PNC Bank 2001 Annual Report Download - page 87

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INCENTIVE SHARE AND RESTRICTED STOCK AWARDS
In 1998, incentive share awards potentially representing
362,250 shares of common stock were granted to certain
senior executives pursuant to the Incentive Plan. Issuance
of restricted shares pursuant to these incentive awards was
subject to the market price of PNC’s common stock
equaling or exceeding specified levels for defined periods.
In 2001, 104,250 of these shares were issued. The
remaining shares expired and will not be issued under this
award. The restricted period ends July 1, 2003. During the
restricted period, the recipient receives dividends and can
vote the shares. Generally, if the recipient leaves the
Corporation before the end of the restricted period, the
shares will be forfeited.
In 2000, 606,000 incentive shares of common stock
were granted to certain senior executives pursuant to the
Incentive Plan. One-half of any shares of restricted stock
issued pursuant to these awards will vest after three years
and the remainder after four years. Shares awarded under
this grant will be offset on a share-for-share basis by shares
received, if any, by the executive from the 1998 grant.
There were 39,000 and 66,000 incentive shares
forfeited during 2001 and 2000, respectively. No shares
were forfeited in 1999.
In addition, 33,600, 53,100 and 37,500 shares of
restricted stock were granted to certain key employees in
2001, 2000 and 1999, respectively. These shares vest 25%
after three years, 25% after four years and 50% after five
years. There were 13,000 shares of restricted stock granted
to non-employee directors in 2001. One half of these
shares vest after one year and the remainder after two
years. In 2000, 245,000 shares of restricted stock were
granted to senior executives with a three-year vesting
period.
Compensation expense recognized for incentive share
and restricted stock awards totaled $10 million, $8 million
and $12 million in 2001, 2000 and 1999, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Corporation’s employee stock purchase plan (“ESPP”)
has approximately 2.6 million shares available for issuance.
Persons who have been continuously employed for at least
one year are eligible to participate. Participants purchase
the Corporation’s common stock at 85% of the lesser of
fair market value on the first or last day of each offering
period. No charge to earnings is recorded with respect to
the ESPP.
Shares issued pursuant to the ESPP were as follows:
Year ended December 31 Shares Price Per Share
2001 395,217 $55.57 and $49.26
2000 504,988 42.82 and 45.53
1999 406,740 43.99 and 47.39
PRO FORMA EFFECTS
The following table sets forth pro forma income from
continuing operations and diluted earnings per share as if
compensation expense was recognized for stock options
and the ESPP.
Pro Forma Income From Continuing Operations And EPS
Year ended December 31 Re
p
orted Pro forma
Income from continuing
operations (in millions)
2001 $377 $344
2000 1,214 1,196
1999 1,202 1,194
D
iluted earnings per share
2001 $1.26 $1.14
2000 4.09 4.02
1999 3.94 3.92
For purposes of computing pro forma results, PNC
estimated the fair value of stock options and ESPP shares
using the Black-Scholes option pricing model.
The model requires the use of numerous assumptions,
many of which are highly subjective in nature. Therefore,
the pro forma results are estimates of results of operations
as if compensation expense had been recognized for all
stock-based compensation plans and are not indicative of
the impact on future periods. The following assumptions
were used in the option pricing model for purposes of
estimating pro forma results. The dividend yield represents
average yields over the previous three-year period.
Volatility is measured using the fluctuation in quarter-end
closing stock prices over a five-year period.
Option Pricing Assumptions
Year ended December 31 2001 2000 1999
Risk-free interest rate 4.9% 6.6% 5.2%
Dividend yield 3.2 3.1 3.6
Volatility 25.7 21.8 22.1
Expected life 5 yrs. 5 yrs. 6 yrs.