Annual report pursuant to Section 13 and 15(d)

Share-Based Compensation

Share-Based Compensation
12 Months Ended
Dec. 31, 2012
Share-Based Compensation [Abstract]  

16. 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 are granted at the closing market price on the date of the grant. Options granted typically vest ratably over three years or when other conditions are met. Stock options, which represented a significant 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.


During the 2012 second quarter, shareholders approved the Huntington Bancshares Incorporated 2012 Long-Term Incentive Plan (the Plan) which authorized 51 million shares for future grants. The Plan is the only active plan under which Huntington is currently granting share based options and awards. At December 31, 2012, 39.4 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, 2012, the Company believes there are adequate authorized common shares to satisfy anticipated stock option exercises and restricted stock unit and award vesting in 2013.


Huntington uses the Black-Scholes option pricing model to value 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 the weighted average assumptions used in the option-pricing model for options granted in the three years ended December 31, 2012, 2011, and 2010:


      2012       2011       2010  
  Risk-free interest rate   1.10 %     1.95 %     2.30 %
  Expected dividend yield   2.38       2.63       0.68  
  Expected volatility of Huntington's common stock   34.9       30.0       38.5  
  Expected option term (years)   6.0       6.0       6.0  
Weighted-average grant date fair value per share $ 1.78     $ 1.40     $ 2.20  

The following table illustrates total share-based compensation expense and related tax benefit for the three years ended December 31, 2012, 2011, and 2010:


(dollar amounts in thousands)   2012       2011       2010  
Share-based compensation expense $ 27,873     $ 19,666     $ 15,453  
Tax benefit   9,298       6,708       5,408  

Huntington's stock option activity and related information for the year ended December 31, 2012, 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, 2012   27,205   $ 11.47            
Granted   5,920     6.71            
Exercised   (520)     4.33            
Forfeited/expired   (5,837)     19.21            
Outstanding at December 31, 2012   26,768   $ 8.87     4.5   $ 9,449
Vested and expected to vest at December 31, 2012 (1)   12,322   $ 6.26     5.8   $ 3,388
Exercisable at December 31, 2012   13,037   $ 11.61     3.1   $ 5,749
(1) The number of options expected to vest includes an estimate of expected forfeitures.

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 years ended December 31, 2012, 2011, and 2010, cash received for the exercises of stock options was $2.3 million, $0.5 million and $0.2 million, respectively. The tax benefit realized for the tax deductions from option exercises totaled $0.3 million, $0.1 million and less than $0.1 million in 2012, 2011, and 2010, respectively.


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 following table summarizes the status of Huntington's restricted stock units and performance share awards as of December 31, 2012, and activity for the year ended December 31, 2012:


        Weighted-         Weighted-
        Average         Average
  Restricted     Grant Date   Performance     Grant Date
  Stock     Fair Value   Share     Fair Value
(amounts in thousands, except per share amounts) Units     Per Share   Awards     Per Share
Nonvested at January 1, 2012 7,591   $ 6.09   ---   $ ---
Granted 2,994     6.68   694     6.77
Vested (1,647)     5.53   ---     ---
Forfeited (454)     6.24   ---     ---
Nonvested at December 31, 2012 8,484   $ 6.40   694   $ 6.77

The weighted-average grant date fair value of nonvested shares granted for the years ended December 31, 2012, 2011 and 2010, were $6.69, $6.24, and $6.15, respectively. The total fair value of awards vested during the years ended December 31, 2012, 2011, and 2010, was $9.1 million, $11.2 million, and $3.0 million, respectively. As of December 31, 2012, the total unrecognized compensation cost related to nonvested awards was $32.8 million with a weighted-average expense recognition period of 2.0 years.


The following table presents additional information regarding options outstanding as of December 31, 2012:

(amounts in thousands, except years and per share amounts) Options Outstanding     Exercisable Options
          Average     Weighted-           Weighted-
          Remaining     Average           Average
Range of         Contractual     Exercise           Exercise
Exercise Prices   Shares     Life (Years)     Price     Shares     Price
$0 to $5.63   2,968     3.8   $ 4.54     2,201   $ 4.39
$5.64 to $6.02   10,120     5.6     6.02     3,373     6.02
$6.03 to $15.95   8,600     5.5     6.75     2,383     6.91
$15.96 to $24.56   5,080     1.1     20.65     5,080     20.65
Total   26,768     4.5   $ 8.87     13,037   $ 11.61