. 4,301 4,452
Service providers ................ 3,208 3,263
Real estate related .............. 2,862 3,093
Communications ................... 1,370 1,529
Health care ...................... 772 1,136
Financial services ............... 1,300 2,928
Other ............................ 2,300 3,445
- -------------------------------------------------------------
Total commercial ............... 21,468 25,182
Commercial real estate
Mortgage ......................... 761 1,398
Real estate project .............. 1,969 2,051
- -------------------------------------------------------------
Total commercial real estate 2,730 3,449
Lease financing ..................... 3,663 2,978
Other ............................... 683 392
Unearned income ..................... (724) (554)
- -------------------------------------------------------------
Total, net of unearned income .... $ 50,046 $57,650
=============================================================
Loan portfolio composition continued to be geographically diversified among
numerous industries and types of businesses.
SECURITIES AVAILABLE FOR SALE
The securities available for sale portfolio increased $537 million from December
31, 1998 to $7.6 billion at December 31, 1999. Total securities used in mortgage
banking risk management were $1.7 billion at December 31, 1999. Portfolio
securities represented 8% of total assets at December 31, 1999. The expected
weighted-average life of the portfolio securities increased to 4 years and 7
months at December 31, 1999 compared with 2 years and 8 months at year-end 1998.
DETAILS OF SECURITIES AVAILABLE FOR SALE
AMORTIZED FAIR
DECEMBER 31 - IN MILLIONS COST VALUE
- ---------------------------------------------------------------------------
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
===========================================================================
1998
PORTFOLIO SECURITIES
Debt securities
U.S. Treasury and government agencies .......... $ 152 $ 152
Mortgage-backed ................................ 2,942 2,936
Asset-backed ................................... 709 708
State and municipal ............................ 122 128
Other debt ..................................... 33 31
Corporate stocks and other ........................ 542 517
- ---------------------------------------------------------------------------
Total .......................................... $4,500 $4,472
===========================================================================
MORTGAGE BANKING RISK
MANAGEMENT
Debt securities
U.S. Treasury and government agencies .......... $2,629 $2,602
- ---------------------------------------------------------------------------
Total .......................................... $2,629 $2,602
- ---------------------------------------------------------------------------
Total securities available for sale .......... $7,129 $7,074
===========================================================================
<PAGE> 16
FUNDING SOURCES
Total funding sources were $66.0 billion at December 31, 1999, a decrease of
$2.4 billion compared with December 31, 1998, primarily resulting from reduced
wholesale funding related to the credit card business that was sold in the first
quarter of 1999.
While total demand, savings and money market deposits decreased
approximately $700 million in the year-to-year comparison, money market deposits
individually increased more than $600 million reflecting strategic marketing
initiatives in regional banking. Time deposits decreased $3.0 billion primarily
due to a decrease in higher rate certificates of deposit.
During 1999, the Corporation issued $250 million of 6.13% subordinated
notes. Additionally, the Corporation issued $300 million of 6.95% notes, $300
million of 7.00% notes and $400 million of 7.50% subordinated notes to fund the
ISG acquisition.
DETAILS OF FUNDING SOURCES
DECEMBER 31 - IN MILLIONS 1999 1998
- -------------------------------------------------------------------------
Deposits
Demand, savings and money market ...... $28,689 $29,359
Time .................................. 14,786 17,774
Foreign ............................... 3,193 363
- -------------------------------------------------------------------------
Total deposits ...................... 46,668 47,496
Borrowed funds
Federal funds purchased ............... 1,281 390
Repurchase agreements ................. 1,122 1,669
Bank notes and senior debt ............ 6,975 10,384
Other borrowed funds .................. 7,642 6,722
Subordinated debt ..................... 2,327 1,781
- -------------------------------------------------------------------------
Total borrowed funds ................ 19,347 20,946
- -------------------------------------------------------------------------
Total ............................. $66,015 $68,442
=========================================================================
CAPITAL
The access to and cost of funding new business initiatives including
acquisitions, 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 December 31, 1999, the Corporation and each
bank subsidiary were considered well capitalized based on regulatory capital
ratio requirements.
RISK-BASED CAPITAL
DECEMBER 31 - DOLLARS IN MILLIONS 1999 1998
- -------------------------------------------------------------------------
Capital components
Shareholders' equity
Common .............................. $5,633 $5,729
Preferred ........................... 313 314
Trust preferred capital securities .... 848 848
Goodwill and other .................... (2,318) (1,381)
Net unrealized securities losses ...... 255 36
- -------------------------------------------------------------------------
Tier I risk-based capital ........... 4,731 5,546
Subordinated debt ..................... 2,040 1,641
Eligible allowance for credit losses .. 667 753
- -------------------------------------------------------------------------
Total risk-based capital ............ $7,438 $7,940
=========================================================================
Assets
Risk-weighted assets and
off-balance-sheet instruments ....... $67,118 $71,146
Average tangible assets ............... 71,617 76,135
=========================================================================
Capital ratios
Tier I risk-based ..................... 7.05% 7.80%
Total risk-based ...................... 11.08 11.16
Leverage .............................. 6.61 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 1999, PNC repurchased 13.5 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. This new
program replaces the prior program that was rescinded.
48|49
<PAGE> 17
FINANCIAL REVIEW
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 others,
diversification, limiting exposure to any single industry or customer, requiring
collateral or selling participations to third parties and purchasing
credit-related derivatives.
NONPERFORMING ASSETS
DECEMBER 31 - DOLLARS IN MILLIONS 1999 1998
- -------------------------------------------------------------------
Nonaccrual loans
Commercial ............................... $220 $188
Residential mortgage ..................... 56 51
Commercial real estate
Real estate project .................... 13 28
Mortgage ............................... 8 22
Consumer ................................. 2 6
- -------------------------------------------------------------------
Total nonaccrual loans ................. 299 295
Foreclosed and other assets
Residential mortgage ..................... 12 17
Commercial real estate ................... 5 15
Other .................................... 22 5
- -------------------------------------------------------------------
Total foreclosed and other assets ...... 39 37
- -------------------------------------------------------------------
Total nonperforming assets ............. $338 $332
===================================================================
Nonaccrual loans to total loans ............. .60% .51%
Nonperforming assets to total
loans, loans held for sale and
foreclosed assets ........................ .61 .55
Nonperforming assets to total assets ........ .45 .43
===================================================================
The above table excludes $13 million of equity management assets at December
31, 1999 carried at fair value.
The amount of nonperforming loans that were current as to principal and
interest was $42 million at December 31, 1999 and $28 million at December 31,
1998. There were no troubled debt restructured loans outstanding as of either
period end.
CHANGE IN NONPERFORMING ASSETS
IN MILLIONS 1999 1998
- ---------------------------------------------------
January 1 .................... $332 $333
Transferred from accrual ..... 418 377
Returned to performing ....... (11) (12)
Principal reductions ......... (268) (175)
Sales ........................ (49) (58)
Charge-offs and other ........ (84) (133)
- ---------------------------------------------------
December 31 ............... $338 $332
===================================================
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
AMOUNT PERCENT OF LOANS
DECEMBER 31 ------------- ----------------
DOLLARS IN MILLIONS 1999 1998 1999 1998
- -------------------------------------------------------------------
CONSUMER
Education ............... $23 1.92%
Other ................... $25 38 .27% .39
- --------------------------------------------
Total consumer 25 61 .27 .56
Credit card ................ 63 2.13
Residential mortgage ....... 34 53 .26 .43
Commercial ................. 30 56 .14 .22
Commercial real estate ..... 5 32 .18 .93
Other ...................... 2 1 .05 .04
- --------------------------------------------
Total ................... $96 $266 .19 .46
===================================================================
Education loans were excluded from the above table in 1999 due to the decision
to sell student loans in repayment. Also, credit cards declined due to the sale
of the credit card business in 1999.
Loans not included in nonaccrual or past due categories, but where
information about possible credit problems causes management to be uncertain
about the borrower's ability to comply with existing repayment terms over the
next six months, totaled $95 million at December 31, 1999.
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 others, 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.
<PAGE> 18
The provision for credit losses in 1999 and the evaluation of the allowance
for credit losses as of December 31, 1999 reflected changes in loan portfolio
composition, changes in asset quality, the impact of selling the credit card
business, the decision to exit certain wholesale lending businesses and downsize
the indirect automobile lending portfolio. The unallocated portion of the
allowance for credit losses at December 31, 1999 represented 20% of the total
allowance and .27% of total loans compared with 22% and .29%, respectively, at
December 31, 1998.
ROLLFORWARD OF ALLOWANCE FOR CREDIT LOSSES
IN MILLIONS 1999 1998
- ----------------------------------------------------------
January 1 ...................... $ 753 $ 972
Charge-offs .................... (216) (524)
Recoveries ..................... 55 77
- ----------------------------------------------------------
Net charge-offs ............. (161) (447)
Provision for credit losses .... 163 225
Sale of credit card business ... (81)
Acquisitions ................... 3
- ----------------------------------------------------------
December 31 ................. $ 674 $ 753
==========================================================
The allowance as a percent of nonaccrual loans and period-end loans was 225% and
1.35%, respectively, at December 31, 1999. The comparable year-end 1998 amounts
were 255% and 1.31%, respectively.
CHARGE-OFFS AND RECOVERIES
NET PERCENT OF
YEAR ENDED DECEMBER 31 CHARGE- CHARGE- AVERAGE
DOLLARS IN MILLIONS OFFS RECOVERIES OFFS LOANS
- ------------------------------------------------------------------------------
1999
Consumer ................... $ 63 $25 $ 38 .37%
Credit card ................ 60 2 58 8.63
Residential mortgage ....... 8 1 7 .06
Commercial ................. 72 22 50 .22
Commercial real estate ..... 4 4
Other ...................... 9 1 8 .26
- ----------------------------------------------------------------
Total ................... $216 $55 $161 .30
==============================================================================
1998
Consumer ................... $ 83 $34 $ 49 .44%
Credit card ................ 297 17 280 7.27
Residential mortgage ....... 7 1 6 .05
Commercial ................. 122 20 102 .45
Commercial real estate ..... 8 3 5 .15
Other ...................... 7 2 5 .22
- ----------------------------------------------------------------
Total ................... $524 $77 $447 .80
==============================================================================
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.
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 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 as well as alternative forms of borrowing including Federal funds
purchased, repurchase agreements and debt issuances. At December 31, 1999, such
assets totaled $14.6 billion with $4.2 billion pledged as collateral for
borrowing, trust and other commitments. Funding can also be obtained through
secured advances from the Federal Home Loan Bank ("FHLB") system, of which PNC
is a member. These borrowings are generally secured by residential mortgages. At
December 31, 1999, approximately $6.3 billion of residential mortgages were
available as collateral for borrowings from the FHLB.
Liquidity for the parent company and subsidiaries is also generated through
the issuance of securities in public or private markets and lines of credit and
through asset securitizations and sales. During 1999, the Corporation issued
$1.3 billion of senior and subordinated debt. At December 31, 1999, the
Corporation had unused capacity under effective shelf registration statements of
approximately $1.5 billion of debt and equity securities and $400 million of
trust preferred capital securities. In addition, the Corporation has 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 $489 million at December 31, 1999. Dividends
may also be impacted by capital needs, regulatory requirements, corporate
policies, contractual restrictions and other factors.
50|51
<PAGE> 19
FINANCIAL REVIEW
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 achieve 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 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 December 31, 1999, if interest rates were to gradually increase by
100 basis points over the next twelve months, the model indicates that net
interest income would decrease by .9%. If interest rates were to gradually
decrease by 100 basis points over the next twelve months, the model indicates
that net interest income would increase by 1.2%.
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.
The Corporation measures the sensitivity of the value of its
on-balance-sheet and off-balance-sheet positions to movements in interest rates
using an economic value of equity model. The model computes the value of 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 December
31, 1999, if interest rates were to instantaneously increase by 200 basis
points, the economic value of existing on-balance-sheet and off-balance-sheet
positions would decline by 1.00% of assets. If interest rates were to
instantaneously decrease by 200 basis points, the economic value of existing
on-balance-sheet and off-balance-sheet positions would increase by .3% of
assets.
<PAGE> 20
MARKET RISK
Most of PNC's trading activities are designed to provide capital markets
services for customers of PNC Bank - Corporate Banking, PNC Secured Finance and
PNC Advisors. 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 December 31, 1999.
FINANCIAL DERIVATIVES
A variety of off-balance-sheet financial derivatives are used as part of the
overall risk management process to manage 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 indices. 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 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 1999, financial derivatives used in interest rate risk management
increased net interest income by $43 million compared with an $18 million
increase in the prior year.
The following table sets forth changes in the notional value of
off-balance-sheet financial derivatives used for risk management during 1999.
FINANCIAL DERIVATIVES ACTIVITY
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
1999 - DOLLARS IN MILLIONS JANUARY 1 ADDITIONS MATURITIES TERMINATIONS DECEMBER 31 MATURITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate risk management
Interest rate swaps
Receive fixed ............................... $ 7,163 $ 1,400 $ (650) $ (500) $ 7,413 2 yrs. 6 mos
Pay fixed ................................... 13 4 (12) 5 1 yr.
Basis swaps ................................. 2,274 (624) 1,650 3 yrs. 6 mos
Interest rate caps ............................ 722 (220) (28) 474 4 yrs.
Interest rate floors .......................... 1,939 3,000 (1,602) (26) 3,311 2 yrs. 5 mos
- --------------------------------------------------------------------------------------------------------------------
Total interest rate risk management ...... 12,111 4,404 (3,108) (554) 12,853
Mortgage banking risk management
Residential
Forward contracts
Commitments to purchase loans ............ 1,286 29,709 (30,691) 304 2 mos.
Commitments to sell loans ................ 3,248 36,995 (39,049) 1,194 2 mos.
Options .................................. 207 890 (1,001) 96 2 mos.
Options - MSR ............................... 4,875 4,025 (525) (700) 7,675 3 yrs. 11 mos.
- --------------------------------------------------------------------------------------------------------------------
Total residential ........................ 9,616 71,619 (71,266) (700) 9,269
Commercial - interest rate swaps ................. 657 1,431 (88) (1,357) 643 7 yrs. 1 mo.
- --------------------------------------------------------------------------------------------------------------------
Total mortgage banking risk management ... 10,273 73,050 (71,354) (2,057) 9,912
Student lending activities
Forward contracts ............................. 681 681 1 yr. 4 mos.
Credit-related activities
Credit default swaps .......................... 4,255 60 4,315 2 yrs. 5 mos.
- --------------------------------------------------------------------------------------------------------------------
Total .................................... $26,639 $ 78,195 $(74,462) $(2,611) $27,761
==================================================================================================================================
</TABLE>
52|53
<PAGE> 21
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 December 31, 1999.
FINANCIAL DERIVATIVES
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE INTEREST RATES
NOTIONAL ESTIMATED -------------------------------
DECEMBER 31, 1999 - 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 ............ $ 5,550 $(48) 6.53% 5.49%
Basis swaps designated to other
earning assets ............................. 226 3 6.44 6.72
Interest rate caps designated to loans(2) ....... 474 12 NM NM
Interest rate floors designated to loans(3) ..... 3,311 NM NM
- -------------------------------------------------------------------------------
Total asset rate conversion ................ 9,561 (33)
Liability rate conversion
Interest rate swaps(1)
Receive fixed designated to:
Interest-bearing deposits .................. 150 (2) 6.85 6.65
Borrowed funds ............................. 1,713 (23) 6.75 6.24
Pay fixed designated to borrowed funds ....... 5 1 6.09 7.04
Basis swaps designated to borrowed funds ..... 1,424 7 6.70 6.71
- -------------------------------------------------------------------------------
Total liability rate conversion ............ 3,292 (17)
- -------------------------------------------------------------------------------
Total interest rate risk management ..... 12,853 (50)
Mortgage banking risk management
Residential
Forward contracts
Commitments to purchase loans ................ 304 6 NM NM
Commitments to sell loans .................... 1,194 2 NM NM
Options ...................................... 96 1 NM NM
Options - MSR ................................... 7,675 19 NM NM
- -------------------------------------------------------------------------------
Total residential .......................... 9,269 28
Commercial
Pay fixed interest rate swaps
designated to securities(1) .................. 144 3 7.16 6.08
Pay fixed interest rate swaps
designated to loans(1) ...................... 499 48 5.49 7.05
- -------------------------------------------------------------------------------
Total commercial ........................... 643 51
- -------------------------------------------------------------------------------
Total mortgage banking risk management .. 9,912 79
Student lending activities
Forward contracts ................................. 681 NM NM
Credit-related activities
Credit default swaps .............................. 4,315 (4) NM NM
- -------------------------------------------------------------------------------
Total financial derivatives ..................... $27,761 $ 25
===================================================================================================================
</TABLE>
(1) THE FLOATING RATE PORTION OF INTEREST RATE CONTRACTS IS BASED ON
MONEY-MARKET INDICES. AS A PERCENT OF NOTIONAL VALUE, 27% WERE BASED ON
1-MONTH LIBOR, 70% ON 3-MONTH LIBOR AND THE REMAINDER ON OTHER SHORT-TERM
INDICES.
(2) INTEREST RATE CAPS WITH NOTIONAL VALUES OF $142 MILLION, $129 MILLION AND
$199 MILLION REQUIRE THE COUNTERPARTY TO PAY THE CORPORATION THE EXCESS, IF
ANY, OF 3-MONTH LIBOR OVER A WEIGHTED-AVERAGE STRIKE OF 6.16%, 1-MONTH
LIBOR OVER A WEIGHTED-AVERAGE STRIKE OF 5.72% AND PRIME OVER A
WEIGHTED-AVERAGE STRIKE OF 8.76%, RESPECTIVELY. AT DECEMBER 31, 1999,
3-MONTH LIBOR WAS 6.00%, 1-MONTH LIBOR WAS 5.82% AND PRIME WAS 8.50%.
(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 DECEMBER 31, 1999,
3-MONTH LIBOR WAS 6.00%, 10-YEAR CMT WAS 6.45% AND 10-YEAR CMS WAS 7.18%.
NM - NOT MEANINGFUL
<PAGE> 22
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.
<TABLE>
<CAPTION>
OTHER DERIVATIVES AT DECEMBER 31, 1999 1999
--------------------------------------------------- -----------
POSITIVE NEGATIVE NET AVERAGE
NOTIONAL FAIR FAIR ASSET FAIR
IN MILLIONS VALUE VALUE VALUE (LIABILITY) VALUE
- ----------------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C>
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>
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 December 31, 1998.
