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DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

(AMENDMENT NO.     )

Filed by the Registrant    ☒

Filed by a Party other than the Registrant    ☐

Check the appropriate box:

 

Preliminary Proxy Statement
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Section 240.14a-12

FIFTH THIRD BANCORP

 

(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

 

(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:

 

  (2) Aggregate number of securities to which transaction applies:

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

  (4) Proposed maximum aggregate value of transaction:

 

  (5) Total fee paid:

 

Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) Amount Previously Paid:

 

  (2) Form, Schedule or Registration Statement No.:

 

  (3) Filing Party:

 

  (4) Date Filed:

 

 

 


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LOGO

38 FOUNTAIN SQUARE PLAZA

CINCINNATI, OHIO 45263

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

March 9, 2017

To the Shareholders of Fifth Third Bancorp:

You are cordially invited to attend the Annual Meeting of the Shareholders of Fifth Third Bancorp to be held at the Regency Ballroom, located on the third floor of the Hyatt Regency Cincinnati, at 151 West 5th Street, Cincinnati, Ohio on Tuesday, April 18, 2017 at 11:30 a.m. eastern daylight saving time for the purposes of considering and acting upon the following:

 

  (1) Election of all members of the Board of Directors to serve until the Annual Meeting of Shareholders in 2018.

 

  (2) Approval of the appointment of the firm of Deloitte & Touche LLP to serve as the independent external audit firm for the Company for the year 2017.

 

  (3) An advisory approval of the Company’s executive compensation.

 

  (4) An advisory vote to determine whether the shareholder vote on the compensation of the Company’s executives will occur every 1, 2, or 3 years.

 

  (5) The proposal described in the proxy statement to approve the Fifth Third Bancorp 2017 Incentive Compensation Plan, including the issuance of shares of common stock authorized thereunder. The proposed Fifth Third Bancorp 2017 Incentive Compensation Plan is attached as Annex A to the proxy statement and is incorporated therein by reference.

 

  (6) Transaction of such other business that may properly come before the Annual Meeting or any adjournment thereof.

Shareholders of record at the close of business on February 24, 2017 will be entitled to vote at the Annual Meeting.

All shareholders who find it convenient to do so are invited to attend the Annual Meeting in person. In any event, please vote at your earliest convenience by signing and returning the proxy card you receive or by voting over the internet or by telephone.

 

 

If you plan to attend the Annual Meeting:

 

Please note that space limitations make it necessary to limit attendance only to shareholders of the Company and the holders of shareholder proxies. Admission to the Annual Meeting will be on a first-come, first-served basis and will require presentation of a valid driver’s license or other federal or state-issued photo identification card. Shareholders of record must bring the admission ticket attached to their proxy card or the Notice of Internet Availability they receive in order to be admitted to the meeting. “Street name” shareholders must bring a notice regarding the availability of proxy materials, the top portion of a voting instruction form, or a recent proxy or letter from the bank, broker or other intermediary that holds the beneficial holders’ shares and which confirms the beneficial holders’ ownership of those shares. Registration and seating will begin at approximately 11:00 a.m. eastern daylight saving time. Communication and recording devices will not be permitted at the Annual Meeting. A copy of the regulations for conduct at the Annual Meeting is attached as Annex B to the proxy statement.

 

If you have any questions or need assistance voting your shares, please call D.F. King & Co., Inc., which is assisting us, toll-free at 1-800-488-8035.

By Order of the Board of Directors

Jelena McWilliams

Corporate Secretary


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

     2  

INFORMATION ABOUT THE 2017 ANNUAL MEETING

     9  

CERTAIN BENEFICIAL OWNERS

     10  

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     11  

ELECTION OF DIRECTORS (Item 1 on Proxy Card)

     12  

BOARD OF DIRECTORS, ITS COMMITTEES, MEETINGS AND FUNCTIONS

     20  

CORPORATE GOVERNANCE

     22  

BOARD LEADERSHIP

     22  

RISK MANAGEMENT OVERSIGHT

     22  

COMMUNICATION WITH THE BOARD

     23  

SHAREHOLDER COMMUNICATION WITH INVESTOR RELATIONS DEPARTMENT

     23  

COMPENSATION DISCUSSION AND ANALYSIS

     24  

EXECUTIVE SUMMARY

     24  

2016 PERFORMANCE RESULTS

     26  

THE COMPANY’S HUMAN CAPITAL AND COMPENSATION COMMITTEE

     27  

EXECUTIVE COMPENSATION PHILOSOPHY AND RISK MANAGEMENT

     30  

COMPENSATION STRUCTURE AND METHODOLOGY

     32  

2016 EXECUTIVE COMPENSATION PLAN DESIGN AND AWARD DECISIONS

     34  

2017 EXECUTIVE COMPENSATION PLAN DESIGN CHANGES

     42  

EXECUTIVE BENEFITS AND PERQUISITES

     42  

TAX AND ACCOUNTING IMPACT OF COMPENSATION PROGRAMS

     44  

EXECUTIVE OWNERSHIP AND CAPITAL ACCUMULATION

     45  

COMPENSATION COMMITTEE REPORT

     47  

COMPENSATION OF NAMED EXECUTIVE OFFICERS AND DIRECTORS

     48  

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

     55  

DIRECTOR COMPENSATION

     58  

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     61  

CERTAIN TRANSACTIONS

     62  

REPORT OF THE AUDIT COMMITTEE

     63  

PRINCIPAL INDEPENDENT EXTERNAL AUDIT FIRM FEES

     64  

COMPANY PROPOSAL 1: INDEPENDENT EXTERNAL AUDIT FIRM (Item 2 on Proxy Card)

     65  

COMPANY PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION (Item 3 on Proxy Card)

     66  

COMPANY PROPOSAL 3: ADVISORY VOTE ON FREQUENCY OF VOTES ON EXECUTIVE COMPENSATION (Item 4 on Proxy Card)

     67  

COMPANY PROPOSAL 4: PROPOSAL TO APPROVE THE FIFTH THIRD BANCORP 2017 INCENTIVE COMPENSATION PLAN INCLUDING THE ISSUANCE OF SHARES OF COMMON STOCK AUTHORIZED THEREUNDER (Item 5 on Proxy Card)

     68  

2018 SHAREHOLDER PROPOSALS

     81  

OTHER BUSINESS

     83  

ANNEX A: FIFTH THIRD BANCORP 2017 INCENTIVE COMPENSATION PLAN

     A-1  

ANNEX B: REGULATIONS FOR CONDUCT AT THE APRIL  18, 2017 ANNUAL MEETING OF SHAREHOLDERS OF FIFTH THIRD BANCORP

     B-1  

AGENDA

  


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LOGO

38 Fountain Square Plaza

Cincinnati, Ohio 45263

 

2017 Proxy Statement

 

This proxy statement, notice of the 2017 Annual Meeting, notice of internet availability, form of proxy, and the Annual Report of the Company for the year 2016 are first being sent or made available to shareholders on or about March 9, 2017.


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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

 

 

What is this document?

This document is called a proxy statement. This proxy statement includes information regarding the matters to be acted upon at the 2017 Fifth Third Bancorp Annual Meeting of Shareholders (the “Annual Meeting”) and certain other information required by the Securities and Exchange Commission (the “SEC”) and the rules of the Nasdaq Global Select Market (“Nasdaq”).

 

 

When is the Annual Meeting and where will it be held?

The Annual Meeting will be held on Tuesday, April 18, 2017, at the Regency Ballroom, located on the third floor of the Hyatt Regency Cincinnati, at 151 West 5th Street, Cincinnati, Ohio at 11:30 a.m. eastern daylight saving time.

 

 

Why am I being provided this proxy statement?

Fifth Third Bancorp (the “Company” or “Fifth Third”) is required by the SEC to give you, or provide you access to, this proxy statement because it is soliciting your proxy to vote your shares of Fifth Third stock at the Annual Meeting. The enclosed proxy statement summarizes information you need in order to vote at the Annual Meeting.

 

 

What is a proxy?

A proxy is your designation of another person to vote stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. When you designate a proxy, you also may direct the proxy how to vote your shares. Three Fifth Third directors, Emerson L. Brumback, Gregory D. Carmichael, and Marsha C. Williams, have been designated as the proxies to cast the votes of Fifth Third’s shareholders at the Annual Meeting.

 

 

What actions are shareholders approving at the Annual Meeting?

Election of Directors. Twelve director nominees have been recommended for election to the Board of Directors by the Nominating and Corporate Governance Committee of the Board. The nominees for election are: Nicholas K. Akins, B. Evan Bayh III, Jorge L. Benitez, Katherine B. Blackburn, Emerson L. Brumback, Jerry W. Burris, Greg D. Carmichael, Gary R. Heminger, Jewell D. Hoover, Michael B. McCallister, Eileen A. Mallesch, and Marsha C. Williams. Information about these nominees may be found in the proxy statement section titled “Election of Directors.”

Company Proposal 1: Ratification of Auditors. This is a proposal to ratify the reappointment of Deloitte & Touche LLP as the Company’s independent external audit firm for 2017. This approval is not required by law to appoint an independent external audit firm, but this appointment is submitted by the Audit Committee in order to give shareholders a voice in the designation of the independent external audit firm. If this resolution is rejected by the shareholders, then the Audit Committee will reconsider its choice of independent external audit firm. Even if this resolution is approved, the Audit Committee, at its discretion, may direct the appointment of a different independent external audit firm at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders.

 

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Company Proposal 2: Advisory Approval of Executive Compensation. Proposal 2 is an annual advisory vote to approve the compensation of Fifth Third’s named executive officers (“NEOs”). The Board will strongly consider the outcome of this advisory vote in determining the compensation of such executives. In 2016, over 92% of Fifth Third’s shareholders who cast a vote on the Company’s executive compensation program voted to approve it.

Company Proposal 3: Advisory Vote to Determine Frequency of Executive Compensation Votes. Proposal 3 is an advisory vote to determine how often shareholders will be given the opportunity to approve the compensation of the Company’s NEOs: either every one, every two, or every three years. The Board will strongly consider the outcome of these votes in determining how often the shareholders are provided a say on pay vote. At the 2016 Annual Meeting, Fifth Third’s shareholders supported the Board’s recommendation that shareholders be provided the option to cast an advisory vote every one year on the compensation of the Company’s NEOs. Accordingly, the Board decided to hold a “say on pay” vote annually.

Company Proposal 4: Approval of the Fifth Third Bancorp 2017 Incentive Compensation Plan. This is a proposal to approve the Fifth Third Bancorp 2017 Incentive Compensation Plan, including the issuance of shares of common stock authorized thereunder. The 2017 Incentive Compensation Plan, if approved, will replace the 2014 Incentive Compensation Plan, which was approved by the shareholders on April 15, 2014. Information about the 2017 Incentive Compensation Plan may be found in the proxy statement section entitled “Company Proposal 4: Proposal to Approve the Fifth Third Bancorp 2017 Incentive Compensation Plan Including the Issuance of Shares of Common Stock Authorized Thereunder.”

 

 

What vote is required to approve the proposals considered at the Annual Meeting?

Election of Directors

As long as cumulative voting is not in effect, in an uncontested election of directors, each nominee for director receiving a greater number of votes “for” his or her election than votes “against” his or her election will be elected as directors. In the event of a contested election or if cumulative voting is in effect, the twelve nominees receiving the greatest number of votes “for” his or her election shall be elected. Abstentions and shares not voted by brokers and other entities holding shares on behalf of beneficial owners will not be counted and will have no effect on the outcome of the election.

All Other Proposals

All other proposals at the Annual Meeting require the affirmative vote of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote on the proposal. Abstentions have the same effect as a vote cast against a proposal. Shares not voted by brokers or other entities holding shares on behalf of beneficial owners will have no effect on the outcome.

It is important to vote your shares at the Annual Meeting.

 

 

Who may vote and what constitutes a quorum at the meeting?

Holders of Fifth Third common stock on February 24, 2017 are entitled to vote on every matter that is to be voted on at the Annual Meeting.

In order to conduct the Annual Meeting, a majority of shares of Fifth Third common stock entitled to vote at the Annual Meeting on every matter that is to be voted on must be present in person or by proxy. This is called a quorum. Shareholders who deliver valid proxies or vote in person at the meeting will be considered part of the

 

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quorum. Once a share is represented for any purpose at the meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjourned meeting. Abstentions will be counted as present and entitled to vote for purposes of determining a quorum. Broker “non-votes” (which are explained below) are counted as present and entitled to vote for purposes of determining a quorum.

 

 

How many votes do I have?

Each share of Fifth Third common stock outstanding on February 24, 2017 is entitled to one vote on all proposals at the meeting. As of the close of business on February 24, 2017, there were approximately 750,621,477 shares of Fifth Third common stock outstanding and entitled to vote.

If notice in writing is given by any shareholder to the President, a Vice President, or the Secretary of the Company not less than forty-eight (48) hours before the time fixed for holding a meeting of shareholders for the purpose of electing directors that a shareholder desires that the voting at such election shall be cumulative, and if an announcement of the giving of such notice is made upon the convening of the meeting by the Chair or Secretary or by or on behalf of the shareholder giving such notice, each shareholder shall have the right to cumulate such voting power as he or she possesses in voting for directors. This will not affect the voting procedures for the other proposals considered at the Annual Meeting.

 

 

How do I vote?

Record Shareholders

A shareholder who owns shares in Fifth Third directly, and not through a broker, bank, or other nominee (“record holder” or “record shareholder”) may vote in person at the Annual Meeting by filling out a ballot or may authorize a proxy to vote on his or her behalf. There are three ways to authorize a proxy:

1. Internet: You may access the proxy materials on the Internet at www.cesvote.com and follow the instructions on the proxy card or on the Notice of Internet Availability.

2. Telephone: You may call toll-free 1-888-693-8683, and follow the instructions on the proxy card or on the Notice of Internet Availability.

3. Mail: If you received your proxy materials by mail, you may vote by signing, dating, and mailing the enclosed proxy card in the postage-paid envelope provided.

Shareholders who vote over the Internet may incur costs, such as telephone and Internet access charges, for which the shareholder is responsible. The Internet and telephone voting procedures are designed to authenticate a shareholder’s identity and to allow a shareholder to vote his or her shares and confirm that his or her instructions have been properly recorded. You may use the Internet or telephone to submit your proxy until 11:00 a.m., eastern daylight saving time, on the morning of the Annual Meeting, April 18, 2017.

Street Name Shareholders

Shareholders who hold shares in “street name,” that is, through a broker, bank or other nominee (“beneficial holder” or “street name shareholder”), should instruct their nominee to vote their shares by following the instructions provided by the nominee. Your vote as a shareholder is important. Please vote as soon as possible to ensure that your vote is recorded. See “Can my broker vote for me?” below.

 

 

 

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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

 

 

What if I sign and date my proxy but do not provide voting instructions?

A proxy that is signed and dated, but which does not contain voting instructions, will be voted as follows:

 

   

“FOR” the election of each of the twelve directors nominated by the Fifth Third Bancorp Nominating and Corporate Governance Committee;

 

   

“FOR” the ratification of Deloitte & Touche LLP as the Company’s independent external audit firm (Company Proposal 1);

 

   

“FOR” the advisory vote on executive compensation (Company Proposal 2);

 

   

“FOR” holding an advisory vote for approval of the compensation of the Company’s executives every “1 Year” (Company Proposal 3); and,

 

   

“FOR” the approval of the Fifth Third Bancorp 2017 Incentive Compensation Plan including the issuance of shares of common stock authorized thereunder (Company Proposal 4).

 

 

Can my broker vote for me?

If you are a beneficial holder of shares and do not provide the organization that holds your shares with specific voting instructions then, under applicable rules, the organization that holds your shares generally has discretionary authority to vote on “routine” matters without receiving instructions from you but cannot vote on “non-routine” matters unless you provide instructions. If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, that organization will inform the inspector of election that it does not have the authority to vote on that matter with respect to your shares. This is generally referred to as a “broker non-vote.”

All proposals at the Annual Meeting except Company Proposal 1 (Ratification of Auditors) are considered non-routine matters under applicable rules. A broker, bank or other nominee cannot vote without instructions on non-routine matters, and therefore broker non-votes may exist in connection with the election of directors and Company Proposals 2, 3, and 4. It is important to instruct your broker, bank or other nominee to vote your shares.

The ratification of Deloitte & Touche LLP as the Company’s independent external audit firm for 2017 (Company Proposal 1) is considered a routine matter under applicable rules. A broker or other nominee generally exercises its discretionary authority to vote on routine matters without instructions. Although brokers and other nominees are not required to exercise discretionary authority, we expect that no broker non-votes will exist in connection with Company Proposal 1.

 

 

Can I change my vote or revoke my proxy?

You may change your vote or revoke your proxy at any time before it is voted at the Annual Meeting by filing with the Company an instrument revoking it, filing a duly executed proxy bearing a later date (including a proxy given over the Internet or by telephone), or by attending the meeting and electing to vote in person. Even if you plan to attend the Annual Meeting, you are encouraged to vote your shares by proxy.

