Stock-Based Compensation

12 Months Ended

Dec. 31, 2016

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 approved by shareholders as of December 31, 2016:


Plan Category (shares in thousands)		Number of Shares to be Issued Upon Exercise	Weighted-Average Exercise Price Per Share	Shares Available for Future Issuance
Equity compensation plans				18,478	(a)(f)
	SARs	(b)	N/A		(a)
	RSAs	4,638	N/A		(a)
	RSUs	5,086	N/A		(a)
	Stock options^(c)	7	$32.26		(a)
	PSAs	(d)	N/A		(a)
Employee stock purchase plan				6,129	(e)
Total shares		9,731		24,607

Under the 2014 Incentive Compensation Plan, 36 million shares were authorized for issuance as SARs, RSAs, RSUs, stock options, performance share or unit awards, dividend or dividend equivalent rights and stock awards.
The number of shares to be issued upon exercise will be determined at exercise based on the difference between the grant price and the market price on the date of exercise and the calculation of taxes owed on the exercise.
Excludes 0.02 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 these outstanding options is $14.05 per share.
The number of shares to be issued is dependent upon the Bancorp achieving certain predefined performance targets and ranges from zero shares to approximately 2 million shares.
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.
Includes 4 million shares for Full Value Awards.

Stock-based awards are eligible for issuance under the Bancorp’s Incentive Compensation Plan to executives, directors and key employees of the Bancorp and its subsidiaries. The Incentive Compensation Plan was approved by shareholders on April 15, 2014 and authorized the issuance of up to 36 million shares, including 16 million shares for Full Value Awards, as equity compensation and provides for SARs, RSAs, RSUs, stock options, performance share or unit awards, dividend or dividend equivalent rights and 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 SARs, RSAs, RSUs, stock options and PSAs) and shares remaining for future grants under the 2014 Incentive Compensation Plan, 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 and its subsidiaries is 9%. SARs, RSAs, RSUs, stock options and PSAs outstanding represent 7% of the Bancorp’s issued shares at December 31, 2016.

All of the Bancorp’s stock-based awards are to be settled with stock. 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 ratably 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. RSAs and RSUs are released after three or four years or ratably over three or four years of continued employment. RSAs include dividend and voting rights while RSUs receive dividend equivalents only. 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. PSAs have three year cliff vesting terms with market conditions and/or performance conditions as defined by the plan. All of the Bancorp’s executive stock-based awards contain an annual performance hurdle of 2% return on tangible common equity. If this threshold is not met, all PSAs that would vest in the next year are forfeited and all SARs and RSAs that would vest in the next year may also be forfeited at the discretion of the Human Capital and Compensation Committee of the Board of Directors. The Bancorp met this threshold as of December 31, 2016.

Stock-based compensation expense was $111 million, $100 million and $83 million for the years ended December 31, 2016, 2015 and 2014, respectively, and is included in salaries, wages and incentives in the Consolidated Statements of Income. The total related income tax benefit recognized was $39 million, $36 million and $30 million for the years ended December 31, 2016, 2015 and 2014, 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:

	2016		2015	2014
Expected life (in years)	6		6	6
Expected volatility	37	%	35	35
Expected dividend yield	3.1		2.7	2.4
Risk-free interest rate	1.5		1.6	2.0

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 $5.16, $5.52 and $6.53 per share for the years ended December 31, 2016, 2015 and 2014, respectively. The total grant-date fair value of SARs that vested during the years ended December 31, 2016, 2015 and 2014 was $32 million, $35 million and $34 million, respectively.

At December 31, 2016, there was $40 million of stock-based compensation expense related to outstanding SARs not yet recognized. The expense is expected to be recognized over an estimated remaining weighted-average period at December 31, 2016 of 2.4 years.


	2016			2015			2014
			Weighted-			Weighted-			Weighted-
	Number ofSARs		Average Grant	Number ofSARs		Average Grant	Number ofSARs		Average Grant
SARs (in thousands, except per share data)	Number ofSARs		Price Per Share	Number ofSARs		Price Per Share	Number ofSARs		Price Per Share
Outstanding at January 1	44,129	$	19.14	45,590	$	19.79	48,599	$	19.98
Granted	6,379		17.68	5,219		18.99	4,526		21.63
Exercised	(6,291)		14.47	(3,242)		13.59	(4,408)		13.63
Forfeited or expired	(4,176)		32.02	(3,438)		32.96	(3,127)		34.19
Outstanding at December 31	40,041	$	18.30	44,129	$	19.14	45,590	$	19.79
Exercisable at December 31	26,898	$	18.28	29,721	$	19.71	27,950	$	21.71

The following table summarizes outstanding and exercisable SARs by grant price per share at December 31, 2016:

	Outstanding SARs				Exercisable SARs
				Weighted-				Weighted-
				Average				Average
			Weighted-	Remaining			Weighted-	Remaining
	Number of		Average Grant	Contractual Life	Number of		Average Grant	Contractual Life
SARs (in thousands, except per share data)	SARs		Price Per Share	(in years)	SARs		Price Per Share	(in years)
Under $10.00	2,195	$	3.98	2.3	2,195	$	3.98	2.3
$10.01-$20.00	30,446		16.36	6.1	19,125		15.51	4.7
$20.01-$30.00	3,513		21.64	7.3	1,691		21.65	7.2
$30.01-$40.00	3,305		38.27	0.3	3,305		38.27	0.3
Over $40.00	582		40.11	0.3	582		40.11	0.3
All SARs	40,041	$	18.30	5.4	26,898	$	18.28	4.0

Restricted Stock Awards

The total grant-date fair value of RSAs that were released during the years ended December 31, 2016, 2015 and 2014 was $55 million, $43 million and $32 million, respectively. At December 31, 2016, there was $52 million of stock-based compensation expense related to outstanding RSAs not yet recognized. The expense is expected to be recognized over an estimated remaining weighted-average period at December 31, 2016 of 2.0 years.