FINANCIAL DERIVATIVES
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE INTEREST RATES
NOTIONAL ESTIMATED -------------------------------
DECEMBER 31, 1998 - 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 ...................... $5,550 $83 5.06% 5.49%
Pay fixed designated to loans .......................... 5 6.23 4.98
Basis swaps designated to other earning assets ......... 300 4 4.78 5.17
Interest rate caps designated to loans(2) ................. 722 6 NM NM
Interest rate floors designated to loans(3) ............... 1,939 (9) NM NM
- --------------------------------------------------------------------------------------------
Total asset rate conversion .......................... 8,516 84
Liability rate conversion
Interest rate swaps(1)
Receive fixed designated to:
Interest-bearing deposits ............................ 150 10 5.23 6.65
Borrowed funds ....................................... 1,463 60 5.12 5.83
Pay fixed designated to borrowed funds ................. 8 1 7.22 5.58
Basis swaps designated to borrowed funds ............... 1,974 9 5.09 5.09
- --------------------------------------------------------------------------------------------
Total liability rate conversion ...................... 3,595 80
- --------------------------------------------------------------------------------------------
Total interest rate risk management ............. 12,111 164
Mortgage banking risk management
Residential
Forward contracts
Commitments to purchase loans .......................... 1,286 4 NM NM
Commitments to sell loans .............................. 3,248 4 NM NM
Options ................................................ 207 5 NM NM
Interest rate floors - MSR(3) ............................. 4,875 53 NM NM
- --------------------------------------------------------------------------------------------
Total residential .................................... 9,616 66
Commercial
Pay fixed swaps ...................................... 657 (2) 5.42 5.34
- --------------------------------------------------------------------------------------------
Total mortgage banking risk management ............... 10,273 64
Credit-related activities
Credit default swaps ........................................ 4,255 (2) NM NM
- --------------------------------------------------------------------------------------------
Total financial derivatives .......................... $26,639 $226
================================================================================================================================
</TABLE>
(1) THE FLOATING RATE PORTION OF INTEREST RATE CONTRACTS IS BASED ON
MONEY-MARKET INDICES. AS A PERCENT OF NOTIONAL VALUE, 33% WERE BASED ON
1-MONTH LIBOR, 63% ON 3-MONTH LIBOR AND THE REMAINDER ON OTHER SHORT-TERM
INDICES.
(2) INTEREST RATE CAPS WITH NOTIONAL VALUES OF $248 MILLION, $209 MILLION AND
$257 MILLION REQUIRE THE COUNTERPARTY TO PAY THE EXCESS, IF ANY, OF 3-MONTH
LIBOR OVER A WEIGHTED-AVERAGE STRIKE OF 6.19%, 1-MONTH LIBOR OVER A
WEIGHTED-AVERAGE STRIKE OF 5.85% AND PRIME OVER A WEIGHTED-AVERAGE STRIKE
OF 8.77%, RESPECTIVELY. AT DECEMBER 31, 1998, 3-MONTH LIBOR WAS 5.07%,
1-MONTH LIBOR WAS 5.06% AND PRIME WAS 7.8%.
(3) INTEREST RATE FLOORS WITH NOTIONAL VALUES OF $1.5 BILLION, $1.7 BILLION AND
$3.2 BILLION REQUIRE THE COUNTERPARTY TO PAY THE CORPORATION THE EXCESS, IF
ANY, OF THE WEIGHTED-AVERAGE STRIKE OF 5.01% OVER 3-MONTH LIBOR, THE
WEIGHTED-AVERAGE STRIKE OF 5.19% OVER 10-YEAR CMT AND THE WEIGHTED-AVERAGE
STRIKE OF 4.99% OVER 10-YEAR CMS, RESPECTIVELY. AT DECEMBER 31, 1998,
3-MONTH LIBOR WAS 5.07%, 10-YEAR CMT WAS 4.65% AND 10-YEAR CMS WAS 5.47%.
NM - NOT MEANINGFUL
54/55
<PAGE> 23
FINANCIAL REVIEW
1998 VERSUS 1997
CONSOLIDATED INCOME
STATEMENT REVIEW
OVERVIEW
Consolidated net income for 1998 was $1.115 billion compared with $1.052 billion
in 1997. Diluted earnings per share increased 10% to $3.60 for 1998 compared
with $3.28 in 1997. Returns on average common shareholders' equity and average
assets were 20.81% and 1.49% for 1998 compared with 20.01% and 1.49%,
respectively, in 1997.
NET INTEREST INCOME
Taxable-equivalent net interest income increased $75 million to $2.599 billion
in 1998 compared with $2.524 billion in 1997. The net interest margin narrowed
to 3.85% in 1998 compared with 3.94% in the prior year. The increase in net
interest income was primarily due to a $3.4 billion increase in average earning
assets, which more than offset a narrower net interest margin resulting from a
change in balance sheet composition.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $225 million in 1998 compared with $70
million in 1997. Net charge-offs were .80% of average loans in 1998 compared
with .51% in 1997. The increase in the net charge-off ratio was primarily
associated with credit cards and a single credit in the health care industry.
NONINTEREST INCOME
Noninterest income was $2.302 billion in 1998 compared with $1.775 billion in
1997. Asset management, mutual fund servicing, brokerage, other consumer
services, corporate services and mortgage banking revenues each grew 24% or more
compared with the prior year. Noninterest income for 1998 included $162 million
of net gains from the sale of the corporate trust and escrow business, branch
sales and the sale of a credit card portfolio as well as the negative impact of
$30 million of valuation adjustments on certain market-sensitive asset
positions.
Asset management fees of $626 million for 1998 increased 35% compared with
1997 primarily due to new business, market appreciation and performance fees.
Assets under management increased 27% to $174 billion at December 31, 1998,
compared with $137 billion at December 31, 1997. Mutual fund servicing fees of
$182 million for 1998 increased 29% compared with 1997 resulting from an
increase in assets serviced. At December 31, 1998, custody and
accounting/administration services were provided for $315 billion and $252
billion of mutual fund assets, respectively. The comparable amounts were $232
billion and $182 billion, respectively, at December 31, 1997.
Brokerage income was $91 million for 1998, a $21 million increase compared
with 1997, primarily due to an increase in brokerage accounts.
Other consumer services revenue of $299 million for 1998 increased $57
million or 24% compared with 1997 primarily due to an increase in credit card
accounts. Corporate services revenue of $245 million for 1998 increased 24%
compared with 1997 resulting from the Midland acquisition and higher treasury
management and capital markets fees, partially offset by $30 million of
valuation adjustments.
Net residential mortgage banking revenue of $212 million in 1998 increased
$60 million or 39% compared with the prior year primarily due to significant
mortgage refinance activity and higher servicing income resulting from servicing
portfolio acquisitions. Residential mortgage production volume, including both
retail and correspondent activity totaled $22 billion in 1998 compared with $6
billion in 1997.
Net securities gains were $16 million in 1998 compared with $40 million in
1997. The year-to-year increase in other noninterest income was primarily due to
the net gains from the sale of the corporate trust and escrow business, branches
and a credit card portfolio in 1998.
NONINTEREST EXPENSE
Noninterest expense of $2.940 billion in 1998 increased $358 million compared
with the prior year primarily to support revenue growth in fee-based businesses,
the impact of acquisitions and consumer banking initiatives. Average full-time
equivalent employees totaled approximately 25,500 in 1998 compared with 24,600
in the prior year, an increase of 4% mainly due to acquisitions.
<PAGE> 24
CONSOLIDATED BALANCE SHEET
REVIEW
Total assets were $77.2 billion at December 31, 1998, compared with $75.1
billion at December 31, 1997.
LOANS
Loans outstanding increased $3.4 billion from year-end 1997 to $57.7 billion at
December 31, 1998. Growth in commercial and home equity loans more than offset a
decline in commercial and residential mortgages and credit card and automobile
loans. The increase in commercial loans was primarily in real estate related,
specialized lending and middle market.
SECURITIES AVAILABLE FOR SALE
The securities available for sale portfolio declined $1.4 billion from year-end
1997 to $7.1 billion at December 31, 1998. The expected weighted-average life of
the securities portfolio increased to 5 years and 3 months at December 31, 1998,
compared with 2 years and 9 months at December 31, 1997, due to the purchase of
U.S. Treasury and government agency securities with maturities of 10 years or
more used as part of PNC's risk management strategies.
FUNDING SOURCES
Total funding sources increased $1.2 billion to $68.4 billion at December 31,
1998. Increases in transaction deposit accounts and other borrowed funds were
mostly offset by decreases in foreign deposits and federal funds purchased. This
change in funding composition resulted in a strengthening of liquidity as 48% of
wholesale liabilities had a maturity beyond one year at December 31, 1998,
compared with 29% at December 31, 1997. During 1998, the Corporation continued
to expand funding sources by issuing approximately $800 million of bank notes
under the Euro medium-term bank note program.
ASSET QUALITY
The ratio of nonperforming assets to total loans, loans held for sale and
foreclosed assets was .55% at December 31, 1998, and .59% at December 31, 1997.
Nonperforming assets were $332 million at December 31, 1998, compared with $333
million at December 31, 1997. The allowance for credit losses was 255% of
nonperforming loans and 1.31% of total loans at December 31, 1998, compared with
352% and 1.79%, respectively, at December 31, 1997.
CAPITAL
Shareholders' equity totaled $6.0 billion and $5.4 billion at December 31, 1998
and 1997, respectively, and the leverage ratio was 7.28% and 7.30% in the
comparison. Tier I and total risk-based capital ratios were 7.80% and 11.16%,
respectively, at December 31, 1998. The comparable December 31, 1997 ratios were
7.43% and 11.11%, respectively.
YEAR 2000
During 1999, the Corporation completed the process of preparing for the year
2000 date change event. This process involved reviewing, modifying and replacing
existing hardware, software and embedded chip technology systems, as necessary.
The Corporation also assessed the year 2000 preparedness of third parties such
as vendors, customers, governmental entities and others. Contingency plans,
subject to oversight and regulation by certain federal bank regulatory
authorities, for year 2000 issues were maintained. Business continuity plans
were reviewed and strengthened to address year 2000 implications.
The estimated total cumulative cost to become year 2000 ready through
December 31, 1999, which has been expensed as incurred, was approximately $24
million. Expenses incurred for year 2000 readiness efforts did not exceed one
percent of technology-related expenses in 1999. No significant outlays were made
to replace existing systems solely for year 2000 reasons.
The Corporation to date has not encountered any materially significant
problems associated with its mission critical systems or service providers as a
result of the date change event.
Unanticipated issues associated with the year 2000 date change event could
still occur that may have an adverse impact on the financial condition and
results of operations of the Corporation, its customers and service providers.
To the extent that customers' financial positions are weakened due to year 2000
issues, credit quality could be adversely affected. It is not possible to
predict with certainty all of the adverse effects that could result from a
failure of third parties to address year 2000 issues or whether such effects
could have a material adverse impact on the Corporation.
56|57
<PAGE> 25
TABLE OF CONTENTS
REPORTS ON CONSOLIDATED
FINANCIAL STATEMENTS
59 Management's
Responsibility for
Financial Reporting
59 Report of Ernst &
Young LLP,
Independent Auditors
CONSOLIDATED FINANCIAL STATEMENTS
60 Consolidated
Statement of Income
61 Consolidated Balance
Sheet
62 Consolidated
Statement of
Shareholders' Equity
63 Consolidated
Statement of Cash
Flows
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
64 Note 1 - Accounting
Policies
67 Note 2 - Acquisitions
and Divestitures
67 Note 3 - Sale of
Subsidiary Stock
68 Note 4 - Cash Flows
68 Note 5 - Trading
Activities
68 Note 6 - Securities
Available for Sale
69 Note 7 - Loans and
Commitments to
Extend Credit
70 Note 8 - Nonperforming
Assets
71 Note 9 - Allowance for
Credit Losses
71 Note 10 - Premises,
Equipment and
Leasehold Improvements
71 Note 11 - Goodwill and
Other Amortizable
Assets
72 Note 12 - Residential
Mortgage Banking
Activities
72 Note 13 - Deposits
72 Note 14 - Borrowed
Funds
72 Note 15 - Capital
Securities of Subsidiary
Trusts
73 Note 16 - Shareholders'
Equity
73 Note 17 - Regulatory
Matters
74 Note 18- Financial
Derivatives
75 Note 19 - Employee
Benefit Plans
77 Note 20 - Stock-Based
Compensation Plans
78 Note 21 - Income Taxes
78 Note 22 - Earnings
Per Share
79 Note 23 - Segment
Reporting
81 Note 24 - Comprehensive
Income
81 Note 25 - Litigation
81 Note 26 - Fair Value of
Financial Instruments
82 Note 27 - Other
Financial Information
83 Note 28 - Unused Line
of Credit
STATISTICAL INFORMATION
84 Selected Quarterly
Financial Data
85 Analysis of Year-to-
Year Changes in Net
Interest Income
86 Average Consolidated
Balance Sheet and Net
Interest Analysis
88 Allowance for Credit
Losses
89 Short-Term Borrowings
89 Loan Maturities and
Interest Sensitivity
89 Time Deposits of
$100,000 or More
<PAGE> 26
REPORTS ON CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL REPORTING
The PNC Financial Services Group, Inc. is responsible for the preparation,
integrity and fair presentation of its published financial statements. The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and, as such,
include judgments and estimates of management. The PNC Financial Services Group,
Inc. also prepared the other information included in the Annual Report and is
responsible for its accuracy and consistency with the consolidated financial
statements.
Management is responsible for establishing and maintaining effective
internal control over financial reporting. The internal control system is
augmented by written policies and procedures and by audits performed by an
internal audit staff, which reports to the Audit Committee of the Board of
Directors. Internal auditors test the operation of the internal control system
and report findings to management and the Audit Committee, and corrective
actions are taken to address identified control deficiencies and other
opportunities for improving the system. The Audit Committee, composed solely of
outside directors, provides oversight to the financial reporting process.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and circumvention or
overriding of controls. Accordingly, even effective internal control can provide
only reasonable assurance with respect to financial statement preparation.
Further, because of changes in conditions, the effectiveness of internal control
may vary over time.
Management assessed The PNC Financial Services Group, Inc.'s internal
control over financial reporting as of December 31, 1999. This assessment was
based on criteria for effective internal control over financial reporting
described in "Internal Control.Integrated Framework" issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management believes that The PNC Financial Services Group, Inc. maintained an
effective internal control system over financial reporting as of December 31,
1999.
/s/ Thomas H. O'Brien /s/ Robert L. Haunschild
- ------------------------- ----------------------------
Thomas H. O'Brien Robert L. Haunschild
Chairman and Senior Vice President and
Chief Executive Officer Chief Financial Officer
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Shareholders and Board of Directors
The PNC Financial Services Group, Inc.
