PNC Bank 2009 Annual Report Download - page 155

Series A through D are cumulative and, except for Series B,
are redeemable at our option. Annual dividends on Series A, B
and D preferred stock total $1.80 per share and on Series C
preferred stock total $1.60 per share. Holders of Series A
through D preferred stock are entitled to a number of votes
equal to the number of full shares of common stock into which
such preferred stock is convertible. Series A through D
preferred stock have the following conversion privileges:
(i) one share of Series A or Series B is convertible into eight
shares of PNC common stock; and (ii) 2.4 shares of Series C
or Series D are convertible into four shares of PNC common
stock.
TARP Warrant
A warrant issued to the US Treasury in connection with the
preferred stock described above enables the US Treasury to
purchase up to approximately 16.9 million shares of PNC
common stock at an exercise price of $67.33 per share. The
warrant is immediately exercisable in full or in part and
expires on December 31, 2018.
The proceeds from the issuance of the preferred stock to the
US Treasury were allocated based on the fair values of the
warrant and the preferred stock. The fair value of the warrant
was determined using a Black-Scholes valuation model. The
model incorporates assumptions regarding our common stock
price, dividend yield, stock price volatility, as well as
assumptions regarding the risk-free interest rate. Using this
model, the warrant was valued at $304 million at
December 31, 2008 and is included in Capital surplus –
common stock and other on our Consolidated Balance Sheet.
The fair value of the preferred stock was determined based on
assumptions regarding the discount rate (market rate) on the
preferred stock, which was estimated to be approximately
13%. The discount on the preferred stock is being accreted to
par value using a constant effective yield of 6% over a five-
year period, which was the expected life of the preferred stock
at issuance. The accretion of discount on these shares
increased Capital surplus – preferred stock and reduced
Retained earnings on our Consolidated Balance Sheet by
approximately $54 million at December 31, 2009.
See Note 28 Subsequent Events regarding accretion to be
recognized in the first quarter of 2010 in connection with the
February 2010 redemption of the Series N preferred stock and
other matters.
National City Warrants
As part of the National City transaction, warrants issued by
National City converted into warrants to purchase PNC
common stock. The holder has the option to exercise 28,022
warrants, on a daily basis, commencing June 15, 2011 and
ending on July 15, 2011, and 28,023 warrants, on a daily
basis, commencing July 18, 2011 and ending on October 20,
2011. The strike price of these warrants is $750 per share.
Upon exercise, PNC will deliver common shares with a
market value equal to the number of warrants exercised
multiplied by the excess of the market price of PNC common
stock over the strike price. The maximum number of shares
that could be required to be issued is approximately
5.0 million, subject to adjustment in the case of certain events,
make-whole fundamental changes or early termination. PNC
has reserved 5.0 million shares for issuance pursuant to the
warrants and 3.6 million shares for issuance pursuant to the
related convertible senior notes.
Other Shareholders’ Equity Matters
We have a dividend reinvestment and stock purchase plan.
Holders of preferred stock and PNC common stock may
participate in the plan, which provides that additional shares
of common stock may be purchased at market value with
reinvested dividends and voluntary cash payments. Common
shares issued pursuant to this plan were: 534,515 shares in
2009, 716,819 shares in 2008 and 571,271 shares in 2007.
At December 31, 2009, we had reserved approximately
121.9 million common shares to be issued in connection with
certain stock plans and the conversion of certain debt and
equity securities.
Effective October 4, 2007, our Board of Directors approved a
stock repurchase program to purchase up to 25 million shares
of PNC common stock on the open market or in privately
negotiated transactions. This program will remain in effect
until fully utilized or until modified, superseded or terminated.
We did not repurchase any shares during 2009 or 2008 under
this program.
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