SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11c or Section 240.14a-12
THE PNC FINANCIAL SERVICES GROUP INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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JAMES E. ROHR
Chairman and Chief Executive Officer
PNC LOGO
March 21, 2003
Dear Fellow Shareholder:
We are looking forward to discussing the business of your company with you
at the 2003 annual meeting. PNC's Board of Directors and management team
have never been more focused on building shareholder value and enhancing
your company's corporate governance, regulatory relations, and risk
management practices. I hope that you'll be able to attend the annual
meeting to hear about our progress during 2002 and our goals for the
future.
You will find enclosed the notice of meeting, proxy statement, and proxy
card for the annual meeting of shareholders of The PNC Financial Services
Group, Inc., which will be held on Tuesday, April 22, 2003, at One PNC
Plaza, 15th Floor, 249 Fifth Avenue, in Pittsburgh, Pennsylvania,
beginning at 11:00 a.m., local time. Our 2002 Annual Report to
Shareholders accompanies these enclosures.
Please review the enclosed material and complete, sign, date and return
the proxy card regardless of whether or not you plan to attend the annual
meeting so that the matters coming before the meeting can be acted upon.
Instead of returning a proxy card, you may choose to vote your PNC shares
by using the Internet or telephone voting options explained on your proxy
card. You can also consent to access future annual reports, proxy
statements, and other proxy soliciting material by means of the Internet,
rather than receiving paper copies. Details are provided on your proxy
card.
If you're not able to attend the annual meeting in person, you can choose
to listen to the meeting by webcast or telephone conference options, which
are explained on the opposite side of this letter.
Cordially,
/s/ James E. Rohr
James E. Rohr
THE PNC FINANCIAL SERVICES GROUP
One PNC Plaza 249 Fifth Avenue Pittsburgh Pennsylvania 15222-2707
IMPORTANT NOTICE REGARDING DELIVERY OF SECURITY HOLDER DOCUMENTS
In order to reduce printing and postage costs, The PNC Financial Services
Group, Inc. ("PNC") has undertaken an effort to deliver only one annual report
and one proxy statement to multiple shareholders sharing an address. This
delivery method, called "householding," is not being used, however, if PNC has
received contrary instructions from one or more of the shareholders sharing an
address. If your household has received only one annual report and one proxy
statement, PNC will deliver promptly a separate copy of the annual report and
the proxy statement to any shareholder who sends a written request to
Computershare Investor Services, LLC ("Computershare"), P.O. Box 3504, Chicago,
IL 60690-3504 or calls Computershare at 1-800-982-7652. You can also notify PNC
that you would like to receive separate copies of PNC's annual report and proxy
statement in the future by writing or calling Computershare. Even if your
household has received only one annual report and one proxy statement, a
separate proxy card has been provided for each shareholder account. Each proxy
card should be signed, dated, and returned in the enclosed self-addressed
envelope.
If your household has received multiple copies of PNC's annual report and
proxy statement, you can request the delivery of single copies in the future by
writing or calling Computershare as instructed above.
WEBCAST AND TELECONFERENCE DIRECTIONS
You are cordially invited to listen to PNC's 2003 annual meeting of
shareholders webcast live via the Internet on Tuesday, April 22, 2003, beginning
at 11 a.m. Eastern Time. The audio portion of the event will also be available
in a listen-only mode via telephone conference call. Using the webcast will
enable you to view the slides shown at the meeting and hear the speakers on a
synchronized basis. Neither the webcast nor the teleconference will enable you
to ask questions or to vote your PNC shares.
To access the meeting, please go to http://www.visualwebcaster.com/event.
asp?id=12558 or dial 800-223-9488 (domestic) or 1-785-832-0301 (international),
using the passcode "PNC," at least 15 minutes prior to the designated starting
time to register and download any necessary audio software. If you plan to
listen online, it is suggested that you test your computer's access to
RealNetworks RealPlayer or Windows MediaPlayer by visiting the above URL no
earlier than one week prior to the meeting date.
If you are unable to listen online or via teleconference during the
meeting, the event will be archived on the web site at the same address above
for one week. The audio portion of the event will also be archived by
teleconference for the same duration at 888-566-0824 (domestic) and
1-402-220-0117 (international). The event will be removed on April 30, 2003.
Note: Minimum requirements to listen to this broadcast online: The RealPlayer
software, downloadable free from www.real.com/products/player/index.html,
and at least a 14.4Kbps connection to the Internet or Windows MediaPlayer
software, downloadable at http://www.microsoft.com/windows/
windowsmedia/en/download/default.asp.
PNC LOGO
March 21, 2003
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 22, 2003
TO THE SHAREHOLDERS:
The annual meeting of the shareholders of The PNC Financial Services
Group, Inc. will be held at One PNC Plaza, 15th Floor, 249 Fifth
Avenue, Pittsburgh, Pennsylvania on Tuesday, April 22, 2003,
beginning at 11:00 a.m., local time, for the purpose of considering
and acting upon the following matters:
(1) The election of 16 directors to serve until the next annual
meeting and until their successors are elected and
qualified; and
(2) Such other business as may properly come before the meeting
or any adjournment thereof.
Shareholders of record at the close of business on February 28, 2003
are entitled to receive notice of, and to vote at, the meeting and
any adjournment thereof.
A proxy statement, form of proxy and self-addressed envelope are
enclosed. Please complete, date and sign the proxy card. Return it
promptly in the envelope provided, which requires no postage if
mailed in the United States. Alternatively, you may choose to vote
your shares using the Internet or telephone voting options explained
on the proxy card. If you attend the meeting, you may withdraw your
proxy and vote in person if you so choose.
By Order of the Board of Directors,
/s/ Thomas R. Moore
Thomas R. Moore
Corporate Secretary
THE PNC FINANCIAL SERVICES GROUP
One PNC Plaza 249 Fifth Avenue Pittsburgh Pennsylvania 15222-2707
PNC LOGO
March 21, 2003
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
APRIL 22, 2003
The enclosed proxy is being solicited by the Board of Directors ("Board of
Directors" or "Board") of The PNC Financial Services Group, Inc. ("Corporation"
or "PNC") for use at the Corporation's annual meeting of shareholders to be held
on April 22, 2003, or at any adjournment thereof ("meeting" or "annual
meeting"). Solicitation of proxies may be made by mail, personal interviews,
telephone and facsimile by officers and employees of the Corporation and its
subsidiaries. The Corporation has retained D. F. King & Co., Inc. to assist in
the solicitation of proxies for a fee of $12,500 plus out-of-pocket expenses.
Brokerage houses and other custodians, nominees and fiduciaries will be
requested to forward soliciting material to the beneficial owners of the stock
held of record by such persons. Expenses for such solicitation will be borne by
the Corporation. The proxy statement and form of proxy are first being mailed to
shareholders on or about March 21, 2003.
The enclosed proxy is revocable at any time prior to the time voting is
declared closed by the filing of an instrument revoking it, or of a duly
executed proxy bearing a later date, with the Corporate Secretary of the
Corporation, or by a properly authenticated electronic transmission revoking it
or transmitting a proxy bearing a later date, or by attending the meeting and
voting in person. All properly executed or authenticated proxies received by the
Corporate Secretary prior to the time voting is declared closed, and not revoked
or superseded prior to that time, will be voted at the meeting in accordance
with the instructions set forth on the proxy, if any. Unless otherwise directed,
proxies will be voted FOR the election as director of each of the persons named
on page 3.
The Board of Directors has fixed the close of business on February 28, 2003
as the record date for determining shareholders entitled to receive notice of
and to vote at the meeting ("Record Date"). On the Record Date, there were
issued and outstanding 283,148,371 shares of the Corporation's common stock, par
value $5.00 per share ("Common Stock"), and the following shares of the
Corporation's preferred stock entitled to vote at the meeting: 9,106 shares of
$1.80 Cumulative Convertible Preferred Stock-Series A ("Preferred Stock-A");
2,420 shares of $1.80 Cumulative Convertible Preferred Stock-Series B
("Preferred Stock-B"); 183,222 shares of $1.60 Cumulative Convertible Preferred
Stock-Series C ("Preferred Stock-C"); and 268,952 shares of $1.80 Cumulative
Convertible Preferred Stock-Series D ("Preferred Stock-D") (collectively,
"Voting Preferred Stock").
The holders of Common Stock are entitled to one vote per share. Holders of
each share of Voting Preferred Stock are entitled to a number of votes equal to
the number of full shares of Common Stock which can be acquired upon conversion
of such preferred stock, with holders of Preferred Stock-A and Preferred Stock-B
being entitled to 8 votes per share and holders of Preferred Stock-C and
Preferred Stock-D being entitled to 4 votes per 2.4 shares. Holders of record of
the Common Stock and Voting Preferred Stock will vote together as a single class
at the meeting. The presence in person or by proxy of shareholders entitled to
cast at least a majority of the votes that all holders of the Common Stock and
the Voting Preferred Stock are entitled to cast at the meeting will constitute a
quorum for the transaction of business at the meeting.
1
THE CORPORATION WILL PROVIDE WITHOUT CHARGE, TO EACH SHAREHOLDER UPON
WRITTEN REQUEST, A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 2002, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
("SEC"). REQUESTS FOR COPIES SHOULD BE ADDRESSED TO COMPUTERSHARE INVESTOR
SERVICES, POST OFFICE BOX 3504, CHICAGO, ILLINOIS 60690-3504. COPIES MAY ALSO BE
OBTAINED BY CALLING (800) 982-7652, OR VIA E-MAIL AT WEB.QUERIES@COMPUTERSHARE.
COM. COPIES MAY ALSO BE ACCESSED ELECTRONICALLY BY MEANS OF THE SEC'S HOME PAGE
ON THE INTERNET AT WWW.SEC.GOV. NEITHER THE ANNUAL REPORT ON FORM 10-K NOR THE
2002 ANNUAL REPORT TO SHAREHOLDERS IS PART OF THE PROXY SOLICITATION MATERIALS.
ITEM 1
ELECTION OF DIRECTORS
INFORMATION CONCERNING NOMINEES
The By-Laws of the Corporation provide that the number of directors shall
not be fewer than five nor more than 36 as from time to time determined by the
Board of Directors. Acting upon the recommendation of its Nominating and
Governance Committee, the Board has fixed the number of directors to be elected
at the annual meeting at 16 and has nominated the persons named on page 3 for
election as directors, to hold office until the next annual meeting of
shareholders and the election and qualification of their successors.
The proxies solicited hereby, unless directed to the contrary therein, will
be voted FOR all of the nominees named on page 3. All such nominees are now
directors of the Corporation. All nominees have consented to being named in this
proxy statement and to serving if elected. The Board of Directors has no reason
to believe that any nominee will be unavailable or unable to serve as a
director, but if for any reason any nominee should not be available or able to
serve, the accompanying proxy will be voted by the person or persons acting
under said proxy in accordance with the recommendation of the Board of
Directors.
The table on page 3 sets forth the names of the nominees for election as
directors of the Corporation; their ages; their principal occupations as of
March 7, 2003; the years the nominees first became directors of the Corporation;
and their directorships of certain other companies. All nominees have held the
positions indicated or another senior executive position with the same entity or
one of its affiliates or a predecessor corporation for at least the past five
years. Acting upon the recommendation of the Nominating and Governance
Committee, the Board of Directors appointed Mr. Thieke a director of the
Corporation at its meeting held on October 2, 2002, and appointed Messrs.
Cooper, Kelson, and Massaro as directors at its meeting held on November 21,
2002. Each is standing for election by the shareholders for the first time.
2
Directorships in Companies
Director Other than the Corporation
Name Age Principal Occupation Since Filing Reports with the SEC
---- --- -------------------- -------- ---------------------------
Paul W. Chellgren 60 Retired Chairman and Chief Executive 1995 None
Officer of Ashland Inc. (energy
company); Adjunct Professor, Northern
Kentucky University
Robert N. Clay 56 President and Chief Executive Officer 1987 None
of Clay Holding Company (investments)
J. Gary Cooper 66 Chairman and Chief Executive Officer of 2002 Gencorp, Inc.; Protective Life
Commonwealth National Bank (community Corporation; and United States Steel
banking) Corporation
George A. Davidson, Jr. 64 Retired Chairman of Dominion Resources, 1988 Goodrich Corporation; and Dominion
Inc. (public utility holding company) Resources, Inc.
Richard B. Kelson 56 Executive Vice President and Chief 2002 MeadWestvaco Corporation
Financial Officer of Alcoa Inc.
(producer of primary aluminum,
fabricated aluminum, and alumina)
Bruce C. Lindsay 61 Chairman and Managing Director of 1995 None
Brind-Lindsay & Co., Inc. (advisory
company)
Anthony A. Massaro 58 Chairman, President and Chief Executive 2002 Commercial Metals Company; Lincoln
Officer of Lincoln Electric Holdings, Electric Holdings Incorporated; and
Inc. (full-line manufacturer of welding Thomas Industries Inc.
and cutting products)
Thomas H. O'Brien 66 Retired Chairman of the Corporation 1983 BlackRock, Inc.; Hilb, Rogal and
Hamilton Company; US Airways Group,
Inc.; and Verizon Communications, Inc.
Jane G. Pepper 57 President of Pennsylvania Horticultural 1997 None
Society (nonprofit membership
organization)
James E. Rohr 54 Chairman and Chief Executive Officer of 1989 Allegheny Technologies Incorporated;
the Corporation BlackRock, Inc.; and Equitable
Resources Inc.
Lorene K. Steffes 57 Vice President, Global Electronics 2000 None
Industry of International Business
Machines Corporation (sales, marketing,
strategy, solutions, worldwide)
Dennis F. Strigl 56 President and Chief Executive Officer 2001 ANADIGICS Inc.
of Verizon Wireless, Inc. (wireless
telecommunications)
Stephen G. Thieke 56 Retired Chairman, Risk Management 2002 None
Committee of JP Morgan Incorporated
(financial and investment banking
services)
Thomas J. Usher 60 Chairman and Chief Executive Officer of 1992 H.J. Heinz Company; Marathon Oil
United States Steel Corporation Corporation; PPG Industries, Inc.; and
(integrated steelmaker) United States Steel Corporation
Milton A. Washington 67 President and Chief Executive Officer 1994 None
of Allegheny Housing Rehabilitation
Corporation (housing rehabilitation and
construction)
Helge H. Wehmeier 60 Vice Chairman of Bayer Corporation 1992 Terex Corporation
(healthcare, crop sciences, polymers,
and chemicals)
3
BOARD AND COMMITTEES
The Board of Directors operates in accordance with the PNC Corporate
Governance Guidelines, which the Board approved in November 2002. Under those
Guidelines, the Board's non-management directors have met and will meet
periodically in executive session. The non-management directors have designated
the Chairman of the Nominating and Governance Committee to preside at these
sessions. The Board of Directors has six standing committees: an Audit
Committee; a Nominating and Governance Committee (formerly the Committee on
Corporate Governance); a Credit Committee; an Executive Committee; a Finance
Committee; and a Personnel and Compensation Committee. The Board has also
established an Operations and Technology Committee and a Special Regulatory
Affairs and Oversight Committee and is authorized under the By-Laws to establish
other committees from time to time. Each committee is authorized to form and
delegate authority to subcommittees of one or more committee members when
appropriate. Under certain circumstances, a subcommittee member's attendance at
a subcommittee meeting will excuse him or her from attending the next regularly
scheduled committee meeting. The following descriptions of the functions
performed by the committees of the Board of Directors are necessarily general in
nature and are qualified in their entirety by reference to a committee's charter
or the relevant By-Law provisions.
The Audit Committee is governed by a written charter adopted by the
Corporation's Board of Directors. A copy of that charter, as approved and
amended by the Board on November 21, 2002, is included as Exhibit A to this
proxy statement. The Audit Committee is directly responsible for the
appointment, compensation, and oversight of the work of the Corporation's
independent auditors (including the resolution of disagreements between
management and the auditors regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work. The Audit Committee is
also responsible for approving all audit engagement fees and terms, as well as
all permitted non-audit engagements with the independent auditors. The Audit
Committee preapproves all auditing services and permitted non-audit services to
be performed for the Corporation by the independent auditors (subject to certain
de minimis exceptions for non-audit services) and considers whether the
provision of non-audit services is compatible with maintaining the auditors'
independence. The independent auditors report directly to the Audit Committee.
The Corporation's General Auditor also reports directly to the Committee, which
is responsible for preparing his or her performance evaluation and reviewing his
or her compensation. The Audit Committee's primary purpose is to:
- Provide assistance to the Board by monitoring (1) the integrity of the
financial statements of the Corporation, (2) the independent auditors'
qualifications and independence, (3) the performance of the
Corporation's internal audit function and independent auditors, with
respect to both bank and non-bank subsidiaries, and (4) the compliance
by the Corporation with legal and regulatory requirements and with the
Corporation's Statement of Principles and Code of Ethics; and
- Prepare the report required by the rules of the SEC to be included in
the Corporation's annual proxy statement.
The Audit Committee is presently composed of Messrs. Wehmeier (Chairman),
Davidson, Kelson, Lindsay, and Thieke. Each Audit Committee member is
independent, as defined in the New York Stock Exchange listing standards. Acting
upon the recommendation of the Nominating and Governance Committee, the Board of
Directors has determined that each of Messrs. Kelson and Thieke is an "audit
committee financial expert," as that term is defined in SEC rules. The Audit
Committee regularly holds separate sessions with the Corporation's management,
internal auditors, and independent auditors.
The Credit Committee's purpose is to provide oversight of risk within the
lending and credit-related activities of the Corporation and its subsidiaries.
The Committee is presently composed of Ms. Pepper, Ms. Steffes and Messrs.
Davidson (Chairman), Rohr, Strigl, and Washington.
The Executive Committee's purpose is to provide an efficient means of
considering such matters and taking such actions as may require the attention of
the Board or the exercise of the Board's powers or authority in the intervals
between meetings of the Board. The Committee is presently composed of Messrs.
O'Brien (Chairman), Chellgren, Davidson, Rohr, Usher, and Wehmeier.
4
The Finance Committee's purposes are to provide oversight of:
- the risk management process and internal control structure relating to
the interest rate and liquidity risks of the Corporation;
- the Corporation's trading activities;
- the Corporation's capital management activities;
- the fiduciary activities of the Corporation's subsidiaries, including
its principal banking subsidiary;
- the activities of the Pension Plan Committee, the Group Benefit Trust
Committee, and the Incentive Savings Plan Committee;
- the Corporation's equity and subordinated debt investments, and risks
associated with valuation adjustments of such investments in the
financial markets; and
- such other matters relating to the financial management of the
Corporation as the Committee may deem appropriate or necessary from time
to time.
The Finance Committee is presently composed of Messrs. Chellgren
(Chairman), Clay, Lindsay, O'Brien, and Thieke.
The Nominating and Governance Committee's purpose is to assist the Board in
promoting the best interests of the Corporation and its shareholders through the
implementation of sound corporate governance principles and practices. The
Committee will accomplish this by: (1) assisting the Board by identifying
individuals qualified to become Board members, and recommending to the Board of
Director nominees for the next annual meeting of shareholders; (2) reviewing the
qualifications and independence of the members of the Board and its various
committees on a regular periodic basis (at least annually) and making any
recommendations the Committee members may deem appropriate from time to time
concerning any nominations to or recommended changes in the composition of the
Board and its committees; (3) recommending to the Board the Corporate Governance
Guidelines and standards regarding the independence of outside directors
applicable to the Corporation and reviewing such Guidelines and standards and
the provisions of its charter on a periodic basis to confirm that such
Guidelines, standards and its charter remain consistent with sound corporate
governance practices and with any legal, regulatory or New York Stock Exchange
requirements and any recommendations of the federal banking regulators regarding
general best corporate governance practices; (4) monitoring the Board's and the
Corporation's compliance with any commitments made to the Corporation's
regulators or otherwise with respect to changes in corporate governance
practices; and (5) leading the Board in its annual review of the Board's
performance. The Committee is presently composed of Ms. Pepper, Ms. Steffes and
Messrs. Usher (Acting Chairman), Clay, and Wehmeier. Mr. Usher became the Acting
Chairman of the Committee in August 2002, following the resignation from the
Board of the Committee's prior Chairman.
In performing its nominating function, the Committee may consider director
nominees recommended by shareholders. Such recommendations with respect to the
2004 annual meeting of shareholders must be submitted in writing no later than
November 21, 2003 to the Corporate Secretary, The PNC Financial Services Group,
Inc., One PNC Plaza--21st Floor, 249 Fifth Avenue, Pittsburgh, Pennsylvania
15222-2707, and include the name, age, citizenship, business and residence
addresses, qualifications, including principal occupation or employment, and
directorships and other positions held by the proposed nominee in business,
charitable, and community organizations. Information must also be provided
concerning: (i) any commercial, industrial, banking, consulting, legal,
accounting, charitable, familial, or other relationships involving the proposed
nominee and PNC or its subsidiaries that may be relevant in determining whether
the proposed nominee is independent of PNC under the then applicable rules of
the SEC and the New York Stock Exchange; and (ii) the educational, professional,
and employment-related background and experience of the proposed nominee,
together with any other facts and circumstances that may be relevant in
determining whether the proposed nominee is an "audit committee financial
expert" under the then applicable rules of the SEC. For information on the
requirements governing shareholder nominations for the election of directors to
be made at an annual meeting of shareholders, please see the section captioned
"Shareholder Proposals and Nominations" beginning on page 32.
5
The Personnel and Compensation Committee's purpose is to discharge the
Board's responsibilities relating to compensation of the Corporation's executive
officers. The Committee has overall responsibility for evaluating and approving
the executive officer benefit, bonus, incentive compensation, severance,
equity-based or other compensation plans, policies and programs of the
Corporation. The Committee is also responsible for producing an annual report on
executive compensation for inclusion in the Corporation's proxy statement and
for overseeing the development of an executive management succession plan. The
Committee is presently composed of Messrs. Usher (Chairman), Chellgren, Strigl
(Vice Chairman), and Washington.
The Operations and Technology Committee's purpose is to provide oversight
of the operations, operational risk management, and technology activities of the
Corporation and its subsidiaries. The Committee is presently composed of Ms.
Steffes (Chairwoman), Ms. Pepper and Messrs. Lindsay, Rohr, and Strigl.
The Special Regulatory Affairs and Oversight Committee's purpose is to
assist the Corporation's Board of Directors in promoting the best interests of
the Corporation and its shareholders by providing oversight of the material
regulatory affairs, relationships, commitments, and agreements of the
Corporation. The Committee is presently composed of Messrs. Davidson (Chairman),
Chellgren, Usher, and Wehmeier.
The Board of Directors met twenty-four times during 2002. During 2002, the
Board's committees held the following number of meetings: Audit Committee--ten
meetings; Credit Committee--four meetings; Executive Committee--none; Finance
Committee--eight meetings; Nominating and Governance Committee--six meetings;
Operations and Technology Committee--two meetings; Personnel and Compensation
Committee--six meetings; and Special Regulatory Affairs and Oversight
Committee--twenty-four meetings. In 2002, each director then serving attended at
least 75% of the total meetings of the Board of Directors. In addition, each
director attended at least 75% of the combined total number of meetings of the
Board and all committees on which the director served.
COMPENSATION OF DIRECTORS
Executive officers of the Corporation who are employees and directors or
members of committees of the Board of Directors of the Corporation or its
subsidiaries receive no compensation for serving in such positions. All
non-employee directors of the Corporation are compensated for their Board
services by a per diem fee of $1,200 for any day's participation in a Board or
committee meeting, or any combination thereof, an annual retainer fee of $37,000
for Board membership and, in accordance with the terms of the Corporation's 1992
Director Share Incentive Plan, an annual grant equal to a number of shares of
Common Stock having a fair market value on the date of the award equal to
$5,000, rounded up to the nearest whole share. In addition, the chairman of each
committee receives a $5,000 annual retainer fee.
Under the Directors Deferred Compensation Plan, non-employee directors may
elect to defer the receipt of all or a portion of the cash compensation
otherwise payable to them as a result of their service as a director. The
minimum deferral amount is $10,000 per year. A director may elect one of two
investment options with respect to amounts deferred: an interest rate
alternative or an investment in phantom shares of Common Stock. Investment
elections may be changed quarterly. A director may also elect the event or date
when amounts credited to his or her deferral account are paid out in cash and
whether the payout will be in a lump sum or a designated number of annual
installments not to exceed ten. The director may designate a beneficiary to
receive any amounts that may not yet have been paid at the time of the
director's death.
Under the PNC Outside Directors Deferred Stock Unit Plan, prior to 2001
each non-employee director then serving received a grant of deferred stock units
(consisting of phantom shares of Common Stock) in an amount determined by the
Nominating and Governance Committee, which is generally responsible for
administration of the plan. Prior to a director's retirement, the value of
deferred stock units credited to a director's account tracks the performance of
the Common Stock and is valued on a quarterly basis. The plan provides for the
deemed reinvestment of dividends in additional deferred stock units. Each
participating director has the right to elect an event or date when the deferred
stock units credited to his or her account will be redeemed and paid out in
cash. That event or date generally cannot precede the earlier of the director's
retirement from the Board or the date on which the director attains age 70. A
director may elect to receive
6
payment in a lump sum or a designated number of annual installments not to
exceed ten. A director may also designate one or more beneficiaries to receive
distributions from his or her account in the event of death. No grants of
deferred stock units were made under this plan in 2001 or 2002.
The Nominating and Governance Committee currently intends that grants and
awards made under the amended 1997 Long-Term Incentive Award Plan to
non-employee directors as described below will be made in lieu of future grants
of deferred stock units under the PNC Outside Directors Deferred Stock Unit
Plan. Nevertheless, the PNC Outside Directors Deferred Stock Unit Plan will
remain in existence. Deferred stock units previously credited to a non-employee
director's account will remain vested, and deemed dividends will continue to be
credited to those accounts in the form of additional deferred stock units. In
addition, the Nominating and Governance Committee will continue to have the
authority to make grants of deferred stock units to current and future
non-employee directors.
At PNC's 2001 annual meeting, shareholders approved amendments to the
Corporation's 1997 Long-Term Incentive Award Plan which, among other things,
added non-employee directors as eligible persons for all awards available under
the plan, except incentive stock options. Under the amended plan, the Board's
Nominating and Governance Committee is given the authority to make awards to
non-employee directors.
Following the 2001 annual meeting of shareholders, the Committee granted
nonstatutory stock options covering 4,000 shares of Common Stock to each
non-employee director and awarded incentive shares to each non-employee director
in the form of 1,000 restricted shares of Common Stock. The nonstatutory stock
options have an exercise price equal to the average of the high and low prices
of a share of Common Stock on the date of grant, a term of ten years, and are
subject to a one-year vesting period for the restricted shares. One-half vested
upon the director's completion of the term of office which began on April 24,
2001 and one-half will vest upon the director's completion of the term of office
which began upon his or her election at the 2002 annual meeting. During the
vesting period, the non-employee director receives dividends on, and has the
right to vote, the restricted shares.
Prior to vesting, the options and restricted shares are subject to
forfeiture if the director leaves the Board for any reason other than death,
disability, or the termination of his or her service as a director due to a
Board policy which requires the director to resign or retire, or failure to be
re-elected at the annual meeting. Once vested, neither the options nor the
restricted shares are subject to forfeiture for any reason.
Following the 2002 annual meeting, the Committee met to consider possible
awards to non-employee directors under the 1997 Long-Term Incentive Award Plan,
as amended. After receiving guidance from its independent compensation
consultant, the Committee approved the grant of nonstatutory stock options
covering 4,000 shares of Common Stock to each non-employee director elected at
the 2002 annual meeting. These options have the same material features as those
granted in 2001.
Each non-employee director is also eligible to participate in a charitable
matching gift program, under which his or her personal gifts to qualifying
charitable organizations are matched up to an annual aggregate dollar amount of
$5,000. In addition, PNC, its subsidiaries, and the PNC Foundation, a tax-exempt
private foundation created by PNC's principal banking subsidiary, make other
grants and contributions to various nonprofit and charitable organizations. In
some cases, directors or executive officers of the Corporation serve as
officers, trustees, or directors of these organizations. To the Corporation's
knowledge, the aggregate grants and contributions made by PNC, its subsidiaries,
and the PNC Foundation during 2002 to any one of such nonprofit or charitable
organizations did not exceed five percent of that organization's 2002
consolidated gross revenues.
The Nominating and Governance Committee intends to review the total
compensation package of non-employee directors on a regular basis, with the
assistance of its independent compensation consultant. In order to maintain the
competitiveness of that compensation package, the Nominating and Governance
Committee currently intends to make nonstatutory stock option grants following
each annual meeting to each non-employee director elected at the meeting. The
size of the option grant will be determined each year, and may be adjusted in
light of competitive practices and other factors. The Committee may also make
other grants and awards to non-employee directors under the 1997 Long-Term
Incentive Award Plan, as amended.
7
Mr. O'Brien, the retired chairman of the Corporation's Board of Directors,
retired as an employee of the Corporation on April 30, 2000 and relinquished the
position of chief executive officer. Mr. O'Brien relinquished the position of
chairman on May 1, 2001. As the retired chief executive officer of the
Corporation, certain benefits were made available to Mr. O'Brien during 2002.
These benefits include: office space and secretarial services; automobile and
aircraft use; tax and financial planning services; club memberships; the payment
of net premiums in connection with the Corporation's Key Executive Equity Plan,
a split-dollar insurance arrangement; the maintenance of security devices at his
personal residence; and reimbursement for certain tax liabilities. During 2002,
the aggregate incremental cost to the Corporation of Mr. O'Brien's automobile
and aircraft use, tax and financial planning services, security devices, and
club memberships was approximately $117,445. Beginning in 2003, the Corporation
will no longer assume the cost of Mr. O'Brien's automobile use, tax and
financial planning services, home security devices, or certain club memberships.
The 2002 net premiums paid by the Corporation in connection with the Key
Executive Equity Plan on behalf of Mr. O'Brien were $208,212. During 2002, Mr.
O'Brien received reimbursement for income tax liabilities related to the
Corporation's payment of these premiums in the amount of $89,234; Mr. O'Brien
also received reimbursement for other income tax liabilities in the amount of
$1,500.
For services provided on or after May 1, 2000 as a member of the
Corporation's Board of Directors, Mr. O'Brien is compensated on the same basis
as other non-employee directors. In addition, during 2002 Mr. O'Brien received
compensation as a director of BlackRock, Inc. ("BlackRock"), a majority-owned
investment management subsidiary of the Corporation that is listed on the New
York Stock Exchange under the symbol "BLK." Mr. O'Brien elected to receive
shares of BlackRock class A common stock (and cash in lieu of fractional shares)
having an aggregate value of $50,000 in lieu of the cash retainer otherwise
payable to him. During 2002, Mr. O'Brien also received $40,000 for his services
as a director of PNC Equity Management Corp, an indirect, wholly-owned
subsidiary of the Corporation.