We have audited the accompanying consolidated balance sheet of The PNC Financial
Services Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of The PNC Financial Services Group,
Inc.'s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The PNC
Financial Services Group, Inc. and subsidiaries at December 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
- ----------------------------
Pittsburgh, Pennsylvania
January 20, 2000
58|59
<PAGE> 27
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 - IN MILLIONS, EXCEPT PER SHARE DATA 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans..................................................... $4,077 $4,590 $4,354
Securities available for sale............................................... 483 425 540
Other....................................................................... 361 298 157
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income................................................... 4,921 5,313 5,051
===========================================================================================================================
INTEREST EXPENSE
Deposits.................................................................... 1,369 1,471 1,457
Borrowed funds.............................................................. 1,119 1,269 1,099
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense.................................................. 2,488 2,740 2,556
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income..................................................... 2,433 2,573 2,495
Provision for credit losses................................................. 163 225 70
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income less provision for credit losses.................... 2,270 2,348 2,425
===========================================================================================================================
NONINTEREST INCOME
Asset management ........................................................... 681 626 462
Mutual fund servicing....................................................... 251 182 141
Service charges on deposits................................................. 207 203 203
Brokerage................................................................... 219 91 70
Other consumer services..................................................... 236 299 242
Corporate services.......................................................... 133 245 198
Net residential mortgage banking............................................ 272 212 152
Equity management........................................................... 100 96 98
Net securities gains ....................................................... 22 16 40
Sale of subsidiary stock ................................................... 64
Other....................................................................... 560 332 169
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income................................................ 2,745 2,302 1,775
===========================================================================================================================
NONINTEREST EXPENSE
Staff expense............................................................... 1,535 1,416 1,241
Net occupancy............................................................... 249 204 189
Equipment................................................................... 245 205 180
Amortization ............................................................... 93 111 94
Marketing................................................................... 75 96 70
Distributions on capital securities......................................... 65 60 43
Other....................................................................... 862 848 765
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense............................................... 3,124 2,940 2,582
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes.................................................. 1,891 1,710 1,618
Income taxes................................................................ 627 595 566
- ---------------------------------------------------------------------------------------------------------------------------
Net income.............................................................. $1,264 $1,115 $1,052
===========================================================================================================================
EARNINGS PER COMMON SHARE
Basic....................................................................... $4.19 $3.64 $3.33
Diluted..................................................................... 4.15 3.60 3.28
CASH DIVIDENDS PER COMMON SHARE............................................. 1.68 1.58 1.50
AVERAGE COMMON SHARES OUTSTANDING
Basic....................................................................... 296.9 300.8 310.1
Diluted..................................................................... 300.0 305.1 316.2
===========================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 28
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31 - IN MILLIONS, EXCEPT PAR VALUE 1999 1998
- -----------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks..................................................... $3,097 $2,534
Short-term investments...................................................... 1,148 1,014
Loans held for sale......................................................... 5,798 3,226
Securities available for sale............................................... 7,611 7,074
Loans, net of unearned income of $724 and $554.............................. 50,046 57,650
Allowance for credit losses............................................. (674) (753)
- -----------------------------------------------------------------------------------------------------------
Net loans............................................................... 49,372 56,897
Goodwill and other amortizable assets....................................... 4,123 2,548
Other....................................................................... 4,264 3,914
- -----------------------------------------------------------------------------------------------------------
Total assets............................................................ $75,413 $77,207
===========================================================================================================
LIABILITIES
Deposits
Noninterest-bearing....................................................... $8,441 $9,943
Interest-bearing.......................................................... 38,227 37,553
- -----------------------------------------------------------------------------------------------------------
Total deposits.......................................................... 46,668 47,496
Borrowed funds
Federal funds purchased................................................... 1,281 390
Repurchase agreements..................................................... 1,122 1,669
Bank notes and senior debt................................................ 6,975 10,384
Other borrowed funds...................................................... 7,642 6,722
Subordinated debt......................................................... 2,327 1,781
- -----------------------------------------------------------------------------------------------------------
Total borrowed funds.................................................... 19,347 20,946
Other....................................................................... 2,604 1,874
- -----------------------------------------------------------------------------------------------------------
Total liabilities....................................................... 68,619 70,316
===========================================================================================================
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............................................................. 1,276 1,250
Retained earnings........................................................... 6,006 5,262
Deferred benefit expense.................................................... (17) (36)
Accumulated other comprehensive loss........................................ (267) (43)
Common stock held in treasury at cost: 60 and 49 shares..................... (2,823) (2,161)
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity.............................................. 5,946 6,043
- -----------------------------------------------------------------------------------------------------------
Total liabilities, capital securities and shareholders' equity.......... $75,413 $77,207
===========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
60|61
<PAGE> 29
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
PREFERRED Common Capital Retained Comprehensive
IN MILLIONS STOCK Stock Surplus Earnings Loss Other Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 .............. $7 $1,726 $939 $4,075 $(67) $(811) $5,869
Net income .............................. 1,052 1,052
Net unrealized securities gains.......... 44 44
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income ................. 1,096
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends declared
Common ............................... (469) (469)
Preferred ............................ (19) (19)
Common stock issued (3.3 shares)........ 16 57 73
Treasury stock activity
(27.0 net shares purchased)........... 19 (1,233) (1,214)
Tax benefit of ESOP and
stock option plans.................... 27 2 29
Deferred benefit expense ............... 19 19
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997.......... 7 1,742 1,042 4,641 (23) (2,025) 5,384
Net income ............................. 1,115 1,115
Net unrealized securities losses ....... (13) (13)
Minimum pension liability adjustment.... (7) (7)
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income ................. 1,095
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends declared
Common ............................... (476) (476)
Preferred............................. (19) (19)
Common stock issued (4.4 shares)........ 22 99 121
Treasury stock activity
(1.1 net shares purchased) ........... 90 (177) (87)
Tax benefit of ESOP and
stock option plans ................... 19 1 20
Deferred benefit expense ............... 5 5
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998.......... 7 1,764 1,250 5,262 (43) (2,197) 6,043
Net income ............................. 1,264 1,264
Net unrealized securities losses ....... (219) (219)
Minimum pension liability adjustment.... (5) (5)
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income ................. 1,040
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends declared
Common ............................... (501) (501)
Preferred............................. (19) (19)
Treasury stock activity
(11.0 net shares purchased) .......... 13 (662) (649)
Tax benefit of ESOP and
stock option plans ................... 13 13
Deferred benefit expense ............... 19 19
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999.......... $7 $1,764 $1,276 $6,006 $(267) $(2,840) $5,946
===========================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 30
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 - IN MILLIONS 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................................. $1,264 $1,115 $1,052
Adjustments to reconcile net income to net cash provided (used)
by operating activities
Provision for credit losses ............................................. 163 225 70
Depreciation, amortization and accretion ................................ 327 632 346
Deferred income taxes ................................................... 204 170 133
Net securities losses (gains) ........................................... 93 (120) (49)
Net gains on sales of assets ............................................ (554) (328) (179)
Valuation adjustments ................................................... 195 30
Change in
Loans held for sale ..................................................... 613 (1,331) (1,383)
Other ................................................................... (445) (679) (31)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities ....................... 1,860 (286) (41)
===========================================================================================================================
INVESTING ACTIVITIES
Net change in loans ........................................................ (11) (6,031) (5,182)
Repayment of securities available for sale ................................. 1,306 2,120 2,014
Sales
Securities available for sale ............................................ 9,620 12,779 10,223
Loans .................................................................... 648 3,030 2,863
Foreclosed assets......................................................... 39 69 116
Purchases
Securities available for sale ............................................ (10,997) (13,342) (8,725)
Loans .................................................................... (363) (129) (534)
Net cash received (paid) for acquisitions/divestitures ..................... 1,854 (1,031)
Other...................................................................... (139) (241) (823)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities ....................... 1,957 (2,776) (48)
===========================================================================================================================
FINANCING ACTIVITIES
Net change in
Noninterest-bearing deposits ............................................. (1,478) (215) (779)
Interest-bearing deposits ................................................ 1,037 696 2,766
Federal funds purchased .................................................. 891 (3,242) (301)
Sale/issuance
Repurchase agreements .................................................... 139,175 112,108 84,315
Bank notes and senior debt ............................................... 2,416 9,229 9,125
Other borrowed funds ..................................................... 35,997 98,534 99,469
Subordinated debt ........................................................ 650 140 350
Capital securities ....................................................... 198 300
Common stock ............................................................. 141 123 155
Repayment/maturity
Repurchase agreements .................................................... (139,722) (111,153) (84,246)
Bank notes and senior debt ............................................... (5,827) (8,672) (7,390)
Other borrowed funds ..................................................... (35,107) (95,616) (101,368)
Subordinated debt ........................................................ (104)
Acquisition of treasury stock .............................................. (803) (342) (1,532)
Cash dividends paid ........................................................ (520) (495) (488)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities ....................... (3,254) 1,293 376
===========================================================================================================================
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 563 (1,769) 287
Cash and due from banks at beginning of year ........................... 2,534 4,303 4,016
- ---------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year.................................. $3,097 $2,534 $4,303
===========================================================================================================================
CASH PAID FOR
Interest................................................................ $2,484 $2,727 $2,569
Income taxes ........................................................... 289 397 418
NONCASH ITEMS
Transfer (to) from loans held for sale (from) to loans ................. (3,378) 429
Transfers from loans to other assets.................................... 40 44 71
Conversion of debt to equity ........................................... 55 7
===========================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
62|63
<PAGE> 31
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, wholesale banking and asset management businesses that provide
financial products and services nationally and in PNC's primary geographic
markets in Pennsylvania, New Jersey, Delaware, Ohio and Kentucky. PNC is subject
to intense competition from other financial services companies with respect to
these businesses and is subject to the regulations of certain federal and state
agencies and undergoes periodic examinations by those authorities.
NOTE 1 ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of PNC and its
subsidiaries, most of which are wholly owned. Such statements have been prepared
in accordance with accounting principles generally accepted in the United
States. All significant intercompany accounts and transactions have been
eliminated. Certain prior year amounts have been reclassified to conform with
the current year presentation.
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.
LOANS HELD FOR SALE
Loans held for sale are carried at the lower of cost or aggregate market value.
Gains and losses on sales of loans held for sale are included in noninterest
income.
SECURITIES
Securities purchased with the intention of recognizing short-term profits are
placed in the trading account, carried at market value and classified as
short-term investments. Gains and losses on trading securities are included in
noninterest income. Securities not classified as trading are designated as
securities available for sale and carried at fair value with unrealized gains
and losses, net of income taxes, reflected in accumulated other comprehensive
income or loss. Gains and losses on sales of securities available for sale are
computed on a specific security basis and included in noninterest income.
LOANS
Loans are stated at the principal amounts outstanding, net of unearned income.
Interest income with respect to loans is accrued on the principal amount
outstanding, except for lease financing income which is recognized over its
respective terms using methods which approximate the level yield method.
Significant loan fees are deferred and accreted to interest income over the
respective lives of the loans.
LOAN SECURITIZATIONS
The Corporation sells mortgage and other loans through secondary market
securitizations. The Corporation receives a fee for servicing the securitized
loans. Securitized loans are removed from the balance sheet and the Corporation
records a servicing asset and a corresponding gain or loss on sale. Certain
estimates are inherent in determining the fair value of servicing assets and are
subject to change.
NONPERFORMING ASSETS
Nonperforming assets are comprised of nonaccrual loans, troubled debt
restructurings and foreclosed assets. Generally, loans other than consumer are
classified as nonaccrual when it is determined that the collection of interest
or principal is doubtful or when a default of interest or principal has existed
for 90 days or more, unless the loans are well secured and in the process of
collection. When interest accrual is discontinued, accrued but uncollected
interest credited to income in the current year is reversed and unpaid interest
accrued in the prior year, if any, is charged against the allowance for credit
losses. Consumer loans are generally charged off when payments are past due 120
days.
A loan is categorized as a troubled debt restructuring in the year of
restructuring if a concession is granted to the borrower due to a deterioration
in the financial condition of the borrower.
Nonperforming loans are generally not returned to performing status until
the obligation is brought current and has performed in accordance with the
contractual terms for a reasonable period of time and collection of the
contractual principal and interest is no longer doubtful.
Foreclosed assets are comprised of property acquired through a foreclosure
proceeding or acceptance of a deed-in-lieu of foreclosure. These assets are
recorded on the date acquired at the lower of the related loan balance or market
value of the collateral less estimated disposition costs. Market values are
estimated primarily based on appraisals. Subsequently, foreclosed assets are
valued at the lower of the amount recorded at acquisition date or the current
market value less estimated disposition costs. Gains or losses realized from
disposition of such property are reflected in noninterest expense.
Impaired loans consist of nonaccrual commercial and commercial real estate
loans and troubled debt restructurings. Interest collected on these loans is
recognized on the cash basis or cost recovery method.
<PAGE> 32
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is established through provisions charged
against income. Loans deemed to be uncollectible are charged against the
allowance and recoveries of previously charged-off loans are credited to the
allowance.
The allowance is maintained at a level believed by management to be
sufficient to absorb estimated probable credit losses. Management's
determination of the adequacy of the allowance is based on periodic evaluations
of the credit portfolio and other relevant factors. This evaluation is
inherently subjective as it requires material estimates, including, among
others, the amounts and timing of expected future cash flows on impaired loans,
estimated losses on consumer loans and residential mortgages, and general
amounts for historical loss experience, economic conditions, uncertainties in
estimating losses and inherent risks in the various credit portfolios, all of
which may be susceptible to significant change. 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. These factors may
include, among others, actual versus estimated losses, current regional and
national economic conditions, business segment 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.
SERVICING OF FINANCIAL ASSETS
Servicing rights retained in a sale or securitization of loans are recorded by
allocating the previous carrying amount of the loans sold or securitized to the
relative fair values of the assets retained and sold. Purchased servicing rights
are recorded at cost. Servicing rights are amortized in proportion to estimated
net servicing income. To determine the fair value of servicing rights, the
Corporation estimates the present value of future cash flows incorporating
numerous assumptions including cost of servicing, discount rates, prepayment
speeds and default rates.
A valuation allowance is maintained for the excess, if any, of the carrying
amount of capitalized servicing rights over estimated fair value.
EQUITY MANAGEMENT ASSETS
Equity management assets are included in other assets. These investments are
carried at estimated fair value with changes in fair value recognized in equity
management income.
GOODWILL AND OTHER AMORTIZABLE ASSETS
Goodwill is amortized on a straight-line basis over periods ranging from 15 to
25 years. Other amortizable assets are amortized using accelerated or
straight-line methods over their respective estimated useful lives. On a
periodic basis, management reviews goodwill and other amortizable assets and
evaluates events or changes in circumstances that may indicate impairment in the
carrying amount of such assets. In such instances, impairment, if any, is
measured on a discounted future cash flow basis.
DEPRECIATION AND AMORTIZATION
For financial reporting purposes, premises and equipment are depreciated
principally using the straight-line method over the estimated useful lives
ranging from one to 39 years. Accelerated methods are used for federal income
tax purposes. Leasehold improvements are amortized over their estimated useful
lives or their respective lease terms, whichever is shorter.
REPURCHASE AND RESALE AGREEMENTS
Repurchase and resale agreements are treated as collateralized financing
transactions and are carried at the amounts that the securities will be
subsequently reacquired or resold, including accrued interest, as specified in
the respective agreements. The Corporation's policy is to take possession of
securities purchased under agreements to resell. The market value of securities
to be repurchased and resold is monitored, and additional collateral is obtained
where appropriate to protect against credit exposure.
TREASURY STOCK
The Corporation records common stock purchased for treasury at cost. At the date
of subsequent reissue, the treasury stock account is reduced by the cost of such
stock on the first-in, first-out basis.
FINANCIAL DERIVATIVES
The Corporation uses off-balance-sheet financial derivatives as part of the
overall asset and liability management process, for mortgage banking risk
management and to manage credit risk. Substantially all such instruments are
used to manage risk related to changes in interest rates. Financial deriva-
tives primarily consist of interest rate swaps, purchased interest rate caps and
floors, forward contracts and credit default swaps.
64|65
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest rate swaps are agreements with a counterparty to exchange periodic
interest payments calculated on a notional principal amount. 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 is higher or lower than a defined rate applied to a notional amount.
Interest rate swaps, caps and floors that modify the interest rate
characteristics (such as from fixed to variable, variable to fixed, or one
variable index to another) of designated interest-bearing assets or liabilities
are accounted for under the accrual method. The net amount payable or receivable
from the derivative contract is accrued as an adjustment to interest income or
interest expense of the designated instrument. Premiums on contracts are
deferred and amortized over the life of the agreement as an adjustment to
interest income or interest expense of the designated instruments. Unamortized
premiums are included in other assets. Changes in fair value of financial
derivatives accounted for under the accrual method are not reflected in results
of operations. Realized gains and losses, except losses on terminated interest
rate caps and floors, are deferred as an adjustment to the carrying amount of
the designated instruments and amortized over the shorter of the remaining
original life of the agreements or the designated instruments. Losses on
terminated interest rate caps and floors are recognized immediately in the
results of operations. If the designated instruments are disposed of, the fair
value of the associated derivative contracts and any unamortized deferred gains
or losses are included in the determination of gain or loss on the disposition
of such instruments. Contracts not qualifying for accrual accounting are marked
to market with gains or losses included in noninterest income.
Forward contracts provide for the delivery of financial instruments at a
specified future date and at a specified price or yield. The Corporation uses
forward contracts primarily to manage risk associated with its residential
mortgage banking and student lending activities. Realized gains and losses on
mandatory and optional delivery forward commitments are recorded in noninterest
income in the period settlement occurs. Unrealized gains or losses are
considered in the lower of cost or market valuation of loans held for sale.
Credit-related derivatives are entered into to manage credit risk and
regulatory capital associated with commercial lending activities. If the
credit-related derivative qualifies for hedge accounting treatment, the premium
paid to enter the credit-related derivative is recorded in other assets and is
deferred and amortized to noninterest expense over the life of the agreement.
Changes in the fair value of credit-related derivatives qualifying for hedge
accounting treatment are not reflected in the Corporation's financial position
and have no impact on results of operations.
If the credit-related derivative does not qualify for hedge accounting
treatment or if the Corporation is the seller of credit protection, the
credit-related derivative is marked to market with gains or losses included in
noninterest income.
To accommodate customer needs, PNC also enters into financial derivative
transactions primarily consisting of interest rate swaps, caps, floors and
foreign exchange contracts. Interest rate risk exposure from customer positions
is managed through transactions with other dealers. These positions are recorded
at estimated fair value and changes in value are included in noninterest income.
Additionally, the Corporation enters into other derivative transactions for
risk management purposes that do not qualify for accrual accounting. These
transactions are recorded at estimated fair value and changes in value are
included in noninterest income.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
STOCK OPTIONS
For stock options granted at exercise prices not less than the fair market value
of common stock on the date of grant, no compensation expense is recognized.
EARNINGS PER COMMON SHARE
Basic earnings per common share is calculated by dividing net income adjusted
for preferred stock dividends declared by the weighted-average number of shares
of common stock outstanding.
Diluted earnings per common share is based on net income adjusted for
interest expense, net of tax, on outstanding convertible debentures and
dividends declared on nonconvertible preferred stock. The weighted-average
number of shares of common stock outstanding is increased by the assumed
conversion of outstanding convertible preferred stock and convertible debentures
from the beginning of the year or date of issuance, if later, and the number of
shares of common stock which would be issued assuming the exercise of stock
options. Such adjustments to net income and the weighted-average number of
shares of common stock outstanding are made only when such adjustments dilute
earnings per common share.
<PAGE> 34
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.
NOTE 2 ACQUISITIONS AND
DIVESTITURES
On December 1, 1999, the Corporation completed the acquisition of First Data
Investor Services Group, Inc. ("ISG") one of the nation's leading providers of
processing services for pooled investment products that include mutual fund and
retirement plans. The acquisition of ISG was for $1.1 billion in cash and is
being accounted for under the purchase method of accounting. ISG's financial
results are included in the Corporation's financial results beginning on the
acquisition date. Goodwill of approximately $1 billion was recorded in
connection with the acquisition and is being amortized on a straight-line basis
over 25 years. Other customer-based intangibles of approximately $147 million
are being amortized on a straight-line basis over 10 years.
The following financial information presents combined results of PNC and
ISG as if the acquisition had occurred as of January 1, 1999 and 1998:
(UNAUDITED)
YEAR ENDED DECEMBER 31 PROFORMA PNC
IN MILLIONS, EXCEPT PER SHARE DATA 1999 1998
- ---------------------------------------------------------
Net interest income .................. $2,374 $2,500
Provision for credit losses .......... 163 225
Noninterest income ................... 3,088 2,639
Noninterest expense .................. 3,413 3,217
- ---------------------------------------------------------
Income before income taxes ........ 1,886 1,697
Income taxes ......................... 625 589
- ---------------------------------------------------------
Net income ........................ $1,261 $1,108
- ---------------------------------------------------------
Diluted earnings per common share .... $4.14 $3.58
=========================================================
The proforma financial information includes only those actions to be completed
on or prior to the closing date and excludes revenue enhancements, one-time
costs and expense savings, which could result from the integration of ISG into
PNC's operations.
In March 1999, the Corporation completed the sale of its credit card
business, which represented approximately $2.9 billion of outstandings and 3.3
million accounts, including PNC National Bank, Wilmington, Delaware. This
transaction resulted in a $193 million pretax gain.
NOTE 3 SALE OF SUBSIDIARY STOCK
PNC recognizes as income the gain from the sale of stock in its subsidiaries.
The gain is the difference between PNC's basis in the stock and the proceeds per
share received. PNC provides applicable taxes on the gain.
In October 1999, BlackRock, Inc. ("BlackRock"), a majority-owned investment
management subsidiary of the Corporation, issued nine million shares of class A
common stock at $14.00 per share in an initial public offering. Prior to the
public offering PNC and BlackRock's management owned approximately 82% and 18%,
respectively, of BlackRock's outstanding common stock. Proceeds from the sale
were approximately $115 million and resulted in PNC recording a pretax gain in
the amount of $64 million or $59 million after tax. Subsequent to the public
offering, PNC and BlackRock's management owned approximately 70% and 16%,
respectively.
66|67
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 CASH FLOWS
For the statement of cash flows, cash and cash equivalents are defined as cash
and due from banks.
The following table sets forth information pertaining to acquisitions and
divestitures which affect cash flows:
YEAR ENDED DECEMBER 31 - IN MILLIONS 1999 1998
- ----------------------------------------------------------
Assets (divested) acquired .......... $(2,062) $1,007
Liabilities divested ................ (208) (322)
Cash paid ........................... 1,407 1,184
Cash and due from banks received .... 3,261 153
==========================================================
The Corporation did not have acquisition or divestiture activity which affected
1997 cash flows.
