Share-Based Compensation

Share-based compensation expense was recorded net of estimated forfeitures for 2018, 2017 and 2016, such that expense was recorded only for those share-based awards that are expected to vest. In 2018, 2017 and 2016, we recorded share-based compensation and related benefits as follows:



	Year ended December 31,
(Dollars in thousands)	2018			2017			2016
Share-based compensation expense	$	45,675		$	36,900		$	35,494
Income tax benefit related to share-based compensation expense	(10,997		)	(12,845		)	(12,505		)
Capitalized compensation costs	1,466			1,071			5,580

Equity Incentive Plan

Our 2006 Equity Incentive Plan (the “2006 Incentive Plan”) was adopted in May 2006, and is amended from time to time. The 2006 Incentive Plan provides for the grant of various types of incentive awards, of which the following have been granted: (i) stock options; (ii) restricted stock awards; (iii) restricted stock units (subject to either time-and/or performance-based vesting); and (iv) other cash or stock settled equity awards. Eligible participants in the 2006 Incentive Plan include directors, employees and consultants.

Subject to the provisions of Section 16 of the 2006 Incentive Plan, the maximum aggregate number of shares that may be awarded and sold thereunder is 9,528,505.

Restricted stock awards/units are counted against the available-for-issuance limits of the 2006 Incentive Plan as two shares for every one share awarded. Further, if shares acquired under any such award are forfeited, repurchased by SVB Financial, used to satisfy the tax withholding obligations related to an award, or otherwise canceled and would otherwise return to the 2006 Incentive Plan, two times the number of such shares will return to the 2006 Incentive Plan and will again become available for issuance.

Under the terms of the 2006 Incentive Plan and subject to certain exceptions: (i) restricted stock awards/units are subject to a minimum of at least three years of annual vesting, and (ii) performance-based restricted stock awards/units and stock options are subject to a minimum of at least one year of vesting. Generally in practice, restricted stock awards/units vest annually over four years and require continued employment or other service through the vesting period. Performance-based restricted stock awards/units granted to executives generally vest upon meeting certain performance-based objectives over a three year period and, typically the passage of time, and require continued employment or other service through the vesting period. Stock options typically vest annually over four years, from the grant date based on continued employment or other service, and expire no later than seven years after the grant date.

Employee Stock Purchase Plan

We maintain the 1999 ESPP under which participating employees may annually contribute up to 10 percent of their gross compensation (not to exceed $25,000) to purchase shares of our common stock at 85 percent of its fair market value at either the beginning or end of each six-month offering period, whichever price is less. To be eligible to participate in the ESPP, an employee must, among other requirements, be employed by the Company on both the date of offering and date of purchase, and be employed customarily for at least 20 hours per week and at least five months per calendar year. We issued 155,181 shares and received $21.6 million in cash under the ESPP in 2018. At December 31, 2018, a total of 1,499,218 shares of our common stock were still available for future issuance under the ESPP.

Unrecognized Compensation Expense

As of December 31, 2018, unrecognized share-based compensation expense was as follows:



(Dollars in thousands)	Unrecognized Expense		Weighted Average Expected Recognition Period - in Years
Stock options	$	11,994	2.74
Restricted stock units	70,021		2.68
Total unrecognized share-based compensation expense	$	82,015

Valuation Assumptions

The fair values of share-based awards for employee stock options and employee stock purchases made under our ESPP were estimated using the Black-Scholes option pricing model. The fair values of restricted stock units were based on our closing stock price on the date of grant. The following weighted average assumptions and fair values were used for our employee stock options and restricted stock units:



Equity Incentive Plan Awards	2018			2017			2016
Weighted average expected term of options - in years	4.8			4.9			4.8
Weighted average expected volatility of the Company's underlying common stock	34.7		%	33.7		%	31.7		%
Risk-free interest rate	2.82			1.81			1.32
Expected dividend yield	—			—			—
Weighted average grant date fair value - stock options	$	105.81		$	57.81		$	31.17
Weighted average grant date fair value - restricted stock units	294.50			181.23			100.35