 

 

How are proxy materials delivered?

Fifth Third controls its costs by following SEC rules that allow for the delivery of proxy materials to the Company’s shareholders primarily through the Internet. In addition to reducing the amount of paper used in producing these materials, this method lowers the costs associated with mailing the proxy materials to

 

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shareholders. Record holders will have a Notice of Internet Availability of Proxy Materials delivered directly to their mailing address. Beneficial holders will have a Notice of Internet Availability of Proxy Materials forwarded to them by the intermediary that holds the shares. Shareholders who have requested paper copies of all proxy materials and certain institutional and other shareholders will also receive paper copies of the other proxy materials including this proxy statement, the 2016 Annual Report of Fifth Third Bancorp, and a proxy card or voting instruction sheet.

If you received only a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials unless you request a copy by following the instructions on the notice. The Notice of Internet Availability of Proxy Materials also contains instructions for accessing and reviewing the proxy materials over the Internet and provides directions for submitting your vote over the Internet.

 

 

What if I share an address and a last name with other Fifth Third shareholders?

To reduce the expenses of delivering duplicate proxy materials to shareholders, the Company is relying upon SEC “householding” rules that permit it to deliver only one set of applicable proxy materials to multiple shareholders who share an address and have the same last name, unless the Company receives contrary instructions from any shareholder at that address. Shareholders of record who have the same address and last name and have not previously requested electronic delivery of proxy materials will receive a single envelope containing the notices or the proxy statement and proxy card for all shareholders having that address. The notice or proxy card for each shareholder will include that shareholder’s unique control number needed to vote his or her shares. This procedure reduces our printing costs and postage fees. If, in the future, you do not wish to participate in householding and prefer to receive your Notice or Proxy Statement in a separate envelope, please call 1-800-488-8035 (toll-free) in the U.S., or inform us in writing at: Fifth Third Bancorp, c/o D.F. King & Co., Inc., 48 Wall Street – 22nd Floor, New York, NY 10005, or by email at FITB@dfking.com. We will respond promptly to such requests.

For those shareholders who have the same address and last name and who request to receive a printed copy of the proxy materials by mail, we will send only one copy of such materials to each address unless one or more of those shareholders notifies us, in the same manner described above, that the shareholder(s) wish to receive a printed copy for each shareholder at that address.

Beneficial shareholders can request information about householding from their banks, brokers, or other holders of record.

How do I request a paper or e-mail copy of the proxy materials?

Record Shareholders

Record holders may request a paper or e-mail copy of the proxy materials by following the instructions below. You will be asked to provide your 11-digit control number located on your proxy card or Notice of Internet Availability.

1. Call the toll-free telephone number 1-800-516-1564 and follow the instructions provided;

2. Access the website www.SendMaterial.com and follow the instructions provided; or

3. Send an e-mail to papercopy@SendMaterial.com with your control number in the Subject line. Unless you instruct otherwise, we will reply to your e-mail with links to the proxy materials in PDF format for this meeting only.

Please make your request for a copy on or before April 4, 2017 to facilitate timely delivery.

 

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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

 

 

Street Name Shareholders

Beneficial holders, also known as street name shareholders, should request copies of the proxy materials by following the instructions provided by their bank, broker, or other nominee.

 

 

Can I attend the Annual Meeting?

You can attend the Annual Meeting if you are a:

 

  1. Record holder of Fifth Third common stock;

 

  2. Beneficial holder of Fifth Third common stock; or

 

  3. Authorized representative of persons or entities who are beneficial holders of Fifth Third common stock.

In addition to a valid photo ID or other satisfactory proof of identification, you should bring the following items to be admitted to the Annual Meeting:

a) Record holders must present the admission ticket attached to their proxy card or Notice of Internet Availability.

b) Beneficial holders must present evidence of their ownership. Materials that appropriately evidence ownership include: a notice regarding the availability of proxy materials, the top portion of a voting instruction form, or a recent proxy or letter from the bank, broker or other intermediary that holds the beneficial holders’ shares and which confirms the beneficial holders’ ownership of those shares.

c) In addition to any evidence required under (b) above for beneficial holders, authorized representatives of beneficial holders must present a letter from the record holder certifying as to the beneficial ownership of the entity they represent and a letter from the beneficial holder certifying as to their status as an authorized representative.

No recording devices, photographic equipment, or bullhorns will be permitted into the Annual Meeting. No written materials may be distributed by any person at or in physical proximity to the Annual Meeting. The Chair of the Annual Meeting shall have the power to silence or have removed any person in order to ensure the orderly conduct of the Annual Meeting. Fifth Third representatives will be at the entrance to the Annual Meeting and these representatives will have the authority, on the Company’s behalf, to determine whether the admission policy and procedures are being followed and whether you will be granted admission to the Annual Meeting.

 

 

How do I propose actions for the 2018 Annual Meeting of Shareholders?

Shareholder Proposals to be included in the Company’s Proxy Statement

In order for a shareholder proposal for the 2018 Annual Meeting of Shareholders to be eligible for inclusion in the Company’s proxy statement, it must comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934 (the “Exchange Act”), and must be received by the Company on or before the date provided on page 81 at the address or facsimile number provided on page 81.

 

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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

 

 

Shareholder Proposals not included in the Company’s Proxy Statement

Any shareholder who intends to propose any matter to be acted upon at the 2018 Annual Meeting of Shareholders without such proposal being included in the Company’s proxy statement as a shareholder proposal must send a notice to the Corporate Secretary during the period referenced on page 81 using the address and facsimile number listed on page 81.

 

 

Who can I call for help in voting my shares?

If you have any questions or need assistance voting your shares, please call D.F. King & Co., Inc., which is assisting us, toll-free at 1-800-488-8035.

 

 

Who can I contact with questions about my investment in Fifth Third?

Shareholders who wish to speak to a Fifth Third representative regarding their investment in Fifth Third may communicate directly with Fifth Third’s Investor Relations Department by calling 866-670-0468. In addition, shareholders may communicate in writing directly with the Investor Relations Department by sending a letter to 38 Fountain Square Plaza, MD 1090QC, Cincinnati, OH 45263 or by emailing ir@53.com. You can also view information and request documents from the Investor Relations page of Fifth Third’s website at www.53.com.

 

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INFORMATION ABOUT THE 2017 ANNUAL MEETING

The Board of Directors of the Company is soliciting proxies for the Annual Meeting of Shareholders to be held at the Regency Ballroom, located on the third floor of the Hyatt Regency Cincinnati, at 151 West 5th Street, Cincinnati, Ohio on Tuesday, April 18, 2017 at 11:30 a.m. eastern daylight saving time (the “Annual Meeting”). Each of the approximately 750,621,477 shares of common stock outstanding on February 24, 2017 is entitled to one vote on all matters acted upon at the Annual Meeting. Only shareholders of record on the books of the Company at the close of business on February 24, 2017 will be entitled to vote at the Annual Meeting, either in person or by proxy. The shares represented by all properly executed proxies that are sent to the Company will be voted as designated and each not designated will be voted and counted as described in this proxy statement. Each person giving a proxy may revoke it by giving notice to the Company in writing or in open meeting at any time before it is voted.

The laws of Ohio under which the Company is incorporated provide that if notice in writing is given by any shareholder to the President, a Vice President, or the Secretary of the Company not less than forty-eight (48) hours before the time fixed for holding a meeting of shareholders for the purpose of electing directors that such shareholder desires that the voting at such election shall be cumulative, and if an announcement of the giving of such notice is made upon the convening of the meeting by the Chair or Secretary or by or on behalf of the shareholder giving such notice, each shareholder shall have the right to cumulate such voting power as he or she possesses in voting for directors. This will not affect the voting procedures for the other proposals considered at the Annual Meeting.

The expense of soliciting proxies will be borne by the Company. Proxies will be solicited principally by mail, but may also be solicited by the directors, officers, and other regular employees of the Company, who will receive no compensation therefore in addition to their regular compensation. Brokers and others who hold stock on behalf of others will be asked to send proxy material to the beneficial owners of the stock, and the Company will reimburse them for their expenses.

The Company has retained D.F. King & Co., Inc., a proxy solicitation firm, to assist the Company in soliciting proxies. The Company anticipates that the costs of D.F. King’s proxy solicitation services will be approximately $13,000, plus reasonable out of pocket expenses.

The Annual Report of the Company for the year 2016, including financial statements, has been delivered or made available to all shareholders. Such report and financial statements are not a part of this proxy statement. This proxy statement, form of proxy, notice of Annual Meeting, notice of internet availability, and the Annual Report are first being sent or made available to shareholders on or about March 9, 2017.

 

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CERTAIN BENEFICIAL OWNERS

Under Section 13(d) of the Exchange Act, a beneficial owner of a security is any person who directly or indirectly has or shares voting power or investment power over such security. Such beneficial owner under this definition need not enjoy the economic benefit of such securities. The following are the only shareholders known to the Company deemed to be beneficial owners of 5% or more of the common stock of the Company as of December 31, 2016:

 

Title of Class

  

Name and Address of

Beneficial Owner

  

Amount and Nature

of Beneficial Ownership

   

Percent

of Class

 

Common Stock

   T. Rowe Price Associates, Inc.      59,879,174(1)       7.9
   100 East Pratt Street     
   Baltimore, MD 21202     

Common Stock

   The Vanguard Group      55,633,548(2)       7.36
   100 Vanguard Blvd.     
   Malvern, PA 19355     

Common Stock

   BlackRock, Inc.      52,503,638(3)       6.9
   55 East 52nd Street     
   New York, NY 10055     

Common Stock

   State Street Corporation      42,950,822(4)       5.68
   One Lincoln Street     
   Boston, MA 02111     

Common Stock

   Invesco Ltd.      42,495,888(5)       5.6
   1555 Peachtree Street NE,     
   Suite 100     
   Atlanta, GA 30309     

 

(1) T. Rowe Price Associates, Inc. owns the above holdings in its capacity as an investment advisor in accordance with SEC Rule 13d-1(b)(1)(ii)(E). According to the Schedule 13G filed with the SEC on February 7, 2017, in aggregate, T. Rowe Price Associates, Inc. and the affiliated entities included in Schedule 13G have sole voting power over 22,519,218 shares of common stock and have sole dispositive power over 59,750,574 shares of common stock.

 

(2) The Vanguard Group owns the above holdings in its capacity as an investment advisor in accordance with SEC Rule 13d-1(b)(1)(ii)(E). According to Schedule 13G filed with the SEC on February 9, 2017, in aggregate, the Vanguard Group and the affiliated entities included in the Schedule 13G have sole voting power over 1,203,053 shares of common stock, have shared voting power over 139,804 shares of common stock, have sole dispositive power over 54,318,380 shares of common stock, and have shared dispositive power over 1,315,168 shares of common stock.

 

(3) BlackRock, Inc. owns the above holdings in its capacity as a parent company or control person in accordance with SEC Rule 13d-1(b)(1)(ii)(G). According to the Schedule 13G filed with the SEC on January 23, 2017, in aggregate, BlackRock, Inc. and the affiliated entities included in Schedule 13G have sole voting power over 45,302,795 shares of common stock, have shared voting power over 94,321 shares of common stock, have sole dispositive power over 52,409,317 shares of common stock, and have shared dispositive power over 94,321 shares of common stock.

 

(4) State Street Corporation owns the above holdings in its capacity as a parent holding company or control person in accordance with SEC Rule 13d-1(b)(1)(ii)(G). According to the Schedule 13G filed with the SEC on February 6, 2017, in aggregate, State Street Corporation and the affiliated entities included in the Schedule 13G have shared voting power over 42,950,822 shares of common stock and have shared dispositive power over 42,950,822 shares of common stock.

 

(5) Invesco Ltd. owns the above holdings in its capacity as an investment advisor in accordance with SEC Rule 13d-1(b)(1)(ii)(E) and as a parent holding company or control person in accordance with SEC Rule 13d-1(b)(1)(ii)(G). According to the Schedule 13G filed with the SEC on February 14, 2017, in aggregate, Invesco Ltd. and the affiliated entities included in the Schedule 13G have sole voting power over 40,383,055 shares and have sole dispositive power over 42,495,888 shares.

 

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who own more than ten percent of a registered class of the Company’s stock, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Annual Statement of Changes In Beneficial Ownership of Securities on Form 5 were required for those persons, the Company believes that, for the period from January 1, 2016 through December 31, 2016, its executive officers and directors complied with all filing requirements applicable to them, except for the failure to timely report on a Form 4 during 2016 grants by the Company of restricted stock units and stock appreciation rights issued to Lars C. Anderson, Chad M. Borton, Greg D. Carmichael, Frank R. Forrest, Mark D. Hazel, Kevin Kabat, Heather Russell Koenig, Randolph J. Koporc, Gregory L. Kosch, James C. Leonard, Philip R. McHugh, Joseph R. Robinson, Timothy N. Spence, Teresa J. Tanner and Tayfun Tuzun and one additional transaction for Philip R. McHugh involving the withholding of shares of restricted stock for taxes upon the vesting. These transactions were subsequently reported on Form 4s.

Additionally, with respect to prior fiscal years, the following directors failed to timely report on Form 5 the acquisition of phantom stock units pursuant to a deferred compensation plan: B. Evan Bayh III (three Form 5s covering five transactions), Ulysses L. Bridgeman Jr. (eight Form 5s covering 19 transactions), Hendrik G. Meijer (10 Form 5s covering 25 transactions), and Marsha C. Williams (two Form 5s covering four transactions), and these transactions were subsequently reported on Form 5s; the following individuals failed to include in their Form 3 filing the ownership of phantom stock units pursuant to deferred compensation plans, Ulysses L. Bridgeman Jr., Gregory L. Kosch, and Joseph R. Robinson and those holdings were subsequently reported on amended Form 3s; and Greg D. Carmichael failed to timely report on Form 4 the disposition of phantom stock units pursuant to a deferred compensation plan which was subsequently reported on an amended Form 4.

 

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ELECTION OF DIRECTORS

(Item 1 on Proxy Card)

In accordance with the Company’s Code of Regulations, directors are elected annually to a one (1) year term expiring at the next Annual Meeting of Shareholders. The terms of the directors listed below expire at the Annual Meeting on April 18, 2017 and these individuals constitute the nominees to be elected to serve until the Annual Meeting of Shareholders in 2018. Mr. Meijer will retire from the Board at the Annual Meeting. He has generously given valuable service to the Company as a director for many years. The Board of Directors has voted to decrease the size of the Board such that no vacancies will result from this retirement. Any vacancies that occur after the directors are elected may be filled by the Board of Directors in accordance with law and the Company’s Code of Regulations for the remainder of the full term of the vacant directorship.

Director candidates are nominated by the Company’s Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee’s Charter directs the Committee to investigate and assess the background and skills of potential candidates and to maintain an active file of suitable candidates for directors. The Nominating and Corporate Governance Committee utilizes its pool of existing subsidiary and regional directors as well as the significant network of business contacts of its existing directors and executive management and also retained third party consultants to aid it in identifying potential director candidates. Upon identifying a candidate for serious consideration, the Company’s Chief Executive Officer and one or more members of the Nominating and Corporate Governance Committee initially interview such candidate. If the candidate merits further consideration, the candidate subsequently interviews with other Nominating and Corporate Governance Committee members (individually or as a group), and ultimately meets the remaining directors. The Nominating and Corporate Governance Committee elicits feedback from persons who meet the candidate and then determines whether or not to nominate the candidate.

The Company’s Corporate Governance Guidelines set forth the following criteria for directors: independence (in order to compose a Board of Directors that has a majority of its members who are independent); highest personal and professional ethics and integrity; willingness to devote sufficient time to fulfilling duties as a director; impact on the diversity of the Board’s overall experience in business, government, education, technology, and other areas relevant to the Company’s business; impact on the diversity of the Board’s composition in terms of age, skills, ethnicity, and other factors relevant to the Company’s business; and number of other public company boards on which the candidate may serve (generally, a director should not serve on more than three public company boards in addition to the Company). The Company’s Corporate Governance Guidelines provide that shareholders may propose nominees to the Nominating and Corporate Governance Committee by submitting the names and qualifications of such persons to the Nominating and Corporate Governance Committee no later than December 31 of each year. Submissions are to be addressed to the Nominating and Corporate Governance Committee at the Company’s executive offices, which submissions will then be forwarded to the Committee. The Nominating and Corporate Governance Committee would then evaluate the possible nominee using the criteria outlined above and would consider such person in comparison to all other candidates. The Nominating and Corporate Governance Committee is not obligated to nominate any such individual for election. No such shareholder nominations have been received by the Company for this Annual Meeting. Accordingly, no rejections or refusals of such candidates have been made by the Company. Shareholders may also nominate candidates directly for election by following the procedures in the Company’s Code of Regulations. These are summarized in the “2018 Shareholder Proposals” section of this proxy statement.

