
16.	SHARE-BASED COMPENSATION

We have a stock option and incentive plan which allows us to grant stock options, restricted stock, RSUs, and other awards to employees and nonemployee directors. Total shares authorized under the plan were 9,000,000 at December 31, 2016, of which 5,685,169 were available for future grants.

All share-based payments to employees, including grants of employee stock options, are recognized in the statement of income based on their fair values. The fair value of an equity award is estimated on the grant date without regard to service or performance vesting conditions.

We classify all share-based awards as equity instruments. Compensation expense is included in salaries and employee benefits in the statement of income, with the corresponding increase included in common stock. Substantially all awards of stock options, restricted stock, and RSUs have graded vesting that is recognized on a straight-line basis over the vesting period.

Compensation expense and the related tax benefit for all share-based awards were as follows:



(In thousands)	2016		2015		2014

Compensation expense	$	26,144	$	24,974	$	23,632
Reduction of income tax expense	8,762		8,284		7,767

As of December 31, 2016, compensation expense not yet recognized for nonvested share-based awards was approximately $25.7 million, which is expected to be recognized over a weighted average period of 2.3 years.

The tax effects recognized from the exercise of stock options and the vesting of restricted stock and RSUs increased common stock by approximately $1.5 million in 2016, decreased common stock by approximately $0.8 million in 2015, and increased common stock by approximately $0.4 million in 2014. These amounts are included in the net activity under employee plans and related tax benefits in the statement of changes in shareholders’ equity.

Stock Options

Stock options granted to employees generally vest at the rate of one third each year and expire seven years after the date of grant. For all stock options granted in 2016, 2015, and 2014, we used the Black-Scholes option pricing model to estimate the fair values of stock options in determining compensation expense. The following summarizes the weighted average of fair value and the significant assumptions used in applying the Black-Scholes model for options granted:



	2016			2015			2014
Weighted average of fair value for options granted	$	5.24		$	6.17		$	6.10
Weighted average assumptions used:
Expected dividend yield	1.3		%	1.3		%	1.3		%
Expected volatility	30.0		%	25.0		%	25.1		%
Risk-free interest rate	1.21		%	1.57		%	1.55		%
Expected life (in years)	5.0			5.0			5.0

The assumptions for expected dividend yield, expected volatility, and expected life reflect management’s judgment and include consideration of historical experience. Expected volatility is based in part on historical volatility. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

The following summarizes our stock option activity for the three years ended December 31, 2016:



	Number of shares		Weighted average exercise price

Balance at December 31, 2013	5,874,590		$	35.54
Granted	947,758		28.67
Exercised	(489,905	)	21.60
Expired	(618,207	)	73.28
Forfeited	(83,734	)	25.72
Balance at December 31, 2014	5,630,502		31.60
Granted	740,300		29.01
Exercised	(1,165,287	)	25.11
Expired	(1,322,067	)	48.44
Forfeited	(79,353	)	28.09
Balance at December 31, 2015	3,804,095		27.30
Granted	789,651		21.25
Exercised	(1,055,532	)	23.75
Expired	(56,297	)	61.60
Forfeited	(44,007	)	27.66
Balance at December 31, 2016	3,437,910		26.44
Outstanding stock options exercisable as of:
December 31, 2016	1,892,136		$	27.60
December 31, 2015	2,187,259		26.35
December 31, 2014	3,804,873		33.86

We issue new authorized common shares for the exercise of stock options. The total intrinsic value of stock options exercised was approximately $10.0 million in 2016, $6.7 million in 2015, and $3.9 million in 2014. Cash received from the exercise of stock options was $23.8 million in 2016, $22.7 million in 2015, and $10.6 million in 2014.