COMMON STOCK PURCHASE GUIDELINE
In 1995, upon the recommendation of the Nominating and Governance
Committee, the Board of Directors adopted a Common Stock purchase guideline,
which provides that each non-employee director annually purchase Common Stock in
an amount equal to twenty-five percent of the annual retainer fee then in
effect. This guideline may be satisfied through open market purchases,
participation in the Corporation's Dividend Reinvestment and Stock Purchase
Plan, or investments in phantom shares of Common Stock in the Directors Deferred
Compensation Plan. Acting upon the recommendation of the Nominating and
Governance Committee, the Board amended the Common Stock purchase guideline at
its meeting on February 20, 2003 to exempt from the guideline any non-employee
director who holds at least 5,000 shares of Common Stock and/or phantom Common
Stock units as of the last business day of the preceding calendar year. This
exemption became effective for non-employee directors who met the required
ownership level as of December 31, 2002. Each non-employee director subject to
the guideline has complied, or has committed to comply, with it.
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table, captioned "Security Ownership of Directors, Nominees
and Executive Officers," sets forth information concerning beneficial ownership
of the Corporation's Common Stock as of February 28, 2003 by each director and
nominee for election as a director, each of the executive officers named in the
Summary Compensation Table on page 20, and all directors, nominees and executive
officers of the Corporation as a group. Except as otherwise noted, each
individual exercises sole voting and investment power over the shares of Common
Stock shown. The separate table captioned "Common Stock Unit Ownership" shows
phantom or deferred Common Stock units owned by the individual or group through
the compensation or benefit plan identified in the corresponding footnote. The
Common Stock units can be settled only in cash and carry no voting rights. The
number of shares of Common Stock shown in the Security Ownership table as
beneficially owned by each director and executive officer is determined under
the rules of the SEC and the information is not necessarily indicative of
beneficial ownership for any other purpose. For purposes of the
8
Security Ownership table, beneficial ownership includes any shares of Common
Stock as to which the individual has sole or shared voting power or investment
power and also any shares of Common Stock that the individual has the right to
acquire within 60 days of February 28, 2003 through the exercise of any option,
warrant or right.
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
---------------------------------------------------------------------------------------
Amount and Nature
of Beneficial Ownership
------------------------------------------------------------
Name Common Stock*
Paul W. Chellgren 14,967(1)(2)
Robert N. Clay 13,793(2)
J. Gary Cooper 115
George A. Davidson, Jr. 19,499(2)
William S. Demchak 45,110
Joseph C. Guyaux 332,564(3)(4)(5)
Richard B. Kelson 115
Bruce C. Lindsay 14,805(2)
Anthony A. Massaro 115
Thomas H. O'Brien 732,759(2)(3)(4)(6)
Jane G. Pepper 10,473(2)
James E. Rohr 1,025,422(3)(4)(7)
Timothy G. Shack 316,763(4)(8)
Lorene K. Steffes 9,526(2)(8)
Dennis F. Strigl 8,705(2)
Stephen G. Thieke 1,115(8)
Thomas J. Usher 14,773(2)(8)
Milton A. Washington 29,859(2)
Helge H. Wehmeier 16,585(2)
Thomas K. Whitford 278,494(3)(4)(8)
Directors, nominees and
executive officers as a group
(28 persons)*/** 3,307,959(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)
---------------------------------------------------------------------------------------
Common Stock Unit
Name Ownership
Paul W. Chellgren 13,234(a)(b)
Robert N. Clay 10,777(a)(b)
J. Gary Cooper 0
George A. Davidson, Jr. 5,997(a)
William S. Demchak 7,085(c)
Joseph C. Guyaux 1,254(d)
Richard B. Kelson 212(b)
Bruce C. Lindsay 4,798(a)(b)
Anthony A. Massaro 107(b)
Thomas H. O'Brien 37,187(a)(d)
Jane G. Pepper 3,642(a)(b)
James E. Rohr 46,286(c)(d)
Timothy G. Shack 1,801(c)
Lorene K. Steffes 1,198(a)(b)
Dennis F. Strigl 1,621(b)
Stephen G. Thieke 0
Thomas J. Usher 8,306(a)(b)
Milton A. Washington 9,116(a)
Helge H. Wehmeier 8,293(a)(b)
Thomas K. Whitford 10,778(c)(d)
Directors, nominees and
executive officers as a group
(28 persons)*/** 174,606(a)(b)(c)(d)
---------------
* As of February 28, 2003, there were 283,148,371 shares of the Corporation's
Common Stock issued and outstanding. The number of shares of Common Stock
held by each individual is less than 1% of the outstanding shares of Common
Stock; the total number of shares of Common Stock held by the group is
approximately 1.16% of the class. These percentages were calculated by
adding shares subject to employee or non-employee director stock options to
the foregoing number if the options were either exercisable as of February
28, 2003 or exercisable within 60 days of that date. No director, nominee
or executive officer beneficially owns shares of preferred stock of the
Corporation.
9
** Certain of the directors and executive officers also own shares of
BlackRock class A common stock. The number of such shares beneficially
owned by individuals listed in the Security Ownership table are as follows:
Ms. Pepper (1,000); and Messrs. Clay (7,500); Davidson (10,000); Lindsay
(7,500); O'Brien (13,590); Rohr (10,000); Washington (10,000); and Wehmeier
(5,501). Of the 7,500 shares held by Mr. Clay, 2,500 are held indirectly by
him as a trustee. The total number of such shares owned by directors and
executive officers as a group (nine persons) is 75,091. The number of
shares of BlackRock class A common stock held by each individual is less
than 1% of the outstanding shares as of February 28, 2003; the total number
of such shares held by the group is also less than 1% of the class.
(1) Includes shares held in the PNC Bank Kentucky, Inc. Directors Deferred
Compensation Plan.
(2) Includes 8,000 shares subject to non-employee director nonstatutory stock
options exercisable within 60 days of February 28, 2003.
(3) Includes shares held in the Corporation's Incentive Savings Plan, a
qualified defined contribution plan.
(4) Includes shares subject to employee nonstatutory stock options held by Mr.
O'Brien and the executive officers and either exercisable as of February
28, 2003 or exercisable within 60 days of that date. The shares subject to
such options are as follows: Messrs. O'Brien (326,917 shares); Rohr
(659,462 shares); Guyaux (226,814 shares); Shack (182,178 shares); and
Whitford (167,039 shares). The aggregate number of shares subject to such
options for the remaining nine executive officers is 260,712. In the case
of Messrs. Rohr, Guyaux, Shack, and Whitford and six of the remaining nine
executive officers, the share numbers include restricted shares of Common
Stock awarded on February 19, 2003 as part of the 2002 annual incentive
award.
(5) Includes 15 shares held indirectly as custodian for grandchild.
(6) Includes 1,000 shares owned by spouse, as to which the individual disclaims
beneficial ownership.
(7) Includes 400 shares held indirectly as custodian for daughter.
(8) Includes shares held jointly with spouse.
(9) Includes, for eleven non-employee directors, an aggregate total of 88,000
shares subject to nonstatutory stock options exercisable within 60 days of
February 28, 2003.
(10) Includes ten shares held indirectly as custodian for son, and six shares
held indirectly by spouse as custodian for daughter, as to which six shares
the individual disclaims beneficial ownership.
COMMON STOCK UNIT OWNERSHIP TABLE FOOTNOTES
(a) Includes phantom Common Stock units credited to an account established under
the Corporation's Outside Directors Deferred Stock Unit Plan.
(b) Includes phantom Common Stock units credited to an account established under
the Corporation's Directors Deferred Compensation Plan.
(c) Includes phantom Common Stock units credited to an account established under
the Corporation's Deferred Compensation Plan. In the case of Mr. Demchak,
includes restricted phantom Common Stock units deferred on February 19, 2003
as part of the 2002 annual incentive award.
(d) Includes phantom Common Stock units held in the Corporation's Supplemental
Incentive Savings Plan, a non-qualified excess defined contribution plan.
10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of March 7, 2003, based solely on Schedules 13D and 13G filed with the
SEC under the Securities Exchange Act of 1934 ("Exchange Act"), the following
persons are known by the Corporation to be the beneficial owners of more than
five percent of Common Stock. The numbers shown on the table represent holdings
as of December 31, 2002 and should be interpreted in light of the related
footnotes.
Amount and Nature Percent of
Name and Address of Beneficial Owner of Beneficial Ownership Class
------------------------------------ ----------------------- ----------
Capital Research and Management Company(1) 15,616,800(2) 5.5%(2)
333 South Hope Street
Los Angeles, CA 90071
---------------
(1) The shares of Common Stock reported by the Capital Research and Management
Company ("Capital Research") on a Schedule 13G filed with the SEC are owned
by accounts under the discretionary investment management of Capital
Research. Capital Research, a registered investment adviser that manages The
American Funds Group of mutual funds, does not own any PNC shares for its
own account.
(2) Capital Research has represented to PNC in writing that, consistent with the
requirements for the use of Schedule 13G, these shares of Common Stock are
held solely for investment purposes in the ordinary course of business and
not with the purpose or effect of changing or influencing control. Capital
Research has disclaimed beneficial ownership of all shares pursuant to SEC
Rule 13d-4.
11
TRANSACTIONS INVOLVING DIRECTORS AND EXECUTIVE OFFICERS
Certain directors, executive officers, and/or their associates were
customers of and had transactions with the Corporation or its subsidiaries
("Company") during 2002. Transactions that involved loans or commitments by
subsidiary banks were made in the ordinary course of business and on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than the normal risk of collectibility or present other
unfavorable features.
FAMILY RELATIONSHIPS
There is no family relationship as defined in the SEC's rules between any
executive officer or director and any other executive officer or director.
Family relationships exist between certain of PNC's executive officers or
directors and some of the approximately 24,000 employees of PNC and its various
subsidiaries. These employees participate in compensation and incentive plans or
arrangements on the same basis as other similarly situated employees. Specific
information concerning the compensation paid during 2002 to certain of these
employees is provided below.
Norma Hajduk, a Senior Vice President of Hilliard Lyons and Director of
Market Sales for PNC Investments, is the sister of Timothy G. Shack, Executive
Vice President and Chief Information Officer of PNC. In 2002, Ms. Hajduk
received salary of $210,000 and bonuses of $9,000.
Cheryl Kraft, a Vice President and program operations manager in Regional
Community Banking, is the sister-in-law of Joseph C. Guyaux, President of PNC.
In 2002, Ms. Kraft received salary of $62,654.
Thomas H. O'Brien, Jr., a Vice President and senior investment associate of
PNC Equity Management Corp., a PNC subsidiary engaged in private equity
activities ("EMC"), is the son of Thomas H. O'Brien, a director and retired
chairman and chief executive officer of PNC, and a director of EMC. In 2002, Mr.
O'Brien, Jr. received total cash compensation of $111,346 in addition to the
incentives described below. He also participated in various incentive programs,
including certain leveraged equity co-investment plans that allow certain
employees of EMC to co-invest with PNC in private equity transactions through
employee partnerships that borrow from a PNC subsidiary 99% of the funds to be
invested (the "Co-Investment Plans") and certain carried interest plans pursuant
to which employees invest in the general partners of certain investment
partnerships that EMC has established and share in the investment returns,
profits and, in one case, fees earned by those general partners (the "Carried
Interest Plans"). These programs were implemented beginning in 1998 and
generally contain features utilized in plans of other financial services firms.
Mr. O'Brien, Jr. has committed to contribute an aggregate of $21,757 under the
Co-Investment Plans (of which 63% had been invested as of December 31, 2002),
had an aggregate pro rata share of loans outstanding to the partnerships under
the Co-Investment Plans of $1,105,686 as of December 31, 2002 (with a weighted
average interest rate of 4.8%), and received distributions of approximately
$1,611 from the co-investment partnerships during 2002. The highest balance
during 2002 of his pro rata share of such loans was $1,221,991. Under certain
circumstances, there may be limited recourse to the participating employees with
respect to the loans to the partnerships. Recourse to Mr. O'Brien, Jr., if any,
under those circumstances would not have exceeded $353,955 as of December 31,
2002, and the highest such recourse amount during 2002 was $498,497. Mr.
O'Brien, Jr. has committed to contribute an aggregate of $117,871 under the
Carried Interest Plans (of which 22% has been invested as of December 31, 2002)
and he received aggregate distributions of $133,907 during 2002 pursuant to such
plans.
Jeffrey Troutman, a Vice President and a sales manager for PNC's Treasury
Management business, is the son-in-law of Thomas H. O'Brien, a director and
retired chairman and chief executive officer of PNC. In 2002, Mr. Troutman
received salary of $88,769 and bonuses of $88,681. Mr. Troutman also was granted
nonstatutory stock options under PNC's 1997 Long-Term Incentive Award Plan, as
amended, to purchase 500 shares of Common Stock at an exercise price of $57.10.
Each of the foregoing individuals also participates in other customary
employee benefit plans and programs.
12
INDEMNIFICATION
Pursuant to its By-Laws, the Corporation provides indemnification to its
directors, officers and, in some instances, employees and agents against certain
liabilities incurred as a result of their service on behalf of or at the request
of the Corporation; the Corporation also advances on behalf of covered
individuals costs incurred in defending against certain claims, subject to
written undertakings by each such individual to repay all amounts so advanced if
it is ultimately determined that the individual is not entitled to
indemnification. The Corporation also has obtained directors and officers
insurance providing coverage for them against certain liabilities and other
expenses resulting from their service on behalf of or at the request of the
Corporation. These By-Laws provisions and insurance coverage provide a
potentially significant financial benefit to the Corporation's directors and
executive officers. During 2002, the Corporation advanced expenses pursuant to
these By-Laws provisions on behalf of several of its current and former
executive officers and directors in connection with various matters, including
those described under "Legal Proceedings," beginning on page 31.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Corporation's directors, its
executive officers, and persons who own more than ten percent of a registered
class of the Corporation's equity securities (currently there are no such
shareholders) to file with the Corporation, the SEC and the New York Stock
Exchange initial reports of ownership and reports of changes in ownership of any
equity securities of the Corporation. With respect to 2002, to the best of the
Corporation's knowledge, all required report forms were filed on a timely basis.
In making this statement, the Corporation has relied in part on the written
representations of its current and certain of its former non-employee directors
and certain of its current and former executive officers, and on copies of the
reports provided to the Corporation.
13
COMPENSATION OF EXECUTIVE OFFICERS
PERSONNEL AND COMPENSATION COMMITTEE REPORT
The following is the Personnel and Compensation Committee's report to
shareholders on the Corporation's executive compensation policies with respect
to compensation reported for fiscal year 2002. In accordance with the rules of
the SEC, this report shall not be incorporated by reference into any of the
Corporation's future filings made under the Exchange Act or under the Securities
Act of 1933 ("Securities Act"), and shall not be deemed to be soliciting
material or to be filed with the SEC under the Exchange Act or the Securities
Act.
PERSONNEL AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION FOR FISCAL
YEAR 2002
INTRODUCTION
The Personnel and Compensation Committee of The PNC Financial Services
Group, Inc. Board of Directors is composed solely of non-employee directors. No
Committee member can be a current or former officer of the Corporation.
One of the Committee's key responsibilities is to provide oversight of the
Corporation's executive compensation program. The Committee conducts regular,
comprehensive reviews of the Corporation's executive compensation program and
establishes the annual compensation of the Corporation's executive officers. The
Committee also takes action, or recommends that the Board take action, regarding
the adoption or amendment of executive compensation or benefit plans. The
Committee also administers certain executive compensation plans maintained by
the Corporation.