NOTE 5 TRADING ACTIVITIES
PNC engages in trading activities as part of 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 in 1999, 1998, and 1997 totaled $7 million, $87 million
and $23 million, respectively, and was included in noninterest income as
follows:
IN MILLIONS 1999 1998 1997
- ----------------------------------------------------------
Net residential mortgage banking
Risk management ............. $(66) $61 $10
Other income
Securities trading .......... 48 3 1
Derivatives trading ......... 8 11 2
Foreign exchange ............ 17 12 10
- ----------------------------------------------------------
Net trading income $7 $87 $23
==========================================================
<PAGE> 36
NOTE 6 SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
UNREALIZED
-----------------------
DECEMBER 31 - IN MILLIONS AMORTIZED COST GAINS LOSSES FAIR VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
====================================================================================================
1999 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
====================================================================================================
1998 PORTFOLIO SECURITIES
Debt securities
U.S. Treasury and government agencies .... $152 $2 $(2) $152
Mortgage-backed .......................... 2,942 5 (11) 2,936
Asset-backed ............................. 709 1 (2) 708
State and municipal ...................... 122 6 128
Other debt ............................... 33 (2) 31
- ----------------------------------------------------------------------------------------------------
Total debt securities .................. 3,958 14 (17) 3,955
Corporate stocks and other ............... 542 10 (35) 517
- ----------------------------------------------------------------------------------------------------
Total .................................. 4,500 24 (52) 4,472
====================================================================================================
1998 MORTGAGE BANKING RISK MANAGEMENT
Debt securities
U.S. Treasury and government agencies .... 2,629 8 (35) 2,602
- ----------------------------------------------------------------------------------------------------
Total .................................. 2,629 8 (35) 2,602
====================================================================================================
Total securities available for sale .. $7,129 $32 $(87) $7,074
====================================================================================================
1997 PORTFOLIO SECURITIES
Debt securities
U.S. Treasury and government agencies .... $658 $3 $(1) $660
Mortgage-backed .......................... 4,627 4 (45) 4,586
Asset-backed ............................. 2,079 5 (1) 2,083
State and municipal ...................... 170 7 177
Other debt ............................... 34 (1) 33
- ----------------------------------------------------------------------------------------------------
Total debt securities .................. 7,568 19 (48) 7,539
Corporate stocks and other ............... 501 3 (3) 501
- ----------------------------------------------------------------------------------------------------
Total .................................. 8,069 22 (51) 8,040
====================================================================================================
1997 MORTGAGE BANKING RISK MANAGEMENT
Debt securities
U.S. Treasury and government agencies .... 444 1 445
Mortgage-backed .......................... 45 (8) 37
- ----------------------------------------------------------------------------------------------------
Total .................................. 489 1 (8) 482
====================================================================================================
Total securities available for sale .. $8,558 $23 $(59) $8,522
====================================================================================================
</TABLE>
<PAGE> 37
The securities available for sale portfolio increased $537 million from December
31, 1998 to $7.6 billion at December 31, 1999. Total securities used in mortgage
banking risk management were $1.7 billion at December 31, 1999. Portfolio
securities represented 8% of total assets at December 31, 1999. The expected
weighted-average life of the portfolio securities increased to 4 years and 7
months at December 31, 1999, compared with 2 years and 8 months at year-end
1998. The expected weighted-average life of total securities available for sale
increased to 5 years and 7 months at December 31, 1999, compared with 5 years
and 3 months at year-end 1998.
Net securities gains were $22 million in 1999 and included a $41 million
gain from the sale of Concord EFS, Inc. ("Concord") stock, partially offset by a
$28 million write-down of an equity investment in Friedman, Billings, Ramsey
Group, Inc. ("FBR").
Net securities gains in 1998 and 1997 were $16 million and $40 million,
respectively. Net securities losses of $118 million in 1999 and net securities
gains of $104 million and $9 million, respectively, in 1998 and 1997, related to
residential mortgage banking risk management strategies were reported in net
residential mortgage banking revenue. Net securities gains of $3 million in 1999
related to commercial mortgage banking activities were included in corporate
services revenue.
Information relating to security sales is set forth in the following table:
YEAR ENDED DECEMBER 31 GROSS GROSS
IN MILLIONS PROCEEDS GAINS LOSSES TAXES
- --------------------------------------------------------------
1999 ..................... $9,640 $69 $162 $(33)
1998 ..................... 12,779 124 4 42
1997 ..................... 10,223 59 10 17
==============================================================
The carrying value of securities pledged to secure public and trust deposits,
repurchase agreements and for other purposes was $4.2 billion at December 31,
1999.
The following table presents the amortized cost, fair value and weighted-average
yield of debt securities at December 31, 1999 by remaining contractual maturity.
CONTRACTUAL MATURITY OF DEBT SECURITIES
DECEMBER 31, 1999 WITHIN 1 TO 5 TO AFTER 10
IN MILLIONS 1 YEAR 5 YEARS 10 YEARS YEARS TOTAL
- ---------------------------------------------------------------------------
PORTFOLIO SECURITIES
U.S. Treasury and
government agencies ..... $18 $356 $36 $1 $411
Mortgage-backed ......... 1 3 286 3,628 3,918
Asset-backed ............ 2 7 1,042 1,051
State and
municipal ............. 10 16 36 72 134
Other debt .............. 2 11 11 16 40
- ---------------------------------------------------------------------------
Total ................. $31 $388 $376 $4,759 $5,554
===========================================================================
Fair value .............. $31 $380 $362 $4,593 $5,366
Weighted-average
yield ................. 6.06% 6.06% 6.11% 6.26% 6.23%
===========================================================================
MORTGAGE BANKING RISK MANAGEMENT
U.S. Treasury and
government agencies ..... $1,791 $1,791
Mortgage-backed ......... $68 68
- ---------------------------------------------------------------------------
Total ................. $1,791 $68 $1,859
===========================================================================
Fair value .............. $1,587 $64 $1,651
Weighted-average
yield ................. 5.59% 5.52% 5.59%
===========================================================================
Total debt
securities ........ $31 $388 $2,167 $4,827 $7,413
- ---------------------------------------------------------------------------
Total fair value....... $31 $380 $1,949 $4,657 $7,017
Weighted-average
yield ............... 6.06% 6.06% 5.68% 6.25% 6.07%
===========================================================================
Based on current interest rates and expected prepayment speeds, the total
weighted-average expected maturity of mortgage-backed and asset-backed
securities was 4 years and 11 months and 3 years and 11 months, respectively, at
December 31, 1999. Weighted-average yields are based on historical cost with
effective yields weighted for the contractual maturity of each security.
NOTE 7 LOANS AND COMMITMENTS TO EXTEND CREDIT
Loans outstanding were as follows:
<TABLE>
<CAPTION>
DECEMBER 31 - IN MILLIONS 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumer ............................... $9,357 $10,980 $11,205 $12,092 $12,535
Credit card ............................ 2,958 3,830 2,776 1,004
Residential mortgage ................... 12,869 12,265 12,785 12,703 11,689
Commercial ............................. 21,468 25,182 19,989 18,588 17,446
Commercial real estate ................. 2,730 3,449 3,974 4,098 4,280
Lease financing ........................ 3,663 2,978 2,224 1,641 1,236
Other .................................. 683 392 650 285 866
- --------------------------------------------------------------------------------------------------------------------
Total loans ......................... 50,770 58,204 54,657 52,183 49,056
Unearned income ..................... (724) (554) (412) (385) (403)
- --------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $50,046 $57,650 $54,245 $51,798 $48,653
====================================================================================================================
</TABLE>
68|69
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loan outstandings and related unfunded commitments are concentrated in PNC's
primary geographic markets. At December 31, 1999, no specific industry
concentration exceeded 6% of total outstandings and unfunded commitments.
NET UNFUNDED COMMITMENTS
DECEMBER 31 - IN MILLIONS 1999 1998
- ----------------------------------------------------------
Consumer ......................... $4,603 $3,664
Credit card ...................... 14,794
Residential mortgage ............. 648 2,756
Commercial ....................... 23,953 28,842
Commercial real estate ........... 38 1,022
Other ............................ 1,649 468
- ----------------------------------------------------------
Total ......................... $30,891 $51,546
==========================================================
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 $7.2 billion and $5.9 billion at December 31,
1999 and 1998, respectively. Commitments generally have fixed expiration dates,
may require payment of a fee, and contain termination clauses in the event the
customer's credit quality deteriorates. Based on the Corporation's historical
experience, most commitments expire unfunded, and therefore cash requirements
are substantially less than the total commitment. Unfunded commitments related
to loans designated for exit totaling $4.8 billion at December 31, 1999 are
excluded from the above table.
Net outstanding letters of credit totaled $4.6 billion and $4.7 billion at
December 31, 1999 and 1998, 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. Such instruments are
typically issued to support industrial revenue bonds, commercial paper, and bid
or performance related contracts. At year-end 1999, the largest industry
concentration within standby letters of credit was to government entities, which
accounted for approximately 9% of the total. Maturities for standby letters of
credit ranged from 2000 to 2020.
At December 31, 1999, $9.3 billion of loans were pledged to secure
borrowings and for other purposes.
Certain directors and executive officers of the Corporation and its
subsidiaries, as well as certain affiliated companies of these directors and
officers, were customers of and had loans with subsidiary banks in the ordinary
course of business. All such loans were on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers and did not involve more than a
normal risk of collectibility. The aggregate dollar amounts of these loans were
$27 million and $28 million at December 31, 1999 and 1998, respectively. During
1999, new loans of $15 million were funded and repayments totaled $16 million.
NOTE 8 NONPERFORMING ASSETS
The following table sets forth nonperforming assets and related information:
<TABLE>
<CAPTION>
DECEMBER 31 - DOLLARS IN MILLIONS 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans .............................. $299 $295 $276 $347 $335
Troubled debt restructured loans .............. 2 23
- ---------------------------------------------------------------------------------------------------------------
Total nonperforming loans .................. 299 295 276 349 358
- ---------------------------------------------------------------------------------------------------------------
Foreclosed and other assets ................... 39 37 57 110 178
- ---------------------------------------------------------------------------------------------------------------
Total nonperforming assets* ................ $338 $332 $333 $459 $536
- ---------------------------------------------------------------------------------------------------------------
Nonperforming loans to total loans ............ .60% .51% .51% .67% .74%
Nonperforming assets to total loans, loans held
for sale and foreclosed assets ............. .61 .55 .59 .87 1.08
Nonperforming assets to total assets .......... .45 .43 .44 .63 .73
- ---------------------------------------------------------------------------------------------------------------
Interest on nonperforming loans
Computed on original terms ................. $28 $25 $31 $35 $36
Recognized ................................. 11 6 6 10 10
- ---------------------------------------------------------------------------------------------------------------
Past due loans
Accruing loans past due 90 days or more .... $96 $266 $288 $244 $225
As a percentage of total loans ............. .19% .46% .53% .47% .46%
===============================================================================================================
</TABLE>
*THE ABOVE TABLE EXCLUDES $13 MILLION OF EQUITY MANAGEMENT ASSETS AT DECEMBER
31, 1999 CARRIED AT FAIR VALUE.
<PAGE> 39
NOTE 9 ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses were as follows:
IN MILLIONS 1999 1998 1997
- ----------------------------------------------------------
January 1 ..................... $753 $972 $1,166
Charge-offs ................... (216) (524) (385)
Recoveries .................... 55 77 113
- ----------------------------------------------------------
Net charge-offs ............ (161) (447) (272)
Provision for credit losses ... 163 225 70
- ----------------------------------------------------------
Sale of credit card business .. (81)
Acquisitions .................. 3 8
- ----------------------------------------------------------
December 31 ................ $674 $753 $972
==========================================================
Impaired loans totaling $241 million and $238 million at December 31, 1999 and
1998, respectively, had a corresponding specific allowance for credit losses of
$60 million and $53 million. The average balance of impaired loans was $243
million in 1999, $223 million in 1998, and $271 million in 1997. There was no
interest income recognized on impaired loans in 1999. Interest income recognized
on impaired loans in 1998 and 1997 was $1 million and $2 million, respectively.
NOTE 10 PREMISES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Premises, equipment and leasehold improvements, stated at cost less accumulated
depreciation and amortization, were as follows:
DECEMBER 31 - IN MILLIONS 1999 1998
- ----------------------------------------------------------
Land ............................... $83 $90
Buildings .......................... 427 498
Equipment .......................... 1,402 1,168
Leasehold improvements ............. 214 198
- ----------------------------------------------------------
Total ........................... 2,126 1,954
- ----------------------------------------------------------
Accumulated depreciation
and amortization ................ (1,198) (1,030)
- ----------------------------------------------------------
Net book value ................ $928 $924
==========================================================
Depreciation and amortization expense on premises, equipment and leasehold
improvements totaled $209 million in 1999, $159 million in 1998 and $148 million
in 1997.
Certain facilities and equipment are leased under agreements expiring at
various dates until the year 2071. Substantially all such leases are accounted
for as operating leases. Rental expense on such leases amounted to $151 million
in 1999, $112 million in 1998 and $88 million in 1997.
At December 31, 1999 and 1998, required minimum annual rentals due on
noncancelable leases having terms in excess of one year aggregated $796 million
and $685 million, respectively. Minimum annual rentals for each of the years
2000 through 2004 are $116 million, $115 million, $106 million, $89 million and
$76 million, respectively.
During 1999, PNC made the decision to sell various branches and office
buildings. Buildings that were designated for sale, but not sold during 1999 are
classified as held for sale. Initial write-downs were recorded in noninterest
expense and generally reflected the difference between book value and appraised
value less selling costs. Write-downs totaled $35 million and subsequent net
gains from disposals totaled $8 million in 1999. It is anticipated that
properties remaining in held for sale will be sold during 2000.
NOTE 11 GOODWILL AND OTHER AMORTIZABLE ASSETS
Goodwill and other amortizable assets, net of amortization, consisted of the
following:
DECEMBER 31 - IN MILLIONS 1999 1998
- ----------------------------------------------------------
Goodwill ............................ $2,239 $1,347
Purchased credit cards .............. 292
Customer-related intangibles ........ 165 20
Mortgage servicing rights
Residential ...................... 1,594 772
Commercial ....................... 125 117
- ----------------------------------------------------------
Total ............................... $4,123 $2,548
==========================================================
Amortization of goodwill and other amortizable assets was as follows:
YEAR ENDED DECEMBER 31 - IN MILLIONS 1999 1998 1997
- -----------------------------------------------------------------
Goodwill ............................. $81 $68 $53
Purchased credit cards ............... 6 36 34
Other ................................ 6 7 7
- -----------------------------------------------------------------
Total ............................. 93 111 94
Mortgage servicing rights
Residential ....................... 6 309 80
Commercial ........................ 20 12
- -----------------------------------------------------------------
Total ............................. $119 $432 $174
=================================================================
70|71
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 RESIDENTIAL MORTGAGE BANKING ACTIVITIES
The following table presents the components of net residential mortgage banking
income:
YEAR ENDED DECEMBER 31 - IN MILLIONS 1999 1998 1997
- -------------------------------------------------------------------
Mortgage servicing ..................... $288 $167 $119
Originations and securitization ........ 172 190 94
MSR amortization, net of
servicing hedge ..................... (188) (145) (61)
- -------------------------------------------------------------------
Net residential mortgage banking
income .............................. $272 $212 $152
===================================================================
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The outstanding balances of residential mortgage
loans serviced for others were $67 billion, $54 billion and $32 billion at
December 31, 1999, 1998, and 1997, respectively.
The following table summarizes the changes in capitalized mortgage loan
servicing rights:
IN MILLIONS 1999 1998 1997
- --------------------------------------------------------------
Balance at beginning of year...... $980 $413 $333
Originations................... 260 226 104
Purchases...................... 568 488 37
Sales.......................... (17)
Amortization................... (213) (130) (61)
- --------------------------------------------------------------
Total.......................... 1,595 980 413
Less: Valuation allowance...... 1 208 29
- --------------------------------------------------------------
Net balance at end of year........ $1,594 $772 $384
==============================================================
The fair value of capitalized residential mortgage servicing rights at December
31, 1999 was approximately $1.8 billion. The estimated fair value of the
residential servicing rights was determined by stratifying the portfolio by
fixed rate versus variable rate, government guaranteed loans versus
non-government guaranteed loans and using market interest rates.
The following table summarizes the changes in the valuation allowance for
capitalized residential mortgage servicing rights:
IN MILLIONS 1999 1998 1997
- ------------------------------------------------------------------------
Balance at beginning of year .............. $208 $29 $10
(Reduction of) provision for
capitalized residential mortgage
servicing rights in excess of
fair value ............................. (207) 179 19
- ------------------------------------------------------------------------
Balance at end of year .................... $1 $208 $29
- ------------------------------------------------------------------------
NOTE 13 DEPOSITS
The aggregate amount of time deposits with a denomination greater than $100,000
was $6.8 billion and $6.0 billion at December 31, 1999 and 1998, respectively.
Remaining contractual maturities of time deposits for the years 2000 through
2004 and thereafter are $14 billion, $2.1 billion, $670 million, $181 million
and $1.0 billion, respectively.
NOTE 14 BORROWED FUNDS
Approximately 58.1% of bank notes mature in 2000 and have interest rates that
range from 3.66% to 6.61%. Obligations to the Federal Home Loan Bank have
maturities ranging from 2000 to 2018 and interest rates that range from 1.00% to
7.91%. Senior and subordinated notes consisted of the following:
DECEMBER 31, 1999
DOLLARS IN MILLIONS OUTSTANDING STATED RATE MATURITY
- ------------------------------------------------------------------------
Senior ................. $621 5.43 - 7.00% 2000 - 2004
Subordinated
Nonconvertible ...... 2,327 6.13 - 9.88% 2001 - 2009
Total ............. $2,948
========================================================================
Borrowed funds have scheduled repayments for the years 2000 through 2004 and
thereafter of $10.8 billion, $.7 billion, $3.0 billion, $2.8 billion and $2.0
billion, respectively.
NOTE 15 CAPITAL SECURITIES OF SUBSIDIARY TRUSTS
Mandatorily Redeemable Capital Securities of Subsidiary Trusts ("Capital
Securities") include preferred beneficial interests in the assets of PNC
Institutional Capital Trust A, Trust B and Trust C. Trust A, formed in December
1996, holds $350 million of 7.95% junior subordinated debentures, due December
15, 2026, and redeemable after December 15, 2006, at a declining redemption
price ranging from 103.975% to par on or after December 15, 2016. Trust B,
formed in May 1997, holds $300 million of 8.315% junior subordinated debentures
due May 15, 2027, and redeemable after May 15, 2007, at a declining redemption
price ranging from 104.1575% to par on or after May 15, 2017. Trust C, formed in
June 1998, holds $200 million of junior subordinated debentures due June 1,
2028, bearing interest at a floating rate per annum equal to 3-month LIBOR plus
57 basis points. The rate in effect at December 31, 1999 was 6.68%. Trust C
Capital Securities are redeemable on or after June 1, 2008, at par. Cash
distributions on the Capital Securities are made to the extent interest on the
debentures is received by the Trusts. In the event of certain changes or
amendments to regulatory requirements or federal tax rules, the Capital
Securities are redeemable in whole.