Additional selected information on stock options at December 31, 2016 follows:



	Outstanding stock options						Exercisable stock options
	Number of shares	Weighted average exercise price		Weighted average remaining contractual life (years)			Exercisable stock options
Exercise price range	Number of shares	Weighted average exercise price		Weighted average remaining contractual life (years)			Number of shares	Weighted average exercise price

$ 0.32 to $19.99	277,859	$	17.81		2.4	¹	277,859	$	17.81
$20.00 to $24.99	1,121,039	21.97			4.4		382,396	23.84
$25.00 to $29.99	1,877,880	28.35			4.4		1,088,210	28.14
$30.00 to $44.99	52,379	30.10			3.3		34,918	30.10
$45.00 to $59.99	70,200	47.10			1.2		70,200	47.10
$60.00 to $79.99	2,553	72.08			0.1		2,553	72.08
$80.00 to $83.38	36,000	83.38			0.4		36,000	83.38
	3,437,910	26.44			4.1	¹	1,892,136	27.60


¹	The weighted average remaining contractual life excludes 21,252 stock options without a fixed expiration date that were assumed with the Amegy acquisition. They expire between the date of termination and one year from the date of termination, depending upon certain circumstances.

The aggregate intrinsic value of outstanding stock options at December 31, 2016 and 2015 was $58.9 million and $8.0 million, respectively, while the aggregate intrinsic value of exercisable options was $31.0 million and $8.0 million at the same respective dates. For exercisable options, the weighted average remaining contractual life was 3.0 years and 3.1 years at December 31, 2016 and 2015, respectively, excluding the stock options previously noted without a fixed expiration date. At December 31, 2016, 1,491,656 stock options with a weighted average exercise price of $25.03, a weighted average remaining life of 5.5 years, and an aggregate intrinsic value of $26.9 million, were expected to vest.

Restricted Stock and Restricted Stock Units

Restricted stock is common stock with certain restrictions that relate to trading and the possibility of forfeiture. Generally, restricted stock vests over four years. Holders of restricted stock have full voting rights and receive dividend equivalents during the vesting period. In addition, holders of restricted stock can make an election to be subject to income tax on the grant date rather than the vesting date.

RSUs represent rights to one share of common stock for each unit and generally vest over four years. Holders of RSUs receive dividend equivalents during the vesting period, but do not have voting rights.

Compensation expense is determined based on the number of restricted shares or RSUs granted and the market price of our common stock at the issue date.

Nonemployee directors were granted 32,310 RSUs in 2016; 31,080 RSUs in 2015; and 16,670 shares of restricted stock and 6,656 RSUs in 2014. The 2016 and 2015 RSUs vested immediately upon grant, and the 2014 awards vested over six months.

The following summarizes our restricted stock activity for the three years ended December 31, 2016:



	Number of shares		Weighted average issue price

Nonvested restricted shares at December 31, 2013	410,950		$	22.46
Issued	16,670		28.87
Vested	(256,890	)	23.23
Forfeited	(9,510	)	23.68
Nonvested restricted shares at December 31, 2014	161,220		21.82
Issued	22,441		29.02
Vested	(123,161	)	22.32
Forfeited	(1,130	)	23.54
Nonvested restricted shares at December 31, 2015	59,370		23.49
Issued	36,594		24.43
Vested	(32,709	)	20.80
Nonvested restricted shares at December 31, 2016	63,255		25.43

The following summarizes our RSU activity for the three years ended December 31, 2016:



	Number of restricted stock units		Weighted average grant price

Restricted stock units at December 31, 2013	1,522,038		$	23.19
Granted	727,300		28.81
Vested	(416,755	)	22.26
Forfeited	(63,163	)	25.48
Restricted stock units at December 31, 2014	1,769,420		25.64
Granted	790,929		29.06
Vested	(673,385	)	24.78
Forfeited	(88,421	)	27.17
Restricted stock units at December 31, 2015	1,798,543		27.39
Granted	1,033,167		21.69
Vested	(724,713	)	25.88
Forfeited	(59,839	)	26.28
Restricted stock units at December 31, 2016	2,047,158		25.08

The total fair value at grant date of restricted stock and RSUs vested during the year was $19.4 million in both 2016 and 2015, and $15.2 million in 2014. At December 31, 2016, 63,255 shares of restricted stock and 1,370,435 RSUs were expected to vest with an aggregate intrinsic value of $2.7 million and $59.0 million, respectively.