The following weighted average assumptions and fair values were used for our ESPP:



ESPP	2018			2017			2016
Expected term in years	0.5			0.5			0.5
Weighted average expected volatility of the Company's underlying common stock	32.2		%	31.2		%	41.8		%
Risk-free interest rate	1.79			0.80			0.45
Expected dividend yield	—			—			—
Weighted average grant date fair value	$	62.76		$	41.70		$	29.16

The expected term is based on the implied term of the stock options using factors based on historical exercise behavior. The expected volatilities are based on a blended rate consisting of our historic volatility and our expected volatility over a five-year term which is an indicator of expected volatility and future stock price trends. For 2018, 2017 and 2016, expected volatilities for the ESPP were equal to the historical volatility for the previous six-month periods. The expected risk-free interest rates were based on the yields of U.S. Treasury securities, as reported by the Federal Reserve Bank of New York, with maturities equal to the expected terms of the employee stock options.

Share-Based Payment Award Activity

The table below provides stock option information related to the 2006 Equity Incentive Plan for the year ended December 31, 2018:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life - in Years	Aggregate Intrinsic Value of In-The-Money Options
Outstanding at December 31, 2017	808,049		$	105.68
Granted	90,375		305.19
Exercised	(199,659	)	83.74
Forfeited	(16,769	)	171.07
Expired	(2,337	)	60.37
Outstanding at December 31, 2018	679,659		137.19		3.51	$	46,038,508
Vested and expected to vest at December 31, 2018	662,702		135.01		3.46	45,667,197
Exercisable at December 31, 2018	410,897		100.03		2.42	36,986,923

The aggregate intrinsic value of outstanding options shown in the table above represents the pre-tax intrinsic value based on our closing stock price of $189.92 as of December 31, 2018. The following table summarizes information regarding stock options outstanding and exercisable as of December 31, 2018:



	Outstanding Options				Exercisable Options
Range of Exercise Prices	Shares	Weighted Average Remaining Contractual Life - in Years	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
$54.75 - 67.77	51,651	0.33	$	63.62	51,651	$	63.62
67.78 - 79.77	98,097	1.33	71.11		98,097	71.11
79.78 - 105.84	140,703	4.27	104.92		62,996	104.70
105.85 - 108.59	116,254	2.33	107.95		116,254	107.95
108.60 - 149.65	85,263	3.27	128.62		59,319	128.27
149.66 - 173.94	2,939	5.43	169.49		735	169.49
173.95 - 180.62	93,487	5.34	178.39		20,531	178.39
180.63 - 283.09	4,588	5.99	219.46		1,314	227.04
283.10 - 324.77	86,677	6.34	305.96		—	—
Total	679,659	3.51	137.19		410,897	100.03

We expect to satisfy the exercise of stock options by issuing shares under the 2006 Incentive Plan. All future awards of stock options and restricted stock units will be issued from the 2006 Incentive Plan. At December 31, 2018, 1,816,509 shares were available for future issuance.

The table below provides information for restricted stock units under the 2006 Equity Incentive Plan for the year ended December 31, 2018:



	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2017	637,667		$	135.86
Granted	223,918		294.50
Vested	(219,305	)	130.72
Forfeited	(44,984	)	172.32
Nonvested at December 31, 2018	597,296		194.48

The following table summarizes information regarding stock option and restricted stock unit activity during 2018, 2017 and 2016:



	Year ended December 31,
(Dollars in thousands)	2018		2017		2016
Total intrinsic value of stock options exercised	$	40,681	$	36,173	$	18,186
Total grant date fair value of stock options vested	5,823		6,094		7,364
Total intrinsic value of restricted stock vested	63,917		40,925		22,966
Total grant date fair value of restricted stock vested	28,813		23,383		19,454