<PAGE> 41
NOTE 16 SHAREHOLDERS' EQUITY
Information related to preferred stock is as follows:
SHARES OUTSTANDING
DECEMBER 31 LIQUIDATION ------------------
SHARES IN THOUSANDS VALUE PER SHARE 1999 1998
- ----------------------------------------------------------------------
Authorized
$1 par value ............... 17,300 17,352
Issued and outstanding
Series A ................... $40 12 13
Series B ................... 40 3 5
Series C ................... 20 255 284
Series D ................... 20 367 388
Series F ................... 50 6,000 6,000
- ----------------------------------------------------------------------
Total .................... 6,637 6,690
======================================================================
Series A through D are cumulative and, except for Series B, are redeemable at
the option of the Corporation. Annual dividends on Series A, B and D preferred
stock total $1.80 per share and on Series C preferred stock total $1.60 per
share. Holders of Series A through D preferred stock are entitled to a number of
votes equal to the number of full shares of common stock into which such
preferred stock is convertible. Series A through D preferred stock have the
following conversion privileges: (i) one share of Series A or Series B is
convertible into eight shares of common stock; and (ii) 2.4 shares of Series C
or Series D are convertible into four shares of common stock.
The Series F preferred stock is nonconvertible and nonvoting, except in
limited circumstances. Noncumulative dividends are payable quarterly through
September 30, 2001, at a rate of 6.05% and, thereafter, indexed to certain
market indices at rates not less than 6.55% or greater than 12.55%. The Series F
preferred stock is redeemable until September 29, 2001, in the event of certain
amendments to the Internal Revenue Code, at a declining redemption price from
$51.50 to $50.50 per share. After September 29, 2001, the Series F preferred
stock may be redeemed at $50 per share.
The Corporation has a dividend reinvestment and stock purchase plan.
Holders of preferred stock and common stock may participate in the plan, which
provides that additional shares of common stock may be purchased at market value
with reinvested dividends and voluntary cash payments. Common shares purchased
pursuant to this plan were: 567,266 shares in 1999; 596,179 shares in 1998 and
765,760 shares in 1997.
At December 31, 1999, the Corporation had reserved approximately 16.5
million common shares to be issued in connection with certain stock plans and
the conversion of certain debt and equity securities.
NOTE 17 REGULATORY MATTERS
The Corporation is subject to the regulations of certain federal and state
agencies and undergoes periodic examinations by such regulatory authorities.
Neither the Corporation nor any of its subsidiaries is subject to written
regulatory agreements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation must meet specific capital guidelines that
involve quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on PNC's financial position and results of
operations. The Corporation's capital amounts and classification are also
subject to qualitative judgments by regulatory agencies about components, risk
weightings and other factors.
The following table sets forth regulatory capital ratios for PNC and the
Corporation's only significant bank subsidiary, PNC Bank, N.A.:
REGULATORY CAPITAL
AMOUNT RATIOS
DECEMBER 31 ---------------- -------------
DOLLARS IN MILLIONS 1999 1998 1999 1998
- --------------------------------------------------------------
RISK-BASED CAPITAL
Tier I
PNC ................. $4,731 $5,546 7.05% 7.80%
PNC Bank, N.A. ...... 4,746 5,102 7.69 7.73
Total
PNC ................. 7,438 7,940 11.08 11.16
PNC Bank, N.A. ...... 6,815 7,038 11.04 10.66
Leverage
PNC ................. 4,731 5,546 6.61 7.28
PNC Bank, N.A. ...... 4,746 5,102 7.13 7.21
==============================================================
The access to and cost of funding new business initiatives including
acquisitions, 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. The minimum regulatory capital ratios are 4% for
Tier I risk-based, 8% for total risk-based and 3% for leverage. However,
regulators may require higher capital levels when particular circumstances
warrant. To qualify as well capitalized, regulators require banks to maintain
capital ratios of at least 6% for Tier I, 10% for total risk-based and 5% for
leverage. At December 31, 1999, the Corporation and each bank subsidiary met the
well capitalized capital ratio requirements.
Dividends that may be paid by subsidiary banks to the parent company are
subject to certain legal limitations and also may be impacted by capital needs,
regulatory requirements, corporate policies, contractual restrictions and other
factors. Without regulatory approval, the amount available for payment of
dividends by all subsidiary banks was $489 million at December 31, 1999.
72|73
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under federal law, generally no bank subsidiary may extend credit to the
parent company or its nonbank subsidiaries on terms and under circumstances
which are not substantially the same as comparable extensions of credit to
nonaffiliates. No extension of credit may be made to the parent company or a
nonbank subsidiary which is in excess of 10% of the capital stock and surplus of
such bank subsidiary or in excess of 20% of the capital and surplus of such bank
subsidiary as to aggregate extensions of credit to the parent company and its
subsidiaries. In certain circumstances, federal regulatory authorities may
impose more restrictive limitations. Such extensions of credit, with limited
exceptions, must be fully collateralized. The maximum amount available under
statutory limitations for transfer from subsidiary banks to the parent company
in the form of loans and dividends approximated 18% of consolidated net assets
at December 31, 1999.
Federal Reserve Board regulations require depository institutions to
maintain cash reserves with the Federal Reserve Bank. During 1999, subsidiary
banks maintained reserves which averaged $156 million.
NOTE 18 FINANCIAL DERIVATIVES
FAIR VALUE OF FINANCIAL DERIVATIVES
POSITIVE NEGATIVE
DECEMBER 31 NOTIONAL FAIR NOTIONAL FAIR
IN MILLIONS VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------
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 contracts ....... 681
Credit default swaps .... 60 4,255 (4)
- -----------------------------------------------------------------------
Total ................ $16,628 $139 $11,133 $(114)
=======================================================================
1998
Interest rate
Swaps ................ $6,915 $177 $2,535 $(10)
Caps ................. 722 6
Floors ............... 1,500 439 (9)
- -----------------------------------------------------------------------
Total interest rate
risk management ...... 9,137 183 2,974 (19)
Mortgage banking
risk management ...... 9,367 74 906 (10)
Credit default swaps .... 4,255 (2)
- -----------------------------------------------------------------------
Total ................ $18,504 $257 $8,135 $(31)
=======================================================================
The Corporation uses a variety of off-balance-sheet financial derivatives as
part of its overall interest rate risk management process and to manage risk
associated with mortgage banking activities. Financial derivatives involve, to
varying degrees, interest rate and credit risk in excess of the amount
recognized on the balance sheet but less than the notional amount of the
contract. For interest rate swaps and purchased interest rate caps and floors,
only periodic cash payments and, with respect to such caps and floors, premiums
are exchanged. Therefore, cash requirements and exposure to credit risk are
significantly less than the notional value. The Corporation manages these risks
as part of its asset and liability management process and through credit
policies and procedures. The Corporation seeks to minimize the credit risk by
entering into transactions with only a select number of high-quality
institutions, establishing credit limits, requiring bilateral-netting
agreements, and, in certain instances, segregated collateral.
The Corporation uses interest rate swaps and purchased caps and floors to
modify the interest rate characteristics of designated interest-bearing assets
or liabilities from fixed to variable, variable to fixed, or one variable index
to another. At December 31, 1999, $9.8 billion of interest rate swaps, caps and
floors were designated to loans. At December 31, 1999, $144 million of financial
derivatives were designated to securities available for sale. During 1999,
derivative contracts modified the average effective yield on interest-earning
assets from 7.38% to 7.42%. At December 31, 1999, $3.3 billion of interest rate
swaps were designated to interest-bearing liabilities. During 1999, derivative
contracts modified the average rate on interest-bearing liabilities from 4.36%
to 4.34%.
PNC uses a combination of on-balance-sheet instruments and financial
derivatives to manage risk associated with its mortgage banking activities. The
inherent risk affecting the value of MSR is the potential for the related
mortgages to prepay, thereby eliminating the underlying servicing fee income
stream. Generally, derivatives used to hedge the value of MSR have been marked
to market with gains or losses included in noninterest income.
Forward contracts are used to manage risk positions associated with
mortgage origination and student lending activities. Substantially all forward
contracts mature within 90 days of origination. Forward contracts are traded in
over-the-counter markets and do not have standardized terms. Counterparties to
the Corporation's forward contracts are primarily U.S. government agencies and
brokers and dealers in mortgage-backed securities. In the event the counterparty
is unable to meet its contractual obligations, the Corporation may be exposed to
selling or purchasing mortgage loans at prevailing market prices. Unrealized
gains or losses are considered in the lower of cost or market valuation of loans
held for sale.
Credit default swaps are used to manage credit risk and regulatory capital
associated with commercial lending activities.
At December 31, 1999 and 1998, the Corporation's exposure to credit losses
with respect to financial derivatives was not material.
<PAGE> 43
OTHER DERIVATIVES
The following schedule sets forth information relating to positions associated
with customer-related and other derivatives:
AT DECEMBER 31
--------------------------------------------------
POSITIVE NEGATIVE NET AVERAGE
NOTIONAL FAIR FAIR ASSET FAIR
IN MILLIONS VALUE VALUE VALUE (LIABILITY) VALUE
- --------------------------------------------------------------------------------
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)
================================================================================
1998
Customer-related
Interest rate
Swaps ............... $11,040 $69 $(89) $(20) $(10)
Caps/floors
Sold ................ 2,844 (19) (19) (9)
Purchased ........... 2,589 20 20 11
Foreign exchange ...... 2,108 33 (27) 6 3
Other ................. 457 7 (8) (1)
- --------------------------------------------------------------------------------
Total customer-related 19,038 129 (143) (14) (5)
Other .................... 709 1 1 1
- --------------------------------------------------------------------------------
Total other derivatives $19,747 $130 $(143) $(13) $(4)
- --------------------------------------------------------------------------------
NOTE 19 EMPLOYEE
BENEFIT PLANS
INCENTIVE SAVINGS PLANS
The Corporation sponsors incentive savings plans covering substantially all
employees. Under the plans, employee contributions up to 6% of biweekly
compensation, as defined in the plans, subject to Internal Revenue Code
limitations, are matched. Contributions to the plans are matched primarily by
shares of PNC common stock held by the Corporation's employee stock ownership
plan ("ESOP").
The Corporation makes annual contributions to the ESOP that are at least
equal to the debt service requirements on the ESOP's borrowings less dividends
received by the ESOP. All dividends received by the ESOP are used to pay debt
service. Dividends used for debt service totaled $9 million in 1999 and 1998 and
$10 million in 1997. To satisfy additional debt service requirements, PNC
contributed $9 million in 1999, $7 million in 1998 and $13 million in 1997.
As the ESOP's borrowings are repaid, shares are allocated to employees
who made contributions during the year based on the proportion of annual debt
service to total debt service. The Corporation includes all ESOP shares as
common shares outstanding in the earnings per share computation. Components of
ESOP shares are:
AS OF OR FOR THE YEAR ENDED
DECEMBER 31 - IN THOUSANDS 1999 1998
- -----------------------------------------------------------
Shares
Unallocated ....................... 712 1,353
Allocated ......................... 4,251 3,772
Released for allocation ........... 652 1,014
Retired ........................... (587) (536)
- -----------------------------------------------------------
Total ........................... 5,028 5,603
===========================================================
Compensation expense related to the portion of contributions matched with ESOP
shares is determined based on the number of ESOP shares allocated. Compensation
expense related to these plans was $21 million for 1999.
PENSION PLANS
The Corporation has a noncontributory, defined benefit pension plan covering
most employees. Retirement benefits are derived from a cash balance formula that
uses certain compensation levels, age and length of service. Pension
contributions are based on an actuarially determined amount necessary to fund
total benefits payable to plan participants. The Corporation also maintains
nonqualified supplemental retirement plans for certain employees. All retirement
benefits provided under these plans are unfunded and any payments to plan
participants are made by the Corporation.
Plan amendments encompassing covered compensation, determination of
benefits, eligibility and interest rates used to calculate certain distributions
from the plans were implemented during 1998. The Corporation also offered an
enhanced voluntary retirement program to certain employees in the defined
benefit plan meeting specific age and service requirements. These special
termination benefits increased pension cost by $10 million in 1998.
74|75
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the changes in benefit obligation and plan assets for
the defined benefit and supplemental plans is as follows:
DECEMBER 31 - IN MILLIONS 1999 1998
- -----------------------------------------------------------------
Benefit obligation at beginning of year ..... $866 $812
Service cost ............................. 24 28
Interest cost ............................ 60 58
Plan amendments .......................... (16)
Special termination benefits ............. 10
Actuarial loss ........................... (39) 82
Benefits paid ............................ (71) (108)
- -----------------------------------------------------------------
Benefit obligation at end of year ........... $840 $866
=================================================================
Fair value of plan assets at beginning
of year ................................ $758 $773
Actual return on plan assets ............. 147 88
Employer contribution .................... 105 5
Benefits paid ............................ (71) (108)
- -----------------------------------------------------------------
Fair value of plan assets at end of year .... $939 $758
=================================================================
Funded status ............................... $99 $(108)
Unrecognized net actuarial (gain) loss ... (60) 51
Unrecognized prior service cost .......... (6) (6)
Unrecognized net transition asset ........ (4) (10)
- -----------------------------------------------------------------
Net amount recognized ....................... $29 $(73)
=================================================================
Accrued pension cost ........................ $29 $(73)
Additional minimum liability ............. (22) (15)
Intangible asset ......................... 3 4
Accumulated other comprehensive loss ..... 19 11
- -----------------------------------------------------------------
Net amount recognized on the
balance sheet ............................ $29 $(73)
=================================================================
The nonqualified supplemental retirement plan had an accrued benefit liability
of $46 million at December 31, 1999 and $42 million at December 31, 1998.
The nonqualified supplemental retirement plans had an accumulated benefit
obligation of $68 million and $67 million at December 31, 1999 and 1998,
respectively.
Plan assets primarily consist of listed common stocks, U.S. government and
agency securities and collective funds. Plan assets are managed by BlackRock and
do not include common stock of the Corporation.
The components of net periodic pension cost were as follows:
YEAR ENDED DECEMBER 31 - IN MILLIONS 1999 1998 1997
- ---------------------------------------------------------------------
Service cost ......................... $24 $28 $29
Interest cost ........................ 58 58 58
Expected return on plan
assets ............................ (75) (71) (66)
Transition amount
amortization ...................... (5) (5) (5)
Special termination benefits ......... 10
Amortization of prior
service cost ...................... (1) 1 2
Recognized net actuarial loss ........ 2 1 1
- ---------------------------------------------------------------------
Net periodic pension cost ......... $3 $22 $19
=====================================================================
Weighted-average assumptions were as follows:
YEAR ENDED DECEMBER 31 1999 1998 1997
- -----------------------------------------------------------------------
Discount rate ....................... 7.75% 6.75% 7.20%
Rate of compensation increase ....... 4.50 4.50 4.50
Expected return on plan assets ...... 9.50 9.50 9.50
=======================================================================
POSTRETIREMENT BENEFIT PLANS
The Corporation also provides certain health care and life insurance benefits
for retired employees ("postretirement benefits") through various plans. During
1998, additional health care options were offered to certain of the
Corporation's retirees aged 65 years and over. A reconciliation of the accrued
postretirement benefit obligation is as follows:
DECEMBER 31 - IN MILLIONS 1999 1998
- ----------------------------------------------------------------
Benefit obligation at beginning of year ... $187 $213
Service cost ........................... 2 2
Interest cost .......................... 12 14
Plan amendments ........................ (31)
Actuarial loss ......................... 13 6
Participant contributions .............. 3 3
Benefits paid .......................... (19) (20)
- ----------------------------------------------------------------
Benefit obligation at end of year ......... $198 $187
================================================================
Funded status ............................. $(198) $(187)
Unrecognized actuarial loss ............... 30 17
Unrecognized prior service cost ........... (69) (75)
- ----------------------------------------------------------------
Net amount recognized on the
balance sheet .......................... $(237) $(245)
================================================================
The components of postretirement benefit cost were as follows:
YEAR ENDED DECEMBER 31 - IN MILLIONS 1999 1998 1997
- --------------------------------------------------------------------
Service cost .......................... $2 $2 $2
Interest cost ......................... 12 14 16
Amortization of prior
service cost ....................... (6) (6) (4)
- --------------------------------------------------------------------
Net postretirement
benefit cost .................... $8 $10 $14
====================================================================
Weighted-average assumptions were as follows:
DECEMBER 31 1999 1998 1997
- ----------------------------------------------------------------
Discount rate ...................... 7.75% 6.75% 7.20%
Expected health care cost trend rate
Medical pre-65 .................. 7.00 5.45 6.50
Medical post-65 ................. 8.00 5.45 6.50
Dental .......................... 7.00 5.25 6.20
================================================================
The health care cost trend rate declines until it stabilizes at 5.25% beginning
in 2005. A one-percentage-point change in assumed health care cost trend rates
would have the following effects:
YEAR ENDED DECEMBER 31, 1999 - IN MILLIONS INCREASE DECREASE
- --------------------------------------------------------------------
Effect on total service and
interest cost ........................... $1 $(1)
Effect on postretirement
benefit obligation ...................... 9 (9)
- --------------------------------------------------------------------
<PAGE> 45
NOTE 20 STOCK-BASED
COMPENSATION PLANS
The Corporation has a senior executive long-term incentive award plan
("Incentive Plan") that provides for the granting of incentive stock options,
nonqualified options, stock appreciation rights ("SAR"), performance units and
incentive shares. In any given year, the number of shares of common stock
available for grant under the Incentive Plan may range from 1.5% to 3% of total
issued shares of common stock determined at the end of the preceding calendar
year.
STOCK OPTIONS
Options are granted at exercise prices not less than the market value of common
stock on the date of grant. Options granted in 1999 are exercisable in one-third
increments on the first, second and third anniversaries after the grant date.
Options granted in prior years are mainly exercisable twelve months after the
grant date. Payment of the option price may be in cash or shares of common stock
at market value on the exercise date. The following table presents stock option
data related to the Incentive Plan, a similar predecessor plan and other plans
assumed in certain mergers:
PER OPTION WEIGHTED-
-------------- AVERAGE
EXERCISE
SHARES IN THOUSANDS EXERCISE PRICE PRICE SHARES
- ---------------------------------------------------------------
January 1, 1997 ........ $11.38 -$37.31 $26.03 9,030
Granted ............. 43.31 - 43.75 43.75 2,912
Exercised ........... 11.38 - 31.13 24.10 (2,969)
SAR exercised ....... 17.13 (4)
Terminated .......... 21.75 - 43.75 41.32 (178)
---------
December 31, 1997 ...... 11.38 - 43.75 32.25 8,791
Granted ............. 43.66 - 66.00 55.17 3,449
Exercised ........... 11.38 - 43.75 31.26 (2,449)
Terminated .......... 43.75 - 54.72 52.35 (225)
---------
December 31, 1998 ...... 11.38 - 66.00 40.30 9,566
Granted ............. 50.47 - 76.00 51.62 3,585
Exercised ........... 11.38 - 54.72 33.89 (1,856)
Terminated .......... 21.75 - 55.59 51.65 (246)
---------
December 31, 1999 ...... $11.38 -$76.00 $44.79 11,049
===============================================================
At December 31, 1999, the weighted-average remaining contractual life of
outstanding options was 7 years and 4 months and options for 7,682,745 shares of
common stock were exercisable at a weighted-average price of $42.05 per share.
The grant-date fair value of options granted in 1999 was $10.15 per option.
