

NOTE 15 – STOCK-BASED COMPENSATION PLANS

The following table presents compensation expense and related tax benefits for all equity awards recognized in the consolidated statements of income:



	2017			2016			2015
	(in thousands)
Compensation expense	$	5,209		$	6,556		$	5,938
Tax benefit	(3,994		)	(2,679		)	(2,011		)
Stock-based compensation, net of tax	$	1,215		$	3,877		$	3,927

The tax benefits as a percentage of compensation expense, as shown in the preceding table, were 76.7%, 40.9% and 33.9% in 2017, 2016 and 2015, respectively. These percentages differ from the Corporation’s 35% statutory federal tax rate. Tax benefits are only recognized over the vesting period for awards that ordinarily will generate a tax deduction when exercised, in the case of non-qualified stock options, or upon vesting, in the case of restricted stock, RSUs and PSUs. Tax benefits less than the 35% statutory federal tax rate resulted from incentive stock options, for which a tax benefit is not recognized during the vesting period. Tax benefits in excess of the 35% statutory federal tax rate resulted from incentive stock option exercises that triggered a tax deduction when they were exercised, and excess tax benefits realized on vesting RSUs and PSUs during the period.

The following table presents compensation expense and related tax benefits for restricted stock awards, RSUs and PSUs recognized in the consolidated statements of income, and included as a component of total stock-based compensation in the preceding table:



	2017			2016			2015
	(in thousands)
Compensation expense	$	4,922		$	6,165		$	4,646
Tax benefit	(1,559		)	(2,158		)	(1,626		)
Restricted stock compensation, net of tax	$	3,363		$	4,007		$	3,020

The following table provides information about stock option activity for the year ended December 31, 2017:



	Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2016	1,330,183		$	10.98
Exercised	(411,292	)	11.45
Forfeited	(14,574	)	10.64
Expired	(26,115	)	13.97
Outstanding as of December 31, 2017	878,202		$	10.66	4.1 years	$	6.4
Exercisable as of December 31, 2017	878,202		$	10.66	4.1 years	$	6.4

The following table provides information about nonvested stock options, restricted stock, RSUs and PSUs granted under the Employee Equity Plan and Directors' Plan for the year ended December 31, 2017:



	Nonvested Stock Options				Restricted Stock/RSUs/PSUs
	Options		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Nonvested as of December 31, 2016	82,447		$	3.14	1,525,715		$	12.74
Granted	—		—		501,664		15.85
Vested	(81,847	)	3.14		(603,308	)	12.51
Forfeited	(600	)	3.14		(117,134	)	14.15
Nonvested as of December 31, 2017	—		$	—	1,306,937		$	13.91

The vested and forfeited stock option shown in the table above were granted in 2014. There were no stock options granted in 2017, 2016, or 2015. The fair value of stock options granted in 2014 was estimated on the grant date using the Black-Scholes valuation methodology.

As of December 31, 2017, there was $7.4 million of total unrecognized compensation cost (pre-tax) related to restricted stock, RSUs and PSUs that will be recognized as compensation expense over a weighted average period of two years. As of December 31, 2017, the Employee Equity Plan had 11.1 million shares reserved for future grants through 2023, and the Directors’ Plan had 360,000 shares reserved for future grants through 2021.

The following table presents information about stock options exercised:



	2017		2016		2015
	(dollars in thousands)
Number of options exercised	411,292		920,924		490,151
Total intrinsic value of options exercised	$	2,955	$	4,619	$	1,442
Cash received from options exercised	$	4,644	$	10,240	$	4,936
Tax deduction realized from options exercised	$	2,825	$	4,328	$	1,389

Upon exercise, the Corporation issues shares from its authorized, but unissued, common stock to satisfy the options.

The fair value of certain PSUs with market-based performance conditions granted under the Employee Equity Plan was estimated on the grant date using the Monte Carlo valuation methodology performed by a third-party valuation expert. This valuation is dependent upon certain assumptions, as summarized in the following table:



	2017		2016		2015
Risk-free interest rate	1.43	%	0.92	%	0.86	%
Volatility of Corporation’s stock	22.45	%	20.75	%	20.08	%
Expected life of PSUs	3 Years		3 Years		3 Years

The expected life of the PSUs with fair values measured using the Monte Carlo valuation methodology was based on the defined performance period of three years. Volatility of the Corporation’s stock was based on historical volatility for the period commensurate with the expected life of the PSUs. The risk-free interest rate is the zero-coupon U.S. Treasury rate commensurate with the expected life of the PSUs on the date of the grant. Based on the assumptions above, the Corporation calculated an estimated fair value per PSU with market-based performance conditions granted in 2017, 2016 and 2015 of $17.25, $11.23 and $10.66, respectively.

Under the ESPP, eligible employees can purchase stock of the Corporation at 85% of the fair market value of the stock on the date of purchase. The ESPP is considered to be a compensatory plan and, as such, compensation expense is recognized for the 15% discount on shares purchased. The following table summarizes activity under the ESPP:



	2017		2016		2015
ESPP shares purchased	98,000		109,665		121,890
Average purchase price per share (85% of market value)	$	15.28	$	12.37	$	10.86
Compensation expense recognized (in thousands)	$	261	$	240	$	234