Fifth Third Bank 2013 Annual Report Download - page 152

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
150 Fifth Third Bancorp
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, have 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. All of the
Bancorp’s executive stock-based awards contain a performance
hurdle of two percent return on tangible common equity. If this
threshold is not met all awards that would vest in the next year are
forfeited. The Bancorp met this threshold as of December 31, 2013.
Stock-based compensation expense was $78 million, $69
million and $59 million for the years ended December 31, 2013,
2012 and 2011, respectively, and is included in salaries, wages, and
incentives in the Consolidated Statements of Income. The total
related income tax benefit recognized was $28 million, $24 million
and $21 million for the years ended December 31, 2013, 2012 and
2011, 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 December 31:
2013 2012 2011
Expected life (in years) 6 6 6
Expected volatility 36% 37% 35%
Expected dividend yield 3.0% 2.8% 2.0%
Risk-free interest rate 1.0% 1.2% 2.6%
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 $4.56, $4.23 and $4.29 per share for the
years ended 2013, 2012 and 2011, respectively. The total grant-date
fair value of SARs that vested during 2013, 2012 and 2011 was $29
million, $22 million, and $20 million, respectively.
At December 31, 2013, there was $68 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 2.6 years.
2013 2012 2011
Weighted- Weighted- Weighted-
Number of
SARs
Average Number of
SARs
Average Number of
SARs
Average
SARs (Number of SARs in thousands) Grant Price Grant Price Grant Price
Outstanding at January 1 44,120 $20.41 36,502 $22.20 31,152 $24.67
Granted 10,267 16.16 12,179 14.36 8,633 13.36
Exercised (2,904) 11.18 (1,271) 6.29 (521) 3.96
Forfeited or expired (2,884) 21.78 (3,290) 23.33 (2,762) 25.76
Outstanding at December 31 48,599 $19.98 44,120 $20.41 36,502 $22.20
Exercisable at December 31 26,462 $24.14 23,248 $26.76 20,070 $30.29
The following table summarizes outstanding and exercisable SARs by grant price at December 31, 2013:
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 4,096 $ 4.08 5.3 4,096 $4.08 5.3
$10.01-$20.00 34,077 15.36 7.6 11,940 16.00 6.2
$20.01-$30.00 33 22.85 4.0 33 22.85 4.0
$30.01-$40.00 6,713 38.68 2.7 6,713 38.68 2.7
Over $40.00 3,680 46.32 1.2 3,680 46.32 1.2
A
ll SARs 48,599 $ 19.98 6.2 26,462 $24.14 4.5
Restricted Stock Awards
The total grant-date fair value of RSAs that vested during 2013,
2012 and 2011 was $40 million, $32 million and $37 million,
respectively. At December 31, 2013, there was $69 million of stock-
based compensation expense related to nonvested restricted stock
not yet recognized. The expense is expected to be recognized over a
remaining weighted-average period of approximately 2.6 years.