The Nominating and Corporate Governance Committee of the Board of Directors has nominated for election as directors the following twelve (12) persons: Nicholas K. Akins, B. Evan Bayh III, Jorge L. Benitez, Katherine B. Blackburn, Emerson L. Brumback, Jerry W. Burris, Greg D. Carmichael, Gary R. Heminger, Jewell D. Hoover, Eileen A. Mallesch, Michael B. McCallister, and Marsha C. Williams.

 

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ELECTION OF DIRECTORS

 

 

The following tables set forth information with respect to each director nominee for election at the Annual Meeting including their business experience, share holdings and qualifications as a director of the Company. The Board of Directors has determined that all director nominees have met the independence standards of Rule 5605(a)(2) of the National Association of Securities Dealers listing standards with the exception of Mr. Carmichael.

 

                    Shares of Company
Common Stock
Beneficially Owned

on January 31,
2017(1)
 
       

Name, Age and Principal Occupation During the Past Five Years

   Director
Since
     Number(2)      Percent
of Class
 
    NOMINEES FOR ELECTION AS DIRECTORS:         
LOGO     NICHOLAS K. AKINS, 56, is the Chair, President & Chief Executive Officer of American Electric Power Company.      2013        15,845        .0021
   

Mr. Akins’ qualifications for service as a director include business expertise as the Chief Executive Officer of a large, multi-state electric utility where he focused on local operating utilities, community involvement, government relations and regulations at the state, local, and federal levels. Mr. Akins has experience in all facets of operational, financial and compliance-related activities in a heavily regulated business and industry.

 

                                                                                  

 

 

 

LOGO

   

B. EVAN BAYH III, 61, is a Partner with the law firm McGuireWoods LLP and a senior advisor to the private equity firm, Apollo Global Management. Mr. Bayh also serves on the Board of Directors of Marathon Petroleum Corporation, Berry Plastics Group, Inc., and RLJ Lodging Trust.

 

     2011        19,981        .0027
   

Mr. Bayh’s qualifications for service as a director include two decades of experience in government service. First as Governor of Indiana and then in the United States Senate, Mr. Bayh dealt with a variety of financial, economic and policy issues that impact a wide variety of businesses. He had supervisory authority over thousands of employees and oversaw a budget in excess of $10 billion. As a member of the Senate Banking Committee and Chair of the International Trade and Finance Subcommittee, Mr. Bayh gained perspective on issues of particular relevance to Fifth Third Bancorp.

 

                                                                                  

 

 

LOGO    

JORGE L. BENITEZ, 57, is the retired Chief Executive Officer of North America of Accenture and a director of World Fuel Services Corporation. Previously, from September 2006 to August 2011, Mr. Benitez served as Chief Operating Officer of Accenture’s Products Operating Group.

 

     2015        5,522        .0007
   

Mr. Benitez’s qualifications for service as a director include extensive experience developing and executing business strategies across a range of industries, particularly air, freight, and travel and transportation services, as well as significant executive experience running operating units within a large multinational publicly-traded corporation.

 

                                                                                  

 

 

 

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ELECTION OF DIRECTORS

 

 

                    Shares of Company
Common Stock
Beneficially Owned

on January 31,
2017(1)
 
       

Name, Age and Principal Occupation During the Past Five Years

   Director
Since
     Number(2)      Percent
of Class
 

LOGO

 

   

KATHERINE B. BLACKBURN, 51, is the Executive Vice President of the Cincinnati Bengals, Inc.

 

     2014        30,532        .0041
   

Ms. Blackburn’s qualifications for service as a director include business experience in running operations for the Cincinnati Bengals professional football franchise. Her experiences have given her skills and expertise that qualify her for Board service, including her roles in player contract negotiations, oversight of the team’s management of the NFL salary cap, her service as Chair of the NFL’s Diversity Committee and Super Bowl and Events Committee, and her position as one of six trustees of the Player Retirement Benefit Board (three of whom are retired players and three of whom are NFL Club representatives), as well as her education and prior experiences as an attorney. Additionally, Ms. Blackburn brings to the Board knowledge and familiarity of the Company and the city of Cincinnati.

 

                                                                                  

 

 

LOGO

 

   

EMERSON L. BRUMBACK, 65, is the retired President & Chief Operating Officer of M&T Bank and a former director of M&T Bank Corporation. He is the Vice Chair of the Board of the Great Lakes Higher Education Corporation.

 

     2009        48,045        .0064
   

Mr. Brumback’s qualifications for service as a director include banking expertise through his 30 years of experience in the financial services industry with several banking organizations, including the Buffalo branch of the Federal Reserve Bank of New York. He has gained valuable insight through his experience in executive positions overseeing many aspects of the banking field, including retail banking, commercial banking, banking operations, and systems. He also brings his experience as a former board member with another financial services company.

 

                                                                                  

 

 

LOGO

 

   

JERRY W. BURRIS, 58, is the retired President and Chief Executive Officer of Associated Materials Group, Inc. He was also previously a director of Associated Materials and a division president with General Electric. He is a current director of Pentair PLC.

 

     2016        1,718        .0002
   

Mr. Burris’ qualifications for service as a director include management expertise as the President and Chief Executive Officer of Associated Manufacturing and as a division president with General Electric. Mr. Burris’s expertise includes strong technical marketing skills, a sound understanding of how to best integrate technology, rapid innovation, mergers and acquisitions, and cost and efficiency management. He also brings experience from his service on a public company board’s compensation and governance and audit committees.

 

                                                                                  

 

 

 

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ELECTION OF DIRECTORS

 

 

                    Shares of Company
Common Stock
Beneficially Owned

on January 31,
2017(1)
 
       

Name, Age and Principal Occupation During the Past Five Years

   Director
Since
     Number(2)      Percent
of Class
 

LOGO

 

   

GREG D. CARMICHAEL, 55, is the Chief Executive Officer of Fifth Third Bancorp since November 2015 and President since September 2012. Previously, Mr. Carmichael was Chief Operating Officer of Fifth Third Bancorp from June 2006 to August 2015, Executive Vice President from June 2006 to September 2012, and Chief Information Officer from June 2003 to June 2006.

 

     2015        1,009,325        .1342
   

Mr. Carmichael’s qualifications for service as a director include valuable insight and knowledge for the Board due to his service as its Chief Executive Officer and his prior role as Chief Operating Officer. Mr. Carmichael also brings important technical expertise from his years of service as Chief Information Officer and his prior service in information technology roles with prior employers.

 

                                                                                  

 

 

LOGO    

GARY R. HEMINGER, 63, is the President, Chief Executive Officer and Chair of Marathon Petroleum Corporation and the Chair and Chief Executive Officer of MPLX GP LLC (the general partner of MPLX LP). MPLX LP is a consolidated master limited partnership formed by Marathon Petroleum Corporation.

 

     2006        44,074        .0059
   

Mr. Heminger’s qualifications for service as a director include valuable business knowledge gained from his responsibilities in overseeing all operations, performance, reporting, and financial metrics for Marathon’s refining, marketing, transportation and Speedway business. He has financial experience through his oversight of all financial data, working capital, and merger and acquisition activity.

 

                                                                                  

 

 

LOGO    

JEWELL D. HOOVER, 68, is a retired Senior Official with the Office of the Comptroller of the Currency and is the author of the “Ultimate Guide for Bank Directors.” Ms. Hoover is also a former director of First Charter Corporation and was a principal with the bank consulting firm of Hoover and Associates, LLC until 2014.

 

     2009        40,439        .0054
   

Ms. Hoover’s qualifications for service as a director include 28 years of service with the Office of the Comptroller of the Currency, including service as the Deputy Comptroller of the agency’s Western District. She also has gained valuable banking experience and knowledge as a bank consultant for corporate governance, director training, and problem bank resolution matters. Additionally, she has first-hand knowledge of the Company through her service as a director of its North Carolina affiliate and a predecessor banking organization.

 

                                                                                  

 

 

 

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ELECTION OF DIRECTORS

 

 

                    Shares of Company
Common Stock
Beneficially Owned

on January 31,
2017(1)
 
       

Name, Age and Principal Occupation During the Past Five Years

   Director
Since
     Number(2)      Percent
of Class
 
LOGO    

EILEEN A. MALLESCH, 61, is the retired Senior Vice President and Chief Financial Officer of Nationwide Property & Casualty Segment, Nationwide Mutual Insurance Company. She was also a Senior Vice President and Chief Financial Officer for Genworth Financial Life Insurance/Service Co. Ms. Mallesch currently serves on the Boards of Directors of Libbey, Inc., State Auto Financial Corp., and Bob Evans Farms, Inc.

 

     2016        1,718        .0002
   

Ms. Mallesch’s qualifications for service as a director include financial management experience from her roles as Chief Financial Officer for both Nationwide Mutual Insurance Company and Genworth Financial Life Insurance/Service Co. She has more than 25 years of broad finance and strategy experience in a variety of industries, ranging from insurance and telecommunications to consumer products and manufacturing. In addition, Ms. Mallesch brings vast knowledge in enterprise resource planning and large-scale technology integrations, strategic planning, and managing acquisitions, divestures, and risk and compliance management. She is also a Certified Public Accountant.

 

                                                                                  

 

 

LOGO    

MICHAEL B. MCCALLISTER, 64, is the retired Chair of the Board of Directors of Humana Inc. Previously, Mr. McCallister was the Chief Executive Officer of Humana Inc. from February 2000 until his retirement as Chief Executive Officer in December 2012. He was elected as a Humana board member in February 2000 and was Chair of the Board from August 2010 until December 2013. Mr. McCallister joined Humana in June 1974. He is also a director of AT&T Inc. and a director of Zoetis Inc.

 

     2011        31,927        .0042
   

Mr. McCallister’s qualifications for service as a director include 39 years of experience in the health care sector at Humana, Inc. combined with an intimate knowledge of Humana’s operational, financial, and strategic development. Beyond Humana, Mr. McCallister plays a leadership role in key business advocacy organizations. He served on the board of the Business Roundtable and is the past chair of the organization’s Health and Retirement Task Force.

 

                                                                                  

 

 

 

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ELECTION OF DIRECTORS

 

 

                    Shares of Company
Common Stock
Beneficially Owned

on January 31,
2017(1)
 
       

Name, Age and Principal Occupation During the Past Five Years

   Director
Since
     Number(2)      Percent
of Class
 
LOGO    

MARSHA C. WILLIAMS, 65, is the retired Senior Vice President and Chief Financial Officer of Orbitz Worldwide, Inc. from July 2007 through December 31, 2010. From 2002 to 2007, Ms. Williams served as Executive Vice President and Chief Financial Officer of Equity Office Properties Trust, the nation’s largest owner and operator of office buildings. She is also the Supervisory Director of Chicago Bridge & Iron Company N.V., the Lead Independent Director of Modine Manufacturing Company, and a director of the Davis Funds.

 

     2008        50,420        .0067
   

Ms. Williams’ qualifications for service as a director include her extensive experience in financial matters including 42 years in finance and her service as the Chief Financial Officer of Orbitz and Equity Office Properties Trust as well as her service on the board of directors of other publicly traded corporations and mutual funds. Ms. Williams also possesses knowledge and experience in the financial services industry through her 15 years of service with other banking organizations.

 

                                                                                  

 

 

    NON-CONTINUING DIRECTOR:         

LOGO

 

   

HENDRIK G. MEIJER, 65, is the Co-Chair, Chief Executive Officer, and Director of Meijer, Inc. and its affiliates, a food and general merchandise retailer with approximately 223 supercenters located in Michigan, Ohio, Indiana, Illinois, Kentucky, and Wisconsin.

 

     2001        79,641        .0106
                                                                                                                                 
   

All directors and executive officers as a Group (24 persons)

 

        2,877,835        .3822

 

(1) As reported to Fifth Third Bancorp by the Directors as of the date stated. Includes shares held in the name of spouses, minor children, certain relatives, trusts, estates, and certain affiliated companies as to which beneficial ownership may be disclaimed. As of January 31, 2017, none of the Company’s current executive officers or directors owned any Series H Preferred Stock, Series I Preferred Stock, Series J Preferred Stock, or any Depositary Shares representing interests in Series H Preferred Stock, Series I Preferred Stock, or Series J Preferred Stock.

 

(2)

The amounts shown represent the total shares owned outright by such individuals together with stock appreciation rights exercisable (or exercisable within 60 days) as of January 31, 2017 but unexercised and shares of common stock underlying outstanding restricted stock units. Specifically, the following individuals have the number of stock appreciation rights exercisable (or exercisable within 60 days) of

 

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ELECTION OF DIRECTORS

 

 

  January 31, 2017 indicated after their names: Ms. Hoover, 500; Mr. Carmichael, 701,237. The amounts listed for stock appreciation rights represent the number of rights that may be exercised; the actual number of shares delivered will vary based on the stock’s appreciation over the grant price at the time of exercise. The aggregate number of stock appreciation rights currently exercisable (or exercisable within 60 days) but unexercised held by the executive officers who are not also directors or nominees is 721,391. Directors owned the following number of restricted stock units as of January 31, 2017: Nicholas K. Akins, 15,854; B. Evan Bayh III, 15,405; Jorge L. Benitez, 5,522; Katherine B. Blackburn, 11,071; Emerson L. Brumback, 15,405; Jerry W. Burris, 1,718; Greg D. Carmichael, 182,526; Gary R. Heminger, 15,405; Jewell D. Hoover, 15,405; Eileen A. Mallesch, 1,718; Michael B. McCallister, 15,854; Hendrik Meijer, 16,019; and Marsha C. Williams, 18,668. Some directors have deferred receipt of the common stock underlying certain of their restricted stock units: B. Evan Bayh III, 10,782; Gary R. Heminger, 10,782; Jewell D. Hoover, 5,522; and Hendrik Meijer, 10,782. All directors and executive officers as a group own 729,348 restricted stock units. 221,392 of these restricted stock units are subject to vesting within 60 days of January 31, 2017.

 

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ELECTION OF DIRECTORS

 

 

VOTE REQUIRED

Under Ohio law and the Company’s Articles of Incorporation and Code of Regulations, as long as cumulative voting is not in effect, in an uncontested election of directors (i.e., an election where the number of candidates nominated for election to the Board of Directors equals the number of directors to be elected), each person receiving a greater number of votes “for” his or her election than votes “against” his or her election will be elected as a director. In the event of a contested election or if cumulative voting is in effect, the twelve nominees receiving the greatest number of votes “for” their election shall be elected. The Company has also adopted provisions of its Corporate Governance Guidelines stating that, as long as cumulative voting is not in effect, in an uncontested election of directors, any nominee for director who receives a greater number of votes “against” his or her election than votes “for” his or her election will promptly tender his or her resignation to the Chair of the Board following certification of the shareholder vote. The Nominating and Corporate Governance Committee will promptly consider the tendered resignation and will recommend to the Board whether to accept or reject the tendered resignation no later than 60 days following the date of the shareholders’ meeting at which the election occurred. In considering whether to accept or reject the tendered resignation, the Nominating and Corporate Governance Committee will consider factors deemed relevant by the Committee members including, without limitation, the director’s length of service, the director’s particular qualifications and contributions to Fifth Third, the reasons underlying the majority against vote (if known) and whether these reasons can be cured, and compliance with stock exchange listing standards and the Corporate Governance Guidelines. The Board will act on the Nominating and Corporate Governance Committee’s recommendation no later than 90 days following the date of the shareholders’ meeting at which the election occurred. In considering the Nominating and Corporate Governance Committee’s recommendation, the Board will consider the factors considered by that committee and such additional information and factors the Board believes to be relevant.

If any nominee(s) shall be unable to serve, which is not now contemplated, the proxies will be voted for such substitute nominee(s) as the Nominating and Corporate Governance Committee of the Board of Directors recommends. Proxies in the form solicited hereby which are returned to the Company and not revoked will be voted in favor of the twelve (12) nominees specified above unless otherwise instructed by the shareholder. Abstentions and shares not voted by brokers or other entities holding shares on behalf of beneficial owners will not be counted and will have no effect on the outcome of the election in accordance with Ohio law and the Company’s Articles of Incorporation and Code of Regulations.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE

CANDIDATES FOR DIRECTOR NAMED ABOVE.

 

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BOARD OF DIRECTORS, ITS COMMITTEES, MEETINGS AND FUNCTIONS

The Board of Directors of the Company met twelve (12) times during 2016. The Company’s Board of Directors also regularly holds executive sessions of those members of the Board of Directors who meet the then current standards of independence. The chair at these executive sessions is the Chair of the Company’s Board of Directors.

No current member of the Board of Directors of the Company attended less than 75% of the aggregate meetings of the Board of Directors and all committees on which such director served during 2016.

Neither the Board nor the Nominating and Corporate Governance Committee has implemented a formal policy regarding director attendance at the Annual Meeting; however, the Board typically holds a Board meeting directly following the Annual Meeting. In 2016, all directors, except Mr. McCallister, attended the Annual Meeting.

During 2016, there were six (6) committees of the Board of Directors: Audit, Human Capital and Compensation, Finance, Nominating and Corporate Governance, Regulatory Oversight, and Risk and Compliance.

The Audit Committee of the Company was established in accordance with Section 3(a)(58)(A) of the Exchange Act and serves in a dual capacity as the Audit Committee of the Company and Fifth Third Bank. Twelve (12) meetings of this Committee were held during 2016. This Committee’s functions include the engagement of the independent external audit firm, reviewing with that firm the plans and results of the audit engagement of the Company, approving the annual audit plan and reviewing the results of the procedures for internal auditing, reviewing the independence of the independent external audit firm, reviewing the Company’s financial results and periodic SEC filings, reviewing the design and effectiveness of the Company’s internal controls and similar functions, and approving all auditing and non-auditing services performed by its independent external audit firm. Another function of the Audit Committee is to carry out the statutory requirements of a bank audit committee as prescribed under applicable law. The Audit Committee members for 2016 were Emerson L. Brumback (Chair), Katherine B. Blackburn, Jewell D. Hoover, and Marsha C. Williams. Jerry W. Burris also served on the Audit Committee beginning in December 2016. All members of the Audit Committee met the independence standards of Rule 5605(a)(2) and the audit committee qualifications of Rule 4350(d)(2) of the National Association of Securities Dealers listing standards. The Board of Directors has determined that Emerson L. Brumback and Marsha C. Williams are audit committee financial experts for the Company and are independent as described in the preceding sentence. The Board of Directors has adopted a written charter for the Audit Committee, which may be found in the Corporate Governance section of the Company’s website at www.53.com. The formal report of the Audit Committee with respect to the year 2016 is on page 63 herein.

The Finance Committee of the Company serves in a dual capacity as the Finance Committee of the Company and Fifth Third Bank. The Finance Committee met six (6) times in 2016. This Committee exercises, during the intervals between the meetings of the Board of Directors, all the powers of the Board of Directors of the Company and Fifth Third Bank in the management of the business, properties, and affairs of the Company and Fifth Third Bank that may be permissibly exercised by a committee thereof. The Finance Committee consisted of Gary R. Heminger (Chair), Nicholas K. Akins, Emerson L. Brumback, Jewell D. Hoover, Michael B. McCallister, and Marsha C. Williams. Former Directors James P. Hackett and Kevin Kabat also served on the Finance Committee from January through April 2016. The Board of Directors has adopted a Finance Committee charter which may be found in the Corporate Governance section of the Company’s website at www.53.com.

The Company has a Human Capital and Compensation Committee comprised entirely of independent directors. The Human Capital and Compensation Committee met six (6) times during 2016. Executive compensation and equity plan allocations are determined by this Committee of the Board of Directors. In 2016, the Human Capital and Compensation Committee consisted of Michael B. McCallister (Chair), Nicholas K.

 

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BOARD OF DIRECTORS, ITS COMMITTEES, MEETINGS AND FUNCTIONS

 

 

Akins, Gary R. Heminger, and Hendrik G. Meijer. The Board of Directors has adopted a Human Capital and Compensation Committee charter which may be found in the Corporate Governance section of the Company’s website at www.53.com. The formal report of the Human Capital and Compensation Committee with respect to 2016 compensation is on page 47 herein.

The Company has a Nominating and Corporate Governance Committee comprised entirely of independent directors. The Nominating and Corporate Governance Committee met four (4) times during 2016. This Committee develops and recommends to the Board corporate governance policies and guidelines for the Company and for the identification and nomination of director and committee member candidates and nominates directors for election to the Board and appointment to committee membership. In 2016, the Nominating and Corporate Governance Committee consisted of Nicholas K. Akins (Chair), B. Evan Bayh III, Jorge L. Benitez, Gary R. Heminger and Marsha C Williams. Former Director Ulysses L. Bridgeman, Jr. also served on the Nominating and Corporate Governance Committee from January through April 2016. The Board of Directors has adopted a Nominating and Corporate Governance Committee charter which may be found in the Corporate Governance section of the Company’s website at www.53.com.

The Company’s Risk and Compliance Committee serves in a dual capacity as the Risk and Compliance Committee of the Company and the Bank. The Risk and Compliance Committee met twelve (12) times in 2016. This Committee is responsible for the risk management policies of the Company’s global operation and oversight of its global management framework. The Risk and Compliance Committee consisted of five independent directors: Jewell D. Hoover (Chair), B. Evan Bayh III, Jorge L. Benitez, Hendrik G. Meijer and Marsha C. Williams. Eileen A. Mallesch also served on the Risk and Compliance Committee beginning in December 2016. The Board of Directors has adopted a Risk and Compliance Committee charter which may be found in the Corporate Governance section of the Company’s website at www.53.com.

The Company had a Regulatory Oversight Committee. In December 2016, the Board of Directors approved the dissolution of the Regulatory Oversight Committee upon completion of regulatory alignment, which occurred in the first quarter of 2017. Upon dissolution of the Regulatory Oversight Committee, the charter of the Risk and Compliance Committee was amended to include certain responsibilities previously held by the Regulatory Oversight Committee. In 2016, the Regulatory Oversight Committee of the Company was comprised entirely of independent directors and served in a dual capacity as the Regulatory Oversight Committee of the Company and Fifth Third Bank. The Regulatory Oversight Committee met six (6) times in 2016. This Committee oversaw the Company’s supervisory issues and enforcement and the Company’s efforts to remediate them. It consisted of Marsha C. Williams (Chair), Nicholas K. Akins, Katherine B. Blackburn, Emerson L. Brumback, and Jewell D. Hoover. The Board of Directors adopted a Regulatory Oversight Committee charter which was available in the Corporate Governance section of the Company’s website at www.53.com before the dissolution of the Committee.

 

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CORPORATE GOVERNANCE

The Board of Directors has adopted the Fifth Third Bancorp Corporate Governance Guidelines which may be found in the Corporate Governance section of the Company’s website at www.53.com. The Board of Directors has also adopted the Fifth Third Bancorp Code of Business Conduct and Ethics which applies to the Company’s directors; its Chief Executive Officer, Chief Financial Officer, and Controller; and its other employees and may also be found in the Corporate Governance section of the Company’s website at www.53.com.

BOARD LEADERSHIP

The Board believes that the Company’s shareholders are best served by a Board that has the flexibility to establish a leadership structure that fits the needs of the Company at any particular point in time. Accordingly, under the Company’s Code of Regulations and Corporate Governance Guidelines, the Board of Directors has the authority to combine or separate the positions of Chair and Chief Executive Officer as well as determine whether, if the positions are separated, the Chair is an affiliated director or an independent director.

Currently, the same person does not serve as the Company’s Chief Executive Officer and Board Chair. The Company’s Chair is a non-executive director. The Board believes this structure is appropriate at the current time in order to allow the Chair to provide support and guidance to the Chief Executive Officer while also allowing the Board to have a separate director handle governance matters and coordinate meetings of independent directors. These decisions were based, in part, on the qualifications of the Chair who has 42 years of experience in finance including her service as the Chief Financial Officer of Orbitz and Equity Office Properties Trust as well as her service with other banking organizations.

From time to time, the Board may consider combining the role of Chair and Chief Executive Officer or utilizing a Lead Director. These decisions will be dependent on the make-up of the Board at that time and the availability and willingness of candidates for Chair and/or Lead Director who meet any expertise and experience criteria and qualifications identified by the Board, as well as other factors.

RISK MANAGEMENT OVERSIGHT

The role of the Board of Directors is to provide oversight to ensure an effective enterprise risk management program is in place, including an appropriate enterprise risk management framework and related governance structure. The Board sets the overall risk appetite for the Company, including the establishment and monitoring of risk tolerances. The formulation of risk appetite considers the Company’s operating capacity, which is represented by its available financial resources, defined as Tier 1 Capital less the Company’s largest capital buffer (Common Equity Tier 1 Capital Policy Target less the Basel III Buffered Common Equity Tier 1 Minimum), that sets an absolute limit on risk assumption in the Company’s annual and strategic plans. The Company’s risk appetite is limited by policy to a maximum of 95 percent of operating capacity. Tolerances are the maximum amount of risk applicable to each of the eight specific risk categories included in the enterprise risk management framework. Through their oversight role, directors ensure that the risk management processes designed and implemented under this framework and governance structure are aligned to the Board’s corporate strategy and are functioning as directed. The Board also considers the optimal organizational structure at both the Board and management levels. This may include delegating responsibility through Board committees, management committees, the Chief Executive Officer, and the Chief Risk Officer.

Risk management oversight and governance is provided primarily by the Risk and Compliance Committee of the Board of Directors and through the Enterprise Risk Management Committee, a management committee that reports to it. The Enterprise Risk Management Committee is supported by several management committees whose membership includes a broad cross-section of line of business and support representatives. The Risk and Compliance Committee of the Board of Directors currently consists of six outside directors and has responsibility for the oversight of risk management for the Company, as well as ensuring that risks are properly controlled, quantified, and within the Company’s risk appetite.

 

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CORPORATE GOVERNANCE

 

 

The primary purpose of the Risk and Compliance Committee is responsibility for the risk management policies of the Company’s global operation and oversight of its global risk management framework.

The Risk and Compliance Committee charter outlines more specific responsibilities under all categories of risk. The Chief Risk Officer has a direct reporting relationship to the Chief Executive Officer and the Risk and Compliance Committee and has regular executive sessions with the Risk and Compliance Committee without other members of management present. In addition, the Director of Credit Risk Review reports directly to the Risk and Compliance Committee.

COMMUNICATION WITH THE BOARD

Shareholders may communicate directly to the Board of Directors in writing by sending a letter to the Board at: Fifth Third Bancorp Board of Directors, 38 Fountain Square Plaza, MD 10909F, Cincinnati, OH 45263 or by e-mail via the Company’s website at www.53.com. All communications directed to the Board of Directors will be received and processed by the Fifth Third Legal Department and will be transmitted to the Nominating and Corporate Governance Committee without any editing or screening by the Legal Department.

The Audit Committee has also established Fifth Third’s EthicsLine, a toll-free hotline through which confidential complaints may be made regarding: illegal or fraudulent activity; questionable accounting, internal controls or auditing matters; conflicts of interest, dishonest or unethical conduct; disclosures in the Company’s SEC reports, bank regulatory filings, and other public disclosures that are not full, fair, accurate, timely, and understandable; violations of the Company’s Code of Business Conduct and Ethics; and/or any other violations of laws, rules, or regulations. The contact information for the EthicsLine is available in the Company’s Code of Business Conduct and Ethics, which is available at the Company’s website. Complaints submitted through this process are presented to the Audit Committee on a regular, periodic basis.

SHAREHOLDER COMMUNICATION WITH INVESTOR RELATIONS DEPARTMENT

Shareholders who wish to speak to a Fifth Third representative regarding their investment in Fifth Third may communicate directly with Fifth Third’s Investor Relations Department by calling 866-670-0468. In addition, shareholders may communicate in writing directly with the Investor Relations Department by sending a letter to 38 Fountain Square Plaza, MD 1090QC, Cincinnati, OH 45263 or by emailing ir@53.com. Shareholders can also view information and request documents from the Investor Relations page of Fifth Third’s website at www.53.com.

 

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COMPENSATION DISCUSSION AND ANALYSIS

The Company’s Compensation Discussion and Analysis provides information concerning the compensation for our executive officers. This information is set forth in the following sections:

 

   

Executive Summary

 

   

2016 Performance Results

 

   

The Company’s Human Capital and Compensation Committee (as used in this Compensation Discussion and Analysis Section, “the Committee”)

 

   

Executive Compensation Philosophy and Risk Management

 

   

Compensation Structure and Methodology

 

   

2016 Executive Compensation Plan Design and Award Decisions

 

   

2017 Executive Compensation Plan Design Changes

 

   

Executive Benefits and Perquisites

 

   

Tax and Accounting Impact of Compensation Programs

 

   

Executive Ownership and Capital Accumulation

EXECUTIVE SUMMARY

2016 was a significant year for Fifth Third Bancorp. During the year, we launched the NorthStar Strategy and implemented specific actions to deliver strong and consistent returns through longer-term economic cycles. We continue to maintain a healthy balance sheet with strong capital and liquidity levels and are well-positioned to benefit from higher interest rates. We also are committed to making sound investments to expand our delivery channels, enhance our digital capabilities, develop new products and services, and drive new business volume so that we can fulfill our Vision of becoming the One Bank that people most value and trust.

Key themes of our 2016 performance include:

 

 

LOGO

 

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We believe it is a good governance practice to review and assess our compensation practices and programs on an annual basis, taking into account the Company’s strategic objectives, compensation philosophy, regulatory guidance, risk culture, and market practices. As a result, we made the following changes to the senior executive compensation programs specific for 2016:

 

       
Plan   Feature   Key Design Change   Rationale
Variable Compensation Plan (“VCP”) (annual incentive compensation)   Funding Modifier  

Removed Net Charge Offs (“NCOs”) from the list of performance modifiers and changed Available Liquidity to Liquidity Coverage Ratio.

 

Removed NCOs in order to eliminate redundancy as NCOs are implicitly included in the core performance metrics.

 

Changed Available Liquidity to Liquidity Coverage Ratio due to the implementation of the liquidity coverage ratio, effective January 1, 2016 by the Federal Reserve Bank.

 

2014 Incentive Compensation Plan (“LTI”) (annual long-term equity-based incentive compensation)   Award types and provisions  

Changed certain award types and provisions which impacted both executives and our other employees who receive LTI:

 

•    Started making annual restricted stock grants in the form of restricted stock units (“RSUs”) instead of restricted stock awards (“RSAs”).

 

•    Changed the retirement eligibility provision, except for vested stock appreciation rights (“SARs”) which remained the same, to a combination age plus continued service > 65 with minimum age 55 and minimum service 5 years.

 

•    Increased the number of days post termination to exercise SARs from 0 to 90 days.

 

  Alignment with peer and competitive grant practice.

Summary of Executive Compensation Best Practices. Our executive compensation program incorporates certain best practices such as:

 

v     Paying for performance

v     Incorporating risk-balancing features into our compensation programs

v     Including double-trigger change-in-control provisions

v     Providing no excise tax gross-ups to Executive Officers

v     Maintaining share ownership guidelines and share retention policies

v     Prohibiting speculative trading and hedging strategies by Executive Officers

v     Utilizing an independent compensation consultant hired and overseen by the Committee

v     Providing minimal perquisites

v     Requiring adherence to the Code of Business and Ethical Conduct

 

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This Compensation Discussion and Analysis describes the compensation of the individuals who served as the Company’s chief executive officer (Greg D. Carmichael) and chief financial officer (Tayfun Tuzun) during fiscal year 2016, as well as certain other individuals included in the Summary Compensation Table on page 48 (Lars C. Anderson, executive vice president and chief operating officer; Chad M. Borton, executive vice president and head of Consumer Bank; Timothy N. Spence, executive vice president and chief strategy officer; and Frank R. Forrest, executive vice president and chief risk officer), which are referred to as our “Named Executive Officers” or “NEOs.”

Certain one-time compensation events during 2016 increased Mr. Borton’s compensation to a level that requires his inclusion in the Compensation Discussion and Analysis and the following tables for 2016 and would permit us to exclude Mr. Forrest from these disclosures. However, because we do not expect that we will be required to include Mr. Borton in future years, and expect to include Mr. Forrest, we have elected to include Mr. Forrest for consistency in the five NEOs that are expected to be disclosed year-over-year.

Non-Binding Advisory Say-on-Pay Proposal. In 2016, our shareholders approved a non-binding advisory say-on-pay proposal at our 2016 Annual Meeting with over 92 percent of the votes cast voting in favor of that proposal. The Committee believes the results of the shareholder vote indicate strong support among shareholders for our pay-for-performance approach. We intend to continue to monitor our current compensation structure and future votes to ensure that there is continued support for our pay programs among our shareholders.

2016 PERFORMANCE RESULTS

Each year, we review and update our Variable Compensation Plan to ensure alignment with our business strategy, regulatory guidance, and the external market. For 2016, the three primary funding measures were adjusted earnings per share (“EPS”), adjusted return on risk weighted assets (“RORWA”), and adjusted efficiency ratio. It is the view of the Committee that these primary funding measures provide balanced incentives.

Consistent with our practice used in setting goals and evaluating results, we use adjusted results to determine performance against our plan targets. Adjusted results reflect adjustments shown below for certain events to reflect core financial performance in the plan year for annual incentive plan funding purposes.

 

     Dilluted Earnings
Per Share
    Return on Risk
Weighted Assets
    Efficiency
Ratio (FTE)
 

Reported Results

   $ 1.93       1.23     61.6

VCP Adjustment Items

      

Vantiv Related Transactions (TRA & Warrant)

   ($ 0.30     (0.19 %)      3.6

Visa Total Return Swap Losses

   $ 0.05       0.03     (0.6 %) 

Other, net(a)

   $ 0.01       0.01     (0.4 %) 
  

 

 

   

 

 

   

 

 

 

Adjusted Results

   $ 1.69       1.08     64.2

 

(a) Includes impact of employee retirement eligibility changes, voluntary early retirement program, branch and corporate property optimization charges, gains on sales of St. Louis and Pennsylvania consumer businesses, change in income tax deductibility of prior expenses, treasury securities gains, and changes in market interest rates.