The Corporation's executive compensation program is designed to: attract,
motivate and retain executive officers who can make significant contributions to
the Corporation's long-term success; align the interests of executive officers
with those of shareholders; and place a significant proportion of our executive
officers' total compensation at risk by tying it to the Corporation's financial
and common stock price performance.
The Committee is assisted by both an independent compensation consultant
and the Corporation's internal support staff. The Committee also uses
comparative compensation data for the financial services industry and key
management positions obtained from nationally recognized compensation consulting
firms.
This compensation data covers a Peer Group of selected financial services
companies that compete with the Corporation. The Committee considers the
companies included in the Peer Group to be indicative of the Corporation's
financial services competitors. The appropriateness of the Peer Group's
composition is reviewed and approved by the Committee at least annually.
The Committee uses the Peer Group as its primary tool to compare
performance and compensation when making key compensation-related decisions. The
companies included in the Peer Group do not necessarily include the same
companies included in the S&P 500 Banks Index used for the Common Stock
Performance Graph on page 27. The Common Stock Performance Graph, however, also
shows the median total shareholder return for the 2002 Peer Group companies
listed in the footnote to the graph.
The three primary components of the Corporation's executive compensation
program are: base salary; annual incentive awards; and long-term incentive
awards. The following three sections of this report discuss each of these
components in turn.
14
BASE SALARY
The base salaries of executive officers are generally targeted at the
middle of the competitive marketplace. The Corporation's human resources staff
determines the market rate for an executive position annually. In making this
determination, the human resources staff considers a number of factors,
including: relevant industry salary practices; the position's complexity and
level of responsibility; the position's importance to the Corporation in
relation to other executive positions; and the competitiveness of an executive's
total compensation.
Specific compensation data obtained from Peer Group proxy statements is
used in establishing the salary of the Corporation's Chief Executive Officer.
Subject to the Committee's approval, the level of an executive officer's
base salary is determined on the basis of relevant comparative compensation data
and the Chief Executive Officer's assessment of the executive's performance,
experience, demonstrated leadership, job knowledge, and management skills.
ANNUAL INCENTIVE AWARDS
Annual incentive awards are bonuses designed to provide a linkage among
executive performance, annual objective performance measures, and long-term
increases in shareholder value.
For the 2002 award period, annual incentive awards were made to Mr. Rohr
and the other four executive officers listed in the compensation tables
beginning on page 21 under the Corporation's 1996 Executive Incentive Award
Plan, as amended. The 1996 Executive Incentive Award Plan is designed to give
the Committee the flexibility to make annual incentive awards that are
comparable to those found in the marketplace in which the Corporation competes
for executive talent. This plan is also designed to permit the payment of annual
incentive awards that are intended to qualify as deductible, performance-based
compensation under Section 162(m) of the Internal Revenue Code.
For 2002, the five participants in this plan share in a compensation pool
equal to one-half of one percent of the Corporation's 2002 consolidated pre-tax
net income. This amount is determined in accordance with generally accepted
accounting principles, after adjustment for unusual, infrequently occurring or
extraordinary items or cumulative effects of changes in accounting principles,
as defined under generally accepted accounting principles.
During the first quarter of 2002, the Committee determined incentive award
amounts. An incentive award amount is the maximum percentage of the compensation
pool a participant could receive for the 2002 award period. No participant could
be assigned a percentage of the compensation pool greater than 40% and the sum
of all percentages assigned cannot exceed 100% of the compensation pool. The
maximum percentage of the award pool a participant can receive was increased
from 35% to 40% beginning in 2001, pursuant to an amendment to the 1996
Executive Incentive Award Plan approved by shareholders at PNC's 2001 annual
meeting.
At PNC's 2001 annual meeting, shareholders also approved amendments to the
1996 Executive Incentive Award Plan which authorize the Committee to grant
incentive awards that are payable entirely in cash, entirely in shares of the
Corporation's common stock, or in a combination of cash and shares of common
stock. Shares of common stock issued pursuant to the terms of an incentive award
may be subject to such transfer restrictions or forfeiture provisions as the
Committee may specify. To the extent that an incentive award is paid in the form
of shares of common stock, the amended 1996 Executive Incentive Award Plan also
authorizes the issuance of additional shares of common stock to the participant.
The number of additional shares of common stock awarded cannot exceed 25% of the
number of shares issued to the participant in full or partial payment of the
participant's share of the compensation pool.
The Committee may permit deferral of the payment of any incentive award on
such terms as the Committee deems appropriate. In addition, a participant may
defer the payment of any incentive award and the issuance of additional stock
pursuant to any applicable deferred compensation plan of the Corporation. In
either case, any additional amounts accrued on account of such deferred payment
will be based on a
15
reasonable rate of interest or the actual rate of return of one or more
predetermined investments specified by the Committee or pursuant to the terms of
the deferred compensation plan.
With respect to the five participants in the 1996 Executive Incentive Award
Plan and certain other senior executive officers, the Committee exercised its
authority to direct the payment of 25% of each incentive award for 2002 in the
form of restricted shares of PNC common stock or to permit such amount to be
deferred into restricted phantom PNC common stock units under the Corporation's
Deferred Compensation Plan. This restricted stock/phantom unit portion was
increased by 25% to reflect the resulting risk of forfeiture and lack of
liquidity. The aggregate dollar value of the restricted shares or restricted
phantom PNC common stock units received by each participant in the 1996
Executive Incentive Award Plan is shown in the "Restricted Stock Award ($)"
column of the Summary Compensation Table for 2002, on page 21. The amount shown
for Mr. Demchak also includes the dollar value (computed using the closing share
price on the date of the award, or $47.00) of an award of 45,000 restricted
shares of common stock made to him in connection with his acceptance of an offer
of employment from the Corporation.
The Committee believes that the payment of a portion of the annual
incentive award in restricted shares of common stock or the deferral into
restricted phantom PNC common stock units helps to strengthen the linkage
between the interests of PNC's executive officers and the interests of the
Corporation's shareholders. The Committee has authorized a similar program for
executive officers not participating in the 1996 Executive Incentive Award Plan.
During the first quarter of 2003, the Committee took the actions necessary
to arrive at the amount of the annual incentive award for each of the five plan
participants. Among other things, the Committee: confirmed the identity of the
executive officers eligible to participate in the plan; certified in writing the
size of the compensation pool for the 2002 award period in reliance upon
financial information supplied by the Corporation's officers; and certified in
writing the amount of the incentive award authorized under the plan to be paid
to each participant. The final amount of an incentive award is determined by the
maximum percentage of the compensation pool which could be paid to the
participant and such qualitative and quantitative performance factors as the
Committee deemed relevant in adjusting the incentive award payable to the level
explained in the Summary Compensable Table on page 21 and the accompanying
footnotes for the year 2002, for Messrs. Rohr, Guyaux, Demchak, Shack, and
Whitford. As explained above, a portion of the 2002 incentive award was paid in
the form of restricted shares of PNC common stock or deferred as restricted
phantom PNC common stock units.
For those executive officers who do not participate in the 1996 Executive
Incentive Award Plan, the target amount which may be payable as an annual
incentive award is based on an analysis of competitive Peer Group pay practices
and is expressed as a percentage of base salary.
When the Committee established the 2002 target annual incentive awards, the
Committee assumed that the 2002 target performance goal would be achieved.
Achievement of that goal would result in approximately median total cash
compensation.
There are a number of factors that can affect the amount of an executive
officer's incentive award payment, including:
- "EPS Goal"--This goal is based on the Corporation's earnings per share in
relation to the Corporation's budget. Management established, subject to
Committee approval, the target EPS Goal for 2002;
- "Relative Goals"--These goals are based primarily on the Corporation's
return on average common shareholders' equity relative to the Peer Group,
with additional consideration given to the Corporation's relative return
on average assets;
- Business financial performance relative to that business's budget;
- The Chief Executive Officer's assessment of an executive officer's
performance; and
- The Committee may exercise its discretion to increase, reduce, or
eliminate an executive officer's award, based on its assessment of the
officer's performance. The Committee cannot, however, increase the
incentive award amount a participant may receive under the 1996 Executive
Incentive Award Plan beyond the executive's assigned percentage of the
compensation pool. Among the factors the
16
Committee considered with respect to 2002 were: effective communication
with PNC's regulatory agencies; the maintenance of effective financial
reporting processes; and the effective implementation of strengthened
corporate governance principles and risk management procedures.
LONG-TERM INCENTIVE AWARDS
Stock option grants, restricted stock and other incentive share awards are
made under the Corporation's 1997 Long-Term Incentive Award Plan, as amended.
The purposes of the 1997 Long-Term Incentive Award Plan are to attract, retain
and motivate executives of outstanding ability and to promote the identification
of their interests with those of the Corporation's shareholders.
The number of stock options granted by the Committee to executive officers
is determined as follows. A number of stock options is established that would
position the executive officer competitively relative to the Peer Group in terms
of long-term compensation. This number is called the baseline amount and is used
as a reference point for upward and downward adjustments to the stock option
grant level based on the Corporation's total shareholder return in comparison
with the Peer Group. If the Corporation's total shareholder return is
significantly higher or lower than the Peer Group's median return, the number of
options granted may be adjusted above or below the baseline amount. The baseline
amount is reestablished periodically in order to maintain the Corporation's
competitiveness in long-term compensation.
The Corporation's total shareholder return is based on its common stock
appreciation and dividend payments for the three most recent years. For example,
the 2002 option grants were based on common stock appreciation and dividend
payments for the period 1999 through 2001. The 2002 grants were 5% above the
established baseline to reflect the Corporation's total shareholder return
relative to its Peer Group.
Nonstatutory stock options with a "reload" feature were first granted to a
select group of senior officers by the Personnel and Compensation Committee on
February 19, 1997. All options granted to the named executive officers and
selected other senior officers by the Committee during 2002 also have a reload
feature. If options with a reload feature are exercised while the holder is
still an employee using common stock which has been held for at least six
months, the options exercised are replaced or "reloaded" with a new, at-the-
market option. A new option is issued for each share of common stock used to
satisfy the exercise price and meet any associated income tax withholding
obligation. Options can be reloaded only once; a reload option cannot be
replaced when it is exercised. The reload option normally will become
exercisable in one year and will have the same remaining term as the option that
was exercised. The Committee believes that the reload option feature advances
the Corporation's goal of increased common stock ownership by senior executives
by encouraging the early exercise of stock options and the retention of shares.
As previously disclosed in the Corporation's 2001 annual meeting proxy
statement, in 2000 the Committee granted incentive share awards under the
Corporation's 1997 Long-Term Incentive Award Plan to certain PNC executive
officers. Mr. Rohr and each of the executive officers listed in the compensation
tables following this report (except Mr. Demchak, who was not employed by the
Corporation until 2002) received such incentive share awards, which provided for
the issuance of shares of common stock upon the achievement of one or more
performance goals. The three-year performance period for these grants ended on
December 31, 2002.
Following the expiration of the performance period, the Committee reviewed
information concerning the attainment of certain of the performance goals and
certified in writing that the Corporation had achieved certain performance
levels with respect to the total shareholder return and return on common equity
performance goals. Consistent with the total shareholder return and return on
common equity performance levels achieved, the Committee authorized the issuance
to each grantee of 50% of the incentive shares granted at the target level in
2000, in the form of shares of PNC common stock, reduced, on a share for share
basis, by the number of shares, if any, issued to that grantee under the terms
of incentive share grants made in 1998. One-half of the shares (net of shares
withheld to satisfy income tax withholding obligations) were issued on February
6, 2003, free of any restrictions, and the remaining one-half of the shares were
issued in the form of restricted shares that will vest upon the end of a
restricted period that runs through December 31, 2003. The dollar value of the
shares awarded (including restricted shares and shares withheld to satisfy
income tax
17
withholding obligations) to each of the executive officers other than Mr.
Demchak included in the Summary Compensation Table on page 21 is shown in the
column captioned "LTIP Payouts."
Additional information about the grants and awards made by the Committee
under the 1997 Long-Term Incentive Award Plan, as amended, is included in the
Summary Compensation Table and in the Individual Option Grant Table, which
follow this report.
CHIEF EXECUTIVE OFFICER COMPENSATION
When deciding the compensation to be paid to the Corporation's Chief
Executive Officer, the Committee acts privately, without the Chief Executive
Officer or other officers present. As appropriate, the Committee will confer
with its independent compensation consultant to determine whether the
Corporation's executive compensation program is consistent with marketplace
practices linking pay for performance. In general, the Committee considers the
Corporation's financial performance and Peer Group financial performance and
compensation data when making decisions regarding the Chief Executive Officer's
compensation. The Committee also considers the Chief Executive Officer's
leadership, decision-making skills, experience, knowledge, communication with
the Board, employees, and regulatory agencies, and strategic recommendations, as
well as the Corporation's positioning for future performance. The Chief
Executive Officer's effectiveness in enhancing the corporate governance and risk
management structures of the Corporation is also considered. The Committee does
not assign relative weights to these factors.
The Committee's significant decisions regarding the Chief Executive
Officer's compensation are reported to and discussed with the full Board. These
discussions are held privately, without the Chief Executive Officer or any of
the Corporation's other officers present. Final decisions regarding the Chief
Executive Officer's compensation are reached by the Committee after due
consultation with the Board's other non-management directors.
The following portions of the report will discuss the Committee's decisions
regarding Mr. Rohr's compensation for 2002.
Mr. Rohr's base salary of $850,000 was unchanged for 2002.
In deciding upon the size of Mr. Rohr's 2002 annual incentive award payment
the Committee took into account the leadership and communication skills he
displayed in responding effectively and decisively to the requirements of the
written agreements that the Corporation and its principal banking subsidiary
entered into with their respective principal bank regulatory agencies. The
Committee balanced against Mr. Rohr's many positive accomplishments the need to
hold him ultimately accountable, as the Corporation's Chief Executive Officer,
for the regulatory difficulties that evolved during the course of 2002.
The Committee also recognized that 2002 was a difficult operating
environment due to the slow pace of the economy and weak equity market
conditions. In that context, and taking into account the regulatory issues that
were satisfactorily resolved prior to year-end 2002, the Committee considered
these accomplishments, among others:
- PNC earned $1.2 billion and generated a 19% return on equity in 2002;
- Corporate governance and risk management structures were enhanced;
- Regulatory relations were improved and strengthened;
- Customer satisfaction levels approached all-time highs in many
businesses;
- More non-sales employees referred new business than ever before,
evidencing the continued vitality of a strong sales culture among
employees; and
- PNC's regulatory capital and liquidity ratios were strengthened.
After considering all of these factors carefully and consulting with the
Board's other non-management directors in executive session, the Committee
authorized the payment to Mr. Rohr of $1.2 million as an annual incentive award
for 2002. Mr. Rohr received $900,000 of this award in the form of cash and the
remainder of the amount, together with the 25% premium, was awarded to him in
the form of restricted shares of PNC common stock issued under the Corporation's
1996 Executive Incentive Award Plan, as amended.
18
Please refer to footnotes (a) and (c) of the Summary Compensation Table on page
22 for additional information.
As for Mr. Rohr's long-term incentive compensation, he received his 2002
stock option grant at a level that was 5% higher than the baseline level set for
his 2001 grant.
TAX POLICY
Section 162(m) of the Internal Revenue Code disallows with certain
exceptions a federal income tax deduction for compensation over $1 million paid
to the Chief Executive Officer and any of the executive officers included in the
compensation tables following this report, provided that they are serving in
that capacity as of the last day of the Corporation's fiscal year.