	2016			2015			2014
			Weighted-Average			Weighted-Average			Weighted-Average
			Grant-Date			Grant-Date			Grant-Date
			Fair Value			Fair Value			Fair Value
RSAs (in thousands, except per share data)	Shares		Per Share	Shares		Per Share	Shares		Per Share
Outstanding at January 1	8,281	$	18.88	7,253	$	17.98	6,710	$	15.11
Granted	3		20.65	4,250		19.11	3,264		21.61
Released	(3,090)		17.92	(2,580)		16.86	(2,183)		14.84
Forfeited	(556)		19.20	(642)		18.64	(538)		16.73
Outstanding at December 31	4,638	$	19.44	8,281	$	18.88	7,253	$	17.98

The following table summarizes outstanding RSAs by grant-date fair value at December 31, 2016:

	Outstanding RSAs
		Weighted-Average
		Remaining
		Contractual Life
RSAs (in thousands)	Shares	(in years)
$15.01-$20.00	3,187	1.2
Over $20.00	1,451	1.0
All RSAs	4,638	1.1

Restricted Stock Units

The total grant-date fair value of RSUs that were released during both the years ended December 31, 2016 and 2015 was $2 million. At December 31, 2016, there was $57 million of stock-based compensation expense related to outstanding RSUs not yet recognized. The expense is expected to be recognized over an estimated remaining weighted-average period at December 31, 2016 of 2.9 years.


	2016			2015
			Weighted-Average			Weighted-Average
			Grant-Date			Grant-Date
			Fair Value			Fair Value
RSUs (in thousands, except per unit data)	Units		Per Unit	Units		Per Unit
Outstanding at January 1	371	$	19.56	-	$	N/A
Granted	5,029		17.75	377		19.58
Released	(79)		19.76	(5)		21.63
Forfeited	(235)		17.89	(1)		19.46
Outstanding at December 31	5,086	$	17.84	371	$	19.56

The following table summarizes outstanding RSUs by grant-date fair value at December 31, 2016:

	Outstanding RSUs
		Weighted-Average
		Remaining
		Contractual Life
RSUs (in thousands)	Units	(in years)
$10.01-$15.00	638	1.1
$15.01-$20.00	4,265	1.8
$20.01-$25.00	159	2.0
$25.01-$30.00	24	2.1
All RSUs	5,086	1.7

Stock Options

The grant-date fair value of stock options is measured using the Black-Scholes option-pricing model. There were no stock options granted during the years ended December 31, 2016, 2015 and 2014.

The total intrinsic value of stock options exercised was immaterial for the year ended December 31, 2016 and $1 million for both the years ended December 31, 2015 and 2014. Cash received from stock options exercised was $1 million, $2 million and $1 million for the years ended December 31, 2016, 2015 and 2014, respectively. The tax benefit realized from exercised stock options was immaterial to the Bancorp’s Consolidated Financial Statements during the years ended December 31, 2016, 2015 and 2014. All stock options were vested as of December 31, 2008, therefore, no stock options vested during the years ended December 31, 2016, 2015 or 2014. As of December 31, 2016, the aggregate intrinsic value of both outstanding stock options and exercisable stock options was immaterial.


	2016			2015			2014
			Weighted-Average			Weighted-Average			Weighted-Average
	Number of		Exercise Price	Number of		Exercise Price	Number of		Exercise Price
Stock Options (in thousands, except per share data)	Options		Per Share	Options		Per Share	Options		Per Share
Outstanding at January 1	119	$	14.97	265	$	14.25	546	$	20.72
Exercised	(94)		13.86	(126)		13.67	(115)		12.84
Forfeited or expired	-		-	(20)		13.59	(166)		36.42
Outstanding at December 31	25	$	19.17	119	$	14.97	265	$	14.25
Exercisable at December 31	25	$	19.17	119	$	14.97	265	$	14.25

The following table summarizes outstanding and exercisable stock options by exercise price per share at December 31, 2016:

	Number ofOptions			Weighted-Average
			Weighted-Average	Remaining
			Exercise Price	Contractual Life
Stock Options (in thousands, except per share data)			Per Share	(in years)
Under $10.00	1	$	8.59	2.0
$10.01-$20.00	18		14.05	0.1
$20.01-$30.00	1		24.41	1.0
$30.01-$40.00	-		-	-
Over $40.00	5		40.98	-
All stock options	25	$	19.17	0.2

Other Stock-Based Compensation

PSAs are payable contingent upon the Bancorp achieving certain predefined performance targets over the three-year measurement period. Awards granted during the years ended December 31, 2016, 2015 and 2014 will be entirely settled in stock. The performance targets are based on the Bancorp’s performance relative to a defined peer group. During both 2016 and 2015, PSAs used a performance-based metric based on return on tangible common equity in relation to peers, whereas during 2014, a market-based metric was used which assessed the stock price performance in relation to peers. During the years ended December 31, 2016, 2015 and 2014, 583,608, 458,355 and 322,567 PSAs, respectively, were granted by the Bancorp. These awards were granted at a weighted-average grant-date fair value of $14.87, $19.48 and $15.61 per unit during the years ended December 31, 2016, 2015 and 2014, respectively.

The Bancorp sponsors an employee stock purchase plan that allows qualifying employees to purchase shares of the Bancorp’s common stock with a 15% match. During the years ended December 31, 2016, 2015 and 2014, there were 684,885, 617,829 and 599,101 shares, respectively, purchased by participants and the Bancorp recognized stock-based compensation expense of $1 million in each of the respective years.