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 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 three months of 2018 and full year 2017.



	2018		2017
Dividend yield	2.50	%	2.00	%
Risk-free interest rate	2.60	%	2.00	%
Weighted average expected volatility	22.00	%	25.00	%
Weighted average expected life	5.75 years		5.5 years
Weighted average per share fair value of options	$4.47		$5.30

A summary of the Corporation’s stock option activity for the three months ended March 31, 2018 is presented below.



Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value^(a)
Outstanding at December 31, 2017	5,118,687		$	18.02	6.48	$	38,028
Granted	938,740		24.50
Assumed from Bank Mutual acquisition	370,051		14.35
Exercised	(529,869	)	17.37
Forfeited or expired	(24,130	)	23.35
Outstanding at March 31, 2018	5,873,479		$	18.86	6.80	$	35,879
Options Exercisable at March 31, 2018	3,659,277		$	16.72	5.55	$	30,009


(a)	$ in Thousands

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 three months ended March 31, 2018, the intrinsic value of stock options exercised was approximately $5 million. For the three months ended March 31, 2017, the intrinsic value of the stock options exercised was $10 million. The total fair value of stock options vested was $3 million for the three months ended March 31, 2018 and March 31, 2017. The Corporation recognized compensation expense for the vesting of stock options of $1 million for both the three months ended March 31, 2018 and March 31, 2017. Included in compensation expense for 2018 was approximately $450,000 of expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At March 31, 2018, the Corporation had approximately $8 million of unrecognized compensation expense related to stock options that is expected to be recognized over the remaining requisite service periods that extend through first quarter 2022.

The following table summarizes information about the Corporation’s restricted stock activity for the three months ended March 31, 2018.



Restricted Stock	Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2017	2,026,071		$	19.68
Granted	570,341		24.63
Vested	(498,988	)	17.97
Forfeited	(5,799	)	20.16
Outstanding at March 31, 2018	2,091,625		$	21.86

The Corporation amortizes the expense related to restricted stock awards as compensation expense over the vesting period specified in the grant's award agreement. Performance-based restricted stock awards granted during 2017 and 2018 will vest ratably over a three year period, while service-based restricted stock awards granted during 2017 and 2018 will vest ratably over a four year period. Expense for restricted stock awards of approximately $3 million was recorded the three months ended March 31, 2018 and $7 million was recorded for the three months ended March 31, 2017. Included in compensation expense for 2018 was approximately $1 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $29 million of unrecognized compensation costs related to restricted stock awards at March 31, 2018, that is expected to be recognized over the remaining requisite service periods that extend through first quarter 2022.

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 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.