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, 2021

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, 2021, Huntington believes there are adequate authorized common shares to satisfy anticipated stock option exercises and restricted stock unit award vesting in 2022.

The following table presents total share-based compensation expense and related tax benefit for the three years ended December 31, 2021, 2020, and 2019:


(dollar amounts in millions)	2021		2020		2019
Share-based compensation expense	$	138	$	77	$	83
Tax benefit	22		13		15

2018 Long-Term Incentive Plan

In 2018, shareholders approved the Huntington Bancshares Incorporated 2018 Long-Term Incentive Plan (the 2018 Plan). In 2021, shareholders approved an amendment and restatement to the 2018 Plan to add an additional 30 million shares to the issuable amount under the plan. Accordingly, the total number of shares authorized under the 2018 Plan is 63 million shares. At December 31, 2021, 31 million shares from the Plan were available for future grants.

In connection with the TCF acquisition, equity awards granted under the TCF equity plans were assumed subject to the same terms and conditions applicable to such awards prior to the date of acquisition.

Stock Options

Stock options, awarded by Huntington, are granted at the closing market price on the date of the grant and vest ratably over four years or when other conditions are met. Options assumed in the TCF acquisition vest ratably over a five-year period. Stock options, which represented a portion of the grant values, have no intrinsic value until the stock price increases. Both options granted by Huntington and options assumed in the TCF acquisition have a contractual term of ten years from the date of grant.

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 or assumption 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 or assumption. The expected dividend yield is based on the dividend rate and stock price at the date of the grant or assumption. 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, 2021, 2020, and 2019:


Assumptions	2021			2020			2019
Risk-free interest rate	1.25		%	0.48		%	2.41		%
Expected dividend yield	3.74			6.98			4.36
Expected volatility of Huntington’s common stock	36.8			39.7			22.5
Expected option term (years)	6.5			6.5			6.5
Weighted-average grant date fair value per share	$	3.93		$	1.49		$	1.91

Huntington’s stock option activity and related information for the year ended December 31, 2021, 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, 2021	14,152	$	11.55
Granted	1,883	16.04
Assumed	844	12.02
Exercised	(1,850)	10.36
Forfeited/expired	(563)	11.01
Outstanding at December 31, 2021	14,466	$	12.34	6.9	$	46
Expected to vest (1)	6,795	$	12.23	5.7	$	23
Exercisable at December 31, 2021	7,531	$	12.43	8.2	$	23

(1)The number of options expected to vest reflect an estimate of 140,000 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, 2021, 2020, and 2019 were $10 million, $6 million and $16 million, respectively. For the years ended December 31, 2021, 2020, and 2019, cash received for the exercises of stock options was $2 million, $1 million and $2 million, respectively. The tax benefit realized for the tax deductions from option exercises totaled $2 million, $1 million and $3 million in 2021, 2020, and 2019, respectively.

Restricted Stock Awards, Restricted Stock Units and Performance Share Units

Huntington also grants restricted stock units and performance share units and has assumed restricted stock awards and restricted stock units in conjunction with the TCF acquisition. Restricted stock units and performance share units awarded by Huntington are granted at the closing market price on the date of the grant. Restricted stock awards and units are issued at no cost to the recipient. Restricted stock awards and units, awarded by TCF and assumed by Huntington, can be settled only in shares at the end of the vesting period. Restricted stock units granted by Huntington can be settled in stock or cash depending on the award. Restricted stock awards granted by TCF provide the holder with voting rights, but do not provide any cash dividends. Restricted stock units granted by Huntington or those assumed through the TCF acquisition, for the most part, provide either accumulated cash dividends during the vesting period or, accrue a dividend equivalent that is paid upon vesting. Both restricted stock awards and restricted stock units are subject to certain service restrictions. Performance share units, granted by Huntington, are payable contingent upon Huntington achieving certain predefined performance objectives over the three-year measurement period. The fair value of these awards and units reflects the closing market price of Huntington’s common stock on the grant or assumption date.

The following table summarizes the status of Huntington’s restricted stock awards, restricted stock units, and performance share units as of December 31, 2021, and activity for the year ended December 31, 2021:


	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, 2021	—	$	—	16,652	$	12.05	3,275	$	11.74
Granted	—	—		4,422	15.71		1,405	16.08
Assumed (1)	690	14.54		6,691	14.72		—	—
Vested	(321)	14.63		(7,686)	14.41		(1,340)	14.76
Forfeited	(13)	14.45		(981)	12.72		(214)	11.42
Nonvested at December 31, 2021	356	$	14.46	19,098	$	12.85	3,126	$	12.06

(1) Weighted-average grant date fair value per share represents the fair value per share on the acquisition date.

The weighted-average fair value at grant date of nonvested shares granted for the years ended December 31, 2021, 2020, and 2019 were $15.78, $8.90, and $13.91, respectively. The total fair value of awards vested during the years ended December 31, 2021, 2020, and 2019 was $135 million, $86 million, and $69 million, respectively. As of December 31, 2021, the total unrecognized compensation cost related to nonvested shares was $118 million with a weighted-average expense recognition period of 2.3 years.