Fifth Third Bank 2014 Annual Report Download - page 150

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
148 Fifth Third Bancorp
that would vest in the next year are forfeited. The Bancorp met this
threshold as of December 31, 2014.
Stock-based compensation expense was $83 million, $78
million and $69 million for the years ended December 31, 2014,
2013 and 2012, respectively, and is included in salaries, wages, and
incentives in the Consolidated Statements of Income. The total
related income tax benefit recognized was $30 million, $28 million
and $24 million for the years ended December 31, 2014, 2013 and
2012, 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:
2014 2013 2012
Expected life (in years) 6 6 6
Expected volatility 35% 36% 37%
Expected dividend yield 2.4% 3.0% 2.8%
Risk-free interest rate 2.0% 1.0% 1.2%
The expected life is generally 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 an expected 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 $6.53, $4.56 and $4.23 per share for the
years ended 2014, 2013 and 2012, respectively. The total grant-date
fair value of SARs that vested during 2014, 2013 and 2012 was $34
million, $29 million, and $22 million, respectively.
At December 31, 2014, there was $57 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 2.4 years.
2014 2013 2012
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 48,599 $19.98 44,120 $20.41 36,502 $22.20
Granted 4,526 21.63 10,267 16.16 12,179 14.36
Exercised (4,408) 13.63 (2,904) 11.18 (1,271) 6.29
Forfeited or expired (3,127) 34.19 (2,884) 21.78 (3,290) 23.33
Outstanding at December 31 45,590 $19.79 48,599 $19.98 44,120 $20.41
Exercisable at December 31 27,950 $21.71 26,462 $24.14 23,248 $26.76
The following table summarizes outstanding and exercisable SARs by grant price at December 31, 2014:
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 3,363 $ 3.98 4.3 3,360 $3.99 4.3
$10.01-$20.00 29,089 15.36 6.7 15,783 15.54 5.9
$20.01-$30.00 4,362 21.64 9.3 31 22.73 3.4
$30.01-$40.00 6,443 38.67 1.7 6,443 38.67 1.7
Over $40.00 2,333 42.16 0.8 2,333 42.16 0.8
A
ll SARs 45,590 $ 19.79 5.8 27,950 $21.71 4.3
Restricted Stock Awards
The total grant-date fair value of RSAs that vested during 2014,
2013 and 2012 was $32 million, $40 million and $32 million,
respectively. At December 31, 2014, there was $88 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.