Exhibit 99.1
UNITED STATES OF AMERICA
BEFORE THE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
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Written Agreement by and between :
: Docket No. 02-011-WA/▇▇-▇▇
THE PNC FINANCIAL SERVICES :
GROUP, INC. :
Pittsburgh, Pennsylvania :
:
and :
:
FEDERAL RESERVE BANK :
OF CLEVELAND :
Cleveland, Ohio :
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WHEREAS, the Board of Governors of the Federal Reserve System (the
"Board") seeks to address matters at The PNC Financial Services Group, Inc.,
Pittsburgh, Pennsylvania ("PNC"), a bank holding company, relating to compliance
with generally accepted accounting principles ("GAAP"); consolidation of assets
of special purpose entities on PNC's regulatory reports and public financial
statements; corporate governance policies and practices; and provision of
sufficient and timely information to bank holding company supervisors;
WHEREAS, in furtherance of the common goal of the Board and PNC to
ensure that PNC has implemented all necessary risk management systems, internal
controls, and compliance procedures to assure the continued safe and sound
operation of PNC and its nonbank subsidiaries and to comply with all applicable
laws, rules, and regulations, PNC's board of directors has adopted an Action
Plan designed to improve PNC's management structure, corporate governance, risk
management practices, regulatory communications, and internal controls;
WHEREAS, PNC and the Federal Reserve Bank of Cleveland (the "Reserve
Bank") have mutually agreed to enter into this Written Agreement (the "Board
Agreement"); and
WHEREAS, on July 2, 2002, the board of directors of PNC adopted a
resolution authorizing and directing ▇▇▇▇▇ ▇. ▇▇▇▇ to enter into the Board
Agreement on behalf of PNC and consenting to compliance by the board of
directors of PNC and PNC's institution-affiliated parties, as defined in
sections 3(u) and 8(b)(3) of the Federal
Deposit Insurance Act (the "FDI Act") (12 U.S.C. 1813(u) and 1818(b)(3)), to
comply with each and every provision of the Board Agreement.
NOW, THEREFORE, the Reserve Bank and PNC agree as follows:
MANAGEMENT
1. (a) Within 10 days of the Board Agreement, to the extent not already
provided, PNC shall provide to the Reserve Bank for its review copies of PNC's
engagement letters with the consultants hired prior to the date of the Board
Agreement to address the areas of risk management, capital planning, corporate
governance, and internal controls.
(b) Within 30 days of the Board Agreement, PNC's board of
directors shall engage an independent consultant (the "Corporate Consultant")
acceptable to the Reserve Bank to conduct a review of the structure, functions,
and performance of PNC's management and the board of directors oversight of
management activities (the "Corporate Review"), and to prepare a written report
(the "Corporate Consultant's Report") that includes findings, conclusions, and
written descriptions of any management or operational changes recommended as a
result of the Corporate Review. The board of directors may engage a
consultant(s) who has been previously retained to conduct the review required by
this paragraph. The primary purpose of the Corporate Review shall be to assist
the board of directors in the development of a management structure that is
adequately staffed by qualified and trained personnel suitable to PNC's needs.
The Corporate Review shall, at a minimum, address, consider, and include:
(i) Board of directors' oversight of management
activities and major operations of PNC, and the information provided to the
board of directors in conducting its oversight;
(ii) services rendered to PNC by independent advisers
in all areas with respect to audit services and advice on complex financial
transactions and the controls in place for hiring and retaining such advisers to
ensure that PNC receives competent, independent services; and
(iii) compliance with PNC's policies and procedures
relating to internal reporting and approval protocols and relations with bank
holding company supervisors as it relates to the three PAGIC transactions in
2001, in which PNC transferred certain loans and other assets to special purpose
entities.
(c) Within 10 days of the engagement of the Corporate
Consultant, but prior to the commencement of the Corporate Review, PNC shall
submit to the Reserve Bank for approval an engagement letter that delineates:
(i) the scope of the Corporate
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Review; (ii) the date of submission of the Corporate Consultant's Report, not to
exceed 90 days after the date of the Reserve Bank's approval of the engagement
letter; and (iii) the proposed resources to be dedicated to the Corporate
Review.