As shown below, our 2016 adjusted results outperformed the targets set in our VCP:

 

   

Adjusted EPS was 107 percent of our target. EPS is a commonly used measure for assessing our ability to generate earnings for our shareholders.

 

   

RORWA was 110 percent of our target. RORWA is a measure of adjusted net income available to common shareholders as a percent of average risk-weighted assets.

 

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Adjusted efficiency ratio was 40 basis points lower than target, indicating better performance. The efficiency ratio is a measure of expenses as a percentage of revenue and reflects how effective we are at generating revenue while managing expenses.

 

 

LOGO

In addition to these key financial performance measures, we met or exceeded target on other measures considered by the Committee in assessing annual performance:

 

Performance Modifier Measures    Target Goal    2016 Final Results

Non-Performing Assets

   Peer Median (50th
Percentile)
   50th Percentile

Capital Levels

   Meet Required  Regulatory
Minimum and Internal Target
Levels
   Meeting All Targets
Liquidity Coverage Ratio    105%    128%

THE COMPANY’S HUMAN CAPITAL AND COMPENSATION COMMITTEE

The Committee’s Role. The Committee is composed of independent directors and is responsible for establishing, implementing, and monitoring the administration of compensation and benefits programs in accordance with the Company’s compensation philosophy and strategy, along with approving executive compensation and equity plan awards. The Committee focuses on the attraction and retention of key executives and, when making decisions, considers the Company’s compensation philosophy, the achievement of business goals set by the Company, relevant peer data, recommendations made by the chief executive officer, and the advice of Compensation Advisory Partners LLC (“CAP”), a respected, independent, external executive compensation consulting firm with financial services industry expertise.

The Committee seeks to establish “Total Rewards” for the Company’s executive officers that are fair, reasonable, risk-balanced and competitive. The Total Rewards program includes base salary, annual cash incentive compensation, long-term equity-based incentive compensation, benefits, and certain perquisites. Generally, the types of compensation and benefits paid to the Named Executive Officers are similar to those provided to other officers of the Company.

The Committee has taken the following steps designed to ensure that it effectively carries out its responsibilities:

 

   

Engaged CAP to provide the Committee with relevant market data and to advise the Committee on alternatives when making compensation decisions for the Named Executive Officers and on the recommendations being made by the Company’s management for executive officers other than the Named Executive Officers. In addition to the support provided by CAP, employees who have significant compensation experience in the Company’s Human Capital division provide support, data, and analysis to the Committee.

 

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Conducted an annual review of the Committee charter to ensure that it effectively reflects the Committee’s responsibilities.

 

   

Provided oversight of incentive and variable compensation practices and balanced risk-taking across the Company with the Compensation Risk Oversight Committee (a management committee that reports to the Committee).

 

   

Conducted an annual review of the Company’s compensation philosophy to ensure that it remains appropriate given the Company’s strategic objectives.

 

   

Conducted an annual review of the Company’s Compensation Peer Group as defined below.

 

   

Reviewed all compensation components for the Company’s chief executive officer, chief financial officer, and other Named Executive Officers, incorporating a tally sheet and pay-for-performance sensitivity analysis for each executive.

 

   

Evaluated the execution of the Company’s pay-for-performance philosophy to ensure that the actual award decisions resulted in alignment of relative pay and relative performance compared to the Compensation Peer Group.

 

   

Scheduled an executive session prior to the conclusion of the Committee meetings, without members of management, for the purpose of discussing decisions related to the chief executive officer’s performance, goal-setting, compensation levels, and other items deemed important by the Committee.

 

   

Conducted an annual review of the succession plan for Mr. Carmichael.

 

   

Reviewed and approved new hire compensation packages for officers, ensuring that offers were appropriate to the strategic needs of each position and the compensation required to attract the selected candidate to the role.

 

   

Completed an annual self-evaluation of the Committee’s effectiveness.

 

   

Completed an annual review of the external compensation consultant’s performance.

 

   

Reviewed jointly with the Risk and Compliance Committee of the Board, the Company’s risk assessment of executive and employee incentive plans with the chief risk officer designed to confirm that the Company’s compensation design does not incent unnecessary risk.

 

   

Completed an annual review of industry compensation and corporate governance trends to identify potential changes in programs and to ensure alignment with industry governance best practices.

 

   

Worked to meet expectations and guidance from our banking regulators.

Role of Executive Officers in Compensation Decisions. The chief executive officer annually reviews the performance of each of the other Named Executive Officers, along with a risk performance assessment. Based on this review, the chief executive officer makes compensation recommendations to the Committee, including recommendations for salary adjustments, annual cash incentives, and long-term equity-based incentive awards. In addition, the chief executive officer and other members of management also annually assess performance for other executive officers and make compensation recommendations to the Committee. Although the Committee considers these recommendations along with data provided by its other advisors, it retains full discretion to set all compensation for the Company’s executive officers. The Committee works with its consultant to determine compensation for the chief executive officer and the chief executive officer has no input into his own award determinations.

Additionally, the chief risk officer reviews and evaluates with the Committee all executive officer and employee incentive compensation plans. The purpose of the review is to confirm that the Company’s incentive compensation plans do not incent or pose unnecessary or excessive risks to the Company.

 

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The Role of the Third-Party Compensation Consultant. The Committee uses the services of its outside executive compensation consultant, CAP, to provide guidance and advice to the Committee on all matters covered by its charter. This consultant was directly selected and engaged by the Committee to provide a broad set of services pertaining to the compensation of the Company’s executives.

The consultant fulfills the following responsibilities:

 

   

Reviews the Company’s compensation philosophy and competitive positioning for reasonableness and appropriateness.

 

   

Reviews the Committee’s charter annually and recommends changes as appropriate.

 

   

Reviews the Committee’s agendas and supporting materials in advance of each meeting.

 

   

Advises the Committee on management proposals, as requested.

 

   

Reviews information from a peer group of publicly traded banking and financial institutions (collectively the “Compensation Peer Group”) and survey data for competitive comparisons.

 

   

Reviews the Company’s executive compensation programs annually and advises the Committee on the design of incentive plans or practices that might be changed to improve the effectiveness of its compensation program.

 

   

Reviews competitive pay practices of the Compensation Peer Group for its Boards of Directors annually and recommends to the Committee changes required to pay the Company’s Board of Directors in a competitive fashion.

 

   

Reviews, analyzes, and summarizes survey data on executive pay practices and amounts that come before the Committee.

 

   

Attends all Committee meetings, including executive sessions.

 

   

Advises the Committee on potential practices for Board governance of executive compensation as well as areas of concern and risk in the Company’s programs.

 

   

Undertakes special projects at the request of the Committee.

During 2016, CAP was specifically engaged on the following projects:

 

   

Advising the Committee with respect to the appropriateness of compensation structure and actual amounts paid to the Company’s executive officers given the Company’s compensation philosophy, size, and Compensation Peer Group.

 

   

Participating actively in the review and design of all executive compensation programs.

 

   

Advising on the appropriateness of executive performance goals and metrics.

 

   

Reviewing and advising on the compensation program for the Company’s Board of Directors.

 

   

Reviewing the Company’s risk assessment of executive and employee incentive plans.

 

   

Advising the Committee on market and regulatory trends and developments.

 

   

Providing recommendations to the Committee on the compensation of the chief executive officer.

 

   

Assessing the relationship between the chief executive officer’s compensation and performance on a realizable pay basis.

 

   

Reviewing the 2015 Compensation Discussion and Analysis and related sections for the 2016 proxy statement.

 

   

Assisting the Committee in collecting and summarizing Board feedback on the performance of the chief executive officer, chief risk officer, chief credit risk officer, and chief auditor.

 

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The Company does not engage CAP for additional services outside of executive compensation consulting.

The Committee conducted an assessment of potential conflicts of interest of CAP and no conflicts of interest relating to CAP’s services were identified by the Committee.

The Committee’s Considerations. The Committee considers both the aggregate amounts and mix of an executive officer’s Total Direct Compensation (base salary, annual cash incentive compensation, and long-term equity-based incentive compensation) when making decisions. The Committee assessed Total Direct Compensation relative to competitive market data during its December 2015 meeting. The Committee discussed recommendations for executive compensation and approved final merit, annual cash incentive awards (our Variable Compensation Plan), and final long-term incentive recommendations at its February 2016 meeting.

Based on its most recent review of the competitive data, the Committee has determined that the compensation structure for executive officers is effective and appropriate. The structure reflects the Company’s compensation philosophy, in that its incentive payout ranges are aligned with the competitive market data, it has appropriate leverage to ensure a strong linkage between compensation, risk outcomes, and performance, and it drives rewards based on the most relevant performance measures for the Company and shareholders.

The Committee also has reviewed the internal relationships between the compensation for the chief executive officer and for other executive officers and has deemed them to be appropriate. The Committee believes that the relative difference between the compensation of the chief executive officer and the compensation of the Company’s other executive officers is consistent with such differences found in the Company’s Compensation Peer Group.

EXECUTIVE COMPENSATION PHILOSOPHY AND RISK MANAGEMENT

Compensation Philosophy. The Company endeavors to attract and retain the best people in the financial services industry and motivate them to fulfill the Company’s Vision of becoming the One Bank that people most value and trust. We intend to accomplish this in the way that we consider our shareholders’ long-term interests, by establishing compensation programs that reward our people for delivering products our customers highly value, and avoiding excessive risk. Our compensation philosophy comprises the following guiding principles:

 

   

Provide competitive compensation opportunities in order to attract and retain executive talent that will drive the business strategy.

 

   

Manage risk effectively within incentive programs designed to pay for performance.

 

   

Align compensation with long-term shareholder interests.

 

   

Provide strong oversight of executive pay.

 

   

Conduct recurring processes that ensure strategic and fiscal soundness along with balanced risk taking.

 

   

Communicate for understanding and transparency.

In order to drive our business strategy and human capital plan, compensation must be competitive to attract and retain essential talent, reward high performance, and be internally equitable. In addition, the Company is committed to making compensation decisions that are fiscally responsible, such that we carefully consider the expected return on investment for those decisions. Our expected total compensation opportunities generally reflect the median pay levels of our peer group with variations based on specific talent needs, experience, and other internal factors. We believe that actual total compensation should vary with the performance of the organization, such that outstanding performance results in above market compensation. Since a majority of compensation is tied to performance outcomes, actual total compensation will vary within a competitive range.

 

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Compensation Risk Management. We believe it is critical to bring a multi-faceted strategy toward mitigating risk in incentive plans. We incorporate formulaic and discretionary risk-balancing mechanisms, which outline specific metrics for modifying payouts to discourage unnecessary or imprudent risk-taking actions.

Senior executive pay also includes a heavy focus on long-term incentives. This long-term focus facilitates collaboration among business units, ownership in the Company, and a focus on shareholder goals.

To execute the risk mitigation strategies, we conduct yearly review processes, which are documented and incorporate input from Finance, Human Resources, Risk Management, and business leaders. These processes include:

 

Processes   Purpose

Market Reviews

  Human Resources uses peer benchmark data to ensure that pay programs are competitive in the financial services industry.

Incentive Plan Reviews

  Senior business leaders ensure that incentive plans support the business strategy.

Risk Reviews

  Senior risk and credit leaders determine whether incentive plans support the Company’s risk culture and the incentive compensation risk framework.

Financial Reviews

  Senior executives, including the chief executive officer, confirm that the incentive plans are fiscally sound, risk aligned, and successfully contribute to shareholder value.

Board Reviews

  Independent directors, serving on the Human Capital and Compensation Committee and Risk and Compliance Committee, assess the strategic, risk, and fiscal soundness of compensation plans and ensure that they are aligned with the Company’s compensation philosophy.

As a result of the process and applicable financial institution regulation, our compensation program for our Named Executive Officers has several features that help to address potential concerns about risk:

 

   

Downward discretionary pay adjustment based on risk performance assessment which includes results of examinations by our banking regulators, internal examinations by our audit staff, and a qualitative review by the chief risk officer.

 

   

Caps on the maximum payment under our annual cash incentive plan and our performance share (“PSA”) plan.

 

   

Balanced mix of short-term, medium-term, and long-term compensation.

 

   

Forfeiture provisions related to material risk events.

 

   

Stock ownership and retention guidelines.

 

   

Restitution rights for compensation received as a result of misconduct.

Finally, we believe it is critical that our people clearly understand how they are rewarded to ensure that pay facilitates the appropriate strategic and risk awareness behaviors. Because of this, we provide ongoing compensation communication and education.

In December 2015, the Committee, in conjunction with the Risk and Compliance Committee, reviewed our executive and other incentive programs. Based on the provisions and actions above, the Committee concluded that their design and/or metrics do not encourage unnecessary and/or inappropriate risk taking.

 

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COMPENSATION STRUCTURE AND METHODOLOGY

Compensation Structure. The compensation structure (i.e., each element of pay described below and the respective amounts for each element) for executive officers is reviewed annually. When determining the compensation structure, the following items are considered:

 

   

The most recent and prior years’ comparative proxy statement and survey data for similar positions among the Compensation Peer Group.

 

   

The 25th percentile, median (i.e., 50th percentile), and 75th percentile peer data for each element of compensation (base salary, target annual cash incentive compensation, and target long-term equity-based incentive compensation, as well as the resulting Total Direct Compensation).

 

   

The ability to provide market median (i.e., 50th percentile) Total Cash Compensation (i.e., base salary plus annual cash incentive compensation) for 50th percentile performance relative to the Compensation Peer Group.

 

   

The ability to provide upper quartile Total Cash Compensation for upper quartile performance (i.e., 75th percentile or better performance relative to the Compensation Peer Group).

Benchmarking Methodology. In making compensation decisions, the Committee compares Company performance and each element of executive officers’ Total Direct Compensation with the Compensation Peer Group. The Committee refers to this Compensation Peer Group for both compensation and performance-related benchmarking. Financial performance data is prepared either by the Committee’s external compensation consultant or by the Company, using data from public filings. Compensation data is generally prepared by the Committee’s external compensation consultants, using proprietary compensation databases and publicly available data from proxy statements. The Committee’s consultant reviews all financial and/or compensation data that is prepared by the Company and provided to the Committee.

The Compensation Peer Group consists of companies with which the Committee believes the Company competes for talent and for stockholder investment, and which are similar in asset size and business mix. The following 12 companies were identified by the Committee as the 2016 Compensation Peer Group:

 

BB&T Corporation

   The PNC Financial Services Group, Inc.

Capital One Financial Corporation

   Regions Financial Corporation

Comerica Incorporated

   SunTrust Banks, Inc.

Huntington Bancshares Incorporated

   U.S. Bancorp

KeyCorp

   Wells Fargo & Company

M&T Bank Corporation

   Zions Bancorporation

The Committee annually reviews the Compensation Peer Group and considers changes to the Compensation Peer Group deemed necessary to ensure that the nature and size of the organizations continue to be appropriate. Based on the Committee’s evaluation of the Compensation Peer Group for 2016 in regard to the business mix, size, and ongoing challenges with pay levels at these institutions, Wells Fargo and Capital One will no longer be included in the Compensation Peer Group starting in 2017. Citizen’s Financial Group will be added based on its similar size and business structure to that of the Company. The Company’s assets were at approximately the 56th percentile of its 2016 Compensation Peer Group as of June 2016.

 

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Pay for Performance. Under the compensation structure, annual cash and long-term incentives comprise the majority of executive officers’ Total Direct Compensation. The actual amounts realized by executive officers under these incentive plans vary based on the performance of the Company and individual performance. Company performance is evaluated from a variety of perspectives, including:

 

   

Absolute performance and performance relative to peers.

 

   

Return measures including return on average equity.

 

   

Growth in earnings per share.

 

   

Efficiency ratio.

 

   

Stock price growth.

 

   

Risk performance assessment.

Annual cash incentive compensation awards to executive officers are approved from a pool funded on the basis of Company performance relative to the specific goals described below. This pool of available compensation awards is allocated to each participant based on qualitative assessments of individual performance against a set of stated objectives and individual risk assessment. Long-term equity-based incentive compensation awards also are made to each participant based on qualitative assessments of individual performance against a set of stated objectives and individual risk assessment. Long-term equity-based incentive compensation awards derive value based on shareholder return and stock price appreciation. Amounts realizable from prior compensation awards do not influence decisions relative to future awards.

Pay Elements and Pay Mix. Under the pay-for-performance compensation structure, compensation is delivered through three primary elements:

 

   

Base salary.

 

   

Annual cash incentive (delivered through the Variable Compensation Plan).

 

   

Long-term incentives.

