Stock Options, Restricted Stock, and Dividend Reinvestment Plans

12 Months Ended

Dec. 31, 2023

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 Most awards outstanding at year end were granted under predecessor plans which are no longer active.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, 2023, there were 4,965,419 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 2023 or outstanding on December 31, 2023: the 2018, 2019 and 2020 units vested in 2021, 2022 and 2023 at the 133.3%, 187.5% and 187.5% payout level, respectively, and remain in a two year post-vesting holding period; the three-year performance period of the 2021 units has ended but performance is measured relative to peers and has not yet been determined; and, the three-year performance periods for the 2022 and 2023 units have not ended.

Market condition award

In 2016, FHN made a special grant of performance stock units to FHN’s CEO seven year performance period. The award had no provision for pro-rated payment based on partial performance. The award’s performance goal was based on achievement of a specific level of total shareholder return during the performance period and vested in 2023.

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 vest in the year following the year of grant and settle in shares. In 2023 and 2022, 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, one of which remained outstanding at December 31, 2023, but has since expired.

Stock and stock unit awards. A summary of restricted and performance stock and unit activity during the year ended December 31, 2023, 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, 2023	13,033,646	$	17.09
Shares/units granted	4,558,402	16.08
Shares/units vested/distributed	(2,880,586)	11.41
Shares/units canceled (c)	(3,393,758)	22.43
December 31, 2023	11,317,704	$	15.89

(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 2022 and 2021 was $17.09 and $13.14, respectively.

(c)Includes 3,198,257 retention grants canceled in connection with the TD merger termination; replacement retention grants issued settle in cash upon vesting and are excluded from this disclosure.

On December 31, 2023, there was $78 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 2023, 2022 and 2021, was $32 million, $29 million, and $36 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. At December 31, 2023 an immaterial number of grants remained outstanding, but have since expired.

The summary of stock option activity for the year ended December 31, 2023, 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, 2023	2,437,446	$	15.72
Options granted	—	—
Options exercised	(393,560)	13.49
Options expired/canceled	(144,918)	14.05
December 31, 2023	1,898,968	$	16.31	2.87	$	—
Options exercisable	1,617,760	16.44		2.62	—
Options expected to vest	281,208	15.53		4.33	—

The total intrinsic value of options exercised during 2023, 2022 and 2021 was $4 million, $17 million, and $12 million, respectively. On December 31, 2023, there was an immaterial amount of unrecognized compensation cost

related to nonvested stock options. That cost is expected to be recognized over a weighted-average period of 0.2 years.

FHN did not grant or convert stock options in 2023 and 2022. FHN granted or converted 155,124 stock options with a weighted average fair value of $3.39 per option at grant date in 2021.

FHN used the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted or converted in 2021 and with the following assumptions:

Table 8.18.3

STOCK OPTION FAIR VALUE ASSUMPTIONS

	2021
Expected dividend yield	4.16%
Expected weighted-average lives of options granted	6.29 years
Expected weighted-average volatility	38.44%
Expected volatility range	37.86% - 39.02%
Risk-free interest rate	0.62%

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, 2023, there were 199,114 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 $36 million, $75 million, and $43 million for 2023, 2022, and 2021, respectively. The corresponding total income tax benefits recognized were $8 million, $18 million and $10 million in 2023, 2022, and 2021, 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. Prior authorizations to repurchase shares issued in connection with compensation plans expired on December 31, 2023. After 2023, as authorized by FHN's Board and the Board's Compensation Committee, FHN will continue to make automatic stock purchases by withholding shares associated with stock-based awards to cover tax obligations associated with those awards. Those limited, off-market purchases no longer will be connected to a traditional, announced purchase program. As has been true in the past, automatic tax withholding purchases are not subject to trading blackouts which affect senior executives or the general purchase program.

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 TD Transaction. During the suspension period, dividend payments of FHN are not automatically reinvested in additional shares of FHN common stock and participants in the Plan are not able to purchase shares of FHN common stock through optional cash investments under the Plan.