Huntington Bancshares Incorporated Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

Huntington sponsors nonqualified and incentive share based compensation plans. These plans provide for the granting of stock options, restricted stock awards, restricted stock units, performance share units and other awards to officers, directors, and other employees. Compensation costs are included in personnel costs on the Consolidated Statements of Income.

Huntington issues shares to fulfill stock option exercises and restricted stock unit and award vesting from available authorized common shares. At December 31, 2020, Huntington believes there are adequate authorized common shares to satisfy anticipated stock option exercises and restricted stock unit award vesting in 2021.

The following table presents total share-based compensation expense and related tax benefit for the three years ended December 31, 2020, 2019, and 2018:


(dollar amounts in millions)	2020		2019		2018
Share-based compensation expense	$	77	$	83	$	78
Tax benefit	13		15		14

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 under the 2018 Plan is 33 million shares. At December 31, 2020, 5 million shares from the Plan were available for future grants.

Stock Options

Stock options 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.

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 are 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, 2020, 2019, and 2018:


Assumptions	2020			2019			2018
Risk-free interest rate	0.48		%	2.41		%	2.88		%
Expected dividend yield	6.98			4.36			3.71
Expected volatility of Huntington’s common stock	39.7			22.5			24.0
Expected option term (years)	6.5			6.5			6.5
Weighted-average grant date fair value per share	$	1.49		$	1.91		$	2.58

Huntington’s stock option activity and related information for the year ended December 31, 2020, 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, 2020	11,309	$	12.23
Granted	4,378	8.60

Exercised	(1,372)	7.56
Forfeited/expired	(163)	13.25
Outstanding at December 31, 2020	14,152	$	11.55	7.4	$	25
Expected to vest (1)	7,994	$	11.18	8.6	$	17
Exercisable at December 31, 2020	5,919	$	12.09	5.6	$	7

(1)The number of options expected to vest reflect an estimate of 239,000 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, 2020, 2019, and 2018 were $6 million, $16 million and $52 million, respectively. For the years ended December 31, 2020, 2019, and 2018, cash received for the exercises of stock options was $1 million, $2 million and $5 million, respectively. The tax benefit realized for the tax deductions from option exercises totaled $1 million, $3 million and $10 million in 2020, 2019, and 2018, respectively.

Restricted Stock Units and Performance Share Units

Huntington also grants restricted stock units and performance share units. These units are granted at the closing market price on the date of the grant. Restricted stock units are issued at no cost to the recipient, and can be settled only in shares at the end of 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 units reflect the closing market price of Huntington’s common stock on the grant date.

The following table summarizes the status of Huntington’s restricted stock units, and performance share units as of December 31, 2020, and activity for the year ended December 31, 2020:


	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
Nonvested at January 1, 2020		15,289	$	13.42	2,769	$	13.49
Granted		7,360	8.98		2,154	8.57

Vested		(5,416)	12.39		(1,626)	12.19
Forfeited		(581)	12.49		(22)	12.93
Nonvested at December 31, 2020		16,652	$	12.05	3,275	$	11.74

The weighted-average fair value at grant date of nonvested shares granted for the years ended December 31, 2020, 2019, and 2018 were $8.90, $13.91, and $14.98, respectively. The total fair value of awards vested during the years ended December 31, 2020, 2019, and 2018 was $86 million, $69 million, and $62 million, respectively. As of December 31, 2020, the total unrecognized compensation cost related to nonvested shares was $91 million with a weighted-average expense recognition period of 2.4 years.