The 2016 total compensation included a mix of cash and equity awards. The Company typically pays base salary and the annual incentive compensation in cash. All long-term equity-based incentive compensation awards are paid in shares of the Company’s common stock. Generally, our Named Executive Officers have approximately 50 percent or more of total compensation delivered in the form of equity-based compensation. The charts below show the mix between cash and equity for our chief executive officer and average pay mix for our other NEOs:

 

 

LOGO

 

(1) The percentages reflect the Named Executive Officer’s base salary as of 12/31/2016, actual annual incentive award the executive earned for 2016 performance under the Annual Incentive Plan and target long-term incentive. Actual long-term incentive awards based upon 2016 performance may vary from target and was approved by the Committee in February 2017.

 

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Tally Sheet. The Company annually prepares a tally sheet of all compensation and potential payouts for the Committee’s use when considering compensation matters. The Committee reviews all components of the Company’s chief executive officer, chief financial officer, and the other NEOs’ compensation, including:

 

   

Base salary.

 

   

Annual cash incentive compensation.

 

   

Long-term equity-based incentive compensation.

 

   

Accumulated, realized, and unrealized equity award gains.

 

   

The dollar value to the executive and cost to the Company of all perquisites and other personal benefits.

 

   

The earnings and accumulated payout obligations under the Company’s nonqualified deferred compensation plan.

 

   

Several potential termination scenarios, including change-in-control where applicable.

The Committee reviewed all the above compensation components and the associated dollar amounts for 2015 compensation in June 2016. Moving this review to mid-year allows for a more focused look at each executive’s compensation components, separate from when annual pay recommendations are being made. At that time, the Committee also reviewed a sensitivity analysis of the relationship between each NEO’s 2015 Total Direct Compensation and the Company’s performance––both stock price performance, and Company results. The Committee will perform the annual tally sheet review specific to 2016 compensation components in June 2017.

Determinations. The Committee considers several factors and objectives relevant to each specific program when determining compensation, including a risk performance assessment. The Committee also contemplates the impact of each award on the Total Direct Compensation package. Total Direct Compensation opportunities are intended to target the median (i.e., 50th percentile) of the relevant market data, and actual compensation (both amount and mix) for executives varies based on their performance, prior experience and other pertinent factors. In addition, for purposes of attracting and retaining key executives, the Committee may determine that an additional award, an above-median sign-on package and/or an incentive guarantee for a new hire, or a Total Direct Compensation package that is above market median, is appropriate.

2016 EXECUTIVE COMPENSATION PLAN DESIGN AND AWARD DECISIONS

Base Salary. The Committee reviews individual base salaries of the Company’s executive officers annually, and/or at the time of promotion or hire, as applicable. The objectives of the Company’s base salary program are to provide salaries at a level that allows the Company to attract and retain qualified executives and to recognize and reward individual performance. The following items are considered when determining base salary levels:

 

   

Market data provided by the Company’s external compensation consultant.

 

   

The executive officer’s experience, scope of responsibilities, performance, and potential.

 

   

Internal equity in relation to other executive officers with similar levels of experience, scope of responsibilities, performance, and potential.

 

   

Other relevant information, which may include federal programs or regulatory requirements.

Salary increases, if any, are based on the Company’s overall performance and the executive’s attainment of individual objectives during the preceding year in the context of competitive market data.

 

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This review and evaluation showed that base salary increases were needed for two NEOs that had fallen significantly below the market median for their roles. Increases of 17 percent for Chad M. Borton and 21 percent for Tayfun Tuzun were needed to bring these individuals within 90 percent and 89 percent, respectively, of the market median for their roles. The remaining NEO’s received base salary adjustments ranging from 0 percent to 2 percent.

2016 Annual Cash Incentive Compensation Plan Design. The annual cash incentive compensation program’s objective is to reward executives for corporate, business unit, and/or individual performance. Each year, we review and update our VCP program to ensure alignment with our business strategy, regulatory guidance, and the external market. For 2016, the three primary funding measures were:

 

  1. Adjusted EPS vs. Plan: 50% weight

 

  2. Adjusted RORWA vs. Plan: 25% weight

 

  3. Adjusted Efficiency Ratio vs. Plan: 25% weight

It is the view of the Committee that primary funding measures within the VCP program provide executives with balanced incentives to increase the absolute level of earnings, while also ensuring that shareholder capital is used efficiently to generate competitive returns. Adjusted efficiency ratio is useful as a complementary measure as it provides an assessment of the cost efficiency of the Company’s operations.

In addition to the primary funding measures, there are three funding modifier metrics that the Committee considers to adjust the calculated pool funding up or down, as described in more detail below:

 

   

Non-performing assets

 

   

Capital levels

 

   

Liquidity coverage ratio

The Committee retains discretion to adjust pool funding downward based on other factors as well.

For 2016, there were two changes made to the VCP program compared to 2015. Net charge-offs were removed from the list of funding modifiers and Available Liquidity was changed to Liquidity Coverage Ratio. It was determined that net charge-offs were already appropriately included within the core funding metrics and was considered to be duplicative as a stand-alone funding modifier. Available Liquidity was changed to Liquidity Coverage Ratio due to the implementation of the Liquidity Coverage Ratio measure effective January 1, 2016 by the Federal Reserve Bank.

 

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VCP Performance Goals. The financial plan approved by the Board of Directors includes specific target levels for each of the measures that are shown below. Actual performance against these targets is considered, in addition to the three funding modifiers, when determining the available funding for all participants of the VCP. The Committee set the 2016 performance metrics to exclude certain non-recurring items not included in the Company’s financial plan and excluded those items when determining the adjusted Company performance results. The goals for the senior executive pool under the VCP, which includes all senior executives designated as Category 1 in accordance with the federal banking interagency guidance on sound incentive compensation practices (which includes all NEOs), were scaled to represent four quartiles of performance. Each quartile contains a performance level range, a score, a score range, and a funding pool range. The funding pool ranges are set starting with Quartile 4 which represents the sum of the maximum opportunity available for each senior executive who participates in the pool, which generally aligns with the 75th percentile of the market for each participant.

 

Performance

Measures

(Adjusted)

  Weight   Company Performance Levels
    Below
Threshold
 

Quartile 1

Score: 1

 

Quartile 2

Score: 2

 

Quartile 3

Score: 3

 

Quartile 4

Score: 4

EPS

  50%   <$1.42   $1.42 – $1.50   $1.51 – $1.58   $1.59 – $1.66   $1.67 > $1.75 or  more

RORWA

  25%   < 0.81%   0.81% – 0.89%   0.90% – 0.98%   0.99% – 1.07%   1.08% > 1.16% or more

Efficiency Ratio

  25%   > 67.7%   67.7% – 66.2%   66.1% – 64.6%   64.5% – 63.1%   63.0% < 61.5% or more

Score Range

      0   < 1.5   > 1.5 < 2.5   > 2.5 < 3.0   > 3.0 – < 4.0

Funding Pool Ranges

    $0   <$5.5M   <$8.3M   <$12.1M   $15.7M

To determine the VCP funding pool, each performance measure is reviewed to determine the performance quartile that was achieved and the associated score is assigned. The overall funding score represents the sum of the weighted average score for each performance measure. The overall funding score is compared to the quartile score ranges to determine the funding pool range.

As mentioned in the above Plan Design section, the Committee may use the funding modifiers to increase or decrease the funding score. The Committee may exercise discretion to increase a funding score up to a maximum of 0.6 points; however, downward discretion is not capped and can be made in any amount deemed appropriate. These measures used for 2016 funding modifiers are outlined below:

 

Funding Modifier Measures    Target Goal

Non-Performing-Assets

   Peer Median (50th Percentile)

Capital Levels

   Meet Required Regulatory Levels

Liquidity Coverage Ratio

   105%

 

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Determination of VCP Awards. As described in the VCP Performance Goals section, to determine the VCP funding pool, each performance measure is reviewed to determine an overall funding score and performance quartile as well as the associated funding pool range. For 2016, the Company’s pro forma results on adjusted EPS relative to our target were within the fourth quartile, results on adjusted RORWA were within the third quartile, and the adjusted efficiency ratio was within the second quartile. Using the sum of the weighted average score for each performance measure as set forth above, the overall funding score would have been 3.25 as shown below. This would have resulted in a Quartile 4 pool of up to $15.7 million for the senior executives.

 

Pro Forma Adjusted Performance Measures    2016  Pro
Forma
   Score    Weight   

Weighted Score

(Score x Weight)

EPS

   $1.67    4    50%    2.00

RORWA

   1.07%    3    25%    0.75

Efficiency Ratio

   64.6%    2    25%    0.50

Core Funding Score

                  3.25

The Committee then considered the three funding modifiers and determined that the performance against these modifiers was in line with goals. Considering this performance, and after taking into account other quantitative and qualitative financial factors, the Committee exercised its discretion and approved a negative adjustment to the pool to reduce it to a Quartile 3 pool of up to $12.1 million or 77 percent of the maximum pool. This negative adjustment was based on a review of overall performance against peers and the need to generate a higher and more sustainable level of profitability, as reflected in our goals under NorthStar. This adjustment reduced the compensation expenses of the Company. As a result of this reduction to compensation expense, the final adjusted EPS, RORWA and efficiency ratio were as set forth in the “2016 Performance Results” as set forth on page 26.

 

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When making the final determination of individual awards using the approved Quartile 3 pool, the Committee had the benefit of information relating to market median and market 75th percentile compensation levels and 2016 Company financial performance as well as the adjustments noted above. Considering these factors and each individual’s qualitative performance assessment (described below) and risk performance assessment, the Committee thought it appropriate to make final individual award decisions that totaled approximately 98 percent of the approved $12.1 million pool. These included a VCP award of 76 percent of the CEO’s individual maximum and VCP awards ranging from 67 percent to 90 percent of individual maximums for the other NEOs.

 

 

LOGO

2016 Long-term Equity-based Incentive Compensation Plan Design. The objective of the long-term equity-based incentive program is to align executives’ interests with shareholders’ interests, to facilitate share ownership among Named Executive Officers, and to link rewards with the long-term performance of the Company. Target award levels are established at the beginning of the year for each executive officer based on market median compensation for each position. Award levels are not automatically made at target. The actual award levels are based on Company performance and the Committee may include qualitative assessments of individual performance of each Named Executive Officer in areas such as:

 

   

The Company’s revenue and expense results.

 

   

Division revenue and expenses vs. budget.

 

   

Internal and external customer service levels.

 

   

Performance relative to the Company’s strategic initiatives.

 

   

Results related to specific individual responsibilities.

 

   

Results related to specific individual risk assessments.

The Company currently employs three types of long-term equity-based incentive compensation awards: stock-settled stock appreciation rights, restricted stock units, and performance shares. The mix of long-term equity-based incentive compensation awards for its executive officers (including all NEOs) was reviewed in 2016 to ensure that it effectively supported the Company’s objectives of:

 

   

Aligning management and shareholders’ interests.

 

   

Motivating senior executives to optimize long-term shareholder value.

 

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Encouraging stock ownership among senior executives.

 

   

Enhancing the Company’s ability to retain key executives.

 

   

Ensuring the program design is consistent with our compensation philosophy and reflective of external market trends.

 

   

Strengthening the risk-adjusted pay decisions.

The Committee believes that a portion of the long-term equity-based incentive compensation opportunity should come from a growth-oriented incentive (i.e., SARs) that aligns executives’ interests with those of the Company’s shareholders. In addition, the Committee believes that full-value share awards (i.e., performance shares and restricted stock units) complement each other and are important for driving stronger retention value and enhanced ownership creation opportunities, and should therefore be a meaningful portion of the long-term incentive. The Committee also believes that performance shares further the objective of creating a clear connection between results achieved and compensation earned. The Committee determined in 2015 that the mix of long-term incentives for grants to be made in 2016 was appropriate based on the Company’s strategic objectives, compensation philosophy, regulatory guidance, risk culture, and competitive practice.

 

Award Type  

2016 Proportion of

Long-term

Incentive Value

  2016 Calculation of Awards
Stock Appreciation Rights   15%   Total award dollar value multiplied by 15% divided by the SARs Black-Scholes value
Performance Shares   45%   Total award dollar value multiplied by 45% divided by the Company’s closing stock price on the grant date

Restricted

Stock Units

  40%   Total award dollar value multiplied by 40% divided by the Company’s closing stock price on the grant date

Stock Appreciation Rights. SARs for Named Executive Officers have been and will continue to be granted at the closing price of the Company’s common stock on the date of grant and with a 10-year term. Grants made in 2016 have a four-year graded vesting schedule. These award terms are consistent with the annual grant for all eligible employees at the Company. The grant date is the date of the Committee’s approval of the awards, which will typically be at a first quarter meeting of the Committee or at the annual shareholder meeting in April. The grant dates for awards made in 2016 are detailed in the 2016 Grants of Plan-Based Awards table. The Company does not adjust the timing of its annual grant based on SEC filings or press releases. Rather, the annual grant date is established and communicated well in advance.

During the 2015 annual plan review cycle, the vesting schedule for stock appreciation rights granted to executives was changed from a four-year graded schedule to a three-year graded schedule in order to align the vesting schedule among the various equity vehicles. Stock appreciation rights granted in 2017 are the first made with the three-year graded schedule.

Performance Share Awards. Performance share grants made in 2016 were structured as follows:

 

   

The primary metric used for our performance share awards is return on average equity (“ROAE”) as adjusted, relative to our peer banks.

 

   

To achieve balance between relative and absolute metrics, two absolute performance hurdles must also be met:

 

  Adjusted return on tangible common equity (“ROTCE”) must be greater than a predetermined threshold each year for awards to vest.

 

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  Efficiency ratio must be better than a predetermined threshold at the end of the three-year performance period to earn an award payout greater than the target.

The performance payout grid is shown below. Payout opportunities range from 0 percent to 150 percent of target, with no payout earned if relative ROAE falls below the 25th percentile of the Compensation Peer Group.

 

Performance Level

   Return on Average Equity (ROAE) Relative to Peers              Payout Percentage

Threshold

   Below the 25th Percentile    0%

³ Threshold (25th percentile of peer group) but <150bps from Median

   25%

Minimum

   Median performance minus 150 basis points    50%

Target

   Median performance (50th percentile of peer  group)    100%

Maximum

   Median performance plus 150 basis points    150%

 

    Straight line interpolation will be used to determine payouts between minimum, and target and maximum. If performance falls below the 25th percentile, no payout will be earned.

The 2013 performance share award measured performance from April 1, 2013 through March 31, 2016. Total shareholder return (“TSR”) relative to the Compensation Peer Group was the metric tied to this grant. The threshold performance level to achieve any payout was set at the 33rd percentile relative to peers. The Company’s performance on TSR over the three-year performance period was at the 25th percentile which resulted in a zero-share payout in 2016 for this grant.

Restricted Stock Units. In 2016, the Company started granting annual restricted stock awards in the form of restricted stock units, RSUs. Restricted stock units have a three-year graded vesting schedule. These grants are eligible for dividend equivalent payments but do not have voting rights during the vesting period.

For senior executives (including NEOs), a performance-based vesting requirement was introduced in 2013 using ROTCE as a threshold metric before each annual equity grant vesting tranche is earned. The ROTCE threshold goal for 2016 was 2 percent. The threshold was put in place to protect against high levels of compensation payouts for poor risk or performance outcomes.

Determination of Long-term Equity-based Incentive Awards. The chief executive officer recommends the award levels for the other Named Executive Officers and the Committee makes the final award determination for all Named Executive Officers. The award considerations are not based on a formula. Rather, the Committee may choose to make the actual award higher or lower than the target award based on the qualitative assessment of performance against stated objectives as well as the individual’s risk assessment results. The Committee believes that by including a performance element as part of the up-front grant process, the Company is able to further reinforce the pay-for-performance objective of the long-term incentives.

These grants provide incentive for the creation of shareholder value since the full benefit of the grant to each Named Executive Officer can only be realized with an appreciation in the price of the Company’s common shares or based on relative return on average common equity, depending on the type of award. The Company does not grant discounted stock options or SARs, re-price previously granted stock options or SARs, or grant reload stock options.

When making the final determination to grant long-term equity incentive compensation awards in February 2016, the Committee had the benefit of information relating to market median compensation levels, Company financial performance during 2015, the qualitative performance assessment described below, and individual risk performance assessments.

Qualitative Performance Assessments. After reviewing this information for 2015, the Committee granted a 2016 long-term equity incentive compensation award of 106 percent of target for the chief executive officer and

 

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equity awards ranging from 100 percent to 153 percent of target for each of the Named Executive Officers. The individual qualitative performance assessment referenced in the discussions above is a review of how each Named Executive Officer performed against a set of stated objectives. This assessment is performed by the Board of Directors with respect to the chief executive officer’s performance and by the chief executive officer with respect to the performance of the other NEOs. The specific objectives assessed for each Named Executive Officer are as follows.

