As described in Note 14 Employee Benefit Plans in our 2010 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. PNC reserves the right to terminate or make plan changes at any time.

The components of our net periodic pension and post-retirement benefit cost for the first nine months of 2011 and 2010 were as follows:

Net Periodic Pension and Postretirement Benefits Costs

	Qualified Pension Plan				Nonqualified Retirement Plans					Postretirement Benefits
Three months ended
September 30
In millions	2011		2010			2011		2010			2011		2010
Net periodic cost consists of:
Service cost	$	24	$	25		$	1	$	1		$	1	$	1
Interest cost		49		51			3		3			5		5
Expected return on plan assets		(75)		(71)
Amortization of prior service cost		(2)		(2)								(1)
Amortization of actuarial losses		5		8			1		1
Net periodic cost (benefit)	$	1	$	11		$	5	$	5		$	5	$	6

	Qualified Pension Plan				Nonqualified Retirement Plans					Postretirement Benefits
Nine months ended
September 30
In millions	2011		2010			2011		2010			2011		2010
Net periodic cost consists of:
Service cost	$	71	$	77		$	3	$	2		$	5	$	4
Interest cost		147		152			10		10			14		15
Expected return on plan assets		(224)		(214)
Amortization of prior service cost		(6)		(6)								(2)		(2)
Amortization of actuarial losses		14		25			3		3
Net periodic cost (benefit)	$	2	$	34		$	16	$	15		$	17	$	17

As more fully described in Note 15 Stock-Based Compensation Plans in our 2010 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, 2011, no stock appreciation rights were outstanding.

Total compensation expense recognized related to all share-based payment arrangements during the first nine months of 2011 and 2010 was $63 million and $70 million, respectively.

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 shares of common stock at market value on the exercise date. The exercise price may be paid in previously owned shares.

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.

Option Pricing Assumptions

Weighted-average for the nine months ended
September 30		2011			2010
Risk-free interest rate		2.8	%		2.9	%
Dividend yield		0.6			0.7
Volatility		34.7			32.7
Expected life		5.9	yrs.		6.0	yrs.
Grant-date fair value	$	22.82		$	19.59

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, 2010		19,825	$	56.36	1,214	$	678.09	21,039	$	92.25
	Granted	833		64.04				833		64.04
	Exercised	(168)		45.07				(168)		45.07
	Cancelled	(2,363)		73.82	(241)		685.58	(2,604)		130.46
Outstanding at September 30, 2011		18,127	$	54.54	973	$	676.24	19,100	$	86.22
Exercisable at September 30, 2011		11,984	$	57.81	973	$	676.24	12,957	$	104.26

During the first nine months of 2011, we issued 162,625 shares from treasury stock in connection with stock option exercise activity. As with past exercise activity, we currently intend to utilize treasury stock primarily for any future stock option exercises.

The fair value of nonvested incentive/performance unit share awards and restricted stock/unit awards is initially determined based on prices not less than the market value of our common stock price 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 over a three-year period. The Personnel and Compensation Committee of the Board of Directors approves the final award payout with respect to incentive/performance unit share awards. Restricted stock/unit awards have various vesting periods generally ranging from 36 months to 60 months.

Beginning in 2011, we incorporated two changes to certain awards under our existing long-term incentive compensation programs. First, for certain grants of incentive performance units, the future payout amount will be subject to a negative annual adjustment if PNC fails to meet certain risk-related performance metrics. This adjustment is in addition to the existing financial performance metrics relative to our peers. These grants have a three-year performance period and are payable in either stock or a combination of stock and cash. Second, performance-based restricted share units (performance RSUs) were granted in 2011 to certain of our executives in lieu of stock options. These performance RSUs (which are payable solely in stock) have a service condition, an internal risk-related performance condition, and an external market condition. Satisfaction of the performance condition is based on four independent one-year performance periods.

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

					Nonvested
		Nonvested	Weighted-		Restricted	Weighted-
		Incentive/	Average		Stock/	Average
		Performance	Grant Date		Unit	Grant Date
Shares in thousands		Unit Shares	Fair Value		Shares	Fair Value
December 31, 2010		363	$	56.40	2,250	$	49.95
	Granted	623		64.21	955		63.62
	Vested/Released	(156)		59.54	(433)		58.84
	Forfeited				(83)		51.73
September 30, 2011		830	$	61.68	2,689	$	53.32

In the chart above, 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.

At September 30, 2011, there was $67 million of unrecognized deferred compensation expense related to nonvested share-based compensation arrangements granted under the Incentive Plans. This cost is expected to be recognized as expense over a period of no longer than five years.

Beginning in 2008, we granted cash-payable restricted share units to certain executives. The grants were made primarily as part of an annual bonus incentive deferral plan. While there are time-based and service-related vesting criteria, there are 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, 2011, there were 754,519 of these cash-payable restricted share units outstanding.

A summary of all nonvested, cash-payable restricted share unit activity follows:

Nonvested Cash-Payable Restricted Share Unit - Rollforward
		Nonvested
		Cash-Payable		Aggregate
		Restricted		Intrinsic
In thousands		Unit Shares		Value
Outstanding at December 31, 2010		1,112
	Granted	526
	Vested and Released	(547)
	Forfeited	(16)
Outstanding at September 30, 2011		1,075	$	51,799