Fifth Third Bank 2010 Annual Report Download - page 114

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
112 Fifth Third Bancorp
proceeds. On January 24, 2011, the underwriters exercised their
option to purchase an additional 12,142,857 shares at the offering
price of $14.00 per share. In connection with this exercise, the
Bancorp entered into a forward sale agreement which resulted in a
final net payment of 959,821 shares on February 4, 2011. On
February 2, 2011, the Bancorp used these proceeds along with
proceeds from a senior debt offering and other available resources
to repurchase all 136,320 Series F preferred shares. See Note 32
for further information.
25. STOCK-BASED COMPENSATION
The Bancorp has historically emphasized employee stock
ownership. The following table provides detail of the number of
shares to be issued upon exercise of outstanding stock-based
awards and remaining shares available for future issuance under all
of the Bancorp’s equity compensation plans as of December 31,
2010:
Plan Category (shares in thousands)
Number of Shares to Be
Issued Upon Exercise
Weighted-
Average Exercise
Price
Shares Available
for Future
Issuance
Equity compensation plans approved by shareholders: 9,601(a)
SARs (b) (b) (a)
Restricted stock 5,158 N/A (a)
Stock options (c) 10,333 $57.02 (a)
Phantom stock units (d) N/A N/A
Performance units (e) N/A (a)
Performance-based restricted stock - N/A (a)
Employee stock purchase plan 10,434(f)
Total shares 15,491 20,035
(a) Under the 2008 Incentive Compensation Plan, 33 million shares of stock were authorized for issuance as incentive and nonqualified stock options, SARs, restricted stock and restricted stock
units, performance units and performance restricted stock awards.
(b) The number of shares to be issued upon exercise will be determined at vesting based on the difference between the grant price and the market price at the date of exercise.
(c) Excludes 1.5 million outstanding options awarded under plans assumed by the Bancorp in connection with certain mergers and acquisitions. The Bancorp has not made any awards under these
plans and will make no additional awards under these plans. The weighted-average exercise price of the outstanding options is $18.09 per share.
(d) Phantom stock units are settled in cash.
(e) The number of shares to be issued is dependent upon the Bancorp achieving certain predefined performance targets and ranges from zero shares to approximately 400 thousand shares.
(f) Represents remaining shares of Fifth Third common stock under the Bancorp’s 1993 Stock Purchase Plan, as amended and restated, including an additional 1.5 million shares approved by
shareholders on March 28, 2007 and an additional 12 million shares approved by shareholders on April 21, 2009.
Stock-based awards are eligible for issuance under the Bancorp’s
Incentive Compensation Plan to key employees and directors of
the Bancorp and its subsidiaries. The Incentive Compensation
Plan was approved by shareholders on April 15, 2008, which
authorizes the issuance of up to 33 million shares as equity
compensation and provides for incentive and nonqualified stock
options, stock appreciation rights, restricted stock and restricted
stock units, and performance share and restricted stock awards.
Based on total stock-based awards outstanding (including stock
options, stock appreciation rights, restricted stock and
performance units) and shares remaining for future grants under
the 2008 Incentive Compensation Plan, the Bancorp’s total
overhang is seven percent. The overhang measurement represents
the potential dilution to which the Bancorp’s shareholders of
common stock are exposed due to the potential that stock-based
compensation will be awarded to executives, directors or key
employees of the Bancorp. SARs, restricted stock, stock options
and performance units outstanding represent six percent of the
Bancorp’s issued shares at December 31, 2010.
During 2009, the Bancorp’s Board of Directors approved the
use of phantom stock units as part of its compensation for
executives in connection with changes made in reaction to the
TARP compensation rules. The phantom stock units were issued
under the Bancorp’s 2008 Incentive Compensation Plan. The
number of phantom stock units is determined each pay period by
dividing the amount of salary to be paid in phantom stock units
for that pay period, by the reported closing price of the Bancorp’s
common stock on the pay date for such pay period. Phantom
stock is expensed based on the number of outstanding units
multiplied by the closing price of the Bancorp’s stock at period
end. The phantom stock units do not include any rights to receive
dividends or dividend equivalents. Phantom stock units issued on
or before June 12, 2010 will be settled in cash upon the earlier to
occur of June 15, 2011 or the executive’s death. Units issued
thereafter will be settled in cash with 50% being settled on June
15, 2012 and 50% being settled on June 15, 2013. The amount to
be paid on settlement of the phantom stock units will be equal to
the total amount of phantom stock units settled at the reported
closing price of the Bancorp’s common stock on the settlement
date.
All of the Bancorp’s stock-based awards are to be settled
with stock with the exception of phantom stock units and a
portion of the performance units that are to be settled in cash.
The Bancorp has historically used treasury stock to settle stock-
based awards, when available. SARs, issued at fair value based on
the closing price of the Bancorp’s common stock on the date of
grant, have up to ten-year terms and vest and become exercisable
either ratably or fully over a four year period of continued
employment. The Bancorp does not grant discounted SARs or
stock options, re-price previously granted SARs or stock options,
or grant reload stock options. Restricted stock grants vest either
after four years or ratably after three, four and five years of
continued employment and include dividend and voting rights.
Stock options were previously issued at fair value based on the
closing price of the Bancorp’s common stock on the date of grant,
had up to ten-year terms and vested and became fully exercisable
ratably over a three or four year period of continued employment.
Performance unit awards have three-year cliff vesting terms with
performance or market conditions as defined by the plan.
Under U.S. GAAP, the Bancorp recognizes compensation
expense for the grant-date fair value of stock-based compensation
issued over its requisite service period. The grant-date fair value of
SARs and stock options is measured using the Black-Scholes
option-pricing model. Awards with a graded vesting are expensed
on a straight-line basis.