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Stock Options, Restricted Stock, and Dividend Reinvestment Plans | 12 Months Ended
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Dec. 31, 2022
Share-Based Payment Arrangement [Abstract] |
Stock Options, Restricted Stock, and Dividend Reinvestment Plans | Stock Options, Restricted Stock, and Dividend Reinvestment Plans Equity Compensation Plans FHN currently has one plan which authorizes the grant of new stock-based awards, the 2021 Incentive Plan (the IP). New awards under the IP may be granted to any of FHN's directors, officers, or associates. The IP was approved by shareholders in April 2021. Most awards outstanding at year end were granted under predecessor plans which are no longer active. The IP authorizes a broad range of award types, including restricted shares, stock units, cash units, and stock options. Stock units may be paid in shares or cash, depending upon the terms of the award. The IP also authorizes the grant of stock appreciation rights, though no such grants have been made under the IP or recent predecessor plans. Unvested awards have service and/or performance conditions which must be met in order for the shares to vest. Awards generally have service-vesting conditions, meaning that the associate must remain employed by FHN for certain periods in order for the award to vest. Some outstanding awards also have performance conditions, and one outstanding award has performance conditions associated with FHN’s stock price. FHN operates the IP by establishing award programs, each of which is intended to cover a specific need. Programs are created, changed, or terminated as needs change. On December 31, 2022, there were 6,266,253 shares available for new awards under the IP. This includes the new/additional shares originally authorized under the IP along with shares underlying ECP awards that have been forfeited or canceled since the IP was approved by shareholders, net of shares underlying IP awards that are outstanding or have been paid. Service condition full-value awards Awards may be granted with service conditions only. In recent years, programs using these awards have included annual programs for executives and selected management associates, a mandatory deferral program for executives tied to annual bonuses earned, other mandatory or elective deferral programs, various retention programs, and special hiring-incentive situations. Details of the awards vary by program, but most are settled in shares at vesting rather than cash, and vesting generally begins no earlier than the third anniversary of grant and rarely extends beyond the fifth anniversary of grant. Performance condition awards Under FHN’s long-term incentive and corporate performance programs, performance stock units (PSUs) (executives) and cash units (selected management employees) are granted annually and vest only if predetermined performance measures are met. The measures are changed each year based on goals and circumstances prevailing at the time of grant. In recent years the performance periods have been three years, with service-vesting near the third anniversary of the grant. PSUs granted from 2014 to 2020 have a post-vest holding period of two years. PSUs granted after 2020 no longer have the 2-year holding period. Recent annual performance awards require pro-rated forfeiture (in relation to the maximum possible) for performance falling between a threshold level and a maximum. Performance awards sometimes are used to provide a narrow, targeted incentive to a single person or small group; one such award which includes a market performance condition to FHN’s CEO is discussed in the next paragraph. Of the annual program awards paid during 2022 or outstanding on December 31, 2022: the 2017 units vested in 2020 and their two year post-vesting holding period ended during 2020, 2018 and 2019 units vested in 2021 and 2022 at the 133.3% and 187.5% payout level, respectively, and remain in a two year post-vesting holding period; the three-year performance period of the 2020 units has ended but performance is measured relative to peers and has not yet been determined; and, the three-year performance periods for the 2021 and 2022 units have not ended. Market condition award In 2016, FHN made a special grant of performance stock units to FHN’s CEO which will vest at the end of a performance period of seven years. The award has no provision for pro-rated payment based on partial performance. The award’s performance goal is based on achievement of a specific level of total shareholder return during the performance period. Director awards Non-employee directors receive cash and annual grants of service-conditioned stock units under a program approved by the board of directors. Director stock units granted prior to the IBKC merger vest in the year following the year of grant, require a payment deferral of two years, and settle in shares after the deferral period. Director stock units granted after the IBKC merger no longer have the 2-year holding period. In 2022 and 2021, each director received a base of $122,000 or prorated equivalent of stock units, representing a portion of their annual retainer. Prior to 2005, directors could elect to defer cash compensation in the form of discount-priced stock options, some of which remain outstanding. Stock and stock unit awards. A summary of restricted and performance stock and unit activity during the year ended December 31, 2022, is presented below: Table 8.18.1 RESTRICTED AND PERFORMANCE EQUITY AWARD ACTIVITY
|  | Shares/ Units (a) |  | Weighted average grant date fair value (per share) (b)
January 1, 2022 |  | 9,296,888 |  |  | $ | 13.14 |
Shares/units granted |  | 6,363,454 |  |  | 20.64 |
Shares/units vested/distributed |  | (2,085,465) |  |  | 11.09 |
Shares/units canceled |  | (541,231) |  |  | 18.01 |
December 31, 2022 |  | 13,033,646 |  |  | $ | 17.09 |
