Stock-Based Compensation

12 Months Ended

Dec. 31, 2018

Stock-Based Compensation Plan

In February 2017, the Board of Directors, with subsequent approval of the Corporation’s shareholders, approved the adoption of the 2017 Incentive Compensation Plan (“2017 Plan”). All remaining shares available for grant under the 2013 Incentive Compensation Plan were rolled into the 2017 Plan. As of December 31, 2018, approximately 11.6 million shares remained available for grant under the 2017 Plan.

Under the 2017 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 Corporation also issues restricted common stock and restricted common stock units to certain key employees (collectively referred to as “restricted stock awards”) under the 2017 Plan. 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 years or four years, depending upon whether the awards are performance-based or service-based. Performance-based awards are based on earnings per share performance goals, relative total shareholder return, and continued employment or meeting the requirements for retirement and service-based awards are contingent upon continued employment or meeting the requirements for retirement. Performance-based restricted stock awards vest over a performance period of three years and service-based restricted stock awards vest ratably over four years.

The 2017 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 2017 Plan (“retirement eligible colleagues”). See Note 1 for the Corporation’s accounting policy for stock based compensation.

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.

Performance awards are based on performance goals of earnings per share and total shareholder return with vesting ranging from a minimum of 25% to a maximum of 150% of the target award. Performance awards are valued utilizing a Monte Carlo simulation model to estimate fair value of the awards at the grant date.

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 2018, 2017, and 2016:



	2018		2017		2016
Dividend yield	2.50	%	2.00	%	2.50	%
Risk-free interest rate	2.60	%	2.00	%	2.00	%
Weighted average expected volatility	22.00	%	25.00	%	25.00	%
Weighted average expected life	5.75 years		5.5 years		5.5 years
Weighted average per share fair value of options	$4.47		$5.30		$3.36

A summary of the Corporation’s stock option activity for the year ended December 31, 2018 is presented below:



Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
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	(1,031,875	)	16.45
Forfeited or expired	(114,695	)	23.88
Outstanding at December 31, 2018	5,280,908		$	19.09	6.18	$	12,392
Options exercisable at December 31, 2018	3,187,894		$	16.93	4.92	$	10,796

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 years ended December 31, 2018, 2017, and 2016 the intrinsic value of stock options exercised was $10 million, $13 million, and $9 million, respectively. The total fair value of stock options that vested was $4 million, $4 million, and $3 million,

respectively, for the years ended December 31, 2018, 2017, and 2016. For the years ended December 31, 2018, 2017, and 2016, the Corporation recognized compensation expense of $4 million for each of the three years, for the vesting of stock options. Included in compensation expense for 2018 was less than $1 million of expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At December 31, 2018, the Corporation had $4 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 first quarter 2022.

The following table summarizes information about the Corporation’s restricted stock activity for the year ended December 31, 2018:



Restricted Stock	Shares		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2017	2,026,071		$	19.68
Granted	615,484		24.60
Vested	(587,775	)	18.44
Forfeited	(60,948	)	22.36
Outstanding at December 31, 2018	1,992,832		$	21.92

The Corporation amortizes the expense related to restricted stock awards as compensation expense over the vesting period specified in the grant. Expense for restricted stock awards of approximately $13 million was recorded for year ended December 31, 2018 and $18 million for both the years ended December 31, 2017 and 2016, respectively. 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 $18 million of unrecognized compensation costs related to restricted stock awards at December 31, 2018, that is expected to be recognized over the remaining requisite service periods that extend predominantly 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 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. As described in Note 9, of the notes to consolidated financial statements, 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 the receipt of any necessary regulatory approvals. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities.