PNC Bank 2002 Annual Report Download - page 99

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97
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 if certain performance targets are
met. 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 239,250, 39,000 and 66,000 incentive shares
forfeited during 2002, 2001 and 2000, respectively.
In addition, 52,000, 33,600 and 53,100 shares of restricted
stock were granted to certain key employees in 2002, 2001 and
2000, respectively. These shares vest 25% after three years,
25% after four years and 50% after five years. Shares forfeited
were 6,800, 22,725, and 8,438 in 2002, 2001, and 2000,
respectively.
In 2002, a total of 109, 138 shares of restricted stock were
granted to senior executives with vesting periods ranging from
24 months to 50 months. Of these, 1,551 shares were forfeited
in 2002.
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 2002,
1,000 of these shares were forfeited. In 2000, 245,000 shares
of restricted stock were granted to senior executives with a
three-year vesting period. Of these, 35,000 shares were
forfeited in 2002.
Compensation expense recognized for incentive share and
restricted stock awards totaled ($1 million), $10 million and $8
million in 2002, 2001 and 2000, respectively. The net credit to
expense in 2002 was due to forfeitures and adjustments of
accruals related to performance-based awards under the
Incentive Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Corporation’s ESPP has approximately 2.2 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:
Y
ear ended December 31 Shares Price Per Share
2002 449,222 $47.81 and $35.87
2001 395,217 55.57 and 49.26
2000 504,988 42.82 and 45.53
PRO FORMA EFFECTS
A table that sets forth pro forma income from continuing
operations and basic and diluted earnings per share as if
compensation expense was recognized under SFAS 123 for
stock options and the ESPP for 2002, 2001 and 2000 is
included in Note 1 Accounting Policies.
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 2002 2001 2000
Risk-free interest rate 4.4% 4.9% 6.6%
Dividend yield 3.5 3.2 3.1
Volatility 26.7 25.7 21.8
Expected life 5 yrs. 5 yrs. 5 yrs.