Options for 82,000 and 118,000 shares of common stock were granted with an
exercise price in excess of the market value on the date of grant in 1999 and
1998, respectively. Shares of common stock available for the granting of options
under the Incentive Plan and the predecessor plans were: 10,584,683 at December
31, 1999 and 1998, and 9,012,899 at December 31, 1997.
INCENTIVE SHARE AWARDS
In 1999, there were no incentive share awards granted. In 1998, 241,500
incentive shares of common stock were granted to certain senior executives
pursuant to the Incentive Plan. Issuance of such incentive shares is subject to
the market price of PNC's common stock equaling or exceeding specified levels
for defined periods. The restricted period ends two years after the issue date.
During the restricted period, the recipient receives dividends and can vote the
shares. If the recipient leaves the Corporation within the restricted period,
the shares will be forfeited. There were no forfeitures in 1999 and there were
8,000 shares forfeited in 1998. At December 31, 1999, the shares granted in 1998
had not met the specified levels required for issuance. The requirements for the
shares granted in 1997 were met on April 6, 1998. As a result of exceeding
performance targets, 112.5% of the remaining 1997 shares, or 343,125 shares of
restricted common stock were issued. Compensation expense recognized for
incentive share awards was $12 million, $15 million and $6 million in 1999, 1998
and 1997, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Corporation's employee stock purchase plan ("ESPP") has approximately 3.5
million shares available for issuance. Persons who have been continuously
employed for at least one year are eligible to participate. Participants
purchase the Corporation's common stock at 85% of the lesser of fair market
value on the first or last day of each offering period. No charge to earnings is
recorded with respect to the ESPP. Shares issued pursuant to the ESPP were as
follows:
YEAR ENDED DECEMBER 31 SHARES PRICE PER SHARE
- --------------------------------------------------------------
1999 ...................... 406,740 $43.99 AND $47.39
1998 ...................... 315,097 43.83 and 48.34
1997 ...................... 367,494 33.15 and 35.49
===============================================================
The following table sets forth pro forma net income and diluted earnings per
share as if compensation expense was recognized for stock options and the ESPP.
PRO FORMA NET INCOME AND EPS
YEAR ENDED DECEMBER 31 REPORTED PRO FORMA
- ------------------------------------------------------------
Net income (in millions)
1999 ............................ $1,264 $1,243
1998 ............................ 1,115 1,099
1997 ............................ 1,052 1,035
- ------------------------------------------------------------
Diluted earnings per share
1999 ............................ $4.15 $4.08
1998 ............................ 3.60 3.54
1997 ............................ 3.28 3.23
- ------------------------------------------------------------
For purposes of computing pro forma results, PNC estimated the fair value of
stock options and ESPP shares using the Black-Scholes option pricing model.
Black-Scholes is predominantly used to value traded options which differ from
PNC's options.
76|77
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The model requires the use of numerous assumptions, many of which are
highly subjective in nature. Therefore, the pro forma results are estimates of
results of operations as if compensation expense had been recognized for all
stock-based compensation plans and are not indicative of the impact on future
periods. The following assumptions were used in the option pricing model for
purposes of estimating pro forma results. The dividend yield represents average
yields over the previous three-year period.
YEAR ENDED DECEMBER 31 1999 1998 1997
- ---------------------------------------------------------------
Risk-free interest rate ........ 5.2% 5.5% 6.2%
Dividend yield ................. 3.6 4.4 4.9
Volatility ..................... 22.1 19.9 27.6
Expected life .................. 6 YRS. 6 yrs. 6 yrs.
===============================================================
NOTE 21 INCOME TAXES
The components of income taxes were as follows:
YEAR ENDED DECEMBER 31 - IN MILLIONS 1999 1998 1997
- ---------------------------------------------------------------------
Current
Federal ......................... $384 $368 $380
State ........................... 39 57 53
- ---------------------------------------------------------------------
Total current ................ 423 425 433
Deferred
Federal ......................... 209 167 126
State ........................... (5) 3 7
- ---------------------------------------------------------------------
Total deferred ............... 204 170 133
- ---------------------------------------------------------------------
Total ........................ $627 $595 $566
=====================================================================
Significant components of deferred tax assets and liabilities are as follows:
DECEMBER 31 - IN MILLIONS 1999 1998
- -----------------------------------------------------------
Deferred tax assets
Allowance for credit losses .......... $247 $269
Compensation and benefits ............ 132 163
Net unrealized securities losses ..... 130 5
Other ................................ 175 75
- -----------------------------------------------------------
Total deferred tax assets .......... 684 512
Deferred tax liabilities
Leasing .............................. 548 418
Depreciation ......................... 29 39
Other ................................ 199 130
- -----------------------------------------------------------
Total deferred tax liabilities ..... 776 587
- -----------------------------------------------------------
Net deferred tax liability ......... $92 $75
===========================================================
A reconciliation between the statutory and effective tax rates follows:
YEAR ENDED DECEMBER 31 1999 1998 1997
- -----------------------------------------------------------------
Statutory tax rate ................ 35.0% 35.0% 35.0%
Increases (decreases) resulting from
State taxes .................... 1.2 2.3 2.4
Tax-exempt interest ............ (.7) (1.0) (1.1)
Goodwill ....................... .9 .8 .8
Other .......................... (3.2) (2.3) (2.1)
- -----------------------------------------------------------------
Effective tax rate .......... 33.2% 34.8% 35.0%
=================================================================
NOTE 22 EARNINGS PER SHARE
The following table sets forth basic and diluted earnings per share
calculations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 - IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALCULATION OF BASIC EARNINGS PER COMMON SHARE
Net income ......................................................................... $1,264 $1,115 $1,052
Less: Preferred dividends declared ................................................. 19 19 19
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to basic earnings per common share ........................... $1,245 $1,096 $1,033
- ------------------------------------------------------------------------------------------------------------------------------------
Basic weighted-average common shares outstanding (IN THOUSANDS) .................... 296,886 300,761 310,147
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share .................................................... $4.19 $3.64 $3.33
====================================================================================================================================
CALCULATION OF DILUTED EARNINGS PER COMMON SHARE
Net income ......................................................................... $1,264 $1,115 $1,052
Add: Interest expense on convertible debentures (net of tax) ....................... 1 3
Less: Dividends declared on nonconvertible preferred stock ......................... 18 18 18
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to diluted earnings per common share ......................... $1,246 $1,098 $1,037
====================================================================================================================================
Basic weighted-average common shares outstanding (IN THOUSANDS) .................... 296,886 300,761 310,147
Weighted-average common shares to be issued using average market price and assuming:
Conversion of preferred stock Series A and B .................................... 131 148 163
Conversion of preferred stock Series C and D .................................... 1,072 1,145 1,237
Conversion of debentures ........................................................ 24 761 2,449
Exercise of stock options ....................................................... 1,529 1,846 1,914
Incentive share awards .......................................................... 383 486 311
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted weighted-average common shares outstanding (IN THOUSANDS) .................. 300,025 305,147 316,221
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Common Share .................................................. $4.15 $3.60 $3.28
====================================================================================================================================
</TABLE>
<PAGE> 47
NOTE 23 SEGMENT REPORTING
PNC operates seven major businesses engaged in regional banking, wholesale
banking and asset management activities: PNC Bank-Regional Banking, PNC
Bank-Corporate Banking, PNC Secured Finance, PNC Mortgage, PNC Advisors,
BlackRock, and PFPC.
Business results presented are based on PNC's management accounting
practices and the Corporation's current management 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. 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.
The following changes were made in the first quarter of 1999 to the
presentation of business results: PNC Bank - Regional Banking reflects the
combination of PNC Regional Community Bank and PNC National Consumer Bank.
Branch-based brokerage activities (previously included in PNC Advisors), the
middle market customer segment (previously included in PNC Bank - Corporate
Banking) and regional real estate lending and leasing activities in PNC's
geographic footprint (previously included in PNC Secured Finance) were also
combined with PNC Bank - Regional Banking. Additionally, residential mortgages
(previously included in PNC Mortgage) were realigned with PNC Bank - Regional
Banking. Certain non-strategic wholesale lending businesses designated for exit
(previously included in PNC Bank - Corporate Banking and PNC Secured Finance) as
well as equity management activities (previously included in PNC Bank -
Corporate Banking) are included in Other. Total outstandings and exposure
designated for exit during 1999 in wholesale lending totaled $3.7 billion and
$10.5 billion, respectively.
Financial results for 1999, 1998 and 1997 are presented consistent with
this structure.
BUSINESS SEGMENT PRODUCTS AND SERVICES
PNC Bank - Regional Banking provides credit, deposit, branch-based brokerage and
electronic banking products and services to retail customers as well as credit,
leasing, treasury management and capital markets products and services to
mid-sized and small businesses primarily within PNC's geographic footprint.
PNC Bank - Corporate Banking provides specialized credit, capital markets
and treasury management products and services to corporations, institutions and
government entities primarily within PNC's geographic footprint.
PNC Secured Finance, serving corporate clients nationwide, is engaged in
commercial real estate finance, business credit, and equipment lease financing.
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 Advisors offers customized investment management, high-end brokerage
services, personal trust, estate planning and traditional banking services to
affluent and wealthy individuals, and investment management, trust and
administrative services to pensions, 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 global fund services subsidiary, provides a wide
range of processing services to the investment management community.
78|79
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESULTS OF BUSINESSES
<TABLE>
<CAPTION>
PNC BANK PNC BANK PNC
YEAR ENDED DECEMBER 31 REGIONAL CORPORATE SECURED PNC PNC TOTAL
IN MILLIONS BANKING BANKING FINANCE MORTGAGE ADVISORS BLACKROCK PFPC OTHER PNC
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999
INCOME STATEMENT
Net interest income* ........ $1,728 $219 $164 $89 $130 $(8) $6 $127 $2,455
Noninterest income .......... 579 189 117 332 608 381 251 288 2,745
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue ............ 2,307 408 281 421 738 373 257 415 5,200
Provision for credit losses . 59 9 (8) 7 96 163
Depreciation and amortization 91 13 22 11 14 18 10 123 302
Other noninterest expense ... 1,124 190 125 307 480 252 175 169 2,822
- -----------------------------------------------------------------------------------------------------------------------------------
Pretax earnings .......... 1,033 196 142 103 237 103 72 27 1,913
Income taxes ................ 392 69 28 41 90 44 27 (42) 649
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings ................. $641 $127 $114 $62 $147 $59 $45 $69 $1,264
===================================================================================================================================
Inter-segment revenue ....... $30 $(42) $13 $36 $8 $84 $(129)
===================================================================================================================================
Average assets .............. $39,513 $8,417 $6,701 $6,906 $3,353 $448 $308 $9,174 $74,820
===================================================================================================================================
1998
INCOME STATEMENT
Net interest income* ........ $1,706 $200 $122 $85 $121 $(11) $8 $368 $2,599
Noninterest income .......... 611 151 56 254 368 339 183 340 2,302
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue ............ 2,317 351 178 339 489 328 191 708 4,901
Provision for credit losses . 65 84 (8) 1 83 225
Depreciation and amortization 104 12 16 11 6 13 6 102 270
Other noninterest expense ... 1,187 171 90 269 290 247 125 291 2,670
- -----------------------------------------------------------------------------------------------------------------------------------
Pretax earnings .......... 961 84 80 59 192 68 60 232 1,736
Income taxes ................ 379 28 20 24 73 32 22 43 621
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings ................. $582 $56 $60 $35 $119 $36 $38 $189 $1,115
===================================================================================================================================
Inter-segment revenue ....... $18 $(27) $10 $33 $1 $6 $(41)
===================================================================================================================================
Average assets .............. $38,848 $7,564 $5,477 $5,350 $2,731 $441 $229 $13,986 $74,626
===================================================================================================================================
1997
INCOME STATEMENT
Net interest income* ........ $1,606 $152 $108 $50 $106 $(17) $7 $512 $2,524
Noninterest income .......... 518 135 45 189 289 206 142 251 1,775
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue ............... 2,124 287 153 239 395 189 149 763 4,299
Provision for credit losses . 59 12 9 3 (13) 70
Depreciation and amortization 103 11 1 9 5 12 4 97 242
Other noninterest expense ... 1,174 173 49 207 249 138 94 256 2,340
- -----------------------------------------------------------------------------------------------------------------------------------
Pretax earnings .......... 788 91 94 23 138 39 51 423 1,647
Income taxes ................ 310 28 28 9 53 17 20 130 595
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings ................. $478 $63 $66 $14 $85 $22 $31 $293 $1,052
===================================================================================================================================
Inter-segment revenue ....... $13 $(21) $10 $34 $2 $(38)
===================================================================================================================================
Average assets .............. $38,939 $7,043 $3,606 $2,577 $2,575 $336 $164 $15,404 $70,644
===================================================================================================================================
*TAXABLE-EQUIVALENT BASIS
</TABLE>
Gains in 1999 from the sales of the credit card business, an equity
interest in Electronic Payment Services, Inc., the BlackRock IPO, Concord stock
and branches totaling $422 million are included in Other. Also in 1999,
valuation adjustments associated with exiting certain non-strategic wholesale
lending businesses totaling $195 million, costs related to efficiency
initiatives of $98 million, a contribution to the PNC Bank Foundation of $30
million, the write-down of an equity investment in FBR of $28 million and
expense associated with the buyout of PNC's mall ATM representative of $12
million are included in Other.
The results of the credit card business through the
first quarter of 1999, the corporate trust and escrow business in 1998 and 1997,
minority interests, equity management activities, the impact of asset and
liability management, eliminations, reclassifications and unassigned items
comprise the remainder of Other.
<PAGE> 49
NOTE 24 COMPREHENSIVE INCOME
Effective January 1, 1998, the Corporation adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established new rules for the reporting and
display of comprehensive income and its components. SFAS No. 130 requires
unrealized gains or losses on securities available for sale and minimum pension
liability adjustments to be included in other comprehensive income. Prior to the
adoption of SFAS No. 130, unrealized gains or losses were reported separately in
shareholders' equity. Prior year financial statements have been reclassified to
conform to the requirements of SFAS No. 130. The income tax effects allocated to
each component of other comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
BEFORE-TAX TAX BENEFIT NET-OF-TAX
DECEMBER 31 - IN MILLIONS AMOUNT (EXPENSE) AMOUNT
- ----------------------------------------------------------------------------
1999
<S> <C> <C> <C>
Unrealized securities losses ......... $(363) $127 $(236)
Less: Reclassification
adjustment for losses realized
in net income ..................... (26) 9 (17)
- ----------------------------------------------------------------------------
Net unrealized securities
losses ............................ (337) 118 (219)
Minimum pension liability
adjustment ........................ (8) 3 (5)
- ----------------------------------------------------------------------------
Other comprehensive loss ............. $(345) $121 $(224)
============================================================================
1998
Unrealized securities losses ......... $(42) $15 $(27)
Less: Reclassification adjustment
for losses realized
in net income ..................... (22) 8 (14)
- ----------------------------------------------------------------------------
Net unrealized securities
losses ............................ (20) 7 (13)
Minimum pension liability
adjustment ........................ (11) 4 (7)
- ----------------------------------------------------------------------------
Other comprehensive loss ............. $(31) $11 $(20)
============================================================================
1997
Net unrealized securities
gains ............................. $68 $(24) $44
- ----------------------------------------------------------------------------
Other comprehensive income ........... $68 $(24) $44
============================================================================
</TABLE>
The accumulated balances related to each component of other comprehensive loss
are as follows:
DECEMBER 31 - IN MILLIONS 1999 1998
- ----------------------------------------------------------
Net unrealized securities losses........ $(255) $(36)
Minimum pension liability adjustment.... (12) (7)
- ----------------------------------------------------------
Accumulated other comprehensive loss.... $(267) $(43)
==========================================================
NOTE 25 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.
NOTE 26 FAIR VALUE OF FINANCIAL INSTRUMENTS
1999 1998
------------------------------------------
CARRYING FAIR CARRYING FAIR
DECEMBER 31 - IN MILLIONS AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------
ASSETS
Cash and short-term
assets .................... $4,570 $4,570 $3,946 $3,946
Securities available
for sale .................. 7,611 7,611 7,074 7,074
Loans held for sale .......... 5,798 5,798 3,226 3,226
Net loans (EXCLUDES LEASES) .. 46,414 46,767 54,442 56,535
Mortgage servicing rights .... 1,719 1,897 889 982
LIABILITIES
Demand, savings and
money market deposits ..... 28,689 28,689 29,359 29,359
Time deposits ................ 17,979 17,890 18,137 18,291
Borrowed funds ............... 19,507 19,582 21,094 21,362
OFF-BALANCE-SHEET
Commitments
to extend credit .......... (5) (5) (17) (17)
Letters of credit ............ (9) (9) (15) (15)
Financial derivatives used for
Interest rate
risk management ......... 75 (50) 76 164
Mortgage banking
risk management ......... 18 79 51 64
Credit-related
activities .............. (4) (1) (2)
Customer/other
derivatives ............. 21 21 (13) (13)
============================================================================
Real and personal property, lease financing, loan customer relationships,
deposit customer intangibles, retail branch networks, fee-based businesses, such
as asset management, mortgage banking and brokerage, trademarks and brand names
are excluded from the amounts set forth above. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Corporation.
Fair value is defined as the estimated amount at which a financial
instrument could be exchanged in a current
80|81
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
transaction between willing parties, or other than in a forced or liquidation
sale. However, it is not management's intention to immediately dispose of a
significant portion of such financial instruments, and unrealized gains or
losses should not be interpreted as a forecast of future earnings and cash
flows. The derived fair values are subjective in nature, involve uncertainties
and significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly impact the derived fair value
estimates. The following methods and assumptions were used in estimating fair
value amounts for financial instruments.
GENERAL
For short-term financial instruments realizable in three months or less, the
carrying amount reported in the consolidated balance sheet approximates fair
value. Unless otherwise stated, the rates used in discounted cash flow analyses
are based on market yield curves.
CASH AND SHORT-TERM ASSETS
The carrying amounts reported in the consolidated balance sheet for cash and
short-term investments approximate those assets' fair values primarily due to
their short-term nature. For purposes of this disclosure only, short-term assets
include due from banks, interest-earning deposits with banks, federal funds sold
and resale agreements, trading securities, customer's acceptance liability and
accrued interest receivable.
SECURITIES AVAILABLE FOR SALE
The fair value of securities available for sale is based on quoted market
prices, where available. If quoted market prices are not available, fair value
is estimated using the quoted market prices of comparable instruments.
NET LOANS AND LOANS HELD FOR SALE
Fair values are estimated based on the discounted value of expected net cash
flows incorporating assumptions about prepayment rates, credit losses and
servicing fees and costs. For credit cards and revolving home equity loans, this
fair value does not include any amount for new loans or the related fees that
will be generated from the existing customer relationships. In the case of
nonaccrual loans, scheduled cash flows exclude interest payments. The carrying
value of loans held for sale approximates fair value.
