Fifth Third Bank 2008 Annual Report Download - page 94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
92 Fifth Third Bancorp
The Bancorp’s policy for the investment of plan assets is to
employ investment strategies that achieve a range of weighted-
average target asset allocations relating to equity securities
(including the Bancorp’s common stock), fixed income securities
and cash. The following table provides the Bancorp’s targeted
and actual weighted-average asset allocations by asset category for
2008 and 2007:
Weighted-average asset allocation
Targeted
range 2008 2007
Equity securities 68
%
71
Bancorp common stock 2 5
Total equity securities 70 – 80
%
70 76
Total fixed income securities 20 – 25 27 20
Cash 0 - 5 3 4
Total 100% 100
The risk tolerance for the plan is determined by management
to be moderate to aggressive, recognizing that higher returns
involve some volatility and that periodic declines in the portfolio’s
value are tolerated in an effort to achieve real capital growth.
Prohibited asset classes of the plan include precious metals,
venture capital, short sales and leveraged transactions. Per the
Employee Retirement Income Security Act (ERISA), the
Bancorp’s common stock cannot exceed ten percent of the fair
market value of plan assets.
The accumulated benefit obligation for all defined benefit
plans was $227 million and $235 million at December 31, 2008
and 2007, respectively. At December 31, 2008 and 2007, amounts
relating to the Bancorp’s defined benefit plans with benefit
obligations exceeding assets were as follows:
($ in millions) 2008 2007
Projected benefit obligation $228 36
Accumulated benefit obligation 227 36
Fair value of plan assets 144 -
Based on actuarial assumptions, the Bancorp’s minimum
required contribution is $168,000 for 2009. Estimated pension
benefit payments, which reflect expected future service, are $21
million in 2009, $19 million in 2010, $19 million in 2011, $19
million in 2012 and $17 million in 2013. The total estimated
payments for the years 2014 through 2018 is $78 million.
The Bancorp’s profit sharing plan expense was $18 million
for 2008, $13 million for 2007 and $22 million for 2006.
Expenses recognized during the years ended December 31, 2008,
2007 and 2006 for matching contributions to the Bancorp’s
defined contribution savings plans were $37 million, $37 million
and $35 million, respectively.
24. EARNINGS PER SHARE
The calculation of earnings per share and the reconciliation of earnings per share to earnings per diluted share for the years ended December 31:
2008 2007 2006
(in millions, except per share data) Income
Average
Shares
Per Share
Amount Income
Average
Shares
Per Share
Amount Income
Average
Shares
Per Share
Amount
Earnings per share:
Net income (loss) before cumulative effect ($2,113) $1,076 $1,184
Dividends on preferred stock 67 1 -
Net income (loss) available to common
shareholders before cumulative effect (2,180) 553 ($3.94) 1,075 538 $2.00 1,184 555 $2.13
Cumulative effect of change in accounting
principle, net of tax - - - - - - 4 - .01
Net income (loss) available to common
shareholders ($2,180) 553 ($3.94) $1,075 538 $2.00 $1,188 555 $2.14
Earnings per diluted share:
Net income (loss) available to common
shareholders before cumulative effect ($2,180) 553 ($3.94) $1,075 538 $2.00 $1,184 555 $2.13
Effect of dilutive securities:
Stock based awards -- 2 (.01) 2 (.01)
Convertible preferred stock (a) (b) - - - - - - - - -
Income (loss) plus assumed conversions
before cumulative effect (2,180) 553 (3.94) 1,076 540 $1.99 1,184 557 2.12
Cumulative effect of change in accounting
principle, net of tax - - - - - - 4 - .01
Net income (loss) available to common
shareholders plus assumed conversions ($2,180) 553 ($3.94) $1,076 540 $1.99 $1,188 557 $2.13
(a) The effect of dilutive securities on the dividends on preferred stock for year ended December 31, 2008 was included in the calculation of net income available to common shareholders, however, it was
excluded from assumed conversions because the effect would be anti-dilutive.
(b) The additive effect to income from dividends on convertible preferred stock is $.580 million and the average share dilutive effect from convertible preferred stock is .308 million shares for the years
ended December 31, 2007 and 2006.
Due to the net loss for the year ended December 31, 2008, the
diluted earnings per share calculation excludes all common stock
equivalents, including 43 million stock options and stock
appreciation rights, 6 million shares of restricted stock, 96 million
common shares from convertible preferred stock and 44 million
shares under warrants related to the CPP as their inclusion would
have been anti-dilutive to earnings per share.
At December 31, 2007 and 2006, there were 36.2 million and
33.1 million shares outstanding, respectively, that were not
included in the computation of net income per diluted share. The
outstanding shares consist of options and stock appreciation
rights that had not yet been exercised, and unvested restricted
stock. The options and stock appreciation rights are excluded
from the computation of net income per diluted shares because
the exercise price of the shares was greater than the average
market price of the common shares and, therefore, the effect
would be anti-dilutive. Restricted shares are excluded from the
calculation until vested.
During the first quarter of 2006, the Bancorp recognized a
benefit for the cumulative effect of change in accounting principle
of $4 million, net of $2 million of tax, related to the adoption of
SFAS No. 123(R). The benefit recognized relates to the
Bancorp’s estimate of forfeiture experience to be realized for all
unvested stock-based awards outstanding.