Stock-Based Compensation

Stock-Based Compensation Plan:

In March 2013, the Board of Directors, with subsequent approval of the Corporation’s shareholders, approved the adoption of the 2013 Incentive Compensation Plan (“2013 Plan”). Under the 2013 Plan, options are generally exercisable up to 10 years from the date of grant, have an exercise price that is equal to the closing price of the Corporation’s stock on the grant date, and vest ratably over four years. The 2013 Plan also provides for the issuance of restricted common stock and restricted common stock units to certain key employees (collectively referred to as “restricted stock awards”). The shares of restricted stock are restricted as to transfer, but are not restricted as to dividend payment or voting rights. Restricted stock units receive dividend equivalents but do not have voting rights. The transfer restrictions lapse over three or four years, depending upon whether the awards are service-based or performance-based. Service-based awards are contingent upon continued employment or meeting the requirements for retirement, and performance-based awards are based on earnings per share performance goals, relative total shareholder return, and continued employment or meeting the requirements for retirement. The 2013 Plan provides that restricted stock awards and stock options will immediately become fully vested upon retirement from the Corporation of those colleagues whose retirement meets the early retirement or normal retirement definitions under the plan (“retirement eligible colleagues”).

Accounting for Stock-Based Compensation:

The fair value of stock options granted is estimated on the date of grant using a Black-Scholes option pricing model, while the fair value of restricted stock awards is their fair market value on the date of grant. The fair values of stock options and restricted stock awards are amortized as compensation expense on a straight-line basis over the vesting period of the grants. For retirement eligible colleagues, expenses related to stock options and restricted stock awards are fully recognized on the date the colleague meets the definition of normal or early retirement. Compensation expense recognized is included in personnel expense in the consolidated statements of income.

Assumptions are used in estimating the fair value of stock options granted. The weighted average expected life of the stock option represents the period of time that stock options are expected to be outstanding and is estimated using historical data of stock option exercises and forfeitures. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the implied volatility of the Corporation’s stock. The following assumptions were used in estimating the fair value for options granted in the first nine months of 2016 and full year 2015.



	2016		2015
Dividend yield	2.50	%	2.00	%
Risk-free interest rate	2.00	%	2.00	%
Weighted average expected volatility	25.00	%	20.00	%
Weighted average expected life	5.5 years		6.0 years
Weighted average per share fair value of options	$3.36		$3.08

The Corporation is required to estimate potential forfeitures of stock grants and adjust compensation expense recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized in the period of change and will also impact the amount of stock-based compensation expense to be recognized in future periods.

A summary of the Corporation’s stock option activity for the year ended December 31, 2015, and the nine months ended September 30, 2016 is presented below.



Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (000s)
Outstanding at December 31, 2014	7,847,338		$	18.34
Granted	1,348,504		17.95
Exercised	(1,351,646	)	13.90
Forfeited or expired	(1,215,053	)	29.13
Outstanding at December 31, 2015	6,629,143		$	17.22	6.24	$	18,730
Options Exercisable at December 31, 2015	4,190,245		$	17.25	4.93	$	14,873
Granted	1,302,298		$	17.45
Exercised	(466,779	)	14.15
Forfeited or expired	(181,552	)	21.61
Outstanding at September 30, 2016	7,283,110		$	17.35	6.18	$	23,503
Options Exercisable at September 30, 2016	4,558,016		$	17.31	4.76	$	17,635

Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock option. For the nine months ended September 30, 2016, the intrinsic value of stock options exercised was approximately $2 million. For the year ended December 31, 2015 the intrinsic value of the stock options exercised was $7 million. The total fair value of stock options that vested were $3 million and $6 million, respectively, for the nine months ended September 30, 2016 and for the year ended December 31, 2015. The Corporation recognized compensation expense for the vesting of stock options of $3 million and $4 million for the nine months ended September 30, 2016 and year ended December 31, 2015, respectively. Included in compensation expense for the nine months ended September 30, 2016 was approximately $923,000 of expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At September 30, 2016, the Corporation had $6 million of unrecognized compensation expense related to stock options that is expected to be recognized over the remaining requisite service periods that extend predominantly through the fourth quarter 2019.

The following table summarizes information about the Corporation’s restricted stock activity for the year ended December 31, 2015, and for the nine months ended September 30, 2016.



Restricted Stock	Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2014	1,982,126		$	15.79
Granted	1,173,847		18.09
Vested	(709,582	)	15.62
Forfeited	(196,363	)	16.87
Outstanding at December 31, 2015	2,250,028		$	17.03
Granted	1,073,057		$	17.48
Vested	(831,433	)	16.61
Forfeited	(94,725	)	17.60
Outstanding at September 30, 2016	2,396,927		$	17.35

The Corporation amortizes the expense related to restricted stock awards as compensation expense over the vesting period specified in the grant. Performance-based restricted stock awards granted during 2015 and 2016 will vest ratably over a three year period, while service-based restricted stock awards granted during 2015 and 2016 will vest ratably over a four year period. Expense for restricted stock awards of approximately $15 million was recorded for both the nine months ended September 30, 2016 and for the year ended December 31, 2015. Included in compensation expense for the nine months ended 2016 was approximately $3 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $24 million of unrecognized compensation costs related to restricted stock awards at September 30, 2016, that is expected to be recognized over the remaining requisite service periods that extend predominantly through fourth quarter 2019.

The Corporation has the ability to issue shares from treasury or new shares upon the exercise of stock options or the granting of restricted stock awards. The Board of Directors has authorized management to repurchase shares of the Corporation’s common stock each quarter in the market, to be made available for issuance in connection with the Corporation’s employee incentive plans and for other corporate purposes. The repurchase of shares will be based on market and investment opportunities, capital levels, growth prospects, and regulatory constraints. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities.