PNC Bank 2013 Annual Report Download - page 204

N OTE 16 S TOCK B ASED C OMPENSATION P LANS
We have long-term incentive award plans (Incentive Plans)
that provide for the granting of incentive stock options,
nonqualified stock options, stock appreciation rights, incentive
shares/performance units, restricted stock, restricted share
units, other share-based awards and dollar-denominated
awards to executives and, other than incentive stock options,
to non-employee directors. Certain Incentive Plan awards may
be paid in stock, cash or a combination of stock and cash. We
typically grant a substantial portion of our stock-based
compensation awards during the first quarter of the year. As of
December 31, 2013, no stock appreciation rights were
outstanding. Total compensation expense recognized related
to all share-based payment arrangements during 2013, 2012
and 2011 was approximately $154 million, $101 million and
$103 million, respectively. At December 31, 2013, there was
$129 million of unamortized share-based compensation
expense related to nonvested equity compensation
arrangements granted under the Incentive Plans. This
unamortized cost is expected to be recognized as expense over
a period of no longer than five years.
N ONQUALIFIED S TOCK O PTIONS
Options are granted at exercise prices not less than the market
value of common stock on the grant date. Generally, options
become exercisable in installments after the grant date. No
option may be exercisable after 10 years from its grant date.
Payment of the option exercise price may be in cash or by
surrendering shares of common stock at market value on the
exercise date. The exercise price may also be paid by using
previously owned shares.
O PTION P RICING A SSUMPTIONS
For purposes of computing stock option expense, we estimate
the fair value of stock options at the grant date primarily by
using the Black-Scholes option-pricing model. Option pricing
models require the use of numerous assumptions, many of
which are subjective.
We used the following assumptions in the option pricing
models to determine 2013, 2012 and 2011 grant date fair
value:
• The risk-free interest rate is based on the U.S.
Treasury yield curve,
• The dividend yield typically represents average
yields over the previous three-year period, however
starting with the grants made after the first quarter of
2009, we used a yield indicative of our current
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.
Table 122: Option Pricing Assumptions
Weighted-average for the
year ended December 31 2013 2012 2011
Risk-free interest rate .9% 1.1% 2.8%
Dividend yield 2.5 2.3 0.6
Volatility 34.0 35.1 34.7
Expected life 6.5 yrs. 5.9 yrs. 5.9 yrs.
Grant date fair value $ 16.35 $ 16.22 $ 22.82
There were no options granted in 2013, 2012 and 2011 where the grant date fair value exceeded the market value.
Table 123: Stock Option Rollforward
PNC
PNC Options
Converted From
National City Total
Year ended December 31, 2013
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 14,817 $55.52 747 $681.16 15,564 $ 85.55
Granted 161 63.87 161 63.87
Exercised (4,110) 50.51 (4,110) 50.51
Cancelled (514) 56.93 (203) 731.74 (717) 247.91
Outstanding, December 31 10,354 $57.57 544 $662.28 10,898 $ 87.75 4.5 years $207,248
Vested and expected to vest, December 31 (a) 10,339 $57.56 544 $662.28 10,883 $ 87.79 4.5 years $207,025
Exercisable, December 31 9,660 $57.20 544 $662.28 10,204 $ 89.46 4.2 years $196,859
(a) Adjusted for estimated forfeitures on unvested options.
186 The PNC Financial Services Group, Inc. – Form 10-K