One exception to Section 162(m)'s disallowance of a federal income tax
deduction for compensation over $1 million applies to performance-based
compensation paid pursuant to shareholder-approved plans. Awards made under the
1996 Executive Incentive Award Plan, as amended, and certain awards under the
1997 Long-Term Incentive Award Plan, as amended, can generally be made eligible
for the performance-based exception and therefore eligible as a federal income
tax deduction for the Corporation.
Although the Committee keeps in mind the desirability of controlling the
Corporation's nondeductible compensation expense, the Committee also believes
that it is equally important to maintain the flexibility and competitive
effectiveness of the Corporation's executive compensation program. Therefore,
the Committee from time to time decides to make grants and awards which may not
be deductible for federal income tax purposes due to the provisions of Section
162(m).
CONCLUSION
Based upon its review of the Corporation's executive compensation program
and the advice and guidance that the Committee has received from its independent
compensation consultant, the Committee believes that the program's basic
structure is appropriate, competitive and effective to serve the purposes for
which it was established.
MEMBERS OF THE COMMITTEE:
Thomas J. Usher, Chairman
Dennis F. Strigl, Vice Chairman
Paul W. Chellgren
Milton A. Washington
19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Usher, Chellgren, Strigl, and Washington, none of whom are officers
or former officers of the Corporation or any of its subsidiaries, served as
members of the Personnel and Compensation Committee during 2002. In addition,
Mr. William R. Johnson and Mr. W. Craig McClelland, neither of whom is still
serving as a director, each served as a committee member during a portion of
2002.
Certain members of the Personnel and Compensation Committee and their
associates were customers of and had transactions with the Corporation or its
subsidiaries during 2002. Transactions that involved loans or commitments by
subsidiary banks were made in the ordinary course of business and on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than the normal risk of collectibility or present other
unfavorable features.
CHANGE IN CONTROL AND OTHER ARRANGEMENTS
The Corporation has entered into change in control severance agreements
with each of the executive officers named in the Summary Compensation Table and
certain other selected executive officers. If the executive officer's employment
is terminated by the Corporation without cause, or by the executive officer for
good reason, during a period of three years following a change in control of the
Corporation, the executive officer will receive severance benefits, including:
(i) a lump sum payment of three times the executive officer's annual base salary
and bonus; (ii) the payment of at least the target bonus for the executive
officer for the fiscal year during which the executive officer's employment is
terminated; (iii) three years of additional benefits under certain of the
Corporation's retirement and benefit plans; and (iv) a payment to reimburse the
executive officer for any excise taxes on severance benefits that are considered
excess parachute payments under the Internal Revenue Code of 1986, as amended
("Code"). The pension benefits payable to an executive officer may be increased
depending upon the officer's age on the date of termination. Each agreement
requires the executive officer not to use or disclose any of the Corporation's
confidential business information and, if the executive officer receives the
above severance benefits, not to employ or solicit any officer of the
Corporation during the year following the executive officer's termination. Each
agreement terminates when the executive officer reaches age 65, and the
Corporation may, upon one year's advance notice, simultaneously terminate all of
such change in control severance agreements. The Corporation has entered into
change in control severance arrangements with certain other selected officers
under which they will receive severance benefits similar to those described
above, but at a lower level of payment and with a shorter coverage period. The
Corporation also typically includes provisions in its stock option, restricted
stock and other incentive share awards providing certain protections, such as
accelerated vesting, in the event of a qualifying termination of employment
following or in anticipation of a change in control.
The Corporation's displaced employee assistance plans for employees
generally provide an increase in severance benefits following a change in
control under certain circumstances. If an employee's employment is terminated
by the Corporation within two years following consummation of a change in
control, the employee will receive a lump sum payment equal to twice the
benefits to which such employee otherwise would be entitled under the applicable
plan. In addition to that lump sum payment, certain other selected officers and
employees will become eligible for an additional severance benefit under similar
circumstances, based on their variable compensation.
20
SUMMARY COMPENSATION TABLE*
The Summary Compensation Table shows, for the years 2000 through 2002
(except in the case of Messrs. Demchak and Shack), the compensation paid or
awarded to Mr. Rohr, the Corporation's Chairman and Chief Executive Officer, and
to the Corporation's next four most highly compensated, policy-making executive
officers; the inclusion of those four executive officers in this group is based
on salary and bonus earned during 2002. The amounts shown in the "Salary" column
include the dollar amounts attributable to holidays, vacation time, and paid
time off. Mr. Rohr and the four executive officers are referred to collectively
for purposes of the compensation tables as the Corporation's "named executive
officers." For a discussion of the Corporation's executive compensation program,
please refer to the Personnel and Compensation Committee Report on Executive
Compensation beginning on page 14.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------- -------------------------------------
AWARDS PAYOUTS
----------------------- -----------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL
COMP STOCK OPTIONS/ LTIP OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) AWARD ($) SARS (#) PAYOUTS ($) COMP ($)
--------------------------- ---- ---------- --------- ------ ---------- ---------- ----------- --------
(a) (b) (c) (d) (e) (f)
James E. Rohr 2002 850,000 900,000 4,149 375,000 299,512 429,400 291,959
Chairman and 2001 850,000 1,125,000 4,015 468,750 338,740 1,675,750 321,108
Chief Executive Officer 2000 836,120 2,601,000 3,690 3,862,500 277,261 0 226,931
The PNC Financial Services
Group, Inc.
Joseph C. Guyaux 2002 486,538 429,000 0 178,750 101,718 343,520 53,264
President 2001 405,769 285,500 0 118,125 63,000 469,210 52,038
The PNC Financial Services 2000 375,422 486,400 0 1,931,250 104,644 0 50,187
Group, Inc.
William S. Demchak 2002+ 152,885+ 750,000+ 8,947 2,427,500 100,000 0 233,613
Vice Chairman and Chief
Financial Officer
The PNC Financial Services
Group, Inc.
Timothy G. Shack 2002 427,885 289,500 0 120,625 80,238 279,110 43,151
Executive Vice President and 2001++ 372,461 228,000 0 95,000 88,014 402,180 44,548
Chief Information Officer
The PNC Financial Services
Group, Inc.
Thomas K. Whitford 2002 395,192 337,500 0 140,625 81,816 300,580 55,076
Executive Vice President and 2001 368,942 225,000 0 93,750 75,025 368,665 48,183
Chief Risk Officer 2000 339,615 469,200 0 1,609,375 85,802 0 45,732
The PNC Financial Services
Group, Inc.
---------------
* Footnotes to the Summary Compensation Table are set forth beginning on page
22.
+ Mr. Demchak was not an executive officer of the Corporation prior to 2002.
The salary amount shown for Mr. Demchak represents the portion of his annual
base salary paid to him in 2002, beginning on his first day of employment
(September 9, 2002). Mr. Demchak received a guaranteed bonus of $1,000,000
for 2002, of which a portion was deferred as restricted phantom Common Stock
units; please see the column captioned "Restricted Stock Award" and footnotes
(a) and (c) for additional information.
++ Mr. Shack was not an executive officer of the Corporation for purposes of the
SEC's executive compensation disclosure rules prior to 2001.
21
FOOTNOTES TO SUMMARY COMPENSATION TABLE
(a) 25% of the named executive officer's 2002 annual incentive award was awarded
to him in the form of restricted shares of Common Stock or, in the case of
Mr. Demchak, deferred as restricted phantom Common Stock units under the
Corporation's Deferred Compensation Plan. This restricted stock/phantom unit
portion was increased by 25% to reflect the resulting risk of forfeiture and
lack of liquidity. The aggregate dollar value of the restricted shares of
Common Stock or restricted phantom Common Stock units awarded to each named
executive officer is shown in the "Restricted Stock Award ($)" column of
this table for 2002, and additional details are provided in footnote (c) and
in the Personnel and Compensation Committee Report on Executive Compensation
beginning at page 15, under the caption "Annual Incentive Awards."
(b) The amounts shown represent reimbursement for certain tax liabilities. None
of the named executive officers received perquisites or other personal
benefits, securities or property during 2002 that, in the aggregate, cost
the Corporation the lesser of $50,000 or 10% of the named executive
officer's salary and bonus earned during that year. Perquisites and other
personal benefits that were received by the named executive officers were
valued on the basis of their incremental cost to the Corporation and its
subsidiaries, as prescribed by the rules of the SEC.
(c) The dollar values in this column for 2002 equal the aggregate value of the
restricted shares of Common Stock awarded to or, in the case of Mr. Demchak,
deferred as restricted phantom Common Stock units on February 19, 2003 as
part of the 2002 annual incentive award. The dollar amount shown for Mr.
Demchak also includes the value of 45,000 restricted shares of Common Stock
awarded to him under the Corporation's 1997 Long-Term Incentive Award Plan,
as amended, in connection with his acceptance of an offer of employment by
the Corporation; the aggregate value of these shares was computed using the
closing price of a share of Common Stock on the September 9, 2002 award
date, or $47.00. The restricted shares were awarded to Messrs. Rohr, Guyaux,
Shack and Whitford under the Corporation's 1996 Executive Incentive Award
Plan, as amended, and the restricted phantom Common Stock units were
deferred by Mr. Demchak under the Corporation's Deferred Compensation Plan.
The named executive officers will be entitled to vote and to receive
dividends on the restricted shares, as declared by the Board on Common
Stock. Restricted phantom Common Stock units held in the Corporation's
Deferred Compensation Plan are credited with deemed dividends, as dividends
are declared by the Board on Common Stock, but they carry no voting rights
and can be settled only in cash. For both the restricted shares and
restricted phantom stock units, the named executive officer will forfeit the
award if his employment with PNC terminates prior to the end of a three-year
restricted period, except in certain limited cases. Please see footnote (a)
and the Personnel and Compensation Committee Report on Executive
Compensation beginning at page 15, under the caption "Annual Incentive
Awards," for additional details.
As of December 31, 2002, the named executive officers beneficially held
restricted shares of Common Stock as follows, with the aggregate dollar
value shown as of December 31, 2002: Messrs. Rohr (85,000 shares;
$3,561,500); Guyaux (39,143 shares; $1,640,092); Demchak (45,000 shares;
$1,885,500) Shack (31,000 shares; $1,298,900); and Whitford (32,201 shares;
$1,349,222). The per share dollar amount used to calculate these values was
$41.90, the closing market price of a share of Common Stock on the New York
Stock Exchange on December 31, 2002.
(d) With respect to Messrs. Rohr, Guyaux, Shack, and Whitford, the number shown
in this column for 2002 includes shares of Common Stock underlying both
nonstatutory stock options granted by the Personnel and Compensation
Committee in its discretion during 2002 and reload nonstatutory stock
options granted upon the named executive officer's exercise during 2002 of
nonstatutory stock options granted by the Personnel and Compensation
Committee prior to 2002 with a reload feature. The number of shares of
Common Stock underlying reload options are shown in parentheses for Messrs.
Rohr (26,512); Guyaux (17,718); Shack (11,988); and Whitford (13,566). For
more information about reload options, please see the "Individual Option
Grants--2002" table on page 24 and the relevant footnotes.
22
(e) The dollar values in this column were calculated by multiplying the number
of shares of Common Stock issued to the named executive officer on February
6, 2003 under the Corporation's 1997 Long-Term Incentive Award Plan, as
amended, by the average of the high and low sale prices of a share of Common
Stock on the New York Stock Exchange on that date ($42.94). The number of
shares of Common Stock awarded to each of the named executive officers is as
follows: Messrs. Rohr (10,000 shares); Guyaux (8,000 shares); Shack (6,500
shares); and Whitford (7,000 shares). One-half of the shares were issued to
the named executive officer free of any restriction, net of shares withheld
to satisfy income tax withholding obligations; the other one-half of the
shares are restricted and cannot be sold or transferred during the
restricted period. If the named executive officer's employment with PNC
terminates prior to the end of the restricted period, which runs through
December 31, 2003, he will forfeit the restricted shares awarded, except in
certain limited cases, including the officer's death, total disability, or
certain qualifying terminations following or in anticipation of a change in
control. During the restricted period, the officer will receive dividends on
the restricted shares, as declared by the Board on Common Stock, and will be
able to vote the shares. For more information about these shares, please see
the Personnel and Compensation Committee Report on Executive Compensation at
page 17.
(f) The amount shown for 2002 includes the dollar value of matching
contributions made pursuant to the Corporation's Incentive Savings Plan, a
qualified defined contribution plan, for Messrs. Rohr ($11,000); Guyaux
($11,000); Shack ($11,000); and Whitford ($3,462). The amount also includes
the employer matching contribution to the Corporation's Supplemental
Incentive Savings Plan, a nonqualified excess defined contribution plan, for
Messrs. Rohr ($85,000); Guyaux ($29,532); Shack ($23,793); and Whitford
($29,250). The amount also includes the 2002 net premiums paid by the
Corporation in connection with its Key Executive Equity Plan, a split-dollar
insurance arrangement, on behalf of Messrs. Rohr ($195,959); Guyaux
($12,732); Demchak ($33,613); Shack ($8,358); and Whitford ($12,364). The
net premiums disclosed in the preceding sentence represent the full dollar
amounts paid by the Corporation for both the term and non-term portions of
the Key Executive Equity Plan. The amount shown for Mr. Demchak also
includes the signing bonus he was paid upon joining the Corporation
($200,000).
OPTION GRANTS IN 2002
This table provides information on stock options granted to the named
executive officers in 2002. Only nonstatutory stock options were granted in 2002
under the Corporation's 1997 Long-Term Incentive Award Plan, as amended.
The table provides information about two categories of options granted
during 2002: (i) options granted to each of the named executive officers at the
discretion of the Personnel and Compensation Committee; and (ii) reload options
granted to Messrs. Rohr, Guyaux, Shack, and Whitford upon their exercise, in the
required manner, of options previously granted to them by the Personnel and
Compensation Committee with a reload feature. Reload options included in the
following table are marked with the symbol "(R)." Information about
23
reload options is included in footnote (b); where appropriate, other footnotes
provide additional information which is specific to the reload options shown in
the table.
INDIVIDUAL OPTION GRANTS--2002
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES EXERCISE OR BASE EXPIRATION PRESENT
NAME GRANTED (#) IN 2002 PRICE ($/SH) DATE VALUE ($)
---- ----------- ---------- ---------------- ---------- ----------
(a)(b) (c) (d) (e)
James E. Rohr 273,000 6.12 57.10 1/3/2012 3,309,659
26,512(R) 0.59 60.65 1/6/2010 339,219
Joseph C. Guyaux 84,000 1.88 57.10 1/3/2012 1,018,356
17,718(R) 0.40 60.35 1/6/2010 221,353
William S. Demchak 100,000 2.24 46.23 9/9/2012 920,314
Timothy G. Shack 68,250 1.53 57.10 1/3/2012 827,415
11,988(R) 0.27 60.65 1/6/2010 153,386
Thomas K. Whitford 68,250 1.53 57.10 1/3/2012 827,415
8,028(R) 0.18 60.65 1/6/2010 102,718
5,538(R) 0.12 55.93 1/6/2010 65,879
---------------
(a) Except in the case of Mr. Demchak's options, which were granted on September
9, 2002, the option grants not marked with an "(R)" have a grant date of
January 3, 2002.
The reload options shown were granted on the exercise date(s) of the named
executive officer's original options. The grant dates for the reload options
are as follows: (i) Mr. Rohr's reload options were granted on January 7,
2002; (ii) Mr. Guyaux's reload options were granted on January 11, 2002;
(iii) Mr. Shack's reload options were granted on January 7, 2002; and (iv)
Mr. Whitford's 8,028 reload options were granted on January 7, 2002 and his
5,538 reload options were granted on May 20, 2002.
