Stock-Based Compensation

12 Months Ended

Dec. 31, 2018

Stock-Based Compensation

Stock-Based Compensation

23. 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, 2018:

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				13,290	(a)
	SARs	(b)	-		(a)
	RSAs	868	-		(a)
	RSUs	8,020	-		(a)
	PSAs	(c)	-		(a)
Employee stock purchase plan				5,181	(d)
Total shares		8,888		18,471

• Under the 2017 Incentive Compensation Plan, 17.5 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.
• The number of shares to be issued is dependent upon the Bancorp achieving certain predefined performance targets and ranges from zero shares to approximately 2million 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.

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 2017 Incentive Compensation Plan was approved by shareholders on April 18, 2017 and authorized the issuance of up to 6 million shares, in addition to the 11.5 million unused shares from the 2014 Incentive Compensation Plan, as equity compensation and provides for SARs, RSAs, RSUs, stock options, performance share or unit awards, dividend or dividend equivalent rights and stock awards. Based on total stock-based awards outstanding (including SARs, RSAs, RSUsand PSAs) and shares remaining for future grants under the 2017 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 8%. SARs, RSAs, RSUs and PSAs outstanding represent 6% of the Bancorp’s issued shares at December 31, 2018.

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 exercisableratably over a three or 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 in any one of the three years during the performance period, one-third of PSAs are forfeited. Additionally, if this threshold is not met, all SARs, RSAs and RSUs 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, 2018.

Stock-based compensation expense was $127 million, $118 million and $111 million for the years ended December 31, 2018, 2017 and 2016, respectively, and is included in salaries, wages and incentives in the Consolidated Statements of Income. The total related income tax benefit recognized was $27 million, $41 million and $39 million for the years ended December 31, 2018, 2017 and 2016, 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:
	2018		2017	2016
Expected life (in years)	7		6	6
Expected volatility	35	%	37	37
Expected dividend yield	1.9		2.1	3.1
Risk-free interest rate	2.6		2.1	1.5

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 anexpected 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 $11.33, $8.55 and $5.16per share for the years ended December 31,2018, 2017 and 2016, respectively. The total grant-date fair value of SARs that vested during the years ended December 31,2018,2017and 2016was $26 million, $29 million and$32 million, respectively.

At December 31, 2018, there was $17 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, 2018 of 1.7 years.

	2018			2017			2016
			Weighted-			Weighted-			Weighted-
	Number ofSARs		Average Grant	Number ofSARs		Average Grant	Number ofSARs		Average Grant
SARs (in thousands, except per share data)			Price Per Share			Price Per Share			Price Per Share
Outstanding at January 1	31,929	$	17.22	40,041	$	18.30	44,129	$	19.14
Granted	272		33.15	3,672		26.52	6,379		17.68
Exercised	(5,058)		16.96	(6,953)		16.00	(6,291)		14.47
Forfeited or expired	(947)		20.93	(4,831)		35.08	(4,176)		32.02
Outstanding at December 31	26,196	$	17.30	31,929	$	17.22	40,041	$	18.30
Exercisable at December 31	20,132	$	15.90	21,403	$	15.30	26,898	$	18.28

The following table summarizes outstanding and exercisable SARs by grant price per share at December 31, 2018:
	Outstanding SARs				Exercisable SARs
				Weighted-				Weighted-
			Weighted-	Average Remaining			Weighted-	Average 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	1,426	$	3.96	0.3	1,441	$	3.96	0.3
$10.01-$20.00	19,145		16.10	4.7	15,631		15.67	4.1
$20.01-$30.00	5,353		24.33	6.8	3,060		22.69	5.9
$30.01-$40.00	272		33.15	9.1	-		-	-
All SARs	26,196	$	17.30	4.9	20,132	$	15.90	4.1

Restricted Stock Awards

The total grant-date fair value of RSAs that were released during the years ended December 31, 2018, 2017 and 2016was $27 million, $39 million and $55 million, respectively. At December 31, 2018, there was $4 million of stock-based compensation expense related to outstandingRSAs not yet recognized. The expense is expected to be recognized over an estimated remaining weighted-average period at December 31, 2018 of 0.5 years.

