Fifth Third Bank 2012 Annual Report Download - page 143

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
141 Fifth Third Bancorp
All of the Bancorp’s stock-based awards are to be settled with
stock with the exception of phantom stock 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 market conditions as defined by the plan.
Stock-based compensation expense was $69 million, $59
million and $64 million for the years ended December 31, 2012,
2011 and 2010, respectively, and is included in salaries, wages, and
incentives in the Consolidated Statements of Income. The total
related income tax benefit recognized was $24 million, $21 million
and $18 million for the years ended December 31, 2012, 2011 and
2010, 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:
2012 2011 2010
Expected life (in years) 6 6 6
Expected volatility 37% 35% 38%
Expected dividend yield 2.8% 2.0% 2.0%
Risk-free interest rate 1.2% 2.6% 3.1%
The expected life is derived from historical exercise patterns and
represents the amount of time that SARs granted are expected to be
outstanding. The expected volatility is based on a combination of
historical and implied volatilities of the Bancorp’s common stock.
The expected dividend yield is based on annual dividends divided by
the Bancorp’s stock price. Annual dividends are based on projected
dividends, estimated using a historical long-term dividend payout
ratio, over the estimated life of the awards. The risk-free interest
rate for periods within the contractual life of the SARs is based on
the U.S. Treasury yield curve in effect at the time of grant.
The grant-date fair value of SARs is measured using the Black-
Scholes option-pricing model. The weighted-average grant-date fair
value of SARs granted was $4.23, $4.29 and $5.10 per share for the
years ended 2012, 2011 and 2010, respectively. The total grant-date
fair value of SARs that vested during 2012, 2011 and 2010 was $22
million, $20 million, and $25 million, respectively.
At December 31, 2012, there was $64 million of stock-based
compensation expense related to nonvested SARs not yet
recognized. The expense is expected to be recognized over a
remaining weighted-average period of approximately 2.8 years.
2012 2011 2010
Weighted- Weighted- Weighted-
Average Average Average
SARs (shares in thousands) Shares Grant Price Shares Grant Price Shares Grant Price
Outstanding at January 1 36,502 $22.20 31,152 $24.67 28,571 $26.82
Granted 12,179 14.36 8,633 13.36 5,310 14.74
Exercised (1,271) 6.29 (521) 3.96 (319) 3.96
Forfeited or expired (3,290) 23.33 (2,762) 25.76 (2,410) 30.87
Outstanding at December 31 44,120 $20.41 36,502 $22.20 31,152 $24.67
Exercisable at December 31 23,248 $26.76 20,070 $30.29 16,347 $34.94
The following table summarizes outstanding and exercisable SARs by grant price at December 31, 2012:
Outstanding SARs Exercisable SARs
Weighted- Weighted-
Average Average
Number of Remaining Number of Remaining
SARs at Weighted- Contractual SARs at Weighted- Contractual
Year End Average Life Year End Average Life
Grant price per share (000s) Grant Price (in years) (000s) Grant Price (in years)
Under $10.00 5,100 $ 4.06 6.3 3,481 $3.96 6.3
$10.01-$20.00 27,812 14.98 8.0 8,559 16.94 6.4
$20.01-$30.00 34 22.88 5.2 34 22.88 5.2
$30.01-$40.00 7,231 38.69 3.6 7,231 38.69 3.6
Over $40.00 3,943 46.37 2.2 3,943 46.37 2.2
A
ll SARs 44,120 $ 20.41 6.6 23,248 $26.76 4.8