MORTGAGE SERVICING RIGHTS
The fair value of mortgage servicing rights is estimated based on the present
value of future cash flows.
DEPOSITS
The carrying amounts of noninterest-bearing demand and interest-bearing money
market and savings deposits approximate fair values. For time deposits,
including foreign deposits, fair values are estimated based on the discounted
value of expected net cash flows taking into account current interest rates.
BORROWED FUNDS
The carrying amounts of federal funds purchased, commercial paper, acceptances
outstanding and accrued interest payable are considered fair value because of
their short-term nature. For all other borrowed funds, fair values are estimated
based on the discounted value of expected net cash flows taking into account
current interest rates.
UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT
Fair values for commitments to extend credit and letters of credit are estimated
based on the amount of deferred fees and the creditworthiness of the
counterparties.
FINANCIAL AND OTHER DERIVATIVES
The fair value of derivatives is estimated based on the
discounted value of the expected net cash flows. These fair values represent the
estimated amounts the Corporation would receive or pay to terminate the
contracts, taking into account current interest rates.
NOTE 27 OTHER FINANCIAL
INFORMATION
Summarized financial information of the parent company is as follows:
PARENT COMPANY ONLY
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 - IN MILLIONS 1999 1998 1997
- ----------------------------------------------------------------------
OPERATING REVENUE
Dividends from:
Bank subsidiaries ................. $1,139 $774 $852
Nonbank subsidiaries .............. 80 21 9
Interest income ...................... 9 5 14
Noninterest income ................... 4 1 2
- ----------------------------------------------------------------------
Total operating revenue ........ 1,232 801 877
======================================================================
OPERATING EXPENSE
Interest expense ..................... 86 92 76
Other expense ........................ 52 7 11
- ----------------------------------------------------------------------
Total operating expense ........ 138 99 87
- ----------------------------------------------------------------------
Income before income taxes and
equity in undistributed
net income of subsidiaries ........ 1,094 702 790
Income tax benefits .................. (47) (35) (32)
- ----------------------------------------------------------------------
Income before equity in
undistributed net income
of subsidiaries ................... 1,141 737 822
Net equity in undistributed
net income
(excess dividends):
Bank subsidiaries ................. (7) 312 144
Nonbank subsidiaries .............. 130 66 86
- ----------------------------------------------------------------------
Net income $1,264 $1,115 $1,052
======================================================================
PARENT COMPANY ONLY
BALANCE SHEET
DECEMBER 31 - IN MILLIONS 1999 1998
- ---------------------------------------------------------------
ASSETS
Cash and due from banks .................... $1
Short-term investments with subsidiary
banks ................................... $16 9
Securities available for sale 27
Investments in:
Bank subsidiaries ....................... 6,016 6,737
Nonbank subsidiaries .................... 734 740
Other assets ............................... 154 164
- ---------------------------------------------------------------
Total assets .......................... $6,920 $7,678
===============================================================
LIABILITIES
Borrowed funds ............................. $100 $300
Nonbank affiliate borrowings ............... 613 1,006
Accrued expenses and other liabilities ..... 261 329
- ---------------------------------------------------------------
Total liabilities ..................... 974 1,635
- ---------------------------------------------------------------
SHAREHOLDERS' EQUITY ....................... 5,946 6,043
- ---------------------------------------------------------------
Total liabilities and shareholders'
equity ............................. $6,920 $7,678
===============================================================
At December 31, 1999, borrowed funds are scheduled for repayment in 2001.
Commercial paper and all other debt issued by PNC Funding Corp., a
wholly-owned subsidiary, is guaranteed by the parent company. In addition, in
connection with certain affiliates' mortgage servicing operations, the parent
company has committed to maintain such affiliates' net worth above minimum
requirements.
During 1999, 1998 and 1997, the parent company received net income tax
refunds of $44 million, $42 million and $35 million, respectively. Such refunds
represent the parent company's portion of consolidated income taxes. During
1999, 1998 and 1997, the parent company paid interest of $96 million, $95
million and $65 million, respectively.
PARENT COMPANY ONLY
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 - IN MILLIONS 1999 1998 1997
- ------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income ....................... $1,264 $1,115 $1,052
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
net earnings of
subsidiaries .............. (123) (378) (230)
Other ...................... (14) 19 19
- ------------------------------------------------------------------------------
Net cash provided by
operating activities ....... 1,127 756 841
- ------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in short-term
investments with subsidiary
bank ....................... (7) 1
Net capital returned from
(contributed to)
subsidiaries ............... 631 (261) 57
Securities available for sale
Sales ......................... 1,592 1,170 3,321
Purchases ..................... (1,565) (1,129) (2,787)
Cash paid in acquisitions ........ (2) (83)
Other ............................ (17) (22) (8)
- ------------------------------------------------------------------------------
Net cash provided (used)
by investing activities 632 (325) 584
- ------------------------------------------------------------------------------
FINANCING ACTIVITIES
Borrowings from nonbank
subsidiary .................... 687 297 656
Repayments on borrowings from
nonbank subsidiary ............ (1,080) (14) (222)
Acquisition of treasury
stock ......................... (803) (342) (1,532)
Cash dividends paid
to shareholders ............... (520) (495) (488)
Issuance of stock ................ 141 123 155
Repayments on borrowings ......... (200)
Other ............................ 15 3
- ------------------------------------------------------------------------------
Net cash used by financing
activities .................... (1,760) (431) (1,428)
- ------------------------------------------------------------------------------
Decrease in cash and
due from banks ................ (1) (3)
Cash and due from banks at
beginning of year ............. $1 1 4
- ------------------------------------------------------------------------------
Cash and due from banks
at end of year ................ $1 $1
==============================================================================
NOTE 28 UNUSED LINE OF CREDIT
At December 31, 1999, the Corporation maintained a line of credit in the amount
of $500 million, none of which was drawn. This line is available for general
corporate purposes and expires in 2002.
82|83
<PAGE> 51
STATISTICAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998
---------------------------------------- -----------------------------------------
QUARTER - DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income .................... $1,215 $1,212 $1,204 $1,290 $1,354 $1,354 $1,314 $1,291
Interest expense ................... 641 618 597 632 695 708 683 654
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income ................ 574 594 607 658 659 646 631 637
Provision for credit losses ........ 30 30 25 78 115 45 35 30
Noninterest income before
net securities (losses) gains ... 721 649 622 731 696 528 569 493
Net securities (losses) gains ...... (22) 2 42 2 1 13
Noninterest expense ................ 810 724 767 823 797 696 739 708
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes ......... 433 491 479 488 445 434 426 405
Income taxes ....................... 129 171 164 163 160 153 146 136
- ---------------------------------------------------------------------------------------------------------------------------------
Net income ......................... $304 $320 $315 $325 $285 $281 $280 $269
=================================================================================================================================
PER COMMON SHARE DATA
Book value ......................... $19.23 $18.90 $18.40 $18.78 $18.86 $18.21 $17.64 $17.20
Earnings
Basic ........................... 1.02 1.07 1.04 1.06 .93 .92 .92 .88
Diluted ......................... 1.01 1.06 1.03 1.05 .92 .91 .90 .87
Cash* ........................... 1.09 1.12 1.10 1.11 .98 .97 .96 .91
*EXCLUDES AMORTIZATION OF GOODWILL.
=================================================================================================================================
AVERAGE BALANCE SHEET
Total assets ....................... $73,548 $73,763 $75,060 $76,958 $77,377 $75,290 $73,632 $72,141
Securities available for sale ...... 8,211 8,803 9,437 7,755 7,323 7,073 7,323 7,784
Loans, net of unearned income ...... 51,070 51,746 52,479 56,695 57,366 55,938 55,348 54,083
Deposits ........................... 44,455 44,899 45,470 46,416 46,250 44,522 44,169 44,630
Borrowed funds ..................... 20,029 20,242 20,544 21,584 22,723 22,642 21,844 19,989
Shareholders' equity ............... 5,904 5,732 5,873 5,975 5,800 5,646 5,476 5,398
=================================================================================================================================
</TABLE>
<PAGE> 52
ANALYSIS OF YEAR-TO-YEAR CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1999/1998 1998/1997
------------------------------------- -------------------------------------
INCREASE/(DECREASE) IN INCOME/EXPENSE INCREASE/(DECREASE) IN INCOME/EXPENSE
DUE TO CHANGES IN: DUE TO CHANGES IN:
TAXABLE-EQUIVALENT BASIS-- IN MILLIONS VOLUME RATE TOTAL VOLUME RATE TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans held for sale .................... $44 $14 $58 $135 $(6) $129
Securities available for sale
U.S. Treasury, government agencies
and corporations .................... (25) (18) (43) (67) (25) (92)
Other debt .......................... 96 (2) 94 (12) (5) (17)
Other ............................... 8 (2) 6 (2) (5) (7)
------------- -------------
Total securities available for sale 67 (10) 57 (83) (33) (116)
Loans, net of unearned income
Consumer ............................ (63) (33) (96) (19) 1 (18)
Credit card ......................... (471) 33 (438) 40 39 79
Residential mortgage ................ (3) (31) (34) (44) (27) (71)
Commercial .......................... 25 (27) (2) 296 4 300
Commercial real estate .............. 7 (19) (12) (68) (14) (82)
Other ............................... 63 2 65 25 2 27
------------- -------------
Total loans, net of unearned income (219) (298) (517) 230 5 235
Other .................................. 7 (1) 6 5 6 11
------------- -------------
Total interest-earning assets ..... (63) (333) $(396) 265 (6) $259
============= =============
INTEREST-BEARING LIABILITIES
Interest-bearing deposits
Demand and money market ............. 80 (26) $54 40 8 $48
Savings ............................. (4) (8) (12) (5) (1) (6)
Other time .......................... (76) (60) (136) (12) (7) (19)
Deposits in foreign offices ......... (4) (4) (8) (9) (9)
------------- -------------
Total interest-bearing deposits ... 45 (147) (102) 31 (17) 14
Borrowed funds
Federal funds purchased ............. (45) (10) (55) (17) (2) (19)
Repurchase agreements ............... 13 (13) 38 (6) 32
Bank notes and senior debt .......... (116) (32) (148) 86 (4) 82
Other borrowed funds ................ 69 (30) 39 56 (2) 54
Subordinated debt ................... 19 (5) 14 22 (1) 21
------------- -------------
Total borrowed funds .............. (68) (82) (150) 187 (17) 170
------------- -------------
Total interest-bearing liabilities .. (5) (247) $(252) 189 (5) $184
------------- -------------
Change in net interest income ..... (31) (113) $(144) 134 (59) $75
============= =============
</TABLE>
CHANGES ATTRIBUTABLE TO RATE/VOLUME ARE PRORATED INTO RATE AND VOLUME
COMPONENTS.
84|85
<PAGE> 53
STATISTICAL INFORMATION
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is based on periodic evaluations of the credit
portfolio by management. These evaluations consider, among other factors,
historic losses within specific industries, current economic conditions, loan
portfolio trends, specific credit reviews and estimates based on subjective
factors.
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 - DOLLARS IN MILLIONS 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance at beginning of year ............. $753 $972 $1,166 $1,259 $1,352
Charge-offs
Consumer ................................ 63 83 104 100 76
Credit card ............................. 60 297 208 66 31
Residential mortgage .................... 8 7 9 9 10
Commercial .............................. 72 122 48 52 84
Commercial real estate
Commercial mortgage ................... 1 6 8 10 23
Real estate project ................... 3 2 4 8 14
Other ................................... 9 7 4 2 2
- -----------------------------------------------------------------------------------------------------------------------------
Total charge-offs ..................... 216 524 385 247 240
Recoveries
Consumer ................................ 25 34 36 34 33
Credit card ............................. 2 17 25 7 6
Residential mortgage .................... 1 1 1 2 2
Commercial .............................. 22 20 38 28 49
Commercial real estate
Commercial mortgage ................... 1 2 10 6 9
Real estate project ................... 3 1 2 4 6
Other ................................... 1 2 1 2 2
- -----------------------------------------------------------------------------------------------------------------------------
Total recoveries ...................... 55 77 113 83 107
- -----------------------------------------------------------------------------------------------------------------------------
Net charge-offs ....................... 161 447 272 164 133
Provision for credit losses ................ 163 225 70 6
(Divestitures)/acquisitions ................ (81) 3 8 71 34
- -----------------------------------------------------------------------------------------------------------------------------
Allowance at end of year .............. $674 $753 $972 $1,166 $1,259
=============================================================================================================================
Allowance as a percent of period-end
Loans ................................. 1.35% 1.31% 1.79% 2.25% 2.59%
Nonperforming loans ................... 225.42 255.25 351.79 334.40 351.68
As a percent of average loans
Net charge-offs ....................... .30 .80 .51 .33 .29
Provision for credit losses ........... .31 .40 .13 .01
Allowance for credit losses ........... 1.27 1.35 1.84 2.37 2.76
Allowance as a multiple of net charge-offs . 4.19x 1.68x 3.57x 7.11x 9.47x
=============================================================================================================================
</TABLE>
The following table presents the allocation of allowance for credit losses and
the categories of loans as a percentage of total loans. For purposes of this
presentation, the unallocated portion of the allowance for credit losses has
been assigned to loan categories based on the relative specific and pool
allocation amounts.
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------
LOANS TO LOANS TO LOANS TO LOANS TO LOANS TO
DECEMBER 31 TOTAL TOTAL TOTAL TOTAL TOTAL
DOLLARS IN MILLIONS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer ............... $58 18.6% $74 19.0% $107 20.7% $139 23.3% $158 25.8%
Credit card ............ 136 5.1 258 7.0 141 5.4 45 2.1
Residential mortgage ... 11 25.7 8 21.3 42 23.6 80 24.5 112 24.0
Commercial ............. 510 42.9 446 43.7 406 36.9 606 35.9 585 34.5
Commercial real estate.. 63 5.5 59 6.0 141 7.3 173 7.9 332 10.1
Other .................. 32 7.3 30 4.9 18 4.5 27 3.0 27 3.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total ............... $674 100.0% $753 100.0% $972 100.0% $1,166 100.0% $1,259 100.0%
====================================================================================================================================
</TABLE>
<PAGE> 54
STATISTICAL INFORMATION
AVERAGE CONSOLIDATED BALANCE SHEET AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
1999 1998
---------------------------------- ------------------------------
AVERAGE
YEAR ENDED DECEMBER 31 AVERAGE AVERAGE AVERAGE YIELDS/
TAXABLE-EQUIVALENT BASIS, DOLLARS IN MILLIONS BALANCES INTEREST YIELDS/RATES BALANCES INTEREST RATES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Loans held for sale..................................... $3,986 $291 7.30% $3,371 $233 6.91%
Securities available for sale
U.S. Treasury, government agencies
and corporations.................................. 4,440 229 5.16 4,910 272 5.54
Other debt.......................................... 3,441 216 6.28 1,913 122 6.38
Other............................................... 673 42 6.24 551 36 6.53
- --------------------------------------------------------------------------------- ----------------------
Total securities available for sale............... 8,554 487 5.70 7,374 430 5.83
Loans, net of unearned income
Consumer............................................ 10,314 844 8.18 11,073 940 8.49
Credit card......................................... 672 100 14.88 3,849 538 13.98
Residential mortgage................................ 12,451 871 7.00 12,496 905 7.24
Commercial ......................................... 23,084 1,792 7.76 22,773 1,794 7.88
Commercial real estate.............................. 3,362 265 7.88 3,279 277 8.45
Other............................................... 3,096 222 7.17 2,223 157 7.06
- --------------------------------------------------------------------------------- ----------------------
Total loans, net of unearned income............... 52,979 4,094 7.73 55,693 4,611 8.28
Other................................................... 1,117 71 6.36 1,001 65 6.49
- --------------------------------------------------------------------------------- ----------------------
Total interest-earning
assets/interest income............................ 66,636 4,943 7.42 67,439 5,339 7.92
Noninterest-earning assets
Allowance for credit losses............................. (695) (863)
Cash and due from banks................................. 2,103 2,227
Other assets............................................ 6,776 5,823
- ---------------------------------------------------------------------- ------------
Total assets........................................ $74,820 $74,626
====================================================================== ============
LIABILITIES, CAPITAL SECURITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing deposits
Demand and money market............................. $17,698 493 2.79 $14,820 439 2.96
Savings............................................. 2,390 39 1.63 2,620 51 1.95
Other time.......................................... 15,734 793 5.04 17,206 929 5.40
Deposits in foreign offices......................... 872 44 5.05 935 52 5.56
- --------------------------------------------------------------------------------- ----------------------
Total interest-bearing deposits................... 36,694 1,369 3.73 35,581 1,471 4.13
Borrowed funds
Federal funds purchased............................. 1,662 84 5.05 2,526 139 5.50
Repurchase agreements............................... 1,890 75 3.97 1,592 75 4.71
Bank notes and senior debt.......................... 8,517 457 5.37 10,657 605 5.68
Other borrowed funds................................ 6,474 349 5.39 5,235 310 5.92
Subordinated debt................................... 2,051 154 7.51 1,799 140 7.78
- --------------------------------------------------------------------------------- ----------------------
Total borrowed funds.............................. 20,594 1,119 5.43 21,809 1,269 5.82
- --------------------------------------------------------------------------------- ----------------------
Total interest-bearing
liabilities/interest expense...................... 57,288 2,488 4.34 57,390 2,740 4.77
Noninterest-bearing liabilities and shareholders' equity
Demand and other noninterest-bearing
deposits............................................ 8,610 9,315
Accrued expenses and other liabilities.................. 2,204 1,578
Mandatorily redeemable capital securities
of subsidiary trusts................................ 848 762
Shareholders' equity.................................... 5,870 5,581
- ---------------------------------------------------------------------- ------------
Total liabilities, capital securities and
shareholders' equity............................ $74,820 $74,626
====================================================================================================================================
Interest rate spread 3.08 3.15
Impact of noninterest-bearing sources .60 .70
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin.......................... $2,455 3.68% $2,599 3.85%
====================================================================================================================================
</TABLE>
LOAN FEES FOR EACH OF THE FIVE YEARS ENDED DECEMBER 31, 1999, 1998, 1997, 1996
AND 1995 WERE $120 MILLION, $107 MILLION, $89 MILLION, $93 MILLION AND $82
MILLION, RESPECTIVELY.
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).