(a)Includes only units that settle in shares; nonvested performance units are included at 100% payout level. (b)The weighted average grant date fair value for shares/units granted in 2021 and 2020 was $13.14 and $12.47, respectively. On December 31, 2022, there was $137 million of unrecognized compensation cost related to nonvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of two years. The total grant date fair value of shares vested during 2022, 2021 and 2020, was $29 million, $36 million, and $24 million, respectively. Stock option awards In 2021 FHN ended its only remaining stock option program, making only one grant related to a 2020 commitment. Options under that program, for executives, have service-vesting requirements and seven-year terms. In the past, option programs varied widely in their uses and terms, and many old-program options, granted under the ECP or its predecessor plans, remain outstanding today. All options granted since 2005 provide for the issuance of FHN common stock at a price fixed at its fair market value on the grant date. Except for converted options and a special retention stock option award to the CEO in 2016, all options granted since 2008 vest fully no later than the fourth anniversary of grant, and all such options expire seven years from the grant date. CBF converted options and IBKC converted options granted prior to November 3, 2019 (the merger agreement date) are fully vested and expire ten years from grant date. IBKC converted options granted subsequent to the merger agreement vest fully no later than the fifth anniversary of the grant date and expire ten years from grant date. The 2016 retention award vests beginning on the fourth anniversary of grant and extends through the sixth anniversary of grant. A deferral program, which was discontinued in 2005, allowed for foregone compensation plus the exercise price to equal the fair market value of the stock on the date of grant if the grantee agreed to receive the options in lieu of compensation. Deferral options still outstanding expire 20 years from the grant date. The summary of stock option activity for the year ended December 31, 2022, is shown below: Table 8.18.2 STOCK OPTION ACTIVITY
|  | Options Outstanding |  | Weighted Average Exercise Price (per share) |  | Weighted Average Remaining Contractual Term (years) |  | Aggregate Intrinsic Value (millions)
January 1, 2022 |  | 4,980,929 |  |  | $ | 15.81 |  |  |  |  |
Options granted |  | — |  |  | — |  |  |  |  |
Options exercised |  | (2,349,432) |  |  | 15.36 |  |  |  |  |
Options expired/canceled |  | (194,051) |  |  | 22.35 |  |  |  |  |
December 31, 2022 |  | 2,437,446 |  |  | $ | 15.72 |  |  | 3.42 |  | $ | 21 |
Options exercisable |  | 1,836,692 |  |  | 15.76 |  |  | 2.88 |  | 16 |
Options expected to vest |  | 600,754 |  |  | 15.59 |  |  | 5.05 |  | 5 |
The total intrinsic value of options exercised during 2022, 2021 and 2020 was $17 million, $12 million, and $3 million, respectively. On December 31, 2022, there was less than $1 million of unrecognized compensation cost related to nonvested stock options. That cost is expected to be recognized over a weighted-average period of 1.3 years. FHN did not grant or convert stock options in 2022. FHN granted or converted 155,124 and 4,182,737 stock options with a weighted average fair value of $3.39 and $2.13 per option at grant date in 2021 and 2020, respectively. FHN used the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted or converted in 2021 and 2020 with the following assumptions: Table 8.18.3 STOCK OPTION FAIR VALUE ASSUMPTIONS
|  |  |  | 2021 |  | 2020
Expected dividend yield |  |  |  | 4.16% |  | 3.77%
Expected weighted-average lives of options granted |  |  |  | 6.29 years |  | 6.25 years
Expected weighted-average volatility |  |  |  | 38.44% |  | 23.94%
Expected volatility range |  |  |  | 37.86% - 39.02% |  | 23.32% - 24.56%
Risk-free interest rate |  |  |  | 0.62% |  | 1.47%
Expected lives of options granted are determined based on the vesting period, historical exercise patterns and contractual term of the options. FHN uses a blend of historical and implied volatility in determining expected volatility. A portion of the weighted average volatility rate is derived by compiling daily closing stock prices over a historical period approximating the expected lives of the options. Additionally, because of market volatility due to economic conditions and the impact on stock prices of financial institutions, FHN also incorporates a measure of implied volatility so as to incorporate more recent market conditions in the estimation of future volatility. Phantom stock awards As a result of the IBKC merger, FHN assumed phantom stock awards under various plans to officers and other key associates. The awards are subject to a vesting period of five years and are paid out in cash upon vesting. The amount paid per vesting period is calculated as the number of vested share equivalents multiplied by closing market price of a share of the Company's common stock on the vesting date. Share equivalents are calculated on the date of grant as the total award's dollar value divided by the closing market price of a share of the Company's common stock on the grant date. As of December 31, 2022, there were 310,764 share equivalents of phantom stock awards outstanding. See Note 1 - Significant Accounting Policies for more discussion on FHN's phantom stock awards. Compensation Cost The compensation cost that has been included in the Consolidated Statements of Income pertaining to stock-based awards was $75 million, $43 million, and $32 million for 2022, 2021, and 2020, respectively. The corresponding total income tax benefits recognized were $18 million, $10 million and $8 million in 2022, 2021, and 2020, respectively. Authorization Consistent with Tennessee state law, only authorized, but unissued, stock may be utilized in connection with any issuance of FHN common stock which may be required as a result of stock-based compensation awards. FHN has obtained authorization from the Board of Directors to repurchase up to certain numbers of shares related to issuance under the IP and several older stock award plans. These authorizations are automatically adjusted for stock splits and stock dividends. Repurchases are authorized to be made in the open market or through privately negotiated transactions and will be subject to market conditions, accumulation of excess equity, legal and regulatory restrictions, and prudent capital management. FHN does not currently expect to repurchase a material number of shares under the compensation plan-related repurchase program during 2023. Dividend reinvestment plan Prior to March 2022, the Dividend Reinvestment and Stock Purchase Plan authorized the sale of FHN’s common stock from stock acquired on the open market to shareholders who choose to invest all or a portion of their cash dividends or make optional cash payments of $25 to $10,000 per quarter without paying commissions. The price of stock purchased on the open market was the average price paid. In March 2022, FHN agreed to suspend the Dividend Reinvestment Plan in connection with the pending TD Merger. As a result of the suspension of the Plan, participants in the Plan received all dividends in cash starting with the first quarter 2022 FHN dividend, paid on April 1, 2022. During the suspension period, dividend payments of FHN will not be automatically reinvested in additional shares of FHN common stock and participants in the Plan will be unable to purchase shares of FHN common stock through optional cash investments under the Plan.

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