Quarterly report pursuant to Section 13 or 15(d)

Share-Based Compensation

Share-Based Compensation
3 Months Ended
Sep. 30, 2014
Share-Based Compensation [Abstract]  

12. 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 Unaudited Condensed Consolidated Statements of Income. 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 our grant values, have no intrinsic value until the stock price increases. Options granted prior to May 2004 have a term of ten years. All options granted after May 2004 have a term of seven years.

In 2012, shareholders approved the Huntington Bancshares Incorporated 2012 Long-Term Incentive Plan (the Plan) which authorized 51.0 million shares for future grants. The Plan is the only active plan under which Huntington is currently granting share based options and awards. At September 30, 2014, 14.9 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 September 30, 2014, the Company believes there are adequate authorized common shares to satisfy anticipated stock option exercises and restricted stock unit and award vesting in 2014.

Huntington uses the Black-Scholes option pricing model to value options in determining our 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 illustrates total share-based compensation expense and related tax benefit for the three-month and nine-month periods ended September 30, 2014 and 2013:

Three Months Ended Nine Months Ended
September 30, September 30,
(dollar amounts in thousands) 2014 2013 2014 2013
Share-based compensation expense $ 10,864 $ 9,746 $ 33,656 $ 27,643
Tax benefit 3,670 3,278 11,354 9,311

Huntington’s stock option activity and related information for the nine-month period ended September 30, 2014, was as follows:

Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
(amounts in thousands, except years and per share amounts) Options Price Life (Years) Value
Outstanding at January 1, 2014 23,300 $ 7.61 --- ---
Granted 1,807 9.22 --- ---
Assumed 214 --- --- ---
Exercised (2,799) 5.97 --- ---
Forfeited/expired (2,074) 17.45 --- ---
Outstanding at September 30, 2014 20,448 $ 6.99 4.1 $ 63,550
Expected to vest at September 30, 2014 (1) 5,102 $ 7.56 5.6 $ 11,098
Exercisable at September 30, 2014 14,744 $ 6.75 3.5 $ 51,340
(1) The number of options expected to vest includes an estimate of 602 thousand 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. For the nine-month periods ended September 30, 2014 and 2013, cash received for the exercises of stock options was $16.7 million and $11.0 million, respectively. The tax benefit realized from stock option exercises was $2.4 million and $1.3 million for each respective period.

Huntington also grants restricted stock, restricted stock units, performance share awards 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 awards are payable contingent upon Huntington achieving certain predefined performance objectives over the three-year measurement period. The fair value of these awards is the closing market price of Huntington’s common stock on the date of award.

The weighted-average grant date fair value of nonvested shares granted for the nine-month periods ended September 30, 2014 and 2013, were $9.14 and $7.12, respectively. The total fair value of awards vested was $25.1 million and $14.8 million during the nine-month periods ended September 30, 2014, and 2013, respectively. As of September 30, 2014, the total unrecognized compensation cost related to nonvested awards was $71.3 million with a weighted-average expense recognition period of 2.6 years.

The following table summarizes the status of Huntington's restricted stock units, performance share awards, and restricted stock awards as of September 30, 2014, and activity for the nine-month period ended September 30, 2014:

Weighted- Weighted- Weighted-
Average Average Average
Restricted Grant Date Restricted Grant Date Performance Grant Date
Stock Fair Value Stock Fair Value Share Fair Value
(amounts in thousands, except per share amounts) Awards Per Share Units Per Share Awards Per Share
Nonvested at January 1, 2014 --- $ --- 12,064 $ 6.80 1,646 $ 6.95
Granted --- --- 4,573 9.15 1,076 9.08
Assumed 27 --- --- --- --- ---
Vested (14) 9.53 (3,890) 6.42 --- ---
Forfeited (1) 9.53 (615) 7.45 (131) 7.16
Nonvested at September 30, 2014 12 $ 9.53 12,132 $ 7.78 2,591 $ 7.83