PNC Bank 2005 Annual Report Download - page 100

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amendment, only participants age 50 or older were permitted to
exercise this diversification option. Employee benefits expense
related to this plan was $47 million in 2005, $48 million in
2004 and $49 million in 2003. We measured employee benefits
expense as the fair value of the shares and cash contributed to
the plan by PNC.
Additionally, Hilliard Lyons sponsors a contributory, qualified
defined contribution plan that covers substantially all of its
employees who are not covered by the plan described above.
Contributions to this plan are made in cash and include a base
contribution for those participants employed at December 31, a
matching of employee contributions, and a discretionary profit
sharing contribution as determined by Hilliard Lyons’
Executive Compensation Committee. Employee benefits
expense for this plan was $6 million in 2005 and $5 million in
both 2004 and 2003.
Effective July 1, 2004, we adopted a separate qualified defined
contribution plan that covers substantially all US-based PFPC
employees not covered by our plan. The plan is a 401(k) plan
and includes an ESOP feature. Under this plan, employee
contributions of up to 6% of eligible compensation as defined
by the plan may be matched annually based on PFPC
performance levels. Participants must be employed as of
December 31 of each year to receive this annual contribution.
The performance-based employer matching contribution will be
made primarily in shares of PNC common stock held in
treasury, except in the case of those participants who have
exercised their diversification election rights to have their
matching portion in other investments available within the plan.
Mandatory employer contributions to this plan are made in cash
and include employer basic and transitional contributions.
Employee-directed contributions are invested in a number of
investment options available under the plan, including a PNC
common stock fund and several BlackRock mutual funds, at the
direction of the employee. Effective November 22, 2005, we
amended the plan to provide all participants the ability to
diversify the matching portion of their plan account invested in
shares of PNC common stock into other investments available
within the plan. Prior to this amendment, only participants age
50 or older were permitted to exercise this diversification
option. Employee benefits expense for this plan, which was
effective July 1, 2004, was $12 million in 2005 and $5 million
for 2004. We measured employee benefits expense as the fair
value of the shares and cash contributed to the plan.
We also maintain a nonqualified supplemental savings plan for
certain employees.
NOTE 18 STOCK-BASED COMPENSATION
PLANS
We have a long-term incentive award plan (“Incentive Plan”)
that provides for the granting of incentive stock options,
nonqualified stock options, stock appreciation rights,
performance units, and restricted stock and other incentive
shares to executives and, other than incentive stock options, to
non-employee directors. In any given year, the number of
shares of PNC common stock available for grant under the
Incentive Plan is limited to no more than 3% of total issued
shares of common stock determined at the end of the preceding
calendar year. Of this amount, no more than 20% is available
for restricted stock and other incentive share awards.
As of December 31, 2005 no incentive stock options, stock
appreciation rights or performance unit awards were
outstanding.
NONQUALIFIED STOCK OPTIONS
Options are granted at exercise prices not less than the market
value of common stock on the date of grant. Generally, options
granted since 1999 become exercisable in installments after the
grant date. Options granted prior to 1999 are mainly
exercisable 12 months after the grant date. No option may be
exercisable after 10 years from its grant date. Payment of the
option price may be in cash or previously owned shares of
common stock at market value on the exercise date.
Generally, options granted under the Incentive Plan vest ratably
over a three-year period as long as the grantee remains an
employee or, in certain cases, retires from PNC. For all options
granted prior to the adoption of SFAS 123(R), we recognized
compensation expense over the three-year vesting period. If an
employee retired prior to the end of the three-year vesting
period, we accelerated the expensing of all unrecognized
compensation costs at the retirement date. As required upon
adoption of SFAS 123(R), we will recognize compensation
expense for options granted to retirement-eligible employees
after January 1, 2006 within the first year of the grant date, in
accordance with the service period provisions of the Incentive
Plan.
A summary of stock option activity follows:
Per Option
Shares in thousands
Exercise Price
Weighted-
Average
Exercise
Price
Shares
January 1, 2003 $21.75 – 76.00 $55.33 15,541
Granted 43.41 – 54.07 44.41 4,080
Exercised 21.75 – 54.72 36.85 (730)
Terminated 29.25 – 74.59 54.10 (501)
December 31, 2003 21.75 – 76.00 53.67 18,390
Granted 49.66 – 57.42 53.94 2,301
Exercised 21.75 – 57.10 42.44 (1,354)
Terminated 38.17 – 74.59 58.38 (602)
December 31, 2004 29.06 – 76.00 54.37 18,735
Granted 52.36 – 64.26 53.83 2,439
Exercised 29.06 – 63.25 46.31 (2,439)
Terminated 37.43 – 74.59 57.33 (443)
December 31, 2005 31.13 – 76.00 55.30 18,292