(d) PNC shall fully cooperate with the Corporate Consultant
and agrees that the Corporate Consultant will have complete access to all
employees, books, records, documents, and communications necessary to conduct
the Corporate Review. A copy of the Corporate Consultant's Report shall be
provided to the Reserve Bank at the same time that it is provided to PNC, and
all information including, but not limited to, work papers, programs and
procedures related to the Corporate Review shall be made available to the
Reserve Bank by the Corporate Consultant upon request.
(e) Within 60 days after PNC's receipt of the Corporate
Consultant's Report, PNC shall submit a written management plan to the Reserve
Bank describing specific actions that the board of directors proposes to take to
fully address the findings and recommendations of the Corporate Consultant's
Report.
2. Within 180 days of completion of the Corporate Consultant's Report,
and thereafter not less frequently than semi-annually, the board of directors
shall review management's adherence to PNC's written policies and procedures in
the areas of risk management, internal controls, corporate governance, financial
and regulatory reporting, and compliance, and shall prepare written findings and
conclusions of this review along with written descriptions of any management or
operational changes that are made as a result of the review. These written
findings shall be included in the minutes of the board of directors meetings and
maintained for subsequent review by bank holding company supervisors.
REGULATORY COMMUNICATIONS AND COOPERATION
3. Within 90 days of the Board Agreement, PNC shall submit to the
Reserve Bank an acceptable written plan designed to ensure the continued
improvement and ongoing effectiveness of communications with bank holding
company supervisors. The plan shall, at a minimum, address, consider, and
include:
(a) Identification of the individuals at PNC who will have
primary responsibility for ensuring full cooperation between PNC and the Reserve
Bank, and the scope of duties of each such individual;
(b) complete and prompt access to all documentation requested
by the Reserve Bank as needed to fulfill regulatory and supervisory
responsibilities;
(c) complete and prompt access to all PNC staff and management
upon request by the Reserve Bank;
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(d) meetings with the board of directors or committees thereof
upon the request of the Reserve Bank;
(e) regular meetings with the Reserve Bank to ensure that new
business initiatives, proposed complex transactions involving third party
advisers, and other material events are disclosed and discussed; and
(f) training for PNC personnel designed to improve
communication and cooperation with the Reserve Bank.
RISK MANAGEMENT
4. Within 90 days of the Board Agreement, PNC shall submit to the
Reserve Bank an acceptable written plan designed to strengthen and improve
management of the overall risk exposures of the consolidated organization. The
plan shall, at a minimum, address, consider, and include:
(a) Enhanced policies and procedures designed to identify,
assess, manage, and monitor risk exposures of the consolidated organization,
including but not limited to, the areas of market, credit, operational,
liquidity, legal and reputational risks;
(b) board of directors and management oversight designed to
ensure adherence to risk management policies and procedures;
(c) management information systems and reporting procedures
designed to ensure that appropriate management personnel, the board of
directors, and its committees receive timely and accurate reports necessary to
effectively manage risks and correct weaknesses and deficiencies;
(d) internal controls designed to effectively manage risks and
observe acceptable risk parameters;
(e) capital maintenance policies that include, at a minimum,
(i) cash flow guidelines; (ii) guidelines for minimum and maximum levels of
retained earnings, dividend payments, and repurchases of treasury stock; and
(iii) guidelines for levels of debt throughout the consolidated organization
that take into consideration the terms of existing borrowings, any anticipated
future borrowings, and planned sources for repayment; and
(f) enhanced policies and procedures for compliance with all
applicable banking and securities laws and regulations, including but not
limited to,
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(i) restrictions on holding property under section 4(c)(2) of the Bank Holding
Company Act; (ii) sections 23A and 23B of the Federal Reserve Act; and (iii) any
commitments or conditions imposed by the Board in connection with the granting
of any application or other request by PNC.
