Certain Employee Benefit and Stock Based Compensation Plans

9 Months Ended

Sep. 30, 2014

Compensation and Employee Benefit Plans [Text Block]

Note 11 Certain Employee Benefit And Stock Based Compensation Plans

Pension And Postretirement Plans

As described in Note 15 Employee Benefit Plans in our 2013 Form 10-K, we have a noncontributory, qualified defined benefit pension plan covering eligible employees. Benefits are determined using a cash balance formula where earnings credits are a percentage of eligible compensation. Pension contributions are based on an actuarially determined amount necessary to fund total benefits payable to plan participants.

We also maintain nonqualified supplemental retirement plans for certain employees and provide certain health care and life insurance benefits for qualifying retired employees (postretirement benefits) through various plans. The nonqualified pension and postretirement benefit plans are unfunded. The Company reserves the right to terminate plans or make plan changes at any time.

The components of our net periodic pension and postretirement benefit cost for the first nine months of 2014 and 2013, respectively, were as follows:

Table 99: Net Periodic Pension and Postretirement Benefits Costs

	Qualified Pension Plan				Nonqualified Retirement Plans					Postretirement Benefits

Three months ended September 30
In millions	2014		2013			2014		2013			2014		2013
Net periodic cost consists of:
Service cost	$	26	$	28				$	1		$	2	$	1
Interest cost		46		42		$	3		3			4		3
Expected return on plan assets		(72)		(72)
Amortization of prior service credit		(2)		(2)								(1)
Amortization of actuarial losses				22			1		2
Net periodic cost/(benefit)	$	(2)	$	18		$	4	$	6		$	5	$	4

	Qualified Pension Plan				Nonqualified Retirement Plans					Postretirement Benefits

Nine months ended September 30
In millions	2014		2013			2014		2013			2014		2013
Net periodic cost consists of:
Service cost	$	77	$	85		$	2	$	3		$	4	$	4
Interest cost		140		127			9		9			12		11
Expected return on plan assets		(216)		(216)
Amortization of prior service credit		(6)		(6)								(1)		(2)
Amortization of actuarial losses				65			3		6
Net periodic cost/(benefit)	$	(5)	$	55		$	14	$	18		$	15	$	13

Stock Based Compensation Plans

As more fully described in Note 16 Stock Based Compensation Plans in our 2013 Form 10-K, 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 September 30, 2014, no stock appreciation rights were outstanding.

Total compensation expense recognized related to all share-based payment arrangements during the first nine months of 2014 and 2013 was $133 million and $114 million, respectively. At September 30, 2014, there was $176 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.

Nonqualified Stock Options

Beginning in 2014, PNC discontinued the use of stock options as a standard element of our long-term equity incentive compensation programs under our Incentive Plans and did not grant any options in the first nine months of 2014. Prior to 2014, options were 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 be paid by using previously owned shares.

For purposes of computing stock option expense for 2013, we estimated the fair value of stock options at the grant date 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 Black-Scholes model to determine the 2013 grant date fair value, as follows:

Table 100: Option Pricing Assumptions (a)

Weighted-average for the nine months ended
September 30		2013
Risk-free interest rate		.9	%
Dividend yield		2.5
Volatility		34.0
Expected life		6.5	yrs.
Grant-date fair value	$	16.35
(a) PNC did not grant any stock options in the first nine months of 2014.

There were no options granted in 2013 where the grant date fair value exceeded the market value. The following table represents the stock option activity for the first nine months of 2014.

Table 101: Stock Option Rollforward

					PNC Options
					Converted From
					National City
		PNC			Options			Total
			Weighted-Average			Weighted-Average			Weighted-Average
In thousands, except weighted-average data		Shares	Exercise Price		Shares	Exercise Price		Shares	Exercise Price
Outstanding at December 31, 2013		10,354	$	57.57	544	$	662.28	10,898	$	87.75
	Granted (a)
	Exercised	(2,871)		59.49				(2,871)		59.49
	Cancelled	(58)		52.93	(170)		836.25	(228)		637.14
Outstanding at September 30, 2014		7,425	$	56.86	374	$	583.31	7,799	$	82.12
Exercisable at September 30, 2014		7,186	$	56.69	374	$	583.31	7,560	$	82.75
(a) PNC did not grant any stock options in the first nine months of 2014.

During the first nine months of 2014, we issued approximately 2 million common shares from treasury stock in connection with stock option exercise activity. As with past exercise activity, we currently intend to utilize primarily treasury stock for any future stock option exercises.

Incentive/Performance Unit Share Awards and Restricted Stock/Share Unit Awards

The fair value of nonvested incentive/performance unit share awards and restricted stock/share unit awards is initially determined based on prices not less than the market value of our common stock on the date of grant. The value of certain incentive/performance unit share awards is subsequently remeasured based on the achievement of one or more financial and other performance goals. The Personnel and Compensation Committee (“P&CC”) of the Board of Directors approves the final award payout with respect to certain incentive/performance unit share awards.

Beginning in 2013, we incorporated several enhanced risk-related performance changes to certain long-term incentive compensation programs. In addition to achieving certain financial performance metrics on both an absolute basis and relative to our peers, final payout amounts will be subject to reduction if PNC fails to meet certain risk-related performance metrics as specified in the award agreement. However, the P&CC has the discretion to waive any or all of this reduction under certain circumstances. These awards have either a three-year or a four-year performance period and are payable in either stock or a combination of stock and cash.

Table 102: Nonvested Incentive/Performance Unit Share Awards and Restricted Stock/Share Unit Awards - Rollforward

					Nonvested
		Nonvested	Weighted-		Restricted	Weighted-
		Incentive/	Average		Stock/	Average
		Performance	Grant Date		Share	Grant Date
Shares in thousands		Unit Shares	Fair Value		Units	Fair Value
December 31, 2013		1,647	$	63.49	3,483	$	62.70
	Granted	723		79.90	1,167		81.39
	Vested/Released	(513)		63.64	(871)		63.10
	Forfeited	(19)		68.37	(105)		68.67
September 30, 2014		1,838	$	69.85	3,674	$	68.38

In the preceding table, the unit shares and related weighted-average grant date fair value of the incentive/performance awards exclude the effect of dividends on the underlying shares, as those dividends will be paid in cash.

Liability Awards

A summary of all nonvested, cash-payable incentive/performance units and restricted share unit activity follows:

Table 103: Nonvested Cash-Payable Incentive/Performance Units and Restricted Share Units – Rollforward

		Cash-Payable
		Incentive/	Cash-Payable
		Performance	Restricted
In thousands		Units	Share Units	Total
Outstanding at December 31, 2013		116	825	941
	Granted	100	269	369
	Vested and Released	(39)	(425)	(464)
	Forfeited		(8)	(8)
Outstanding at September 30, 2014		177	661	838

Included in the preceding table are cash-payable restricted share units granted to certain executives. These grants were made primarily as part of an annual bonus incentive deferral plan. While there are time-based and other vesting criteria, there are generally no market or performance criteria associated with these awards. Compensation expense recognized related to these awards was recorded in prior periods as part of annual cash bonus criteria. As of September 30, 2014, the aggregate intrinsic value of all outstanding nonvested cash-payable incentive/performance units and restricted share units was $72 million.