PNC Bank 2010 Annual Report Download - page 167
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Please find page 167 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.six-month offering period. Eligible participants may purchase
our common stock at 95% of the fair market value on the last
day of each six-month offering period. No charge to earnings
is recorded with respect to the ESPP.
Employee Stock Purchase Plan – Summary
Year ended December 31 Shares Issued Purchase Price Per Share
2010 147,177 $53.68 and $57.68
2009 158,536 36.87 and 50.15
2008 133,563 54.25 and 46.55
B
LACK
R
OCK
LTIP
AND
E
XCHANGE
A
GREEMENTS
BlackRock adopted the 2002 LTIP program to help attract and
retain qualified professionals. At that time, PNC agreed to
transfer up to four million of the shares of BlackRock
common stock then held by us to help fund the 2002 LTIP and
future programs approved by BlackRock’s board of directors,
subject to certain conditions and limitations. As of
December 31, 2010, approximately 1.1 million shares of
BlackRock common stock were transferred by PNC and
distributed to LTIP participants.
BlackRock granted awards in 2007 under an additional LTIP
program. Since BlackRock has achieved the earnings
performance goals related to these awards, the awards will
vest on September 29, 2011, the end of the service condition.
Of the shares of BlackRock common stock that we have
agreed to transfer to fund their LTIP programs, approximately
1.6 million shares have been committed to fund the awards
vesting in 2011 and the amount remaining would then be
available to fund future awards.
PNC’s noninterest income included pretax gains of $98
million in 2009 and $243 million in 2008 related to our
BlackRock LTIP shares obligation. These gains represented
the mark-to-market adjustment related to our remaining
BlackRock LTIP common shares obligation and resulted from
the decrease in the market value of BlackRock common shares
in those periods.
As previously reported, PNC entered into an Exchange
Agreement with BlackRock on December 26, 2008. The
transactions that resulted from this agreement restructured
PNC’s ownership of BlackRock equity without altering, to
any meaningful extent, PNC’s economic interest in
BlackRock. PNC continues to be subject to the limitations on
its voting rights in its existing agreements with BlackRock.
Also on December 26, 2008, BlackRock entered into an
Exchange Agreement with Merrill Lynch in anticipation of the
consummation of the merger of Bank of America Corporation
and Merrill Lynch that occurred on January 1, 2009. The PNC
and Merrill Lynch Exchange Agreements restructured PNC’s
and Merrill Lynch’s respective ownership of BlackRock
common and preferred equity.
The exchange contemplated by these agreements was
completed on February 27, 2009. On that date, PNC’s
obligation to deliver its BlackRock common shares to
BlackRock was replaced with an obligation to deliver shares
of BlackRock’s new Series C Preferred Stock. PNC acquired
2.9 million shares of Series C Preferred Stock from
BlackRock in exchange for common shares on that same date.
PNC accounts for its BlackRock Series C Preferred Stock at
fair value, which offsets the impact of marking-to-market the
obligation to deliver these shares to BlackRock. The fair value
of the BlackRock Series C Preferred Stock is included on our
Consolidated Balance Sheet in the caption Other assets.
Additional information regarding the valuation of the
BlackRock Series C Preferred Stock is included in Note 8.
N
OTE
16 F
INANCIAL
D
ERIVATIVES
We use derivative financial instruments (derivatives)
primarily to help manage exposure to interest rate, market and
credit risk and reduce the effects that changes in interest rates
may have on net income, fair value of assets and liabilities,
and cash flows. We also enter into derivatives with customers
to facilitate their risk management activities.
Derivatives represent contracts between parties that usually
require little or no initial net investment and result in one party
delivering cash or another type of asset to the other party
based on a notional amount and an underlying as specified in
the contract. Derivative transactions are often measured in
terms of notional amount, but this amount is generally not
exchanged and it is not recorded on the balance sheet. The
notional amount is the basis to which the underlying is applied
to determine required payments under the derivative contract.
The underlying is a referenced interest rate, commonly
LIBOR, security price, credit spread or other index. Certain
contracts and commitments, such as residential and
commercial real estate loan commitments associated with
loans to be sold, also qualify as derivative instruments.
All derivatives are carried on our Consolidated Balance Sheet
at fair value. Derivative balances are presented on a net basis
taking into consideration the effects of legally enforceable
master netting agreements. Cash collateral exchanged with
counterparties is also netted against the applicable derivative
fair values.
Further discussion on how derivatives are accounted for is
included in Note 1 Accounting Policies.
D
ERIVATIVES
D
ESIGNATED IN
H
EDGE
R
ELATIONSHIPS
Certain derivatives used to manage interest rate risk as part of
our asset and liability risk management activities are
designated as accounting hedges under GAAP. Derivatives
hedging the risks associated with changes in the fair value of
assets or liabilities are considered fair value hedges, while
derivatives hedging the variability of expected future cash
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