For Mr. Carmichael: Leadership and execution as president and chief executive officer relating to objectives tied to Company financial performance in a well-managed risk environment; customer and employee index goals; “One Bank” success; and promotion of the Bank’s Core Values of Accountability, Integrity, Respect and Inclusion, and Teamwork and Collaboration. Mr. Carmichael’s objectives for 2016 were consistent with those in 2015 while in the role of chief executive officer. The VCP award was based on Mr. Carmichael’s strong 2016 performance against these objectives and his overall contribution to our performance. The LTI award granted in February 2016 was based on 2015 performance against these objectives as well as objectives he had while serving as president and chief operating officer until November 2015.

For Mr. Tuzun: Leadership and execution as executive vice president and chief financial officer relating to objectives concerning balance sheet management; capital and liquidity management; risk management and compliance; operational excellence; maintaining a strong financial team; and promotion of the Bank’s Core Values of Accountability, Integrity, Respect and Inclusion, and Teamwork and Collaboration. The VCP award was based on 2016 performance against these objectives. The LTI award granted in February 2016 was based on 2015 performance against these objectives.

For Mr. Anderson: Leadership and execution as executive vice president and chief operating officer relating to objectives tied to Company and line of business financial performance in a well-managed risk environment; customer service levels; team work across divisional and functional areas; and promotion of the Bank’s Core Values of Accountability, Integrity, Respect and Inclusion, and Teamwork and Collaboration. Mr. Anderson’s objectives were consistent in 2015 and 2016. The VCP award was based on 2016 performance against these objectives. The LTI award granted in February 2016 was based on 2015 performance against these objectives.

For Mr. Borton: Leadership and execution as executive vice president and head of the Consumer Bank relating to objectives tied to Company and line of business financial performance in a well-managed risk environment; customer service levels; team work across divisional and functional areas; and promotion of the Bank’s Core Values of Accountability, Integrity, Respect and Inclusion, and Teamwork and Collaboration. Mr. Borton’s objectives were consistent in 2015 and 2016. The VCP award was based on 2016 performance against these objectives. The LTI award granted in February 2016 was based on 2015 performance against these objectives.

For Mr. Spence: Leadership and execution as executive vice president and chief strategy officer relating to objectives tied to strategic planning and investments; payments; and promotion of the Bank’s Core Values of Accountability, Integrity, Respect and Inclusion, and Teamwork and Collaboration. The VCP award was based on Mr. Spence’s 2016 performance against these objectives. The LTI award granted in February 2016 was based on 2015 performance against these objectives.

For Mr. Forrest: Leadership and execution as executive vice president and chief risk officer relating to objectives concerning risk management and compliance; credit loss management; operational excellence; and promotion of the Bank’s Core Values of Accountability, Integrity, Respect and Inclusion, and Teamwork and Collaboration. Mr. Forrest’s objectives were consistent in 2015 and 2016. The VCP award was based on 2016 performance against these objectives. The LTI award granted in February 2016 was based on 2015 performance against these objectives.

 

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Other Long-term Equity-based Plan Provisions. The annual cash and long-term equity-based incentive compensation awards made in 2016 were authorized under the Company’s 2014 Incentive Compensation Plan. This Plan was approved and adopted by the Company’s shareholders in 2014.

The Company’s Code of Business Conduct and Ethics provides that the Company reserves the right to and, if appropriate, will seek restitution of any bonus, commission, or other compensation received as a result of an employee’s intentional or knowing fraudulent or illegal conduct or misconduct, including the making of a material misrepresentation contained in the Company’s financial statements.

The Committee has delegated to certain Named Executive Officers, as well as to the chief administrative officer, the authority to grant equity awards for recruiting and retention purposes up to specified limits.

2017 EXECUTIVE COMPENSATION PLAN DESIGN CHANGES

2017 Variable Compensation Plan Changes. As stated above, the Company and the Committee review the Variable Compensation Plan annually to determine if any changes need to be made to the plan for the next year. During 2016, the Company reviewed the plan to determine that the right core funding metrics were in place to provide strong business focus and alignment with the business strategy. It was determined during this review that a core metric of Return on Assets (“ROA”) would provide better alignment with the Company’s strategic plan and as such, ROA will replace RORWA for the 2017 Variable Compensation Plan. In addition, customer experience was added to the plan as a funding modifier. The addition of customer experience to the plan will add specific focus to the cornerstone of our business strategy of “putting the customer at the center of all we do.”

2017 Long-term Equity-based Incentive Plan Changes. The Company and the Committee also reviews the long-term equity-based incentive plan annually to determine if any changes need to be made to the plan (i.e., award mix, performance measures, modifiers, etc.) for the next year. During 2016, the Company reviewed the long-term incentive plan and decided to make the following changes to continue to strengthen the governance, reporting, competitiveness, and risk-adjusted pay decisions to meet evolving regulatory guidance:

 

   

Stock appreciation rights will be eliminated from the broad-based equity mix and grants to eligible non-executive employees will be made 100 percent in restricted stock units. The equity mix for executives will remain the same.

 

   

The retirement provision on performance shares will allow for continued vesting of the full target amount instead of reducing target for service worked during the performance period.

 

   

The performance metric under the performance share plan will be changed from ROAE to return on average common equity (“ROACE”); this clarification in return measure strengthens the tie-in to common shareholders and drives the Company’s share price performance.

These changes will impact any long-term incentives to be granted in 2018 based on 2017 performance. The Committee approved the changes at its December 2016 meeting.

EXECUTIVE BENEFITS AND PERQUISITES

Summary of Eligibility for Benefits and Perquisites. The Company provides few benefits and perquisites to executive officers that are not available to the general employee population. Special benefits include an executive physical exam program and a deferred compensation plan. Special perquisites for executives include the following: financial planning reimbursement, nominal holiday gifts, and parking. Additionally, spouses or guests of executive officers may be provided travel and/or entertainment benefits related to business events where their attendance is expected and appropriate, such as company recognition events or trips, recruiting meals, or social events held for marketing or other business purposes. These benefits are often provided with little or no incremental cost to the Company. The Company does not provide tax gross-ups for these special perquisites.

Retirement Benefits. The Company’s retirement benefits are designed to assist employees in accumulating wealth to provide income during their retirement years. The retirement benefits are designed to attract and retain

 

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employees and to encourage employees to save money for their retirement while maintaining a competitive cost structure for the Company. Based on the Company’s research using two national benefits surveys, its retirement benefits are positioned near the market median for similar employers. The Company’s primary retirement benefit plan is a defined contribution 401(k) plan with a company match. This plan was amended effective January 1, 2015, as discussed below. The Company also maintains a defined benefit plan that has been frozen and none of the Named Executive Officers participate in the plan.

The Company maintains the same 401(k) plan for all eligible employees, including the Named Executive Officers. The 401(k) plan provides a match to employee contributions. Effective January 1, 2015, the Company’s match is 150 percent of the first 2 percent and 100 percent of the next 4 percent of eligible compensation an employee contributes to the plan, and is invested in any of the plan’s existing investment alternatives that the employee selects. This Company match is immediately 100 percent vested. All Named Executive Officers are eligible for this plan up to the IRS wage or contribution limits.

The Company maintains a defined benefit pension plan which was frozen to new participants as of November 15, 1998. Employees who met the age and service requirement at that time are “grandfathered” and continue to accrue benefits under that plan. No Named Executive Officers are participants in this plan.

Health and Welfare Benefits. The Company offers medical, dental, vision, life and disability insurance to its employees. The benefits are designed to attract and retain employees and provide security to employees and their dependents for their health and welfare needs. Based on the Company’s research using national benefits surveys, its health and welfare benefits are positioned near the market median for similar employers. These benefits are offered to employees and Named Executive Officers on a uniform basis and are subject to insurance policy limitations. The Company provides to each Named Executive Officer a comprehensive physical exam program. The Company provides Company-paid life insurance coverage equal to an employee’s base salary, up to $1 million. The Company’s long-term disability benefit is 60 percent of an employee’s base salary and the benefit is limited to $20,000 per month. The Company also offers a Company-paid short-term disability benefit with similar benefits to the long-term disability program.

Deferred Compensation. The Company offers some of its employees (at certain salary band levels, including its executive officers) a nonqualified deferred compensation plan. This plan allows for the deferral of base salary and bonus. The plan also provides for the Company to make a contribution for loss of qualified plan 401(k) match due to deferral of pay into this plan or due to wage and/or contribution limitations under the qualified 401(k) plan. The deferred funds receive earnings based on the mutual funds elected by each executive. Executives may also elect a rate equal to the return on Company common stock. The executives do not earn any preferential or above market returns.

Severance and Change in Control Benefits. The Fifth Third Bancorp Executive Change in Control Severance Plan (the “Severance Plan”) provides severance benefits to certain officers upon a qualifying termination after a change in control, subject to execution of a release and non-compete agreement. The plan covers approximately 44 officers including all of the 2016 Named Executive Officers.

Under the Severance Plan, certain executives will receive severance if, in connection with a change in control, the executive’s employment is terminated without Cause (as defined in the Severance Plan) or the executive resigns for Good Reason (as defined in the Severance Plan). Upon a qualifying termination after a change in control, Messrs. Carmichael, Tuzun, and Anderson are eligible to receive an amount equal to 2.99 times the sum of their Base Salary and Variable Compensation Plan amount, and Messrs. Borton, Spence, and Forrest are eligible to receive an amount equal to 2.0 times the same amount (each as defined in the Severance Plan). In addition, insurance benefits and certain retirement benefits payable to the Named Executive Officers will be paid for three years for Messrs. Carmichael, Tuzun, and Anderson and two years for Messrs. Borton,

 

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Spence, and Forrest. As noted above, no excise tax gross-ups will be provided. For this purpose, a change in control would occur in any of the following instances:

 

   

Any person is or becomes the beneficial owner of 25 percent or more of the voting power of the Company’s outstanding securities.

 

   

During any consecutive two-year period, the directors in office in the beginning of such period (or directors who were approved by two-thirds of such directors) cease to constitute a majority of the Board.

 

   

The sale or disposition of substantially all of the Company’s assets or the merger or consolidation of the Company with any other corporation unless the voting securities of the Company outstanding prior to such action continue to represent at least 50 percent of the voting power of the merged or consolidated entity.

 

   

The Company’s shareholders approve a plan of complete liquidation of the Company.

The Severance Plan defers to the applicable Incentive Compensation Plans for treatment of long-term equity-based incentive compensation in the event of a change in control. Since April 2008, we have not granted any awards that provide for single trigger vesting upon a change in control. Instead, the vesting provisions for those awards provide for accelerated vesting only if there is a change in control and a subsequent qualifying termination of employment (i.e., double trigger). Performance-based awards (performance shares or PSAs) would be paid out at the higher of (1) the extent to which the performance goals had been met through the date of the change in control or (2) the value on the date of the change in control of the number of target shares awarded on the grant date. As discussed above, an annual review of the LTI plan was performed during 2016 where it was decided that several changes were needed to strengthen the governance and competitiveness of our plan. In addition to those changes discussed above, starting with grants to be made in 2018 the payout provision for performance shares in the event of a change in control will change. Performance-based awards will be paid out at the higher of (1) the extent to which the performance goals had been met through the date of the change in control or (2) the value on the date of the change in control of the number of target shares, prorated based on the portion of the performance period elapsed at the time of the change in control.

TAX AND ACCOUNTING IMPACT OF COMPENSATION PROGRAMS

Deductibility of Executive Compensation. Section 162(m) of the Internal Revenue Code limits the deductibility of compensation paid to or earned by certain executive officers of a public company. Section 162(m) limits the annual deductibility of certain (non-performance based) executive compensation to $1 million per covered executive officer. Certain other limitations on the deductibility of executive compensation will continue to apply to some forms of compensation earned during the Company’s participation in the Troubled Asset Relief Program’s Capital Purchase Program in addition to the limitation under Section 162(m). While the Company’s compensation philosophy has been to, where appropriate, position executive compensation to qualify for deductibility, in approving compensation that may not be deductible, the Committee has determined that the underlying executive compensation programs are appropriate and necessary to attract, retain, and motivate senior executives, and that failing to meet these objectives creates more risk for the Company than the financial impact of losing the tax deduction. For the year ending December 31, 2016, the tax impact related to non-deductible compensation expense was approximately $2.2 million.

Accounting and Financial Reporting. The Company accounts for long-term equity-based incentive compensation payments including stock options, SARs, restricted stock, and performance shares in accordance with accounting principles generally accepted in the United States.

 

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EXECUTIVE OWNERSHIP AND CAPITAL ACCUMULATION

Share Ownership Guidelines. The executive compensation program is designed to provide opportunities for executive officers to build ownership in the Company and to align performance with shareholder interests. Accordingly, the Company has established share ownership guidelines for senior employees in the Company’s salary band structure, including the executive officers. The amount of shares required to be retained varies based upon the assigned salary band and associated multiple of base salary. These employees are expected to use shares net of taxes obtained through awards under the long-term equity-based incentive compensation program to establish a significant level of direct ownership. Stock ownership includes:

 

   

Shares owned individually and by immediate family sharing the same household.

 

   

Restricted stock not yet vested.

 

   

Shares held in the 401(k) plan.

 

   

Shares held in the employee stock purchase plan.

 

   

Shares held in the nonqualified deferred compensation plan.

Until ownership guidelines are met, executive officers are required to retain 100 percent of the net after-tax shares following exercise or receipt of the shares. Executives have five years to achieve their executive share ownership requirements. Specific ownership guidelines for the Named Executive Officers are:

 

Share Ownership Guidelines

Chief Executive Officer

   6x Salary

Other Named Executive Officers

   3x Salary

The Committee reviews progress toward achieving the ownership goal for the Company’s executive officers on an annual basis. Based on the review performed in June 2016 and as of the June 1, 2016 share price, all of the Named Executive Officers had reached their ownership guideline except Mr. Tuzun. Mr. Tuzun has until 2018 to meet his ownership requirement and is making appropriate progress toward meeting the requirement.

Beneficial Ownership. The following table sets forth certain information regarding the Named Executive Officers’ beneficial ownership of the Common Stock of the Company as of January 31, 2017:

 

Title of Class    Name of Officer    Number of Shares
Beneficially Owned (1)
     Percent of Class

Common Stock

   Greg D. Carmichael      1,009,325      0.1342%

Common Stock

   Tayfun Tuzun      167,384      0.0223%

Common Stock

   Lars C. Anderson      203,430      0.0271%

Common Stock

   Chad M. Borton      117,868      0.0157%

Common Stock

   Timothy N. Spence      175,436      0.0233%

Common Stock

   Frank R. Forrest      77,177      0.0103%

 

(1) The amounts shown represent the total shares owned outright by such individuals together with shares held in the name of spouses, minor children, certain relatives, trusts, estates and certain affiliated companies (as to which beneficial ownership may be disclaimed) and SARs and RSAs or RSUs exercisable (or exercisable within 60 days) of January 31, 2017 but unexercised. These individuals have the number of SARs indicated after their names that are exercisable as of January 31, 2017 or will become exercisable within 60 days of January 31, 2017: Mr. Carmichael, 701,237; Mr. Tuzun, 99,277; Mr. Anderson, 14,792; Mr. Borton, 69,522; Mr. Spence, 10,441; and Mr. Forrest, 40,298. The amounts listed for SARs represent the number of rights that may be exercised; the actual number of shares delivered will vary based on the stock’s appreciation over the grant price at the time of exercise.

 

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Prohibition on Hedging. The Company prohibits its executive officers from engaging in speculative trading and hedging shares of Company securities. This includes prohibitions against day trading or short selling of Company securities and transactions in any derivative of Company securities, including buying and writing options. Executives are restricted from buying Company securities on margin or using Company securities as collateral for a loan. Additionally, the Company’s Insider Trading Policy prohibits trading during designated blackout periods and requires approval by the Legal department prior to any trade.

 

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COMPENSATION COMMITTEE REPORT

The following Report of the Human Capital and Compensation Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act or the Exchange Act, except to the extent the Company specifically incorporates this Report by reference therein.

The Human Capital and Compensation Committee has reviewed and discussed with management the preceding Compensation Discussion and Analysis. Based on that discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated into the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Michael B McCallister, Chair

Nicholas K. Akins

Gary R. Heminger

Hendrik G. Meijer

 

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COMPENSATION OF NAMED EXECUTIVE OFFICERS AND DIRECTORS

Summary Compensation Table. The table below summarizes the compensation awarded, paid to, or earned by the Company’s Named Executive Officers during 2014-2016. The amounts in the Stock Awards and Option Awards columns indicate the grant date fair value associated with all grants awarded in the corresponding year and do not correspond with the amounts that the Named Executive Officers may eventually realize with respect to these awards. The benefit, if any, actually received from these awards will depend upon the future value of our common stock.