INTERNAL CONTROLS
5. Within 90 days of the Board Agreement, PNC shall submit to the
Reserve Bank acceptable written procedures designed to enhance and maintain
PNC's internal controls. These procedures shall, at a minimum, address,
consider, and include:
(a) The completeness and accuracy of books and records of PNC,
including consistent application of GAAP;
(b) appropriate segregation of duties in PNC's operations;
(c) public financial disclosures as required by applicable
banking and securities laws and regulations; and
(d) full reports to the board of directors or the appropriate
committee thereof on any material transaction.
FINANCIAL STATEMENTS AND REGULATORY REPORTS
6. PNC shall take actions designed to ensure that all balance sheet and
income statements are reconciled on at least a monthly basis and reflect all
transactions as necessary to ensure accurate regulatory reporting and
disclosures required under banking and securities laws. Records of such
reconcilements shall be maintained for internal and external audit review and
for subsequent supervisory review.
7. PNC shall ensure that all regulatory reports, including Forms Y-9C,
accurately reflect PNC's condition on the date for which it is filed and all
material transactions undertaken by the bank holding company and its
subsidiaries, and that all records indicating how the report was prepared are
maintained for subsequent supervisory review.
NONBANK SUBSIDIARY POLICIES
8. Within 60 days of the Board Agreement, PNC shall submit to the
Reserve Bank an acceptable revised written policy for any extension of credit by
a nonbank subsidiary of PNC. The policy shall, at a minimum, address, consider
and include:
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(a) The establishment of reporting, review, and approval
procedures to and by the appropriate board of directors;
(b) required documentation and procedures, including pricing
support, repayment analysis, collateral analysis, obligor and facility risk
ratings, and loan agreement covenant requirements; and
(c) ongoing maintenance of credit quality support information,
including minimum time frames for risk rating reviews, for updating financial
information and for inclusion in all corporate loan loss reserve analyses.
EFFECT AND TERMS OF BOARD AGREEMENT
9. The written plans, policies, and procedures and the engagement
letter required by paragraphs 1(c), 3, 4, 5, and 8 of the Board Agreement shall
be submitted to the Reserve Bank for review and approval. Acceptable plans,
policies, and procedures and an acceptable engagement letter shall be submitted
within the time periods set forth in the Board Agreement. PNC shall adopt the
approved plans, policies, and procedures and the approved engagement letter
within 10 days of approval by the Reserve Bank and then shall fully comply with
them. During the term of the Board Agreement, the approved plans, policies, and
procedures and the engagement letter shall not be amended or rescinded without
the prior written approval of the Reserve Bank.
10. Within 30 days after the end of each calendar quarter (September
30, December 31, March 31, and June 30) following the date of the Board
Agreement, PNC shall furnish a written progress report detailing the form and
manner of all actions taken to secure compliance with the provision of the Board
Agreement, and the results thereof, to the Reserve Bank.
11. All communications regarding the Board Agreement shall be sent to:
(a) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
The PNC Financial Services Group, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
(b) ▇. ▇▇▇▇▇ ▇▇▇▇▇
Senior Vice President
Federal Reserve Bank of Cleveland
P.O. Box 6387
Cleveland, OH 44101-1387
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12. The provisions of the Board Agreement shall be binding on PNC and
each of its institution-affiliated parties in their capacities as such, and
their successors and assigns.
13. Each provision of the Board Agreement shall remain effective and
enforceable until stayed, modified, terminated, or suspended by the Reserve
Bank.
14. Notwithstanding any provision of the Board Agreement, the Reserve
Bank may, in its discretion, grant written extensions of time to PNC to comply
with any provision of the Board Agreement.
15. The provisions of the Board Agreement shall not bar, estop or
otherwise prevent the Board, the U.S. Securities and Exchange Commission or any
other federal or state agency or department from taking any other action
affecting PNC or any of its current or former institution-affiliated parties and
their successors and assigns.
16. The Board Agreement is a "written agreement" for the purposes of,
and is enforceable by the Board as an order issued under, section 8 of the FDI
Act (12 U.S.C. 1818).
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IN WITNESS WHEREOF, the parties have caused the Board Agreement to be
executed as of the 12th day of July , 2002.
The PNC Financial Services Group, Inc. Federal Reserve Bank of Cleveland
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇ /s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇
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▇. ▇▇▇▇▇ ▇▇▇▇▇
Senior Vice President
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