Options granted by the Personnel and Compensation Committee normally become
exercisable in three equal annual installments, beginning one year after the
grant date, as long as the holder remains an employee. All reload options
normally become exercisable one year after their grant date.
(b) Nonstatutory stock options with a "reload" feature were first granted to a
select group of senior officers by the Personnel and Compensation Committee
on February 19, 1997. All options granted to the named executive officers
and selected other senior officers by the Committee during 2002 also have a
reload feature. If options with a reload feature are exercised while the
holder is still an employee using Common Stock which has been held for at
least six months, the options exercised are replaced or "reloaded" with a
new, at-the-market option for each share of Common Stock used to satisfy the
exercise price and meet any associated tax withholding obligation. Options
can be reloaded only once; the reload options shown in the table cannot be
replaced when they are exercised. The reload option normally will become
exercisable in one year and will have the same remaining term as the option
that was exercised.
(c) The exercise price shown equals the average of the high and low sale prices
of a share of the Corporation's Common Stock on the New York Stock Exchange
on the date of the grant.
(d) The date shown in this column is the applicable ten-year expiration date,
but an option may expire prior to that date under certain circumstances
specified in the governing nonstatutory stock option agreement, such as
termination of employment for reasons other than death or retirement.
The expiration date shown for reload options coincides with the expiration
date of the option exercised, regardless of the reload option's grant date.
For example, a reload option received upon the exercise of an option granted
on February 17, 1999 would have the same expiration date of February 17,
2009 applicable to the original option, regardless of the date on which the
reload option was granted.
(e) The dollar values listed in this column are based upon the Black-Scholes
option pricing model.
24
The options granted in 2002 to the named executive officers at the
discretion of the Personnel and Compensation Committee [i.e., the options
shown in table that are not marked by the symbol "(R)"] and to certain other
executive officers include a reload feature. Those options were valued
without regard to the reload feature. The grant of a reload option is
treated for purposes of this table as the automatic grant of a new option,
the value of which is determined on its own terms as of its grant date.
Additional information about reload options is contained in footnote (b).
The chart below shows, by option grant date, the assumptions used in accordance
with the Black-Scholes option pricing model to determine the grant date present
value per option. The dollar values shown in the Individual Option Grants table
in the column captioned "Grant Date Present Value ($)" were calculated by
carrying out the dollar value of each option to four decimal places and rounding
the result to the nearest dollar. The Corporation in no way intends to provide
any predictions or assurances with respect to option or Common Stock values, as
some of the underlying assumptions are highly subjective and in any event the
options are not transferable except upon the death of the optionee. The grant
dates for specific options listed in the Individual Option Grants table are
disclosed in footnote (a).
ANNUALIZED ESTIMATED
GRANT MARKET EXERCISE RISK FREE ESTIMATED DIVIDEND VALUE OF
DATE PRICE PRICE VOLATILITY RATE OF RETURN USEFUL LIFE YIELD OPTION
----- ------ -------- ---------- -------------- ----------- -------- ---------
1/03/02 $57.10 $57.10 0.2646 4.57% 5 Years 3.52% $12.12
1/07/02 60.65 60.65 0.2646 4.49 5 Years 3.52 12.79
1/11/02 60.35 60.35 0.2646 4.24 5 Years 3.52 12.49
5/20/02 55.93 55.93 0.2657 4.55 5 Years 3.52 11.90
9/09/02 46.23 46.23 0.2769 3.17 5 Years 3.52 9.20
AGGREGATED OPTION EXERCISES IN 2002 AND 2002 YEAR-END OPTION VALUES
This table provides information concerning exercises of nonstatutory stock
options during 2002 by certain of the named executive officers. The table also
shows the number and value of unexercised options, including any reload options
held by the named executive officer, at the end of 2002.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT 2002 IN-THE-MONEY OPTIONS
SHARES YEAR END (#) AT 2002 YEAR END($)(A)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
(B) (B)
James E. Rohr 33,333 615,411 481,949 577,013 $1,559,220 0
Joseph C. Guyaux 22,167 402,608 140,096 193,718 0 0
William S. Demchak 0 0 0 100,000 0 0
Timothy G. Shack 15,000 276,938 116,690 149,238 0 0
Thomas K. Whitford 16,667 276,355 102,094 158,483 0 0
---------------
(a) An option is in-the-money if the fair market value of the underlying
security exceeds the exercise price of the option.
(b) The dollar values shown were calculated by determining the difference
between: (i) the average of the high and low sale prices of the
Corporation's Common Stock on the New York Stock Exchange on December 31,
2002 ($41.655); and (ii) the exercise prices of the various options held by
the named executive officer as of December 31, 2002.
PENSION BENEFITS
The Corporation maintains a non-contributory pension plan ("Pension Plan"
or "Plan") for qualifying employees. The Plan is a defined benefit pension plan
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and is qualified under Section 401(a) of the Code. The Corporation and
25
certain of its subsidiaries contribute an actuarially determined amount
necessary to fund the total benefits payable to participants employed by them.
The amount of the Corporation's annual contribution with respect to a specific
participant cannot be readily calculated by the actuaries for the Pension Plan.
Benefits under the Plan are determined as follows: Effective January 1,
1999, a recordkeeping "account" was established for each participant. The
initial account balance was determined as the present value of each
participant's accrued benefit as of December 31, 1998, using the Plan provisions
in effect on December 31, 1998. For each calendar quarter ending after January
1, 1999, eligible participants receive "Earnings Credits," expressed as a
percentage of Covered Earnings, in accordance with a schedule based on the
participant's age plus years of credited service. In addition, employees who
were at least age 40 and had at least 10 years of credited service as of January
1, 1999 receive additional quarterly "Transitional Credits" for up to 10 years.
Participants also receive quarterly "Interest Credits" at the prevailing 30-year
U.S. Treasury Bond rate.
"Covered Earnings" is defined as an employee's regular earnings plus
eligible variable compensation, such as paid bonuses; deferred bonus payments
are applied to the Corporation's ERISA Excess Pension Plan, discussed below.
Eligible variable compensation for employees is limited to the greater of
$25,000 or 50% of the employee's total eligible variable compensation for the
calendar year. Eligible variable compensation is generally limited to $250,000
for purposes of the 50% calculation, except in the case of a select group of
senior officers.
The Corporation also maintains two supplemental non-qualified pension
plans. The ERISA Excess Pension Plan provides retirement benefits equal to the
difference, if any, between the maximum benefit allowed under the Code and the
amount that would be provided by the Pension Plan if no limits were applied. The
ERISA Excess Pension Plan also recognizes deferred bonuses that are not included
in the Pension Plan as Covered Earnings.
The Corporation also maintains a separate supplemental retirement benefit
plan applicable to certain officers of the Corporation and its subsidiaries.
Officers who were age 50 and had five years of vesting service as of January 1,
1999 receive benefits based on the formula in effect prior to January 1, 1999.
All other officers participating in this plan will receive a benefit based upon
the cash balance pension formula described above, applied to eligible bonuses.
The estimated total annual benefits (including those payable by both
supplemental non-qualified pension plans) payable upon retirement at the normal
retirement age of 65 for each of the named executive officers are as follows:
Messrs. Rohr ($1,914,623); Guyaux ($698,359); Demchak ($536,562); Shack
($621,391); and Whitford ($595,166). Except as explained below with respect to
Mr. Demchak, the benefits have been projected assuming that: (a) each named
executive officer's salary remains constant until retirement; (b) future annual
bonuses are assumed to be the same as those paid in 2002; and (c) the 30-year
U.S. Treasury Bond rate until retirement is 7.0%. In the case of Mr. Demchak, he
was assumed to become a participant in the Corporation's pension plans on April
1, 2003. Further, his projected benefits were calculated using an estimated 2003
annual bonus (to be paid in 2004) of $689,000; Mr. Demchak's future annual
bonuses were also assumed to be that amount. The amounts shown are based on the
payment method which would result in the highest annual benefit, if selected by
the named executive officer.
26
COMMON STOCK PERFORMANCE GRAPH
The graph set forth below shows the cumulative total shareholder return
(i.e., price change plus reinvestment of dividends) on the Corporation's Common
Stock during the five-year period ended December 31, 2002, as compared with: (i)
a selected peer group of the Corporation's competitors ("Peer Group"+); (ii) an
overall stock market index, the S&P 500 Index; and (iii) a published industry
index, the S&P 500 Banks Index ("S&P Banks"). The yearly points marked on the
horizontal axis of the graph correspond to December 31 of that year. The stock
performance graph assumes that $100 was invested on January 1, 1998, for the
five-year period and that any dividends were reinvested. The table below the
graph shows the resultant compound annual growth rate ("CGR") for the
performance period.
INDEXED RETURNS--YEARS ENDING
PNC PEER GROUP(+) S&P 500 INDEX S&P BANKS
--- ------------- ------------- ---------
Dec97 100 100 100 100
Dec98 97.67 111.12 128.58 106.04
Dec99 82.96 92.51 155.63 91.41
Dec00 141.13 103.79 141.46 108.83
Dec01 111.84 110.70 124.65 108.85
Dec02 86.78 89.91 97.10 107.74
5 year CGR (2.8)% (2.1)% (0.6)% 1.5%
+ The Peer Group represented comprises the following companies: Bank of America
Corporation; The Bank of New York Company, Inc.; Bank One Corporation; Fifth
Third Bancorp; FleetBoston Financial Corporation; KeyCorp; National City
Corporation; The PNC Financial Services Group, Inc.; SunTrust Banks, Inc.;
U.S. Bancorp; Wachovia Corporation; and Wells Fargo & Company. Each yearly
point for the Peer Group is determined by calculating the cumulative total
shareholder return for each company in the Peer Group from January 1, 1998 to
December 31 of that year and then using the median of these returns as the
yearly plot point. The Peer Group shown is the Peer Group approved by the
Board's Personnel and Compensation Committee in 2002. The Corporation's 2003
Peer Group does not include Bank of America Corporation.
In accordance with the rules of the SEC, this section, captioned "Common
Stock Performance Graph," shall not be incorporated by reference into any of the
Corporation's future filings made under the Exchange Act or the Securities Act
and shall not be deemed to be soliciting material or to be filed under the
Exchange Act or the Securities Act.
27
VOTING PROCEDURES
Pennsylvania law and the Corporation's By-Laws require the presence of a
quorum to transact business at the annual meeting. A quorum is constituted by
the presence, in person or by proxy, of shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast on the
particular matters to be voted on. Votes withheld from director nominees and
abstentions will be counted in determining whether a quorum has been reached.
Under Pennsylvania law, the act of "voting" does not include either
recording the fact of abstention or failing to vote for a candidate or for
approval or disapproval of a proposal, whether or not the person entitled to
vote characterizes the conduct as voting. In other words, only those who
indicate an affirmative or negative decision on a matter are treated as voting,
so that ordinarily abstention or a mere absence or failure to vote is not
equivalent to a negative decision. A broker-dealer "non-vote" occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power for that
particular item and has not received instructions from the beneficial owner.
Shareholders may vote by mailing their completed, dated, and signed proxy
card in the envelope provided, which requires no postage if mailed in the United
States. Alternatively, shareholders of record may use the telephone or Internet
voting options explained on their proxy card. Shareholders of record wishing to
use the Internet voting option should go to the following web site:
www.computershare.com/us/proxy, enter the information requested on the computer
screen, and follow the instructions. Shareholders should have their proxy card
readily available, so that they can refer to the holder account number and proxy
access number printed on the proxy card. The Pennsylvania Business Corporation
Law of 1988, 15 Pa.C.S.A. section 1759(b), provides that shareholders voting by
means of the telephone or the Internet, as instructed, will be treated as
transmitting a properly authenticated proxy for voting purposes. Pennsylvania
law permits the use of telephone or Internet voting both when a shareholder of
record is voting and when a beneficial owner is communicating its vote to a
shareholder of record, such as a securities depositary or brokerage firm.
With respect to Item 1, the 16 nominees for election as directors who
receive the greatest number of votes cast at the annual meeting, assuming that a
quorum is present, will be elected as directors at the conclusion of the vote
tabulation. A withheld vote on any nominee will not affect the voting results.
The rules of the New York Stock Exchange state that the total vote cast on
each item which is required by those rules to be voted on by shareholders
represent over 50 percent in interest of the Common Stock and the Voting
Preferred Stock, voting together as a single class. As a result, shares not
voted, abstentions and broker non-votes will have a negative effect on the
satisfaction of that requirement.
Under the rules of the New York Stock Exchange, "routine" items are those
upon which broker-dealers holding shares in street name for their customers may
vote, in their discretion, on behalf of any customers who do not furnish voting
instructions within ten days of the annual meeting. With respect to non-routine
items that come before the annual meeting for a vote, such broker-dealers would
not be able to vote without first receiving voting instructions from their
customers. These broker "non-votes" would not be considered in the calculation
of the majority of the votes cast and therefore would have no effect on the vote
with respect to a non-routine item, except as otherwise explained in the
preceding paragraph.
The Corporation has adopted a policy that all proxies, ballots, voting
instructions from employee benefit plan participants and voting tabulations that
identify the particular vote of a shareholder or benefit plan participant be
kept permanently confidential and not be disclosed to the Corporation, its
directors, officers or employees except: (i) as necessary to meet legal
requirements or to pursue or defend legal actions; (ii) to allow the Judge of
Election to certify the results of the vote; (iii) when expressly requested by a
shareholder or benefit plan participant; or (iv) in the event of a contested
proxy solicitation. The Corporation has confirmed with its independent vote
tabulator and Judge of Election that its procedures will be consistent with the
foregoing policy.
28
INDEPENDENT AUDITORS
At its meeting on February 15, 2001, the Board of Directors approved the
recommendation of the Audit Committee for the appointment of Ernst & Young LLP
to audit the consolidated financial statements of the Corporation for 2001.
In addition to having served as the independent auditor of the
Corporation's 2001 consolidated financial statements, Ernst & Young LLP executes
the Corporation's internal audit program under the direction of PNC's corporate
audit staff. Ernst & Young LLP also provides various tax and nonattest and
advisory services to the Corporation.
Under rule amendments regarding auditor independence adopted by the SEC,
beginning August 3, 2002 independent accountants are no longer permitted to
provide audit clients with certain non-audit services. Accordingly, PNC decided
to have separate internal and independent audit providers commencing with fiscal
2002. Ernst & Young LLP acted as independent auditor with respect to the
Corporation's 2001 financial statements and continues to provide various
internal audit, tax, and nonattest and advisory services to the Corporation. PNC
engaged Deloitte & Touche LLP as the Corporation's principal accountants to
audit the Corporation's 2002 financial statements. These actions were
recommended by the Audit Committee and approved by the Corporation's Board of
Directors on December 18, 2001.
Ernst & Young LLP's reports on the Corporation's financial statements for
the fiscal years 2000 and 2001 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. During the fiscal years 2000 and 2001 and
any subsequent interim period preceding the date of this proxy statement, (i)
there were no disagreements with Ernst & Young LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Ernst &
Young LLP, would have caused Ernst & Young LLP to make a reference to the
subject matter of the disagreement in connection with its reports in the
financial statements for such years, and (ii) there were no reportable events as
defined in Item 304 of Regulation S-K. The Corporation has provided Ernst &
Young LLP with a copy of the preceding disclosure prior to filing this proxy
statement with the SEC. Ernst & Young LLP has provided a letter to the
Corporation stating that it agrees with the statements made in the disclosure.
Details about the nature of the services provided by, and the fees that the
Corporation paid to, Deloitte & Touche LLP for such services provided during
2002 are set forth below. At its meeting on February 17, 2003, the Audit
Committee appointed Deloitte & Touche LLP to audit the consolidated financial
statements of the Corporation for 2003.
