Fifth Third Bank 2011 Annual Report Download - page 134

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
132 Fifth Third Bancorp
Series F Preferred Stock and recorded a reduction in retained
earnings and a corresponding increase in preferred stock of $153
million in the Bancorp’s Consolidated Balance Sheet. On March 16,
2011, the Bancorp repurchased the warrant issued to the U.S.
Treasury in connection with the CPP preferred stock investment at
an agreed upon price of $280 million, which was recorded as a
reduction to capital surplus in the Bancorp’s Consolidated Financial
Statements.
During 2011, 2010 and 2009, the Bancorp repurchased an
immaterial amount of common stock.
24. 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, 2011:
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 34,283 (a)
SARs (b) (b) (a)
Restricted stock 4,764 N/A (a)
Stock options (c) 6,562 $59.73 (a)
Phantom stock units (d) N/A N/A
Performance units (e) N/A (a)
Employee stock purchase plan 9,548 (f)
Total Shares 11,326 43,831
(a) Under the 2011 Incentive Compensation Plan, 39 million shares plus up to 4.5 million shares from the 2008 Incentive Compensation Plan (the Predecessor Plan) 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 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 $16.31 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 1.5 million 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 19, 2011, which authorizes the
issuance of up to 39 million shares plus up to 4.5 million shares
under the Predecessor Plan for Full Value Awards 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. Full
Value Awards are defined as awards with no cash outlay for the
employee to obtain the full value. 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 2011 Incentive Compensation Plan, the
Bancorp’s total overhang is nine 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, 2011.
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 after four years, or ratably over
three or four years or ratably after three 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.
Stock-based compensation expense was $59 million, $64
million and $51 million for the years ended December 31, 2011,
2010 and 2009, respectively, and is included in salaries, wages, and
incentives in the Consolidated Statements of Income. The total
related income tax benefit recognized was $21 million for 2011 and
$18 million for the years ended December 31, 2010 and 2009,
respectively.
Stock Appreciation Rights
The Bancorp uses assumptions, which are evaluated and revised as
necessary, in estimating the grant-date fair value of each SAR grant.
The weighted-average assumptions were as follows for the years
ended:
2011 2010 2009
Expected life (in years) 6 6 6
Expected volatility 35% 38% 73%
Expected dividend yield 2.0% 2.0% 1.3%
Risk-free interest rate 2.6% 3.1% 2.2%