Stock-Based Compensation

3 Months Ended

Mar. 31, 2019

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, whose employment meets the definitions under the 2017 Incentive Compensation Plan, 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 0% 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 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 2019 and full year 2018:



	2019		2018
Dividend yield	3.30	%	2.50	%
Risk-free interest rate	2.60	%	2.60	%
Weighted average expected volatility	24.00	%	22.00	%
Weighted average expected life	5.75 years		5.75 years
Weighted average per share fair value of options	$4.00		$4.47

A summary of the Corporation’s stock option activity for the three months ended March 31, 2019 is presented below:



Stock Options	Shares^(a)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value^(a)
Outstanding at December 31, 2018	5,281		$	19.09	6.18	$	12,392
Granted	1,050		22.77
Exercised	(355	)	15.61
Forfeited or expired	(72	)	23.46
Outstanding at March 31, 2019	5,905		$	19.91	6.82	$	15,870
Options Exercisable at March 31, 2019	3,691		$	18.01	5.51	$	14,953

(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, 2019, the intrinsic value of stock options exercised was approximately $2 million, compared to $5 million for the three months ended March 31, 2018. The total fair value of stock options vested was $4 million for the three months ended March 31, 2019 and $3 million for the three months ended March 31, 2018.

The Corporation recognized compensation expense for the vesting of stock options of $1 million for both the three months ended March 31, 2019 and March 31, 2018. Included in compensation expense for 2019 was less than $1 million of expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At March 31, 2019, the Corporation had approximately $7 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 2023.

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 Incentive Compensation Plan. The following table summarizes information about the Corporation’s restricted stock awards activity for the three months ended March 31, 2019:



Restricted Stock Awards	Shares^(a)		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2018	1,993		$	21.92
Granted	1,153		22.21
Vested	(618	)	20.32
Forfeited	(18	)	23.67
Outstanding at March 31, 2019	2,510		$	22.43

(a) In thousands

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 2018 and 2019 will vest ratably over a period of three years. Service-based restricted stock awards granted during 2018 and 2019 will vest ratably over a period of four years. Expense for restricted stock awards issued of approximately $8 million was recorded for the three months ended March 31, 2019 and $3 million was recorded for the three months ended March 31, 2018. Included in compensation expense for 2019 was approximately $2 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $33 million of unrecognized compensation costs related to restricted stock awards at March 31, 2019, that is expected to be recognized over the remaining requisite service periods that extend through first quarter 2023.

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.