PNC Bank 2010 Annual Report Download - page 165
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Please find page 165 of the 2010 PNC Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Payment of the option exercise price may be in cash or shares
of common stock at market value on the exercise date. The
exercise price may be paid in previously owned shares.
Generally, options granted under the Incentive Plans 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 FASB ASC 718, Stock
Compensation, 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. We recognize compensation expense for
options granted to retirement-eligible employees after
January 1, 2006 during the first twelve months subsequent to
the grant, in accordance with the service period provisions of
the options.
O
PTION
P
RICING
A
SSUMPTIONS
For purposes of computing stock option expense, we
estimated the fair value of stock options primarily by using the
Black-Scholes option-pricing model. Option pricing models
require the use of numerous assumptions, many of which are
very subjective.
We used the following assumptions in the option pricing
models to determine 2010, 2009 and 2008 option expense:
• The risk-free interest rate is based on the US
Treasury yield curve,
• The dividend yield represents average yields over the
previous three-year period, except for 2009 and 2010
where (starting with the grants made after the first
quarter of 2009) we used a yield indicative of our
currently reduced dividend rate,
• Volatility is measured using the fluctuation in
month-end closing stock prices over a period which
corresponds with the average expected option life,
but in no case less than a five-year period, and
• The expected life assumption represents the period of
time that options granted are expected to be
outstanding and is based on a weighted average of
historical option activity.
Option Pricing Assumptions
Weighted-average for the
year ended December 31 2010 2009 2008
Risk-free interest rate 2.9% 1.9% 3.1%
Dividend yield 0.7 3.5 3.3
Volatility 32.7 27.3 18.5
Expected life 6.0 yrs. 5.6 yrs. 5.7 yrs.
Grant date fair value $ 19.54 $ 5.73 $ 7.27
Stock Option Rollforward—2010
PNC
PNC Options
Converted From
National City Total
Year ended December 31, 2010
In thousands, except weighted-average data Shares
Weighted-
Average
Exercise
Price Shares
Weighted-
Average
Exercise
Price Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Outstanding, January 1 18,496 $56.10 1,522 $637.64 20,018 $100.32
Granted 2,786 56.77 2,786 56.77
Exercised (315) 46.04 (315) 46.04
Cancelled (1,142) 56.01 (308) 477.98 (1,450) 145.55
Outstanding, December 31 19,825 $56.36 1,214 $678.09 21,039 $ 92.25 5.3 years $164,971
Vested and expected to vest—December 31 (a) 19,492 $56.39 1,214 $678.09 20,706 $ 92.85 5.3 years $161,896
Exercisable, December 31 12,183 $62.40 1,214 $678.09 13,397 $118.21 3.6 years $ 51,122
(a) Adjusted for estimated forfeitures on unvested options.
To determine stock-based compensation expense, the grant-
date fair value is applied to the options granted with a
reduction made for estimated forfeitures. We recognized
compensation expense for stock options on a straight-line
basis over the pro rata vesting period.
At December 31, 2009 and 2008, options for 12,722,000 and
11,373,000 shares of common stock, respectively, were
exercisable at a weighted-average price of $132.52 and
$151.03, respectively. The total intrinsic value of options
exercised during 2010, 2009 and 2008 was $5 million, $1
million and $59 million, respectively.
Cash received from option exercises under all Incentive Plans
for 2010, 2009 and 2008 was approximately $15 million, $5
million and $167 million, respectively. The actual tax benefit
realized for tax deduction purposes from option exercises
under all Incentive Plans for 2010, 2009 and 2008 was
approximately $5 million, $2 million and $58 million,
respectively.
There were no options granted in excess of market value in
2010, 2009 or 2008. Shares of common stock available during
the next year for the granting of options and other awards
under the Incentive Plans were 28,189,113 at December 31,
2010. Total shares of PNC common stock authorized for
157