Annual report pursuant to Section 13 and 15(d)

SHARE-BASED COMPENSATION

v3.10.0.1
SHARE-BASED COMPENSATION
 12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
SHARE-BASED COMPENSATION
Huntington sponsors nonqualified and incentive share based compensation plans. These plans provide for the granting of stock options and other awards to officers, directors, and other employees. Compensation costs are included in personnel costs on the Consolidated Statements of Income. Stock options and awards are granted at the closing market price on the date of the grant. Options granted typically vest ratably over four years or when other conditions are met. Stock options, which represented a portion of the grant values, have no intrinsic value until the stock price increases. Options granted on or after May 1, 2015 have a contractual term of ten years. All options granted on or before April 30, 2015 have a contractual term of seven years.
2018 Long-Term Incentive Plan
In 2018, shareholders approved the Huntington Bancshares Incorporated 2018 Long-Term Incentive Plan (the 2018 Plan). Shares remaining under the 2015 Long-Term Incentive Plan have been incorporated into the 2018 Plan. Accordingly, the total number of shares authorized for awards under the 2018 Plan is 33 million shares. At December 31, 2018, 26 million shares from the Plan were available for future grants.
Huntington issues shares to fulfill stock option exercises and restricted stock unit and award vesting from available authorized common shares. At December 31, 2018, Huntington believes there are adequate authorized common shares to satisfy anticipated stock option exercises and restricted stock unit and award vesting in 2019.
The following table presents total share-based compensation expense and related tax benefit for the three years ended December 31, 2018, 2017, and 2016:
(dollar amounts in millions)
2018
 
2017
 
2016
Share-based compensation expense
$
78

 
$
92

 
$
66

Tax benefit
14

 
32

 
22


Huntington uses the Black-Scholes option pricing model to value options in determining the share-based compensation expense. Forfeitures are estimated at the date of grant based on historical rates, and updated as necessary, and reduce the compensation expense recognized. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. The expected dividend yield is based on the dividend rate and stock price at the date of the grant. Expected volatility is based on the estimated volatility of Huntington’s stock over the expected term of the option.
The following table presents the weighted average assumptions used in the option-pricing model at the grant date for options granted in the three years ended December 31, 2018, 2017, and 2016:
Assumptions
2018
 
2017
 
2016
Risk-free interest rate
2.88
%
 
2.04
%
 
1.63
%
Expected dividend yield
3.71

 
3.31

 
3.18

Expected volatility of Huntington’s common stock
24.0

 
29.5

 
30.0

Expected option term (years)
6.5

 
6.5

 
6.5

Weighted-average grant date fair value per share
$
2.58

 
$
2.81

 
$
2.17


Huntington’s stock option activity and related information for the year ended December 31, 2018, was as follows:
(dollar amounts in millions, except per share and options amounts in thousands)
Options
 
Weighted-
Average
Exercise Price
 
Weighted-Average
Remaining
Contractual Life (Years)
 
Aggregate
Intrinsic Value
Outstanding at January 1, 2018
13,918

 
$
8.21

 
 
 
 
Granted
2,538

 
14.81

 
 
 
 
Exercised
(5,775
)
 
6.57

 
 
 
 
Forfeited/expired
(64
)
 
13.31

 
 
 
 
Outstanding at December 31, 2018
10,617

 
$
10.64

 
5.4
 
$
22

Expected to vest (1)
4,503

 
$
13.36

 
8.6
 
$
2

Exercisable at December 31, 2018
5,981

 
$
8.52

 
3.0
 
$
21

(1)
The number of options expected to vest reflects an estimate of 133,000 shares expected to be forfeited.
The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the “in-the-money” option exercise price. The total intrinsic value of options exercised for the years ended December 31, 2018, 2017, and 2016 were $52 million, $16 million and $11 million, respectively. For the years ended December 31, 2018, 2017, and 2016, cash received for the exercises of stock options was $5 million, $11 million and $14 million, respectively. The tax benefit realized for the tax deductions from option exercises totaled $10 million, $5 million and $3 million in 2018, 2017, and 2016, respectively.
Huntington also grants restricted stock awards, restricted stock units, performance share units, and other stock-based awards. Restricted stock units and awards are issued at no cost to the recipient, and can be settled only in shares at the end of the vesting period. Restricted stock awards provide the holder with full voting rights and cash dividends during the vesting period. Restricted stock units do not provide the holder with voting rights or cash dividends during the vesting period, but do accrue a dividend equivalent that is paid upon vesting, and are subject to certain service restrictions. Performance share units are payable contingent upon Huntington achieving certain predefined performance objectives over the three-year measurement period. The fair value of these awards reflects the closing market price of Huntington’s common stock on the grant date.
The following table summarizes the status of Huntington’s restricted stock awards, units, and performance share units as of December 31, 2018, and activity for the year ended December 31, 2018:
 
Restricted Stock Awards
 
Restricted Stock Units
 
Performance Share Units
(amounts in thousands, except per share amounts)
Quantity
 
Weighted-
Average
Grant Date
Fair Value
Per Share
 
Quantity
 
Weighted-
Average
Grant Date
Fair Value
Per Share
 
Quantity
 
Weighted-
Average
Grant Date
Fair Value
Per Share
Nonvested at January 1, 2018
448

 
$
9.68

 
16,159

 
$
11.26

 
3,018

 
$
10.67

Granted
—

 
—

 
4,743

 
15.01

 
691

 
14.81

Vested
(227
)
 
9.68

 
(4,948
)
 
10.56

 
(719
)
 
10.89

Forfeited
(20
)
 
9.68

 
(474
)
 
12.32

 
(32
)
 
12.27

Nonvested at December 31, 2018
201

 
$
9.68

 
15,480

 
$
12.51

 
2,958

 
$
11.75


The weighted-average fair value at grant date of nonvested shares granted for the years ended December 31, 2018, 2017, and 2016 were $14.98, $11.13, and $9.59, respectively. The total fair value of awards vested during the years ended December 31, 2018, 2017, and 2016 was $62 million, $53 million, and $31 million, respectively. As of December 31, 2018, the total unrecognized compensation cost related to nonvested shares was $96 million with a weighted-average expense recognition period of 2.3 years.