 

2016 Summary Compensation Table  

Name & Principal

Position

  Year(1)    

Salary

($)

   

Bonus

($)(2)

   

Stock
Awards

($)(3)

   

Option
Awards

($)(4)

   

Non-Equity
Incentive Plan
Compensation

($)(5)

    Change in Pension
Value & Nonqualified
Deferred  Compensation
Earnings ($)(6)
   

All Other
Compensation

($)(7)

    Total ($)  

Greg D. Carmichael,

President and Chief
Executive Officer

    2016     $ 994,287     $ 0     $ 3,612,503     $ 637,501     $ 2,000,000     $ 0     $ 310,790     $ 7,555,081  
    2015     $ 806,986     $ 0     $ 3,748,629     $ 308,577     $ 1,336,000     $ 0     $ 250,858     $ 6,451,050  
    2014     $ 709,203     $ 0     $ 1,385,816     $ 537,497     $ 935,459     $ 0     $ 345,374     $ 3,913,349  

Tayfun Tuzun,

Executive Vice President
and Chief Financial Officer

    2016     $ 519,342     $ 0     $ 849,999     $ 150,001     $ 900,000     $ 0     $ 127,359     $ 2,546,701  
    2015     $ 452,632     $ 0     $ 688,494     $ 121,500     $ 800,000     $ 0     $ 95,681     $ 2,158,307  
    2014     $ 425,006     $ 0     $ 580,111     $ 224,998     $ 367,420     $ 0     $ 58,114     $ 1,655,649  

Lars C. Anderson,

Executive Vice President
and Chief Operating Officer

    2016     $ 675,002     $ 0     $ 1,445,007     $ 255,001     $ 900,000     $ 0     $ 223,111     $ 3,498,121  
    2015     $ 272,597     $ 3,750,000     $ 2,999,992     $ 0     $ 0     $ 0     $ 60,159     $ 7,082,748  

Chad M. Borton,

Executive Vice President
and Head of Consumer Bank

    2016     $ 491,260     $ 0     $ 1,350,001     $ 150,001     $ 900,000     $ 0     $ 307,577     $ 3,198,839  

Timothy N. Spence,

Executive Vice President
and Chief Strategy Officer

    2016     $ 450,008     $ 12,200     $ 1,020,008     $ 179,999     $ 900,000     $ 0     $ 252,621     $ 2,814,836  
    2015     $ 131,541     $ 712,829     $ 3,674,982     $ 0     $ 217,230     $ 0     $ 2,372     $ 4,738,954  

Frank R. Forrest,

Executive Vice President
and Chief Risk Officer

    2016     $ 519,713     $ 0     $ 849,999     $ 150,001     $ 900,000     $ 0     $ 142,614     $ 2,562,327  
    2015     $ 528,093     $ 0     $ 1,264,977     $ 135,001     $ 750,000     $ 0     $ 109,627     $ 2,787,698  
    2014     $ 500,011     $ 0     $ 644,565     $ 250,001     $ 455,002     $ 0     $ 100,600     $ 1,950,179  

 

(1)

Compensation for Messrs. Anderson and Spence is only provided for 2015 and 2016 as they joined the Company on August 3, 2015 and September 11, 2015, respectively. Compensation for Mr. Borton is provided only for 2016 as he was not a Named Executive Officer in 2014 or 2015.

 

(2) The amounts shown for Mr. Spence in 2015 and 2016 are comprised of a signing bonus payable over two years as part of his new hire offer. The amount shown for Mr. Anderson in 2015 includes a $3,000,000 signing bonus and a $750,000 VCP payment guaranteed as part of his new hire offer.

 

(3) Amounts reflect the aggregate grant date fair value of awards granted during the year valued in accordance with statement accounting principles generally accepted in the United States. Assumptions used in determining fair value are disclosed in note 24 “Stock Based Compensation” located on pages 160-163 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

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(4)

The values shown for performance share awards for 2016 in both the Summary Compensation Table and the table below reflect the grant date fair value of $14.87 which was also the closing price on the February 12, 2016 grant date. The number of performance shares awarded was also calculated using this value. The values shown for performance share awards for 2015 reflect the grant date fair value of $18.78 which was also the closing price on the February 11, 2015 grant date. The number of performance shares awarded was also calculated using this value. The values shown for performance share awards for 2014 reflect the grant date fair value of $15.61 per share which is an assigned compensation value for performance shares based on a number of factors included using a Monte-Carlo simulation model. The grant date closing stock price on April 15, 2014 was $21.63. However, in 2014 the number of performance shares awarded was calculated using the 30-day average closing stock price prior to the April 1, 2014 start of the performance period. That 30-day average stock price was $22.34 in 2014. Fair value for 2014, 2015, and 2016 performance share awards assume target performance achievement as of the date of grant. Fair values assuming maximum performance as of the date of grant are as follows:

 

Fair Value at Maximum Performance  

Executive

     2014        2015        2016  

Greg D. Carmichael

   $ 788,711      $ 1,388,612      $ 2,868,758  

Tayfun Tuzun

   $ 330,152      $ 546,752      $ 674,994  

Lars C. Anderson

     n/a        n/a      $ 1,147,503  

Chad M. Borton

   $ 155,897      $ 405,000      $ 674,994  

Timothy N. Spence

     n/a        n/a      $ 810,006  

Frank R. Forrest

   $ 366,843      $ 607,486      $ 674,994  

 

(5) Amounts reflect the VCP award paid in cash to each NEO for 2016 performance.

 

(6) The Company has a nonqualified deferred compensation plan in which the executives do not receive any above-market or preferable earnings. The earnings received are disclosed in the “Nonqualified Deferred Compensation” table.

 

(7) The amounts reflected in the All Other Compensation column consist of the benefits provided to the Company’s Named Executive Officers as described above under “Compensation Discussion and Analysis – Executive Benefits and Perquisites.” The following table reflects the costs of these benefits for 2016:

 

Name   Perquisites
and Other
Personal
Benefits
   

Registrant

Contributions

to Defined

Contribution
Plans

   

Tax
Reimbursements
&

Insurance
Premiums

    Severance     Other(G)     Total  

Greg D. Carmichael

  $ 14,162 (A)      $163,120     $ 576     $ 0     $ 132,932     $ 310,790  

Tayfun Tuzun

  $ 9,400   (B)      $92,354     $ 356     $ 0     $ 25,249     $ 127,359  

Lars C. Anderson

  $ 20,304 (C)      $99,750     $ 487     $ 0     $ 102,570     $ 223,111  

Chad M. Borton

  $ 12,637 (D)      $83,388     $ 337     $ 0     $ 211,215     $ 307,577  

Timothy N. Spence

  $ 98,727 (E)      $44,946     $ 303     $ 0     $ 108,645     $ 252,621  

Frank R. Forrest

  $ 9,600   (F)      $88,880     $ 350     $ 0     $ 43,784     $ 142,614  

 

  (A)

The amount shown for Mr. Carmichael represents trust and estate planning fees, parking, the incremental cost of travel and entertainment benefits provided to Mr. Carmichael’s guest at business functions, and an executive physical.

 

  (B)

The amount shown for Mr. Tuzun represents trust and estate planning fees, parking, and an executive physical.

 

  (C)

The amount shown for Mr. Anderson represents trust and estate planning fees, parking, and the incremental cost of travel and entertainment benefits provided to Mr. Anderson’s guest at business functions, an executive physical, and a country club membership fee.

 

  (D)

The amount shown for Mr. Borton represents trust and estate planning fees, parking, and the incremental cost of travel and entertainment benefits provided to Mr. Borton’s guest at business functions.

 

  (E)

The amount shown for Mr. Spence represents parking and $96,627 in housing and commuting expenses related to business travel.

 

  (F)

The amount shown for Mr. Forrest represents trust and estate planning fees and parking.

 

  (G)

The amount shown for Mr. Carmichael represents wellness rewards, a company Health Savings Account contribution and dividends of $130,433 paid on unvested restricted stock awards. The amount shown for Mr. Tuzun represents wellness rewards, a company Health Savings Account contribution, and dividends of $22,749 paid on unvested restricted stock awards. The amount shown for

 

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  Mr. Anderson represents wellness rewards, a company Health Savings Account contribution, and dividends of $100,070 paid on unvested restricted stock awards. The amount shown for Mr. Borton represents wellness rewards, a company Health Savings Account contribution, dividends of $48,753 paid on unvested restricted stock awards, $100,000 relating to the forgiveness, during 2016, of a relocation-related loan made to Mr. Borton in 2012, prior to Mr. Borton becoming a Section 16 Officer, and a $58,963 tax reimbursement payment, relating to taxes incurred upon the loan forgiveness. The amount shown for Mr. Spence represents wellness rewards and dividends of $106,645 paid on unvested restricted stock awards. The amount shown for Mr. Forrest represents wellness rewards, a company Health Savings Account contribution, and dividends of $41,284 paid on unvested restricted stock awards.

Grants of Plan-Based Awards. The following table illustrates the long-term equity-based incentive compensation awards made to Named Executive Officers during 2016. The table reflects the full grant date fair value of awards made in 2016.

On February 12, 2016, each of the Named Executive Officers received grants of performance shares that will vest three years from the grant date (contingent on meeting the performance threshold), restricted stocks that will vest in three equal annual installments from the date of grant, and SARs that will vest in four equal annual installments from the date of grant.

Dividends are paid on unvested restricted stock units; these awards are reported in the All Other Stock Awards: Number of Shares of Stock or Units column below. None of these awards have been repriced or modified.

 

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2016 Grants of Plan-Based Awards  
                   Estimated Future Payouts Under
Non-Equity Incentive Plan Awards(2)
   

Estimated Future Payouts Under

Equity Incentive Plan Awards(3)

   

All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units

(#)

    All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
   

Exercise
or Base
Price of
Option
Awards

($ / Sh)

   

Grant

Date Fair
Value of
Stock and
Option
Awards(4)

($)

 
Name   Grant
Date(1)
    Date Grant
Approved by
Compensation
Committee
   

Number
of

Units

    Threshold
($)
   

Target

($)

   

Maximum

($)

    Number
of Units
   

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

         

Greg D. Carmichael

                            —         —       $ 2,625,000                                                                  
      2/12/2016       2/12/2016                                       128,615       32,154       128,615       192,923                             $ 1,912,505  
      2/12/2016       2/12/2016                                                                               147,912     $ 14.87     $ 637,501  
      2/12/2016       2/12/2016                                                                       114,324                     $ 1,699,998  

Tayfun Tuzun

                            —         —       $ 1,000,000                                                                  
      2/12/2016       2/12/2016                                       30,262       7,566       30,262       45,393                             $ 449,996  
      2/12/2016       2/12/2016                                                                               34,803     $ 14.87     $ 150,001  
      2/12/2016       2/12/2016                                                                       26,900                     $ 400,003  

Lars C. Anderson

                            —         —       $ 1,350,000                                                                  
      2/12/2016       2/12/2016                                       51,446       12,862       51,446       77,169                             $ 765,002  
      2/12/2016       2/12/2016                                                                               59,165     $ 14.87     $ 255,001  
      2/12/2016       2/12/2016                                                                       45,730                     $ 680,005  

Chad M. Borton

                                          $ 1,000,000                                                                  
      2/12/2016       2/12/2016                                       30,262       7,566       30,262       45,393                             $ 449,996  
      2/12/2016       2/12/2016                                                                               34,803     $ 14.87     $ 150,001  
      1/11/2016       9/15/2015 (5)                                                                      27,518                     $ 500,002  
      2/12/2016       2/12/2016                                                                       26,900                     $ 400,003  

Timothy N. Spence

                            —         —       $ 1,100,000                                                                  
      2/12/2016       2/12/2016                                       36,315       9,079       36,315       54,473                             $ 540,004  
      2/12/2016       2/12/2016                                                                               41,763     $ 14.87     $ 179,999  
      2/12/2016       2/12/2016                                                                       32,280                     $ 480,004  

Frank R. Forrest

                            —         —       $ 1,000,000                                                                  
      2/12/2016       2/12/2016                                       30,262       7,566       30,262       45,393                             $ 449,996  
      2/12/2016       2/12/2016                                                                               34,803     $ 14.87     $ 150,001  
      2/12/2016       2/12/2016                                                                       26,900                     $ 400,003  

 

(1) Awards were made under the 2014 Incentive Compensation Plan as approved by shareholders on April 15, 2014.

 

(2) NEOs do not have assigned annual incentive targets; rather, each NEO has an incentive opportunity range up to an established maximum.

 

(3) Comprises performance shares that are settled in Company common stock, only after threshold performance or greater is achieved.

 

(4) Grant Date Fair Value of Option Awards granted on February 12, 2016 calculated as the total number of shares multiplied by $4.31. Grant Date Fair Value of Stock Awards granted (including performance shares) on February 12, 2016 calculated as the total number of shares multiplied by $14.87 and on January 11, 2016 calculated as the total number of shares multiplied by $18.17.

 

(5) On September 15, 2015 the Committee approved an award to be granted in January 2016.

 

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Outstanding Equity Awards at Year-End. The following table outlines outstanding long-term equity-based incentive compensation awards for the Named Executive Officers as of December 31, 2016. Each outstanding award is shown separately. The Option Awards columns reflect stock appreciation rights. The Stock Awards columns include restricted stock awards, restricted stock units, and performance shares, with performance shares listed in the Equity Incentive Plan Award columns. Performance shares settle entirely in shares of Company common stock, only after threshold performance or greater is achieved. The vesting schedule for each award is described in the footnotes to this table.

 

Outstanding Equity Awards at December 31, 2016  
     Option Awards     Stock Awards(17)  
Name   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Equity
Incentive
Plan
Awards:
Number  of
Securities
Underlying
Unexercised
Unearned
Options (#)
    Option
Exercise
Price ($)
    Option
Expiration
Date
   

Number

of

Shares

or Units

of Stock
That

Have

Not

Vested
(#)

    Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested
($)
   

Equity
Incentive
Plan
Awards:
Number

of
Unearned
Shares,
Units or
Other
Rights
That

Have Not
Vested

(#)

    Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)
 

Greg D. Carmichael

    66,667       —                 —       $ 38.27       4/9/2017       —                 —         —                 —    
      185,476       —                 —       $ 13.36       4/19/2021       —                 —         —                 —    
      236,407       —                 —       $ 14.36       4/17/2022       —                 —         —                 —    
      106,086       35,361       (1)       —       $ 16.15       4/16/2023       —                 —         —                 —    
      41,156       41,156       (2)       —       $ 21.63       4/15/2024       —                 —         —                 —    
      14,234       42,699       (3)       —       $ 18.78       2/11/2025       —                 —         —                 —    
      —         147,912       (4)       —       $ 14.87       2/12/2026       —                 —         —                 —    
      —         —                 —         —         —         13,252       (5)     $ 357,406       —                 —    
      —         —                 —         —         —         29,208       (6)     $ 787,740       —                 —    
      —         —                 —         —         —         68,202       (7)     $ 1,839,408       —                 —    
      —         —                 —         —         —         114,324       (8)     $ 3,083,318       —                 —    
      —         —                 —         —         —         —         —         —         33,684       (14)     $ 908,457  
      —         —                 —         —         —         —         —         —         49,294       (15)     $ 1,329,459  
      —         —                 —         —         —         —         —         —         128,615       (16)     $ 3,468,747  

Tayfun Tuzun

    3,923       —                 —       $ 19.26       4/15/2018       —                 —         —                 —    
      6,000       —                 —       $ 3.96       4/21/2019       —                 —         —                 —    
      4,615       —                 —       $ 14.80       4/20/2020       —                 —         —                 —    
      5,714       —                 —       $ 13.36       4/19/2021       —                 —         —                 —    
      29,551       —                 —       $ 14.36       4/17/2022       —                 —         —                 —    
      12,336       4,111       (1)       —       $ 16.15       4/16/2023       —                 —         —                 —    
      17,228       17,228       (2)       —       $ 21.63       4/15/2024       —                 —         —                 —    
      5,605       16,812       (3)       —       $ 18.78       2/11/2025       —                 —         —                 —    
      —         34,803       (4)       —       $ 14.87       2/12/2026       —                 —         —                 —    
      —         —                 —         —         —         5,547       (5)     $ 149,603       —                 —    
      —         —                 —         —         —         11,500       (6)     $ 310,155       —                 —    
      —         —                 —         —         —         26,900       (8)     $ 725,493       —                 —    
      —         —                 —         —         —         —         —         —         14,100       (14)     $ 380,277  

 

52


Table of Contents

COMPENSATION OF NAMED EXECUTIVE OFFICERS AND DIRECTORS

 

 

Outstanding Equity Awards at December 31, 2016  
     Option Awards     Stock Awards(17)  
Name   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Equity
Incentive
Plan
Awards:
Number  of
Securities
Underlying
Unexercised
Unearned
Options (#)
    Option
Exercise
Price ($)
    Option
Expiration
Date
   

Number

of

Shares

or Units

of Stock
That

Have

Not

Vested
(#)

    Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested
($)
   

Equity
Incentive
Plan
Awards:
Number

of
Unearned
Shares,
Units or
Other
Rights
That

Have Not
Vested

(#)

    Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)
 
      —         —                 —         —         —         —         —         —         19,409       (15)     $ 523,461  
      —         —                 —         —         —         —         —         —         30,262       (16)     $ 816,166  

Lars C. Anderson

    —         59,165       (4)       —       $ 14.87