Representatives of Deloitte & Touche LLP and Ernst & Young LLP are expected
to be present at the annual meeting with the opportunity to make a statement if
they desire to do so and to be available to respond to appropriate questions.
AUDIT FEES
The aggregate fees for professional services rendered by Deloitte & Touche
LLP in the 2002 fiscal year were $6,118,274 relating to services performed to
comply with Generally Accepted Auditing Standards. These services included fees
related to their audit of PNC's consolidated financial statements, reviews of
the consolidated financial statements included in PNC's Quarterly Reports on
Form 10-Q and issuance of service auditor reports.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no professional services rendered by Deloitte & Touche LLP in
the 2002 fiscal year relating to financial information systems design and
implementation.
29
ALL OTHER FEES
The Audit Committee has considered the compatibility of non-audit services
with the auditor's independence. The aggregate fees for all other services
rendered by Deloitte & Touche LLP in the 2002 fiscal year were $1,827,242 and
can be subcategorized as follows:
Audit Related Fees. The aggregate fees for professional services
rendered by Deloitte & Touche LLP in the 2002 fiscal year was $1,676,293
relating to assurance and related services. These services included fees
related to audits of financial accounting and reporting standards and
attest services that are not required by statute or regulation.
Tax Fees. The aggregate fees for professional services rendered by
Deloitte & Touche LLP in the 2002 fiscal year were $9,150 relating to
services performed in connection with the preparation of tax returns for
PNC-related entities.
All Other Fees. The aggregate fees for all other services rendered by
Deloitte & Touche LLP in the 2002 fiscal year were $141,799. These fees
primarily related to work performed in connection with tax-basis appraisal
services and software license renewals.
30
REPORT OF THE AUDIT COMMITTEE
The Board of Directors of the Corporation has appointed an Audit Committee
composed of five directors, each of whom is independent as defined in the New
York Stock Exchange listing standards.
The Board of Directors has adopted a written charter for the Audit
Committee. A copy of that charter, as approved and amended by the Board on
November 21, 2002, is included as Exhibit A to this proxy statement. The Audit
Committee's job is one of oversight as set forth in its charter. It is not the
duty of the Audit Committee to prepare the Corporation's financial statements,
to plan or conduct audits, or to determine that the Corporation's financial
statements are complete and accurate and are in accordance with generally
accepted accounting principles. The Corporation's management is responsible for
preparing the Corporation's financial statements and for maintaining internal
control and disclosure controls and procedures. The independent auditors are
responsible for auditing the financial statements and for expressing an opinion
as to whether those audited financial statements fairly present the financial
position, result of operations, and cash flows of the Corporation in conformity
with generally accepted accounting principles.
The Audit Committee has reviewed and discussed the Corporation's audited
consolidated financial statements with management and with Deloitte & Touche
LLP, the Corporation's independent auditors for 2002.
The Audit Committee has discussed with Deloitte & Touche LLP the matters
required to be discussed by Statement on Auditing Standards No. 61.
The Audit Committee has received from Deloitte & Touche LLP the written
statements required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, and has discussed Deloitte & Touche's
independence with Deloitte & Touche, and has considered the compatibility of
non-audit services with the auditor's independence.
Based on the review and discussions referred to above, the Audit Committee
has recommended to the Board of Directors that the audited consolidated
financial statements be included in the Corporation's Annual Report on Form 10-K
for the year ended December 31, 2002 for filing with the Securities and Exchange
Commission.
THE AUDIT COMMITTEE
Helge H. Wehmeier, Chairman
George A. Davidson, Jr.
Richard B. Kelson
Bruce C. Lindsay
Stephen G. Thieke
REPORT OF THE AUDIT COMMITTEE
In accordance with the rules of the SEC, the Report of the Audit Committee
shall not be incorporated by reference into any of the Corporation's future
filings made under the Exchange Act or the Securities Act, and shall not be
deemed to be soliciting material or to be filed with the SEC under the Exchange
Act or the Securities Act.
LEGAL PROCEEDINGS
The several putative class action complaints filed during 2002 in the
United States District Court for the Western District of Pennsylvania were
consolidated in a Consolidated Class Action Complaint filed on October 4, 2002
brought on behalf of purchasers of Common Stock between July 19, 2001 and July
18, 2002.
31
The Consolidated Class Action Complaint names as defendants the Corporation, the
Chairman and Chief Executive Officer, the former Chief Financial Officer, the
Controller, and Ernst & Young LLP, the Corporation's independent auditors for
2001, and seeks unquantified damages, interest, attorneys' fees and other
expenses. The Consolidated Class Action Complaint alleges violations of federal
securities laws related to disclosures regarding the three 2001 transactions
that gave rise to a financial statement restatement announced by the Corporation
on January 29, 2002, and related matters. The Corporation and all other
defendants have filed a motion to dismiss this lawsuit. Management believes
there are substantial defenses to this lawsuit and intends to defend it
vigorously. The impact of the final disposition of this lawsuit cannot be
assessed at this time.
The Corporation received a letter from a shareholder in 2002 demanding that
the Corporation take action against parties allegedly responsible for the events
giving rise to the SEC consent order filed on July 18, 2002 and that it consider
action against directors of the Corporation who approved certain bonus payments.
Management referred this demand to the Board of Directors. The Corporation has
recently been advised that the shareholder does not intend to pursue claims
derivatively on behalf of the Corporation at this time.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Eligible shareholders may submit proposals to be considered for inclusion
in the Corporation's 2004 proxy materials for the 2004 annual meeting of
shareholders if they do so in accordance with the applicable SEC rules. Any such
proposals must be in writing and received by the Corporate Secretary at the
principal executive offices of the Corporation no later than November 21, 2003
in order to be considered for inclusion in the Corporation's 2004 proxy
materials. For information on how to submit the name of a person to be
considered by the Nominating and Governance Committee for possible nomination as
a director, please see the paragraph discussing the Committee's responsibilities
on page 5.
Director nominations and proposals for action at an annual meeting of
shareholders may be made otherwise only: (i) pursuant to the Corporation's
notice of such meeting; (ii) by the presiding officer; (iii) by or at the
direction of a majority of the Board of Directors; or (iv) by one or more
shareholders in accordance with the applicable rules of the SEC and the
governing By-Law provisions.
A shareholder may make a nomination for the election of a director or a
proposal for action at an annual meeting only if written notice is received by
the Corporate Secretary at the Corporation's principal office not later than:
(i) 90 days prior to the annual meeting (which, for the 2004 annual meeting,
would mean no later than January 27, 2004 if the annual meeting is held on April
27, 2004, unless a different date for such notice has been stated in the
Corporation's most recent proxy materials distributed to shareholders); or (ii)
if the annual meeting is to be held on a date other than the fourth Tuesday in
April, the close of business on the tenth day following the first public
disclosure of the meeting date. Public disclosure of the date of any annual
meeting may be made in a filing with the SEC, in any notice given to the New
York Stock Exchange or in a news release reported by any national news service.
Each shareholder notice shall include: (i) as to the shareholder giving the
notice and the beneficial owner, if any, on whose behalf the notice is given (A)
the name and address of such shareholder and of such beneficial owner, and (B)
the class and number of shares of the stock of the Corporation that are owned of
record and beneficially by such shareholder and such beneficial owner; and (ii)
a representation that the shareholder is a beneficial owner of stock of the
Corporation entitled to vote at such meeting and intends to be present at the
meeting in person or by proxy to make such nomination or proposal.
Each notice of nomination for the election of a director from a shareholder
also shall set forth: (i) the name and address of the person to be nominated;
(ii) a description of all arrangements or understandings between the shareholder
and the nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination is to be made by the shareholder; (iii) such
other information regarding the nominee as would be required to be included in
proxy materials filed under the applicable rules of the SEC
32
had the nominee been nominated by the Board of Directors; and (iv) the written
consent of the nominee to serve as a director of the Corporation, if so elected.
Each notice of a proposal for action at an annual meeting from a
shareholder also shall set forth a brief description of the proposal, the
reasons for making such proposal, and any direct or indirect interest of the
shareholder, or any person on whose behalf the shareholder is acting, in making
such proposal.
If the Corporate Secretary receives notice of a shareholder proposal that
complies with the governing By-Law provisions on or prior to the required date
and if such proposal is properly presented at the 2004 annual meeting of
shareholders, the proxies appointed by the Corporation may exercise
discretionary authority in voting on such proposal if, in the Corporation's
proxy statement for such meeting, the Corporation advises shareholders of the
nature of such proposal and how the proxies appointed by the Corporation intend
to vote on such proposal, unless the shareholder submitting the proposal
satisfies certain SEC requirements, including the mailing of a separate proxy
statement to the Corporation's shareholders.
The presiding officer of the meeting may refuse to permit any nomination
for the election of a director or proposal to be made at an annual meeting by a
shareholder who has not complied with all of the governing By-Law procedures,
including receipt of the required notice by the Corporate Secretary by the date
specified. If a shareholder proposal is received by the Corporation after the
required notice date but the presiding officer of the meeting nevertheless
permits such proposal to be made at the 2004 annual meeting of shareholders, the
proxies appointed by the Corporation's Board of Directors may exercise
discretionary authority when voting on such proposal.
Questions about these requirements, or notices mandated by them, may be
directed to: Corporate Secretary, The PNC Financial Services Group, Inc., One
PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707.
OTHER MATTERS
The Board of Directors knows of no other business to be presented at the
meeting. If, however, any other business should properly come before the
meeting, or any adjournment thereof, it is intended that the proxies will be
voted with respect thereto in accordance with the best judgment of the persons
named in the proxies.
By Order of the Board of Directors,
/s/ Thomas R. Moore
Thomas R. Moore
Corporate Secretary
33
EXHIBIT A
CHARTER
OF THE
AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS OF THE PNC FINANCIAL SERVICES GROUP, INC.
AS APPROVED AND AMENDED BY THE BOARD
NOVEMBER 21, 2002
I. AUTHORITY AND MEMBERSHIP
The Audit Committee (the "Committee") of the Board of Directors (the
"Board") of The PNC Financial Services Group, Inc. (the "Corporation") is
established pursuant to Article V, Section 1.2 of the Corporation's By-Laws (the
"Bylaws"). The members of the Committee are appointed annually by the Board on
the recommendation of the Nominating and Governance Committee and serve until
their successors are duly elected and qualified. The Board determines the number
of members in the Committee from time to time, but the number will not be less
than the minimum number prescribed by applicable law, the Bylaws or New York
Stock Exchange ("NYSE") requirements. Committee members must fully satisfy
independence and experience requirements as prescribed by the NYSE, Section
10A(m)(3) of the Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations of the Securities and Exchange Commission ("SEC"), and the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and
applicable rules and regulations thereunder. All members of the Committee shall
have a strong level of business or financial acumen (as determined in the
reasonable discretion of the Board).
The Board will, on the recommendation of the Nominating and Governance
Committee, appoint one of the members of the Committee to serve as Committee
Chair. The Committee Chair will have authority to act on behalf of the Committee
between meetings. The Committee may form and delegate authority to subcommittees
consisting of one or more members when appropriate, including the authority to
grant preapprovals of audit and non-audit services, provided that the decision
of such subcommittee to grant preapprovals shall be presented to the full
Committee at its next scheduled meeting.
The Committee has the authority, to the extent it deems necessary or
appropriate, to retain independent legal, accounting or other advisors. The
Committee shall also have the authority, to the extent it deems necessary or
appropriate, to ask the Corporation to provide the Committee with the support of
one or more Corporation employees to assist it in carrying out its duties.
The Committee has the sole authority to approve all audit engagement fees
and terms, as well as all permitted non-audit engagements with the independent
auditors. The Committee shall preapprove all auditing services and permitted
non-audit services (including the fees and terms thereof) to be performed for
the Corporation by the independent auditors, subject to the de minimis
exceptions for non-audit services described in Section 10A(i)(1)(B) of the
Exchange Act that are approved by the Committee prior to the completion of the
audit. In carrying out its duties under this paragraph, if the Committee
approves an audit service within the scope of engagement of the auditors, such
audit service shall be deemed to have been preapproved for purposes of this
paragraph.
The Corporation shall provide for appropriate funding, as determined by the
Committee, for payment of compensation to the independent auditors for the
purpose of rendering or issuing an audit report and to any advisors employed by
the Committee. The Committee may request any officer or employee of the
Corporation or the Corporation's outside counsel or independent auditors to
attend a meeting of the Committee or to meet with any members of, or consultants
to, the Committee.
The Committee is directly responsible for the appointment, compensation,
and oversight of the work of the independent auditors (including resolution of
disagreements between management and the auditors
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work. The independent auditors shall report directly to the
Committee. The General Auditor shall also report directly to the Committee,
which shall be responsible for preparing his or her performance evaluation and
reviewing his or her compensation.
II. PURPOSE OF THE COMMITTEE
The Committee's primary purpose is to:
- Provide assistance to the Board by monitoring (1) the integrity of the
financial statements of the Corporation, (2) the independent auditors'
qualifications and independence, (3) the performance of the
Corporation's internal audit function and independent auditors,
including with respect to both bank and non-bank subsidiaries, and (4)
the compliance by the Corporation with legal and regulatory requirements
and with the Corporation's Statement of Principles and Code of Ethics;
and
- Prepare the report required by the rules of the SEC to be included in
the Corporation's annual proxy statement.
The Committee will also, under applicable regulation, perform the duties
required by law to be performed by an audit committee for any subsidiary bank of
the Corporation that does not have its own audit committee and by a fiduciary
audit committee for any subsidiary bank of the Corporation exercising fiduciary
powers that does not have its own audit committee, in each case to the extent
permitted, and in the manner required, by applicable laws and regulations.
III. RESPONSIBILITIES OF THE COMMITTEE
THE FOLLOWING WILL BE THE COMMON RECURRING ACTIVITIES OF THE COMMITTEE IN
CARRYING OUT ITS OVERSIGHT FUNCTION. THESE ACTIVITIES ARE SET FORTH AS A GUIDE
WITH THE UNDERSTANDING THAT THE COMMITTEE MAY DIVERGE FROM THIS GUIDE AS IT
CONSIDERS APPROPRIATE IN THE CIRCUMSTANCES.
CHARTER REVIEW
- Review and reassess the adequacy of this charter annually and recommend
to the Board any proposed changes to this charter
FINANCIAL REPORTING / INTERNAL CONTROLS
- Review and discuss with the internal auditors and the independent
auditors their respective annual audit plans, reports and the results of
their respective audits
- Review and discuss with management and the independent auditors the
Corporation's quarterly financial statements prior to the filing of its
Form 10-Q, including the results of the independent auditors' reviews of
the quarterly financial statements
- Review and discuss with management and the independent auditors the
annual audited financial statements, including disclosures made in
management's discussion and analysis, and recommend to the Board whether
the audited financial statements should be included in the Corporation's
Form 10-K
- Discuss with management and the independent auditors any significant
financial reporting issues arising and any significant judgments made in
connection with the preparation of the Corporation's financial
statements, including any significant changes in the Corporation's
selection or application of accounting principles
- Review and discuss quarterly reports from the independent auditors
regarding:
- All critical accounting policies and practices to be used
A-2
- All alternative treatments of financial information within generally
accepted accounting principles ("GAAP") that have been discussed with
management, ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the independent
auditors
- Other material written communications between the independent
auditors and management, such as any management letter or schedule of
unadjusted differences
- Discuss with management, either specifically or by discussion of the
types of information to be disclosed and the types of presentation to be
made, the Corporation's earnings press releases, including the use of
"pro forma" or "adjusted" non-GAAP information and any earnings
guidance, as well as financial information provided to rating agencies
- Discuss with management and the independent auditors the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Corporation's financial statements
- Discuss with management the Corporation's major financial risk exposures
and the steps management has taken to monitor and control such
exposures, including the Corporation's risk assessment and risk
management policies
- Discuss with the independent auditors the matters required to be
discussed by Statement of Auditing Standards No. 61 relating to the
conduct of the audit, including any difficulties encountered in the
course of the audit work, any restrictions on the scope of activities or
access to requested information, and any significant disagreements with
management
- Request and receive a Statement on Auditing Standards No. 71 letter from
the independent auditors prior to the filing of each Form 10-Q and
receive a signed audit letter prior to the filing of each Form 10-K
- Discuss with the Corporation's independent auditors, internal auditors
and management their assessments of the adequacy of the Corporation's
internal controls, any significant deficiencies relating to financial
reporting, the design or operation of the Corporation's internal and
disclosure controls or other related matters, and any proposals or
special steps taken in order to rectify such deficiencies
- Monitor the Corporation's progress in promptly addressing and correcting
any and all identified deficiencies in financial reporting, internal
controls or related matters
- Receive periodic reports from the independent auditors and appropriate
officers of the Corporation on significant accounting or reporting
developments proposed by the Financial Accounting Standards Board or the
SEC that may impact the Corporation
- Receive periodic reports from the independent auditors and appropriate
officers of the Corporation on significant financial reporting and
internal controls matters for non-bank subsidiaries
- Meet periodically with regulators to discuss examination results and
promote open communication
- Review disclosures made to the Committee by the Corporation's CEO and
CFO during their certification process for the Form 10-K and Form 10-Q
about any significant deficiencies in the design or operation of
internal controls or material weaknesses therein or alleged fraud
(whether or not material) involving management or other employees who
have a significant role in the Corporation's internal controls
- Discuss with the Corporation's CEO and CFO the certifications they are
providing and understand the procedures they undertook
INDEPENDENT AUDITORS
- Select the independent auditors pursuant to a well-organized process
A-3
- Determine the compensation for and oversee the work of the independent
auditors (including resolution of disagreements between management and
the auditors regarding financial reporting) in preparing or issuing an
audit report or related work
- Review the experience and qualifications of the senior members of the
independent auditors' team and evaluate the performance of the lead
partner of the independent auditors' team
- Monitor the independence, qualifications and performance of the
independent auditors by, among other things:
- Obtaining and reviewing a report from the independent auditors at
least annually regarding (a) the auditors' internal quality-control
procedures, (b) any material issues raised by the most recent
quality-control review, or peer review, of the firm, or by any
inquiry or investigation by governmental or professional authorities
within the preceding five years respecting one or more independent
audits carried out by the firm, (c) any steps taken to deal with any
such issues, and (d) all relationships between the independent
auditors and the Corporation
- Evaluating the qualifications, performance and independence of the
independent auditors, including considering whether the auditors'
quality controls are adequate and whether the provision of non-audit
services is compatible with maintaining the auditors' independence,
and taking into account the opinions of management and the internal
auditors
- If so determined by the Committee, taking additional action to
satisfy itself of the qualifications, performance and independence of
the auditors
- Meet with the independent auditors prior to the audit to discuss the
planning and staffing of the audit
- Preapprove all auditing services and permitted non-audit services to be
performed for the Corporation by the independent auditors in accordance
with guidelines established by the Committee. In carrying out its duties
under this section, if the Committee approves an audit service within
the scope of engagement of the auditors, such audit service shall be
deemed to have been preapproved for purposes of this paragraph
- Oversee the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit and the audit partner responsible
for reviewing the audit at least once every five years and consider
whether, in order to assure continuing auditor independence, it is
appropriate to adopt a policy of rotating the auditing firm itself on a
regular basis
- Recommend to the Board policies for the Corporation's hiring of
employees or former employees of the independent auditors who
participated in any capacity in the audit of the Corporation, including
in particular the prohibition on employment under Section 10A(l) of the
Exchange Act as chief executive officer, controller, chief financial
officer, chief accounting officer, or any person serving in an
equivalent position for the Corporation, during the one-year period
preceding the date of the initiation of the audit
- Discuss with the national office of the independent auditors issues on
which it was consulted by the Corporation's audit team and any matters
of audit quality and consistency
- Ensure that the independent auditors have access to all necessary
Corporation resources
INTERNAL AUDIT FUNCTION
- Review the appointment and replacement of the General Auditor
- Discuss with the General Auditor the significant reports to management
prepared by the internal auditing department and management's responses
A-4
- Discuss with the General Auditor and the independent auditors the
internal audit department responsibilities, budget and staffing and any
recommended changes in the planned scope of the internal audit
- Ensure that the internal auditors have access to all necessary
Corporation resources
COMPLIANCE OVERSIGHT
- Discuss with the Chief Compliance Officer, the Chief Regulatory Officer,
and the General Auditor the Corporation's processes regarding compliance
with applicable laws and regulations and with the Corporation's
Statement of Principles and Code of Ethics and obtain reports from the
Chief Compliance Officer, the Chief Regulatory Officer, the General
Auditor and the independent auditors regarding compliance by the
Corporation and its subsidiary/foreign affiliated entities with
applicable legal requirements and the Corporation's Statement of
Principles and Code of Ethics
- Obtain from the independent auditors any reports required to be
furnished to the Committee under Section 10A of the Exchange Act or an
assurance that Section 10A(b) of the Exchange Act has not been
implicated
- Review procedures designed to identify related party transactions that
are material to the financial statements or otherwise require disclosure
- Establish procedures for (i) the receipt, retention and treatment of
complaints received by the Corporation regarding accounting, internal
accounting controls or auditing matters, and (ii) the confidential,
anonymous submission by employees of the Corporation of concerns
regarding questionable accounting or auditing matters
- Discuss with management and the independent auditors any correspondence
with regulators or governmental agencies and any employee complaints or
published reports which raise material issues regarding the
Corporation's financial statements or accounting policies or compliance
with the Corporation's Statement of Principles and Code of Ethics
- Discuss with the Corporation's General Counsel legal matters that may
have a material impact on the financial statements and with the
Corporation's Chief Compliance Officer legal matters that may have an
impact on the Corporation's compliance policies
SUBSIDIARIES OF THE CORPORATION
- Where the Committee is performing the duties required by law to be
performed by an audit committee for a subsidiary bank of the Corporation
that does not have its own audit committee, review with management and
the independent auditors the basis for the reports required to be filed
by management and by the independent auditors with the FDIC pursuant to
12 C.F.R. Sections 363.2(a) and (b) and Sections 363.3(a) and (b),
respectively
- Perform the duties required to be performed by the fiduciary audit
committee for any bank and non-bank subsidiary of the Corporation
exercising fiduciary powers that does not have its own audit committee,
in each case to the extent permitted, and in the manner required, by
applicable laws and regulations
GENERAL
- Meet as often as the Committee or the Committee Chair determines, but
not less frequently than quarterly
- Meet separately, periodically, with management, with the internal
auditors, and with the independent auditors
- Report to the Board on the Committee's activities, as appropriate
A-5
- Maintain minutes or other records of the Committee's meetings and
activities
- Review and assess the quality and clarity of the information provided to
the Committee and make recommendations to management as the Committee
deems appropriate from time to time for improving such materials
- Prepare the audit committee report to be included in the Corporation's
proxy statement when and as required by the rules of the SEC
- Annually review the performance of the Committee
The Committee's job is one of oversight as set forth in this charter. It is
not the duty of the Committee to prepare the Corporation's financial statements,
to plan or conduct audits, or to determine that the Corporation's financial
statements are complete and accurate and are in accordance with GAAP. The
Corporation's management is responsible for preparing the Corporation's
financial statements and for maintaining internal control, and the independent
auditors are responsible for auditing the financial statements. Nor is it the
duty of the Committee to conduct investigations or to assure compliance with
laws and regulations and the Corporation's Statement of Principles and Code of
Ethics.
With respect to joint sessions of the Committee:
(a) The Committee may meet simultaneously as a committee of the Corporation
and of PNC Bank, National Association (the "Bank"), though it should
hold separate sessions if necessary to address issues that are relevant
to one entity but not the other or to consider transactions between the
two entities or other matters where the Corporation and the Bank may
have different interests; and
(b) The Committee should consult with internal or outside counsel if, in
the opinion of the Committee, any matter under consideration by the
Committee has the potential for any conflict between the interests of
the Corporation and those of the Bank or the Corporation's other
subsidiaries in order to ensure that appropriate procedures are
established for addressing any such potential conflict and for ensuring
compliance with the Corporation's policies regarding Sections 23A and
23B of the Federal Reserve Act.
In performing their duties and responsibilities, Committee members are
entitled to rely in good faith on information, opinions, reports or statements
prepared or presented by:
- One or more officers or employees of the Corporation whom the Committee
member reasonably believes to be reliable and competent in the matters
presented;
- Counsel, independent auditors, or other persons as to matters which the
Committee member reasonably believes to be within the professional or
expert competence of such person; or
- Another committee of the Board as to matters within its designated
authority which committee the Committee member reasonably believes to
merit confidence.
A-6
HOLDER ACCOUNT NUMBER
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PROXY - THE PNC FINANCIAL SERVICES GROUP, INC.
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[A] ELECTION OF DIRECTORS PLEASE REFER TO THE REVERSE SIDE FOR
TELEPHONE, INTERNET & MAIL VOTING
INSTRUCTIONS.
1. The Board of Directors recommends a vote FOR all nominees listed in
Item 1. All shares, including full and partial shares of stock credited
to your Plan account, will be voted as directed below. In the absence
of instructions, all shares (including unallocated shares) will be voted
FOR all nominees listed in Item 1 or in the manner required or permitted
by the governing Plan documents.
FOR WITHHOLD
01 - Chellgren [ ] [ ]
02 - Clay [ ] [ ]
03 - Cooper [ ] [ ]
04 - Davidson [ ] [ ]
05 - Kelson [ ] [ ]
06 - Lindsay [ ] [ ]
07 - Massaro [ ] [ ]
08 - O'Brien [ ] [ ]
09 - Pepper [ ] [ ]
10 - Rohr [ ] [ ]
11 - Steffes [ ] [ ]
12 - Strigl [ ] [ ]
13 - Thieke [ ] [ ]
14 - Usher [ ] [ ]
15 - Washington [ ] [ ]
16 - Wehmeier [ ] [ ]
Will attend meeting [ ]
Will use Webcast [ ]
Will use Teleconference [ ]
I consent to access future annual reports, proxy statements
and other proxy soliciting material over the Internet as described
on the reverse side.
[B] AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR
YOUR INSTRUCTIONS TO BE EXECUTED.
Please sign exactly as your name appears to the left. Joint owners
should each sign. When signing on behalf of a corporation or partnership
or as attorney, executor, administrator, trustee or guardian, please give
full title as such.
Signature 1 - Please keep signature within the box
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Signature 2 - Please keep signature within the box
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Date (mm/dd/yyyy)
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[ ] 0099QE 6 U P X +
ADMISSION TICKET (Please bring this ticket NON-TRANSFERABLE
to the Annual Meeting) PLEASE ADMIT
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
THE PNC FINANCIAL SERVICES GROUP, INC.
2003 ANNUAL MEETING OF SHAREHOLDERS
For the purpose of considering and acting upon the election of 16 directors
to serve until the next annual meeting and until their successors are
elected and qualified and such other business as may properly come before
the meeting or any adjournment thereof.
TUESDAY, APRIL 22, 2003 -- 11:00 A.M. EASTERN TIME
ONE PNC PLAZA, 15TH FLOOR -- 249 FIFTH AVENUE
PITTSBURGH, PENNSYLVANIA
HOLDER ACCOUNT NUMBER
[PNC LOGO]
THE PNC FINANCIAL SERVICES GROUP
HOLDER ACCOUNT NUMBER
[ ] Mark this box with an X if you
have made changes to your name
or address details above.
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ANNUAL MEETING PROXY CARD
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS ON APRIL 22, 2003
James E. Rohr, Joseph C. Guyaux and Thomas R. Moore, and each of them with
full power to act alone and with full power of substitution, are hereby
authorized to represent the undersigned at The PNC Financial Services
Group, Inc. Annual Meeting of Shareholders to be held on April 22, 2003,
or at any adjournment thereof, and to vote, as indicated on the reverse
side, the shares of Common Stock and/or Preferred Stock which the
undersigned would be entitled to vote if personally present at said
meeting. The above named individuals are further authorized to vote such
stock upon any other business as may properly come before the meeting, or
any adjournment thereof, in accordance with their best judgment.
If you are a participant in the The PNC Financial Services Group, Inc.
Incentive Savings Plan, this proxy also serves as a voting instruction
card and directs PNC Bank, N.A., as Trustee of The PNC Financial Services
Group, Inc. Incentive Savings Plan to vote all the shares credited to your
account as indicated on the reverse side at the Annual Meeting of
Shareholders to be held on April 22, 2003 and at any adjournment(s)
thereof.
You have the option to access future annual reports, proxy statements, and
other proxy solicitation materials over the Internet, instead of receiving
those documents in paper form. Participation is voluntary. If you give your
consent, in the future when such material is available over the Internet,
you will receive notification which will contain the Internet location
where the material is available. The material will be presented in PDF
format. There is no cost to you for this service other than any changes
imposed by your Internet provider, telephone and/or cable company. Once
you give your consent, it will remain in effect until you inform us
otherwise in writing. You may revoke your consent, or request paper copies
of the material, at any time by notifying PNC's Corporate Secretary in
writing at One PNC Plaza, 249 Fifth Avenue -- 21st Floor, Pittsburgh, PA
15222-2707.
To give your consent, follow the prompts when you vote by telephone or
over the Internet or check the appropriate box located at the bottom of the
reverse side when you vote by mail.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
[ ] 5 U P X +
TELEPHONE, INTERNET & MAIL VOTING INSTRUCTIONS
SUBMIT VOTING INSTRUCTIONS 24 HOURS A DAY, 7 DAYS A WEEK!
PLEASE SUBMIT YOUR VOTING INSTRUCTIONS AS SOON AS POSSIBLE.
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[PHONE] TO VOTE USING THE TELEPHONE (WITHIN U.S. AND CANADA)
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- Call toll free 1-866-290-9740 in the United States or Canada any time on
a touch tone telephone. There is NO CHARGE to you for the call.
- Enter the HOLDER ACCOUNT NUMBER (excluding the letter "C") and PROXY
ACCESS NUMBER located below.
- Follow the simple recorded instructions.
Option 1: To vote as the Board of Directors recommends on ALL proposals:
Press 1.
When asked, please confirm your vote by pressing 1.
Option 2: If you choose to vote on
EACH proposal or Director nominee separately,
press 0 and follow the simple recorded instructions.
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[COMPUTER MOUSE] TO VOTE USING THE INTERNET
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- Go to the following web site:
WWW.COMPUTERSHARE.COM/US/PROXY
- Enter the information requested on your computer screen and follow the
simple instructions.
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[MAILBOX] TO VOTE BY MAIL
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- Mark, sign and date the proxy card.
- Return the proxy card in the postage-paid envelope provided.
HOLDER ACCESS NUMBER PROXY ACCESS NUMBER
If you vote by telephone or the Internet, please DO NOT mail back this
proxy card.
Proxies submitted by telephone or the Internet must be received by 12:00
midnight, Central Time, on April 21, 2003.
THANK YOU FOR VOTING
0099PD
013PN40001