<PAGE> 55
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------- ------------------------------------- -------------------------------------
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>
$1,417 $104 7.31% $1,095 $78 7.09% $725 $54 7.50%
6,101 364 5.97 10,225 635 6.21 17,706 982 5.55
2,094 139 6.62 2,719 184 6.78 3,757 259 6.90
579 43 7.45 606 48 7.91 677 58 8.46
- ----------------------------- ---------------------- -------------------------
8, 774 546 6.22 13,550 867 6.40 22,140 1,2999 5.87
11,291 958 8.48 12,192 1,028 8.43 11,142 958 8.60
3,558 459 12.92 1,165 163 13.94 871 120 13.76
13,105 976 7.45 12,049 898 7.45 10,812 808 7.47
19,014 1,494 7.86 17,727 1,388 7.83 16,562 1,347 8.13
4,068 359 8.82 4,186 373 8.92 4,304 410 9.54
1,871 130 6.94 1,797 119 6.63 1,933 130 8.27
- ----------------------------- ---------------------- -------------------------
52,907 4,376 8.27 49,116 3,969 8.08 45,624 3,773 6.64
919 54 5.88 964 59 6.12 1,046 70
- ----------------------------- ---------------------- -------------------------
64,017 5,080 7.93 64,725 4,973 7.68 69,535 5,196 7.47
(1,077) (1,197) (1,319)
2,920 3,163 3,044
4,784 4,116 3,871
----------- ------------- -----------
$70,644 $70,807 $75,131
=========== ============= ===========
$13,477 391 2.90 $12,619 332 2.63 $12,254 357 2.91
2,852 57 1.97 3,445 69 2.02 3,732 90 2.40
17,441 948 5.44 18,307 981 5.36 17,758 984 5.54
1,094 61 5.58 846 46 5.44 1,974 121 6.13
- ----------------------------- ---------------------- -------------------------
34,864 1,457 4.18 35,217 1,428 4.06 35,718 1,552 4.34
2,834 158 5.57 3,157 171 5.41 5,200 315 6.06
812 43 5.36 2,030 110 5.41 6,514 398 6.11
9,130 523 5.72 8,139 454 5.57 6,326 384 6.07
4,304 256 5.96 3,630 223 6.14 4,138 282 6.81
1,514 119 7.87 1,358 108 7.98 998 76 7.64
- ----------------------------- ---------------------- -------------------------
18,594 1,099 5.91 18,314 1,066 5.82 23,176 1,455 6.28
- ----------------------------- ---------------------- -------------------------
53,458 2,556 4.78 53,531 2,494 4.66 58,894 3,007 5.10
9,670 9,900 9,112
1,501 1,529 1,341
537 19
5,478 5,828 5,784
----------- ------------- -----------
$70,644 $70,807 $75,131
================================================================================================================================
3.15 3.02 2.37
.79 .81 .78
- --------------------------------------------------------------------------------------------------------------------------------
$2,524 3.94% $2,479 3.83% $2,189 3.15%
================================================================================================================================
</TABLE>
86|87
<PAGE> 56
SHORT-TERM BORROWINGS
Federal funds purchased include overnight borrowings and term federal funds,
which are payable on demand. Repurchase agreements generally have maturities of
18 months or less. Presented below are total bank notes of the Corporation, of
which approximately 58.1% mature in 2000. Other short-term borrowings consist
primarily of U.S. Treasury, tax and loan borrowings which are payable on demand
and commercial paper which is issued in maturities not to exceed nine months. At
December 31, 1999, 1998 and 1997, $3.1 billion, $3.4 billion and $997 million,
respectively, notional value of interest rate swaps were designated to borrowed
funds. The effect of these swaps is included in the rates set forth in the
table.
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- -------------------
DOLLARS IN MILLIONS AMOUNT RATE AMOUNT RATE AMOUNT RATE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased
Year-end balance ........ $1,281 4.05% $390 5.17% $3,632 6.30%
Average during year ..... 1,662 5.05 2,526 5.50 2,834 5.57
Maximum month-end
balance during year ... 2,671 3,139 4,459
Repurchase agreements
Year-end balance ........ 1,122 4.77 1,669 3.47 714 6.03
Average during year ..... 1,890 3.97 1,592 4.71 812 5.36
Maximum month-end balance
during year ........... 2,785 2,015 946
Bank notes
Year-end balance ........ 6,354 6.25 10,234 5.32 9,656 5.75
Average during year ..... 8,224 5.29 10,505 5.65 9,068 5.61
Maximum month-end balance
during year ........... 9,775 12,008 10,391
Other
Year-end balance ........ 956 5.64 513 4.16 946 5.81
Average during year ..... 654 6.00 1,047 5.84 1,671 5.65
Maximum month-end balance
during year ........... 1,192 2,069 2,574
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
LOAN MATURITIES AND INTEREST SENSITIVITY
DECEMBER 31, 1999 1 YEAR 1 THROUGH AFTER 5 GROSS
IN MILLIONS OR LESS 5 YEARS YEARS LOANS
- ----------------------------------------------------------------------------
Commercial .......... $7,937 $10,304 $3,227 $21,468
Real estate project . 889 930 150 1,969
- ----------------------------------------------------------------------------
Total ............ $8,826 $11,234 $3,377 $23,437
- ----------------------------------------------------------------------------
Loans with
Predetermined rate $834 $1,453 $875 $3,162
Floating rate .... 7,992 9,781 2,502 20,275
- ----------------------------------------------------------------------------
Total ............ $8,826 $11,234 $3,377 $23,437
============================================================================
At December 31, 1999, $9.7 billion of interest rate swaps, caps and floors
designated to commercial and commercial real estate loans altered the interest
rate characteristics of such loans, the impact of which is not reflected in the
above table.
TIME DEPOSITS OF $100,000 OR MORE
Time deposits in foreign offices totaled $3.2 billion, substantially all of
which are in denominations of $100,000 or more. The following table sets forth
maturities of domestic time deposits of $100,000 or more:
CERTIFICATES
DECEMBER 31, 1999 - IN MILLIONS OF DEPOSIT
- ----------------------------------------------------------
Three months or less ....................... $1,512
Over three through six months .............. 614
Over six through twelve months ............. 497
Over twelve months ......................... 1,017
- ----------------------------------------------------------
Total ................................... $3,640
==========================================================
88|89
<PAGE> 57
EXECUTIVE MANAGEMENT
OFFICE OF THE CHAIRMAN
THOMAS H. O'BRIEN (1)
Chairman and
Chief Executive Officer
37 years of service
JAMES E. ROHR (1)
President and
Chief Operating Officer
27 years of service
WALTER E. GREGG, JR. (1)
Vice Chairman
25 years of service
BUSINESS CEOS
J. RICHARD CARNALL
Chairman and
Chief Executive Officer
PFPC
30 years of service
LAURENCE D. FINK
Chairman and
Chief Executive Officer
BlackRock
5 years of service
JOSEPH C. GUYAUX (1)
Chief Executive Officer
PNC Bank
Regional Community Banking
Executive Vice President*
27 years of service
RALPH S. MICHAEL, III (1)
Chief Executive Officer
PNC Bank-Corporate Banking
Executive Vice President*
20 years of service
SAIYID T. NAQVI
President and
Chief Executive Officer
PNC Mortgage
14 years of service
BRUCE E. ROBBINS (1)
Chief Executive Officer
PNC Secured Finance
Executive Vice President*
26 years of service
THOMAS K. WHITFORD (1)
Chief Executive Officer
PNC Advisors
Executive Vice President*
16 years of service
CORPORATE OFFICERS*
EVA T. BLUM
Senior Vice President
and Director
Comprehensive Risk
Management and Compliance
22 years of service
ROBERT L. HAUNSCHILD (1)
Senior Vice President and
Chief Financial Officer
9 years of service
DENISE THORNE JOHNSON
Senior Vice President and
Chief Marketing Officer
2 years of service
RANDALL C. KING
Senior Vice President and
Treasurer
17 years of service
THOMAS S. KUNZ
Senior Vice President
Director of e-Commerce
16 years of service
THOMAS E. PAISLEY, III (1)
Senior Vice President and
Chairman
Corporate Credit Policy Committee
28 years of service
SAMUEL R. PATTERSON (1)
Controller
13 years of service
HELEN P. PUDLIN (1)
Senior Vice President and
General Counsel
10 years of service
WILLIAM E. ROSNER
Senior Vice President
Corporate Human Resources
5 years of service
Timothy G. Shack
Executive Vice President and
Chief Information Officer
23 years of service
REGIONAL PRESIDENTS
DENNIS P. BRENCKLE
President
Central PA Region
PNC Bank, N.A.
30 years of service
PETER K. CLASSEN
President
Northeast PA and
New Jersey Regions
PNC Bank, N.A.
14 years of service
JOHN C. HALLER
President
Ohio/N. Kentucky Region
PNC Bank, N.A.
24 years of service
MICHAEL N. HARRELD
President
Kentucky/Indiana Region
PNC Bank, N.A.
31 years of service
SY HOLZER
President
Pittsburgh Region
PNC Bank, N.A.
29 years of service
CALVERT A. MORGAN, JR.
Chairman, President and
Chief Executive Officer
PNC Bank, Delaware
29 years of service
MARLENE D. MOSCO
President
Northwest PA Region
PNC Bank, N.A.
32 years of service
RICHARD L. SMOOT
President and
Chief Executive Officer
Philadelphia/S. Jersey Region
PNC Bank, N.A.
13 years of service
WILLIAM H. TURNER
Chairman
New Jersey Region
PNC Bank, N.A.
3 years of service
1 EXECUTIVE OFFICER
* OF THE PNC FINANCIAL
SERVICES GROUP, INC.
<PAGE> 58
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
The PNC Financial Services Group, Inc.
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
STOCK LISTING
The PNC Financial Services Group, Inc. common stock is listed on the New York
Stock Exchange ("NYSE") under the symbol PNC. At the close of business on
February 17, 2000, there were 60,543 common shareholders of record.
INTERNET INFORMATION
Information on 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 also may 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 to [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
[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].
TRUST PROXY VOTING
Reports of 1999 nonroutine proxy voting by the trust divisions of The PNC
Financial Services Group, Inc. are available by writing to Thomas R. Moore,
Corporate Secretary, at corporate headquarters.
ANNUAL SHAREHOLDERS MEETING
All shareholders are invited to attend the PNC Financial Services Group, Inc.
Annual Meeting on Tuesday, April 25, 2000, at 11 a.m., eastern standard time, on
the 15th floor of One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania.
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
1999 QUARTER HIGH LOW CLOSE DECLARED
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
CASH
DIVIDENDS
1998 QUARTER HIGH LOW CLOSE DECLARED
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $61.625 $49.500 $59.938 $ .39
Second 66.750 53.813 53.875 .39
Third 60.000 41.625 45.000 .39
Fourth 54.625 38.750 54.000 .41
- ------------------------------------------------------------------
Total $1.58
- ------------------------------------------------------------------
</TABLE>
DIVIDEND POLICY
Holders of The PNC Financial Services Group, Inc. common stock are entitled to
receive dividends when declared by the Board of Directors out of funds legally
available. The Board presently intends to continue the policy of paying
quarterly cash dividends. However, future dividends will depend on earnings, the
financial condition of The PNC Financial Services Group, Inc. and other factors
including applicable government regulations and policies and contractual
restrictions.
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
<PAGE> 1
EXHIBIT 21
THE PNC FINANCIAL SERVICES GROUP, INC.
SCHEDULE OF CERTAIN SUBSIDIARIES
(AS OF FEBRUARY 29, 2000)
STATE OR OTHER JURISDICTION OF
NAME (1) INCORPORATION OR ORGANIZATION
- ------------------------------------------------------------------------------
PNC Bancorp, Inc. Delaware
PNC Bank, National Association United States
PNC Commercial Management, Inc. Delaware
BlackRock, Inc. Delaware
PNC Mortgage Corp. of America Ohio
PNC Bank, Delaware Delaware
PNC Bank, FSB United States
PNC Advisors, National Association United States
PNC Holding, LLC Delaware
PFPC Worldwide Inc. Delaware
PNC Funding Corp Pennsylvania
(1) Subsidiaries omitted from this schedule do not in the aggregate constitute a
"significant subsidiary" within the meaning of Rule 1-02 (w) of Regulation S-X.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference, in the Registration Statements
listed below, of our report dated January 20, 2000, with respect to the
consolidated financial statements of The PNC Financial Services Group, Inc. and
subsidiaries incorporated by reference in this Annual Report on Form 10-K of The
PNC Financial Services Group, Inc. (the "Corporation") for the year ended
December 31, 1999.
Form S-3 relating to the Corporation's Dividend Reinvestment and Stock Purchase
Plan (No. 333-19003)
Form S-8 relating to the PNC Bank Corp. Supplemental Incentive Savings Plan and
PNC Bank Corp. and Affiliates Deferred Compensation Plan (No. 333-18069)
Form S-8 relating to the PNC Retirement Savings Plan (No. 333-03901)
Form S-8 relating to the Corporation's 1997 Long-Term Incentive Award Plan (No.
33-54960)
Form S-8 relating to the 1987 Senior Executive Long-Term Award Plan of PNC Bank
Corp. (as amended, the PNC Bank Corp. 1992 Long-Term Incentive Award Plan) (No.
33-28828)
Form S-8 relating to the Corporation's Incentive Savings Plan (No. 33-25140)
Form S-8 relating to the Stock Option Plan of PNC Bank Corp. (No. 2-92181)
Form S-8 relating to the Corporation's Employee Stock Purchase Plan (No.
333-25867)
Form S-3 relating to the shelf registration of $600 million of Capital
securities of PNC Capital Trust C, PNC Capital Trust D, PNC Capital Trust E and
PNC Capital Trust F, unconditionally guaranteed, to the extent described
therein, by PNC Bank Corp. (No. 333-50651, 333-50651-01, 333-50651-02,
333-50651-03, and 333-50651-04)
Form S-3 relating to the shelf registration of $1.5 billion of debt securities
of PNC Funding Corp., unconditionally guaranteed by the Corporation, and/or
common stock and/or preferred stock and/or depositary shares of the Corporation
(No. 333-88479)
Pittsburgh, Pennsylvania
March 23, 2000
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
PNC BANK CORP.
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1999
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors and/or
Officers of PNC Bank Corp. (the "Corporation"), a Pennsylvania corporation,
hereby names, constitutes and appoints Walter E. Gregg, Jr., Thomas R. Moore and
Karen M. Barrett, or each of them, with full power of substitution, such
person's true and lawful attorney-in-fact and agent to execute in such person's
name, place and stead, in any and all capacities, the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1999.
And such persons hereby ratify and confirm all that any said attorney or
attorney-in-fact, or any substitute, shall lawfully do or cause to be done by
virtue hereof.
Witness the due execution hereof by the following persons in the capacities
indicated as of this 17th day of February, 2000.
<TABLE>
<CAPTION>
Name/Signature Capacity
- --------------------------------------- -------------------------------------------
<S> <C>
/s/ Thomas H. O'Brien Chairman, Chief Executive Officer
- --------------------------------------- and Director
Thomas H. O'Brien
/s/ Paul W. Chellgren Director
- ---------------------------------------
Paul W. Chellgren
/s/ Robert N. Clay Director
- ---------------------------------------
Robert N. Clay
/s/ George A. Davidson, Jr. Director
- ---------------------------------------
George A. Davidson, Jr.
/s/ Walter E. Gregg, Jr. Vice Chairman and Director
- ---------------------------------------
Walter E. Gregg, Jr.
/s/ Robert L. Haunschild Senior Vice President
- --------------------------------------- and Chief Financial Officer
Robert L. Haunschild
/s/ Bruce C. Lindsay Director
- ---------------------------------------
Bruce C. Lindsay
/s/ W. Craig McClelland Director
- ---------------------------------------
W. Craig McClelland
/s/ Samuel R. Patterson Controller
- ---------------------------------------
Samuel R. Patterson
/s/ Jane G. Pepper Director
- ---------------------------------------
Jane G. Pepper
/s/ Jackson H. Randolph Director
- ---------------------------------------
Jackson H. Randolph
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
/s/ James E. Rohr President, Chief Operating Officer
- --------------------------------------- and Director
James E. Rohr
/s/ Roderic H. Ross Director
- ---------------------------------------
Roderic H. Ross
/s/ Richard P. Simmons Director
- ---------------------------------------
Richard P. Simmons
/s/ Thomas J. Usher Director
- ---------------------------------------
Thomas J. Usher
/s/ Milton A. Washington Director
- ---------------------------------------
Milton A. Washington
/s/ Helge H. Wehmeier Director
- ---------------------------------------
Helge H. Wehmeier
</TABLE>
<PAGE> 3
POWER OF ATTORNEY
PNC BANK CORP.
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1999
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of PNC Bank Corp.
(the "Corporation"), a Pennsylvania corporation, hereby names, constitutes and
appoints Walter E. Gregg, Jr., Thomas R. Moore and Karen M. Barrett, or each of
them, with full power of substitution, such person's true and lawful
attorney-in-fact and agent to execute in such person's name, place and stead, in
any and all capacities, the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1999.
And such person hereby ratifies and confirms all that any said attorney or
attorney-in-fact, or any substitute, shall lawfully do or cause to be done by
virtue hereof.
Witness the due execution hereof by the following person in the capacity
indicated as of this 17th day of February, 2000.
Name/Signature Capacity
- --------------------------------------- -------------------------------
/s/ David F. Girard-diCarlo Director
- ---------------------------------------
David F. Girard-diCarlo
<PAGE> 4
POWER OF ATTORNEY
PNC BANK CORP.
ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1999
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of PNC Bank Corp.
(the "Corporation"), a Pennsylvania corporation, hereby names, constitutes and
appoints Walter E. Gregg, Jr., Thomas R. Moore and Karen M. Barrett, or each of
them, with full power of substitution, such person's true and lawful
attorney-in-fact and agent to execute in such person's name, place and stead, in
any and all capacities, the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1999.
And such person hereby ratifies and confirms all that any said attorney or
attorney-in-fact, or any substitute, shall lawfully do or cause to be done by
virtue hereof.
Witness the due execution hereof by the following person in the capacity
indicated as of this 17th day of February, 2000.
Name/Signature Capacity
- --------------------------------------- ------------------------------
/s/ William R. Johnson Director
- ---------------------------------------
William R. Johnson
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial information incorporated by reference to the 1999 Annual
Report on Form 10-K and is qualified in its entirety by reference to such
financial information.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,097
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,611
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 50,046
<ALLOWANCE> (674)
<TOTAL-ASSETS> 75,413
<DEPOSITS> 46,668
<SHORT-TERM> 9,713
<LIABILITIES-OTHER> 2,604
<LONG-TERM> 9,634
0
7
<COMMON> 1,764
<OTHER-SE> 4,175
<TOTAL-LIABILITIES-AND-EQUITY> 75,413
<INTEREST-LOAN> 4,077
<INTEREST-INVEST> 483
<INTEREST-OTHER> 361
<INTEREST-TOTAL> 4,921
<INTEREST-DEPOSIT> 1,369
<INTEREST-EXPENSE> 2,488
<INTEREST-INCOME-NET> 2,433
<LOAN-LOSSES> 163
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 3,124
<INCOME-PRETAX> 1,891
<INCOME-PRE-EXTRAORDINARY> 1,264
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,264
<EPS-BASIC> 4.19
<EPS-DILUTED> 4.15
<YIELD-ACTUAL> 3.68
<LOANS-NON> 299
<LOANS-PAST> 132
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 753
<CHARGE-OFFS> (216)
<RECOVERIES> 55
<ALLOWANCE-CLOSE> 674
<ALLOWANCE-DOMESTIC> 674
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