	2018			2017			2016
			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	2,321	$	19.72	4,638	$	19.44	8,281	$	18.88
Granted	-		-	7		21.14	3		20.65
Released	(1,347)		20.09	(2,063)		19.10	(3,090)		17.92
Forfeited	(106)		19.40	(261)		19.75	(556)		19.20
Outstanding at December 31	868	$	19.18	2,321	$	19.72	4,638	$	19.44

The following table summarizes outstanding RSAs by grant-date fair value at December 31, 2018:
	Outstanding RSAs
		Weighted-Average
		Remaining
		Contractual Life
RSAs (in thousands)	Shares	(in years)
$15.01-$20.00	775	0.5
Over $20.00	93	0.5
All RSAs	868	0.5

Restricted Stock Units

The total grant-date fair value of RSUs that were released during the years ended December 31, 2018, 2017 and 2016was $42 million, $21 million and $2 million, respectively. At December 31, 2018, there was $115 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, 2018of 2.4 years.

	2018			2017			2016
			Weighted-Average			Weighted-Average			Weighted-Average
			Grant-Date			Grant-Date			Grant-Date
			Fair Value			Fair Value			Fair Value
RSUs (in thousands, except per unit data)	Units		Per Unit	Units		Per Unit	Units		Per Unit
Outstanding at January 1	6,986	$	22.25	5,086	$	17.84	371	$	19.56
Granted	3,674		32.84	3,652		26.71	5,029		17.75
Released	(1,977)		21.15	(1,194)		17.64	(79)		19.76
Forfeited	(663)		26.45	(558)		21.02	(235)		17.89
Outstanding at December 31	8,020	$	27.04	6,986	$	22.25	5,086	$	17.84

The following table summarizes outstanding RSUs by grant-date fair value at December 31, 2018:
	Outstanding RSUs
		Weighted-Average
		Remaining
		Contractual Life
RSUs (in thousands)	Units	(in years)
$10.01-$15.00	201	0.1
$15.01-$20.00	1,799	0.7
$20.01-$25.00	191	0.5
$25.01-$30.00	2,489	1.2
$30.01-$35.00	3,340	1.6
All RSUs	8,020	1.2

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, 2018,2017 and 2016.

The total intrinsic value of stock options exercised was immaterial for the years ended December 31, 2018, 2017 and 2016. Cash received from stock options exercised was immaterial for both the years ended December 31, 2018 and 2017and $1 million for the year ended December 31, 2016. The tax benefit realized from exercised stock options was immaterial to the Bancorp’s Consolidated Financial Statements during the years ended December 31, 2018, 2017 and 2016. All stock options were vested as of December 31, 2008, therefore, no stock options vested during the years ended December 31, 2018, 2017 or 2016. As of December 31, 2018, the aggregate intrinsic value of both outstanding stock options and exercisable stock options was zero.

	2018			2017			2016
			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	2	$	16.50	25	$	19.17	119	$	14.97
Exercised	(1)		8.59	(18)		14.05	(94)		13.86
Forfeited or expired	(1)		24.41	(5)		40.98	-		-
Outstanding at December 31	-	$	-	2	$	16.50	25	$	19.17
Exercisable at December 31	-	$	-	2	$	16.50	25	$	19.17

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 31,2018, 2017 and 2016will be entirely settled in stock. The performance targets are based on the Bancorp’s performance relative to a defined peer group. PSAs use a performance-based metric based on return on tangible common equity in relation to peers. During the years endedDecember 31, 2018, 2017 and 2016, 279,568,407,069 and 583,608 PSAs, respectively, were granted by the Bancorp. These awards were granted at a weighted-average grant-date fair value of $33.15, $26.52and $14.87per unit during the years ended December 31,2018, 2017 and 2016, 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, 2018, 2017 and2016, there were 471,818, 475,466and 684,885shares, respectively, purchased by participants and the Bancorp recognized stock-based compensation expense of $2 million, $1 million and $1 million ineach of the respective years.